(1)

By letters No 15808 and No 15809 of 19 December 2002, registered on 31 December 2002, pursuant to Article 88(3) of the EC Treaty, the Italian authorities notified the Commission of the above measures to support the Italian publishing industry.

(2)

By letter dated 29 October 2003, the Commission notified Italy of its decision to initiate proceedings under Article 88(2) of the EC Treaty in respect of the two notified measures.

(3)

The Commission decision to initiate the procedure was published in the Official Journal of the European Union (2). The Commission invited interested parties to submit their comments on the measures.

(4)

By letter dated 2 December 2003, the Italian authorities requested an extension of the response deadline to submit their comments to the Commission's decision to initiate proceedings, which the Commission granted by letter dated 10 December 2003.

(5)

The Italian authorities submitted their comments and provided additional information by letter dated 9 January 2004, registered on 14 January 2004.

(6)

The Commission received comments from interested parties. It forwarded them to Italy, which was given the opportunity to react; its comments were received by letter dated 3 March 2004, registered on 4 March 2004.

(7)

The two aid measures notified by the Italian authorities concern respectively aid in the form of interest rate subsidies on bank loans in favour of companies active in the publishing industry and tax credits in favour of undertakings producing publishing products (3).

(8)

The first aid scheme is introduced by Articles 4 to 7 of Law 62 of 7 March 2001 (4), concerning ‘Nuove norme sull'editoria e sui prodotti editoriali e modifiche alla legge 5 agosto 1981, n. 416’ (hereinafter Law 62/2001) and Decree 142 of the President of the Republic of 30 May 2002 concerning ‘Regolamento concernente le agevolazioni di credito alle imprese operanti nel settore editoriale’ (5) (hereinafter DPR 142/2002).

(9)

The aid consists of contributions on interest payments on 10-year loans granted by banking institutions for projects concerning technical and economic restructuring; acquisition, extension and modernisation of equipment, with particular reference to information technology hardware and software networks also in conjunction with the utilisation of the international telematic networks and satellites for the improvement of distribution; and expenditure for vocational training.

(10)

Some 90 % of the project's total cost is eligible for aid (6). The contribution amounts to the difference in the amortisation plan calculated on the basis of a reference rate established by the Treasury and the payments due on the same amortisation plan calculated on the basis of half such a rate. In practice, using a reference rate of 5 %, the State contributes around 13 % of the project's total expenditure, and this is reduced to about 10 % if the contribution is requested in the discounted form.

(11)

The beneficiaries are undertakings active in the whole publishing cycle (7). This explicitly includes: press agencies; publishing companies; printing companies; distribution undertakings of daily press, periodicals, and books — published on paper, or on electronic or informatic support — radio and television broadcasters; undertakings which are mainly or exclusively selling publishing products and the undertakings which publish Italian newspapers abroad. The scheme is open to beneficiaries which have their headquarters in one of the Member States of the European Union. The number of expected beneficiaries is between 101 and 500.

(12)

A 10-year limit for the aid scheme is foreseen (8). The total budget allocation for the years 2001, 2002 and 2003 is equal to about EUR 26,3 million (9), increased by EUR 50,8 million of previously unspent appropriations. The aid granted under this scheme can only be cumulated with that introduced by Article 8 of the same law described hereinafter (10).

(13)

The benefits foreseen in Articles 5 to 7 of Law 62/2001 will be awarded by a bespoke fund instituted and administered by the Presidency of the Council of Ministers (11). The aid will be granted either pursuant to an automatic procedure (12) or through an individual evaluation procedure. Under the automated procedure, the funding of the project must not exceed about EUR 0,5 million (13) and the eligible project must be completed within two years of the granting of the benefit. The projects involving larger funding amounts are subject to an individual evaluation procedure conducted by a bespoke committee instituted by Presidency of the Council of Ministers. The maximum benefit allowed under this scheme is capped at about EUR 15,5 million (14), whilst projects valued under this procedure are also subject to the two-year limit requirement concerning their completion. Both granting procedures require, inter alia, the submission of detailed information and documents proving the existence and needs of the project, the eligibility of the recipient, proof of the eligible expenses incurred (15), and a copy of the bank loan contract. This measure also contains dispositions for the recovery of unduly granted benefits.

