(1)

By letter dated 20 January 2000, registered as received on 25 January 2000, the Italian Permanent Representation to the European Union notified the Commission, pursuant to Article 88(3) of the Treaty, of a draft law laying down standards for the protection of bergamots and bergamot derivatives.

(2)

By letter dated 14 March 2000, the Commission asked the Italian authorities for additional information concerning the aid provided for in the draft law.

(3)

By letter dated 15 March 2000, registered as received on 28 March 2000, the Italian Permanent Representation to the European Union sent the Commission an extract from the Gazzetta ufficiale della Repubblica Italiana showing that the draft law concerned had been published as Law No 39 of 25 February 2000 (hereafter Law No 39) together with a note from the Italian authorities stating that the grant of the proposed aid was subject to Commission approval.

(4)

By letter dated 5 June 2000, registered as received on 9 June 2000, the Italian Permanent Representation to the European Union sent the Commission the additional information requested from the Italian authorities by letter of 14 March 2000.

(5)

After considering this information the Commission requested new information from the Italian authorities by letter dated 28 June 2000.

(6)

By letter dated 17 July 2000, registered as received on 25 July 2000, the Italian Permanent Representation to the European Union forwarded to the Commission the Italian authorities’ reply to the above letter of 28 June 2000.

(7)

By letter dated 6 October 2000, the Commission informed Italy of its decision to initiate the procedure pursuant to Article 88(2) of the EC Treaty in respect of the aid provided for in Law No 39 (the decision itself was taken by the Commission at its meeting on 20 September 2000).

(8)

The Commission decision to initiate the procedure was published in the Official Journal of the European Communities (1). The Commission called on interested parties to submit their comments on the aid in question.

(9)

The Commission did not receive any comments from interested parties.

(10)

Article 4 of Law No 39 provides for aid in relation to the area cultivated and the quantities of bergamots actually delivered to be granted to agricultural enterprises, individual growers or associations and other persons cultivating bergamots. Detailed rules and procedures for the grant of the aid must be laid down by Order of the Minister of Agriculture and Forestry Policy, after consulting the Region of Calabria, the Bergamot Consortium, the most representative industry associations, the Reggio Calabria establishment for research into citrus species and derivatives and the Acireale Citrus Research Institute. The budget earmarked for financing the aid amounts to ITL 2 billion (EUR 1 032 914).

(11)

Article 6(1) and (2) of Law No 39 provides for aid for the implementation of plans geared to:

(12)

The plans may be submitted by the Bergamot Consortium, municipalities located in the areas referred to in the register of areas where bergamots are grown and individual growers or associations in those areas.

(13)

The aid, in the form of capital grants, may amount to 75 % of eligible expenditure, up to a total of ITL 6 billion (EUR 3 098 742) in 2000 and ITL 3 billion (EUR 1 549 371) in each year from 2001 to 2004.

(14)

Article 6(3) of Law No 39 provides also for aid to implement plans for the provision of electricity supplies and plans presented by municipalities for repairing roads serving holdings engaged primarily in cultivating bergamots, to improve access and encourage mechanisation.

(15)

The budget earmarked for financing this aid is ITL 4 billion (EUR 2 065 828) in 2000 and ITL 2 billion (EUR 1 032 914) in each year from 2001 to 2004.

(16)

The Commission initiated the procedure pursuant to Article 88(2) of the Treaty because of doubts about the compatibility of the scheme with the common market. The doubts concerned the following:

(17)

In general, instead of answering the specific questions that had been put to them, the Italian authorities replied that only measures provided for in the regional operational programme within the meaning of Council Regulation (EC) No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds (2), as approved by the Community authorities, would qualify for aid. At the time this information was provided, the programme in question was still under consideration and it was not possible to say what its content would be when approved.

(18)

With regard to Article 4:

(19)

With regard to Article 6(1) and (2):

(20)

With regard to Article 6(3), no details had been given concerning the proposed rate of aid and the accessibility of the aid despite the request for information in this connection to the Italian authorities from the Commission in its letter of 14 March 2000.

(21)

By letter dated 26 October 2000, registered as received on 27 October 2000, the Italian Permanent Representation to the European Union forwarded to the Commission a letter from the Italian authorities in which they stated, in answer to the letter of 6 October 2000 announcing the initiation of the procedure pursuant to Article 88(2) of the Treaty, that they had suspended the arrangements for the grant of financial resources referred to in Law No 39.

