10. We have given further consideration to the following on the basis of
further information from the Government. We maintain our opinion[24] that it raises questions of political importance, but now make no
recommendation for its further consideration:--
Department of Trade and Industry
(17111)
6785/96
SEC(96)284 |
Communication from the Commission concerning a draft Council Decision establishing revised
Community rules for aid to the steel industry. |
| Legal base: |
Article 95 (ECSC); unanimity. |
Background
10.1 We reported in April, on the basis of information provided in an Explanatory
Memorandum submitted by the then Minister for Industry and Energy (Mr Eggar), on Commission
proposals which would amend the Steel Aid Code. The Code, agreed unanimously by the Council in
1991, provides derogation from the general prohibition in Article 4(c) of the European Coal and
Steel Community Treaty prohibiting all state aid to this industrial sector. Aid in accordance with
the Code can be approved by the Commission.
10.2 In his Memorandum, the Minister said that the Government had reservations about
aspects of the proposal, but he did not specify what they were or say what modifications the
Government would be seeking. We therefore asked him to provide further information, and held up
clearance of the document in the meantime.
Further developments
10.3 In June the Minister wrote to tell us that there had been no substantive
discussion of the Commission's proposal at the meeting of the Industry Council on 20 May, only an
initial discussion. He volunteered, however, that the Government had already raised concerns about
proposals to adopt the Treaty of Rome framework for environmental aid, which would allow aid for
investment in replacement plant, and to allow aid for partial closures. The Minister said that the
Government also saw scope for procedural changes to improve the way in which the rules operated.
Political agreement on a revised code
10.4 We have now received a letter dated 18 November from the present Minister for
Industry (Mr Knight) in which he tells us that, following intensive negotiations on the proposed
new Code, political agreement was reached at a meeting of the Industry Council on 14 November,
subject to scrutiny reserves by the UK and Danish delegations. The new Code would operate from 1
January 1997 until the expiry of the ECSC Treaty on 22 July 2002.
10.5 In his letter the Minister tells us:
"I am satisfied that the Code is, overall, as rigorous as the present Code. The
agreement has been given a cautious welcome by BISPA[25]. This
agreement will avoid the undesirable prospect of a period without a Code, which would have
encouraged further requests for support for uncompetitive companies. The provisions are much
tougher than those proposed by the Commission in April. As a result of the Government's stance,
the original proposals have been significantly modified and now take account of the principal
concerns of the UK industry.
"The decision will amend the provisions relating to aid for research and development
(R&D), environmental protection, closure of capacity and procedure for dealing with illegal or
unnotified aid, and will modify certain other aspects of the present Code. The main changes from
the present Code were described in the Explanatory Memorandum submitted on 22 April. The further
modifications which have resulted from discussions which have taken place over recent months,
culminating in the agreement reached at the Industry Council, are described below.
Definition
"The definition of notifiable aid is extended to cover loan guarantees and asset
transfers.
Aid for Research and Development for Environmental Protection
"The Community frameworks for aid for R&D and environmental protection of 1996 and
1994 respectively (established under the Treaty of Rome) will apply to the ECSC steel industry --
instead of, as originally proposed, the frameworks in force at the time the aid is granted. The
effect of this is that any future changes to the EC frameworks cannot be applied to the ECSC steel
industry without the unanimous assent of the Council.
"Member States will be consulted on cases involving aid for environmental protection,
and conditions and safeguards have been agreed to avoid hidden investment aid for new plant or
equipment. Environmental aid will not be allowable for a new investment which would have taken place
in any event on economic grounds or due to the age of the existing plant. Aid to firms which
improve environmental protection beyond the requirements of mandatory standards, or where there are
no mandatory standards, will be reduced to take account of any advantages resulting from lower costs
of productions. The effect of these changes is to reduce significantly the risk that the new
provisions could be used to secure investment aid in the guise of environmental improvements.
Aid for closure
"A number of new provisions have been added to the proposal to allow aid for partial
closures (ie the closure of steel undertakings which are part of a group including other ECSC steel
undertakings). The closed plant must be destroyed. The closed undertaking must have been
effectively separate for at least six months before the payment of aid. The accounts of the
undertaking will be independently audited to ensure a true and accurate valuation of assets and
liabilities. There must be genuine and verifiable reduction in production capacity calculated to
produce an appreciable benefit for the industry as a whole. The aid allowable for partial closure
will be limited to the average (rather than, as originally proposed, the higher) of the two
costings detailed in the Code. Partial closures which have already been agreed under the
'Bresciani' scheme of 1994 will not be eligible for reconsideration. The effect of these changes
is to ensure that aid for partial closures (a) results in a real reduction in production capacity,
and (b) is not used to subsidise the company's continuing operations.
"A provision was agreed allowing a small amount of regional investment aid for the
Greek steel industry. This is unlikely to have any significant impact on the UK industry."
The Government's view
10.6 The Minister reminds us that the Government attaches great importance to the
maintenance of strict control of steel aids, as the best means of promoting efficiency in the
industry, and of ensuring that the unsubsidised UK industry is not disadvantaged. He tells us:
"As you know, the Government had some reservations about aspects of the original
Commission proposals, notably in respect of the provisions covering aid for environmental protection
and aid for partial closures. The changes described above have gone a long way towards meeting these
concerns, in particular by incorporating UK suggestions to establish effective safeguards against
the risk of abuse. I am in no doubt that the new Steel Aid Code which has been agreed, subject to
Parliamentary Scrutiny reserve, is in the best interests of the UK industry."
Conclusions
10.7 The Steel Aid Code is politically important. It sets the parameters within
which the Commission can agree to the payment of state aid to the steel industry by Member States.
It is of particular interest in this country because the steel industry here is not in the public
sector, nor does it receive state aid.
10.8 In an earlier letter, dated 15 October, in which the Minister described the
progress of negotiations on the proposed revised Code, he told us that his Department had kept in
close touch with the British Iron and Steel Producers Association (BISPA) to ensure that the
industry's concerns were taken full account of in the UK negotiating position. He now tells us that
the revised proposal has been given a cautious welcome by BISPA.
10.9 We note the progress which has been made in the course of the negotiations
and the changes which have been made to the Code. We see no cause now to recommend a debate, and
we clear the document; the Parliamentary Scrutiny Reserve may be lifted.
24.(17111)--; see HC 51-xvii (1995-96), paragraph 6 (24 April 1996). Back
25.The British Iron and Steel Producers Association. Back
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