(14)

Aid granted under this scheme aims at preserving the information pluralism within the meaning of Article 21 of the Italian Constitution.

(15)

The second notified scheme is introduced by Article 8 of Law 62 of 7 March 2001 concerning ‘Nuove norme sull'editoria e sui prodotti editoriali e modifiche alla legge 5 agosto 1981, n. 416’ and Decree 143 of the President of the Council of Ministers of 6 June 2002 concerning ‘Disciplina del credito di imposta in favore delle imprese produttrici di prodotti editoriali’ (hereinafter Decree 143/2002).

(16)

The scheme foresees the granting of a tax credit by the State to undertakings producing publishing products. The aid consists of a total tax credit equal to 15 % of the total cost of the investment, divided into equal yearly instalments during five consecutive fiscal years (16). The credit is to be deducted from fiscal liabilities and can be carried forward for four years.

(17)

The aid is granted for the acquisition of instrumental goods for the production of publications in the Italian language, including newspapers, magazines, periodicals, books and multimedia products. Investments in plant, equipment and patents destined to all phases of the production cycle as part of technical and economic restructuring are also eligible for aid under the reviewed scheme.

(18)

The aid scheme is limited to investment taking place before 31 December 2004. The allocated budget for the entire period is about EUR 102 million (17). The aid granted under this scheme can only be cumulated with that introduced by Articles 4 to 7 of the aforementioned law (18). The measure contains dispositions for the verification concerning the existence and reliability of the projects as well as for the recovery of unduly granted benefits.

(19)

The tax credit is granted to undertakings producing publishing products (19). The latter undertakings include press agencies, publishing undertakings, printers of daily newspapers, periodicals and books — published on paper, in electronic or informatic format — radio and television broadcasting companies and undertakings publishing Italian newspapers abroad. The scheme is open to beneficiaries which have their headquarters in one of the Member States of the European Union. The number of expected beneficiaries is between 101 and 500.

(20)

Aid granted under this scheme aims at promoting culture and preserving the information pluralism within the meaning of Article 21 of the Italian Constitution.

(21)

In its decision to initiate the proceedings, the Commission concluded that the two aid measures constituted State aid within the meaning of Article 87(1) of the EC Treaty and expressed its doubts concerning respectively the effect on trade of the notified measures and their compatibility with the common market.

(22)

Furthermore, the Commission regarded the opening as a means to allow the submission of the relevant information and comments to allay its abovementioned doubts.

(23)

Following the initiation of the investigation procedure, several interested parties sent their comments on the measures. An overview of the relevant comments from these parties is outlined in the following paragraphs.

(24)

In its letter of 18 December 2003, the Federation of European Publishers (FEP-FEE) considered that the aid measures are not in violation with EU legislation because:

(25)

In its letter of 19 December 2003, the Association of Portuguese Book Publishers (APEL) considered that the aid measures under review are not in violation with EU legislation because:

(26)

In addition, the Commission received the following comments from interested parties in the course of the investigation more than a month after the publication of the opening decision.

(27)

In their letter of 8 January 2004, the Spanish Federation of Publishers (FGEE) considered that the aid measures under review are not in violation of EU legislation for the identical reasons invoked above by the Association of Portuguese Book Publishers.

(28)

In their letter of 12 January 2004, the European Newspaper Publishers’ Association (ENPA) considered that the aid measures under review are not in violation with EU legislation because:

(29)

In its letter of 7 January 2004, the Federation of Italian Newspapers’ Publishers (FIEG) submitted a detailed argumentation to support its view that the measures under review are not to be considered as violating EU legislation because:

(30)

In order to allay the doubts expressed by the Commission in the opening decision, the Italian authorities submitted additional explanations and data supporting their view concerning the marginal incidence and the compatibility of the measures at hand.

(31)

The Italian authorities maintain aid to the publishing sector will have very limited effects on intra-EU trade due to the virtually non-existant diffusion of publishing products in Italian language outside their domestic market. In particular they derive support for their analysis from the interpretation of the general principles outlined in the CELF judgment (20) as well as from statistical evidence and explanations submitted in response to the opening of the procedure.