(22)

By letter of 29 November 2000, registered as received on 30 November 2000, the Italian Permanent Representation to the European Union forwarded to the Commission a letter from the Italian authorities containing the latter’s reply to the Commission’s comments on the initiation of the procedure.

(23)

By letter dated 14 February 2001, registered as received on 19 February 2001, the Italian Permanent Representation to the European Union forwarded to the Commission a letter from the Italian authorities supplementing their reply referred to in recital 22 above.

(24)

By letter of 21 September 2001, registered as received on 24 September 2001, the Italian Permanent Representation to the European Union forwarded to the Commission a supplement to the reply from the Italian authorities.

(25)

By letter dated 23 April 2002, registered as received on 25 April 2002, the Italian Permanent Representation to the European Union sent the Commission the text of a draft order laying down implementing rules for Law No 39 and taking into account the Italian authorities’ reply in their letters referred to in recitals 22, 23 and 24.

(26)

By letter dated 5 November 2003, registered as received on 7 November 2003, the Italian Permanent Representation to the European Union forwarded to the Commission a letter from the Italian authorities in which they stated expressly that, in view of the time that had elapsed since the dispatch of their last letter, they had reason to believe that they were in a situation where ‘silence means assent’ which made it possible for them to apply the rules as amended in the light of the Commission’s comments.

(27)

By letter dated 26 November 2003, the Commission informed the Italian authorities that this approach could be taken only for aid files that have been notified and not for those subject to the procedure pursuant to Article 88(2) of the Treaty but that, if they so wished, they could ask the Commission to adopt a decision within two months pursuant to Article 7(7) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 (now Article 88) of the EC Treaty (10). The Commission departments also stated that after receiving such a request the Commission would adopt a decision within the prescribed period, as indicated in the above provisions.

(28)

By letter dated 6 May 2005, registered as received on 11 May 2005, the Italian Permanent Representation to the European Union forwarded to the Commission a letter from the Italian authorities in which they invoked Article 7(7) of Regulation (EC) No 659/1999 to ask the Commission to adopt a final decision within two months. The Commission will take a decision therefore on the basis of the information available to it, as provided for in that Article.

(29)

Article 2 of the draft order provides for the grant of aid for investment in agricultural holdings. The rates of aid and award conditions are as follows:

(30)

Aid will be available only to individual holdings or associations thereof:

(31)

Aid will not be available for investments geared to increasing the production of products for which there are no market outlets, or those which infringe any restrictions on production or limitations on Community support provided for under the common organisation of markets.

(32)

Article 3 of the draft order provides for the grant of aid for investment in the processing and marketing sector. The rates of aid and award conditions are as follows:

(33)

Aid will be available only to processing and marketing enterprises:

(34)

If the beneficiaries are themselves producers, at least 60 % of the raw material must come from outside the holding.

(35)

Aid is not available for investments:

(36)

Article 4 of the draft order lays down provisions on the introduction and continuation of organic farming methods, in compliance with the conditions laid down in the operational programme for the region of Calabria approved by the Commission (11). It provides that the grant of aid is subject to the following conditions:

(37)

The financial allocation provided for under this measure comes from the resources available under the operational programme for the region of Calabria.

(38)

Article 5 of the draft order provides for the grant of aid to the new consortiums and associations representing bergamot producers who wish to carry on activities in the field of quality production as referred to in Council Regulation (EEC) No 2081/92 (14) and (EEC) No 2092/91, in compliance with the Community guidelines for State aid in the agricultural sector. These consortiums and associations may also receive aid for the introduction of quality and certification systems for PDO and organic products.

(39)

The procedure for the grant of start-up aid and the extension of activities referred to in recital 38 is the following:

(40)

The procedures for the grant of aid for the introduction of quality systems and systems for the certification of PDO and organic products, referred to in recital 38, are as follows:

(41)

Article 6 of the draft order provides for the grant of aid for the repair of municipal and local roads (to provide access for machinery to holdings), and to provide electricity supplies in areas where bergamots are grown.

(42)

The procedure for the grant of the aid referred to in recital 41 is the following:

(43)

Article 7 of the draft order provides for the grant of research aid to new consortiums and/or bodies representing agricultural producers.