(32)

Concerning the principles outlined in the CELF judgment, in relation to books, the Italian authorities maintain that those principles should also be applicable to the other publishing products due to their similar characteristics and to the fact that readership of publishing products in the Italian language in the EU is even more limited than that in French. The two principles referred to are:

(33)

Concerning the situation of the Italian publishing market and the limited intra-EU trade in publishing products, the Italian authorities submitted statistical data to support their assertion and additional clarifications concerning the beneficiaries. In particular, the statistical data submitted indicates that:

(34)

Pursuant to the information above, and in line with the principles outlined in the CFI judgment in the SIDE case (25), the Italian authorities maintain that the market for publishing products in the Italian language should be considered as distinct (26).

(35)

Moreover, to underscore the fact that in their view both measures should be compatible with the common market pursuant to Article 87(3)(d) of the EC Treaty, the Italian authorities make reference to:

(36)

In conclusion the Italian authorities state that, in the framework of the present procedure, given the absolute peculiarity of the publishing market, the need for public intervention to reverse a consolidated declining trend in the diffusion of publishing products on the domestic market, and the limited diffusion of the Italian language at the EU level, the Commission could only conclude that the maximum valorisation of the linguistic specificity is one of the key factors underpinning the culture derogation contemplated by Article 87(3)(d). Hence, the measures under review, which favour the diffusion of publishing products in the Italian language in the domestic market, should be deemed to be compatible with the common market.

(37)

By letter dated 24 February 2004, the Italian authorities submitted their comments to the interested parties’ observations to the opening of the procedure. The Italian authorities noted the overall convergence with their own assessment of the trade affectation and compatibility of the measures under review. Their main comments can be summarised by the following four considerations:

(38)

According to Article 87(1) of the EC Treaty ‘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’.

(39)

The Commission notes that the resources to fund both notified aid schemes come from the central government's budget and can thus be considered as State resources. Moreover, on the basis of their definition, the schemes favour specific economic sectors, namely the publishing sector in which the beneficiaries perform an economic activity and can be regarded as undertakings within the meaning of Article 87(1) of the EC Treaty.

(40)

Both notified schemes are selective in that they are addressed respectively to undertakings active in the publishing sector and to undertakings producing publishing products. Both schemes therefore provide sectoral aid.

(41)

The two notified schemes both confer an economic advantage to their beneficiaries.

(42)

Under the first scheme, the beneficiaries receive a subsidisation of the interest payable on bank loans for specific projects, which effectively reduces the financing costs of the beneficiary undertaking.

(43)

Under the second scheme the eligible undertakings benefit from a fiscal advantage in the form of a tax credit for investments, thereby relieving the beneficiaries from fiscal charges that they would normally have to incur (33).

(44)

The Commission notes that competition rules generally apply to all economic activities involving trade between Member States and that the production of publishing products can be considered as an economic activity. The issue is whether aid to this activity really or potentially affects trade between Member States, given the alleged domestic and thus internal nature of the Italian market for publishing products in the Italian language. It can be noted that the publishing market includes the market for royalties, advertising, printing and distribution. Aid to a publisher may affect one or the other of those activities.

(45)

Further, on the basis of the information submitted by the Italian authorities, the Commission notes that there is trade between Member States in the publishing products concerned by the aid measures under review (34). Thus, the aid measures under review could distort competition between firms inasmuch as, for instance, publishing firms can pursue their activity in different Member States, producing publications in different languages and competing for publishing rights and advertising.

(46)

The Commission acknowledges the information and clarifications submitted by the Italian authorities documenting the fact that the amount of intra-EU trade, in the publishing products in Italian language concerned by the two measures under review, is limited.

(47)

Notwithstanding the above consideration, in light of the foregoing, the Commission considers that, however limited, the effect on trade of the measures under review cannot be excluded. Hence, the two schemes under review constitute State aid within the meaning of Article 87(1) of the EC Treaty.