(44)

The procedure for the grant of the aid referred to in recital 43 is the following:

For bergamot as a citrus plant

For bergamot essence

(45)

Article 8 of the draft order provides for the grant of aid for the promotion (15) of bergamots and bergamot derivatives. The beneficiaries are recognised producer associations or consortiums and/or bodies representing producers operating in the field of PDO production. The procedure for the grant of the aid is the following:

Advertising campaigns

Promotion and dissemination of general information

(46)

Article 9 of the draft order provides that aids, of indeterminate duration, may be aggregated in compliance with the maximum rates shown in the tables above.

(47)

Article 11 of the draft order establishes the allocations available for financing the aid described above. The allocations are as follows:

(48)

Article 87(1) of the Treaty stipulates that any aid granted by a Member State or through State resources, in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.

(49)

The measures provided for first by Law No 39 and then in the draft order notified by the Italian authorities in their letter of 23 April 2002 correspond for the most part to this definition (for the exceptions, see below) in that they are financed through public resources, favour the production of certain goods (bergamots and bergamot derivatives) and may affect trade given the position Italy occupies in the sector concerned (Italy is the largest producer of bergamots and bergamot essence in the Union and part of its production is exported to other Member States).

(50)

However, in the cases provided for in Article 87(2) and (3) of the Treaty, certain measures may, by derogation, be considered to be compatible with the common market.

(51)

In the case under consideration, in view of the nature of the measures described above, the only derogation that may be relied on is that contained in Article 87(3)(c) of the Treaty, which stipulates that aid to facilitate the development of certain economic activities may be considered to be compatible with the common market or of certain economic areas where it does not adversely affect trading conditions to an extent contrary to the common interest.

(52)

In view of the content of the draft order notified by the Italian authorities, the applicability of the derogation provided for in Article 87(3)(c) of the Treaty will be examined in the light of the following rules:

(53)

The aid provided for in this Article is aid for investment in agricultural holdings and are therefore governed by point 4.1 of the Guidelines, which provide for:

(54)

These provisions are supplemented by another, more general one according to which the aid schemes should provide that no aid may be granted in respect of work begun or activities undertaken before an application for aid has been properly submitted to the competent authority concerned, the reason being that aid which is granted retrospectively in respect of activities which the beneficiary has already undertaken cannot be considered to include the necessary incentive element that must be contained by any non-compensating aid in order to be declared compatible with the common market (26).

(55)

In the light of the provisions of recitals 29 to 31 above, the Commission notes that all the requirements set out in recitals 53 and 54 are met, provided that the rates of aid indicated in the draft order express a gross subsidy equivalent and that the aid continues to include an incentive element and is not retrospective, in other words, is granted in respect of work undertaken before an application has been properly submitted.

(56)

Against this background, the Commission, having been called upon to give its comments on the basis of the information available to it, notes that the proposed aid will be compatible with the common market if it is reserved for beneficiaries who begin work only after an aid application has been submitted to the competent authority and if the rates of aid proposed in the draft order express a gross subsidy equivalent.

(57)

On the initiation of the procedure pursuant to Article 88(2) of the Treaty in respect of the aid provided for in Article 6(1) and (2) of Law No 39 for the processing of bergamots and the marketing of the essential oil obtained, it was emphasised that compliance with the rates of aid and other provisions laid down by the Guidelines on national regional aid and those on State aid for small and medium-sized enterprises had not been demonstrated.

(58)

Article 3 of the draft order admittedly provides details of the rate of financing for the proposed measures.

(59)

The rate of aid mentioned (50 %) is acceptable therefore as it matches, regardless of the proposed subsidy equivalent, that approved by the Commission for Calabria in the context of the review of the Italian regional aid map (27), and the nature of the eligible expenditure described shows that it is an aid for initial investment within the meaning of point 4.4 of the Guidelines.

(60)

Similar considerations apply also if the aid is examined in the light of Regulation (EC) No 70/2001.. However, irrespective of which Community text applies, the Commission is not in a position to determine whether the aid application will be made before implementation of the investment projects starts.

(61)

In these circumstances, the Commission will be able to remove the doubts it has expressed concerning the compatibility with the common market of the aid for processing and marketing examined only if the aid are granted solely to those who have submitted an aid application before starting their investments.

(62)

The Commission notes, in the light of the information contained in recital 36, that the public financial assistance proposed constitutes a financial contribution from the Member State towards the joint financing of rural development measures, within the meaning of Article 51 of Regulation (EC) No 1257/1999 (28), and consequently does not constitute, by virtue of that Article, State aid within the meaning of Article 87(1) of the Treaty.

(63)

With regard to the start-up aid for which the award procedure is described in recital 39, the Commission notes that the text of the draft order contains an express undertaking regarding compliance with the Guidelines (see recital 38). However, it should be made clear that the aid must comply in particular with point 10.3 of the Guidelines, which lay down the rules that must be applied by producer groups in order to be eligible for aid. Secondly, it should be specified that the intensities provided for in Table B.I of the draft order, which refers to a 20 % reduction in aid each year, should be calculated in accordance with point 10.5 of the Guidelines, with 20 percentage points reduction each year, and not by reducing by 20 % the percentage applicable the previous year.

(64)

Regarding the aid for the introduction of quality and certification systems for PDO and organic products for which the award procedure is described in recital 40, the Commission notes that all aspects of the relevant provisions of the Guidelines (in the case under consideration, those in recital 13) are observed. Consequently, the aid for the control and certification of organic cultivation methods complies with the last paragraph of point 13.4 of the Guidelines and may therefore qualify for the derogation provided for in Article 87(3)(c) of the Treaty as aid intended to facilitate the development of certain activities or of certain economic areas without adversely affecting trading conditions to an extent that is contrary to the common interest, in the same way as aid to establish control and certification systems for quality systems pursuant to Regulation (EEC) No 2081/92, which is paid degressively during a sufficient period until it is eliminated as also provided for in point 13.4 referred to above.

(65)

Similarly, the aid intended to cover expenditure on the introduction of ISO and HACCP quality assurance programmes complies with the majority of the requirements arising under point 13.2 of the Guidelines. However, the ceiling of EUR 100 000 per beneficiary for each three-year period provided for in the third paragraph of point 13.2 represents the sum of the aid applicable to various expenditure headings which includes the costs associated with the introduction of quality assurance standards and environmental audit systems and the cover of fees requested by recognised certification bodies; but, according to Table B.II attached to Article 5 of the draft order, that maximum amount is assumed to apply only to the costs associated with the introduction of quality assurance standards and environmental audit systems, while the cover of fees requested by recognised certification bodies is not subject to any maximum with the result that an overrun of the EUR 100 000 may occur if the aid for these two expenditure headings is added together. Approval of the aid should be conditional therefore on all the aid in question actually observing the maximum.

(66)

In view of all these factors, the Commission is obliged to conclude that the aid for the control and certification of organic cultivation methods and the aid for the establishment of control and certification systems for quality systems pursuant to Regulation (EEC) No 2081/92 may qualify for the derogation provided for in Article 87(3)(c) of the Treaty as aid to facilitate the development of certain activities or of certain economic areas which do not adversely affect trading conditions to an extent that is contrary to the common interest, subject to the requirement regarding compliance with the maximum amount provided for in the third paragraph of point 13.2 of the Guidelines.

(67)

According to the information contained in the table attached to Article 6, public financial assistance will only apply to infrastructure of general interest.

(68)

That assistance may be considered therefore not to constitute State aid within the meaning of Article 87(1) of the Treaty.

(69)

Regarding the aid for research on bergamot as a citrus fruit, the Commission notes, in the light of the table attached to Article 7, that the conditions laid down in the Commission Communication of 1998 relating to the amendment of the Community framework for State aid for research and development are met. That aid may qualify therefore for the derogation provided for in Article 87(3)(c) of the Treaty as aid to facilitate the development of certain activities or of certain economic areas without adversely affecting trading conditions to an extent contrary to the common interest.

(70)

With regard to the aid for research on bergamot essence, the Commission notes, in the light of the table attached to Article 7, that the eligible expenditure and the rates of aid are in line with those laid down in the Community framework for State aid for research and development. The concepts of industrial research and precompetitive activities are not defined, but the table contains a reference to the Community framework. To be absolutely clear, it should be decided that the proposed aid for research on bergamot essence may qualify for the derogation provided for in Article 87(3)(c) of the Treaty on condition that the concepts of industrial research and precompetitive activities are in line with those set out in Annex I to the above framework.

(71)

With regard to the advertising measures, the Commission notes that the proposed aid will be granted both for bergamots as fruit and for products derived from them (in other words, bergamot essence).

(72)

With regard to the advertising of bergamots as fruit, the Community guidelines on State aid for the advertising of products falling within Annex I to the Treaty and certain products not falling within Annex I lay down a number of conditions so that aid may qualify for the derogation provided for in Article 87(3)(c) of the Treaty: the proposed advertising campaign must not meet any of the negative criteria set out (advertising which over-emphasises the origin of the products, advertising for individual enterprises, campaigns that are contrary to secondary Community law) and must satisfy at least one of the positive criteria laid down (in the agricultural sector, advertising focusing on surplus products or under-exploited species, on new products or replacement products that are not yet in surplus, on high-quality products — including those manufactured or obtained in accordance with environmentally-friendly production methods, such as organic products — on the development of certain areas, on the development of small and medium-sized enterprises). In addition, the rate of aid must be 50 % of the costs and, in order to take account of the importance of some of the positive criteria referred to, may be raised to 75 % of the expenditure, in the case of advertising in favour of products manufactured by SMEs located in areas that may qualify for aid pursuant to Article 87(3)(a) of the Treaty.

(73)

The Commission notes that the aid will be granted in compliance with at least one of the positive criteria (advertising for organic products) set out in the Community guidelines for State aid for advertising of products listed in Annex I to the EC Treaty and of certain non-Annex I products, and without any of the negative criteria listed in the same guidelines (secondary nature of the origin in the message disseminated, exclusion of all advertising for individual enterprises, compliance with the rules applicable to the products referred to and of Directive 2000/13/EC). The proposed rate of aid of 50 % corresponds also to that provided for by the latter, as does the increase to 75 % for small and medium-sized enterprises, since Calabria is an assisted area within the meaning of Article 87(3)(a) of the Treaty.

(74)

In view of all these factors, the Commission concludes that the proposed advertising aid for bergamots as fruit could qualify for the derogation provided for in Article 87(3)(c) of the Treaty.

(75)

Concerning the advertising of bergamot essence, the Commission emphasised, on the initiation of the procedure pursuant to Article 88(2) of the Treaty, that compliance with the relevant provisions of the Guidelines on national regional aid had not been shown (see recital 19(f)). However, it should be noted that bergamot essence is a non-Annex I product with a content made up predominantly of products falling within Annex I. Consequently, it is also covered by the Community guidelines on State aid for the advertising of products falling within Annex I to the Treaty and certain products not falling within Annex I, in accordance with recital 9.

(76)

Since the draft order submitted by the Italian authorities provides for identical aid for bergamot essence and for bergamots as fruit, the Commission concludes that the advertising aid for bergamot essence may also qualify for the derogation provided for in Article 87(3)(c) of the Treaty as aid to facilitate the development of certain activities or of certain economic areas without adversely affecting trading conditions to an extent contrary to the common interest.

(77)

Concerning the aid for the promotion and dissemination of general information, the Commission notes that beneficiaries may be both producers of bergamots and producers of essential bergamot oil.

(78)

The Commission notes that the services covered fall within point 14 of the Guidelines. It also notes, in the light of the table attached to Article 8, that all the relevant requirements for those points (rate or amount of aid, accessibility of services) are met.

(79)

The aid may qualify therefore for the derogation provided for in Article 87(3)(c) of the Treaty as aid to facilitate the development of certain activities or of certain economic areas that does not adversely affect trading conditions to an extent contrary to the common interest.

(80)

The Commission notes that Table E attached to Article 8 of the draft order is also based on the provisions of the Guidelines where the aid concerns producers of essential bergamot oil. But, as indicated above, essential bergamot oil does not fall within Annex I to the Treaty and the aid for it, regardless of its form, cannot be covered by the Guidelines, but should be governed by the provisions referred to in the fourth indent of recital 52.

(81)

On this point, the Commission notes that the promotional aid for producers of essential bergamot oil may qualify for the derogation pursuant to Article 87(3)(c) of the Treaty as aid to facilitate the development of certain activities or of certain economic areas which does not adversely affect trading condition to an extent contrary to the common interest where the beneficiary is a small or medium-sized enterprise, on condition that it satisfies the requirements of Article 5 of Regulation (EC) No 70/2001, under which:

(82)

Irrespective of the size of the beneficiary, the measure would not be regarded as State aid if all the substantive and formal requirements laid down by Regulation (EC) No 69/2001 were met.

(83)

The above examination shows that:

(84)

Since the Italian authorities have indicated that they have suspended the arrangements for the grant of the financial resources referred to in Law No 39 (see recital 21), there is no need to consider the recovery of unduly collected aid,