(48)

In those cases where the measures constitute State aid within the meaning of Article 87(1) of the EC Treaty, it is foreseen that aid which fulfils the conditions set forth respectively in Article 87(2) and Article 87(3) of the EC treaty shall be compatible or may be deemed compatible with the common market.

(49)

The Commission notes that the conditions foreseen in Article 87(2), Article 87(3)(a) and Article 87(3)(b) of the EC Treaty are evidently not applicable to the measures at hand.

(50)

Further to the opening, additional information and clarifications were submitted by the Italian authorities and comments were received from interested parties. On the basis of the above, it appears that intra-EU trade in publishing products in the Italian language is limited and the measures could be deemed to be compatible under Article 87(3)(c) or Article 87(3)(d) of the EC Treaty.

(51)

Concerning the compatibility of the measures pursuant to Article 87(3)(d), the Commission does not concur with the assessment made by the Italian authorities, and is of the opinion that the cultural derogation is not applicable to the aid schemes in point.

(52)

In fact, although Article 151 of the EC Treaty (35) indeed foresees that the Community should contribute to cultural diversity, under the terms of Article 8 of Law 62/2001 no dispositions have been outlined concerning the appropriation of funds for the explicit promotion of culture but rather the funds are entirely used for the more general support of investment by undertakings producing publishing products in the Italian language. Concerning the interest subsidy measure, pursuant to the terms (36) of Article 5 of Law 62/2001, only 5 % of the total funds available under the interest subsidy scheme under examination are explicitly set aside ‘for undertakings involved in projects of specific relevance for the diffusion of readership in Italy or the for the diffusion of publishing products in Italian abroad’. Further, the Commission notes that in the event that the above 5 % share is not utilised for the original purpose, it can be reallocated to fund the other actions contemplated by the measures under review. The latter include, inter alia, aid for training and for investment. Further, the eligible publications in the Italian language include newspapers, magazines, periodicals, books and multimedia products. However, the Commission notes that the two schemes contain no specifications concerning the allocation of resources to the individual types of publications, concerning the content of the eligible publishing products, or any mention concerning the cultural values to be contained or promoted (37).

(53)

By the same token, it can be noted that the Italian language appears to be the common denominator of the two schemes. Nonetheless, despite the fact that those measures might as a last resort ultimately favour learning or the diffusion of the Italian language and culture, given the absence of any pedagogical or language learning specifications or focus in the measures, considering them as culture-based measures would imply giving an unduly broad meaning to culture.

(54)

Moreover, in response to the Italian authorities’ argument tying the promotion of culture and that of the promotion of information pluralism foreseen by the measures under review, the Commission has already stated in past decisions (38) that the educational and democratic needs of a Member State have to be regarded as distinct from the promotion of culture.

(55)

Thus, given the breadth of the scope of the measures under review and of the very generic description of the eligible publications, the measures under examination would appear to primarily aim at fostering the diffusion of publishing products in the Italian language, which is the common denominator of the two schemes, rather than promoting the Italian culture and language.

(56)

In light of the foregoing, the Commission is of the opinion that the measures under review do not satisfy the restrictive interpretation warranted for the application of the provision set forth at Article 87(3)(d) and outlined in the Communication on State aid to public service broadcasting (39). Further, accepting the culture derogation would also run counter to the Commission's interpretation outlined in the relevant case-law (40).

(57)

Pursuant to the planned objectives, the measures under review would ultimately aim at promoting the diffusion of publishing products in the Italian language and at contributing to the preservation of the information pluralism, whilst public intervention would appear to be needed to reverse a consolidated declining trend in the diffusion of publishing products on the domestic market.

(58)

The Commission acknowledges that there are no frameworks or guidelines which can be applied to assess measures such as those under review. Hence, no other specific compatibility clause seems to be applicable to the notified schemes as currently specified apart from the always possible general application of Article 87(3)(c) of the EC Treaty. The latter provides that, ‘aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest, may be considered to be compatible with the common market’.

(59)

As established in the CELF judgment, the Commission notes that linguistic and cultural barriers limiting competition and cross-border trade between Member States in the book sector would appear to exist. Similarly, it would seem that ‘the European sector of typography and publishing continues to be more a juxtaposition of national markets than an integrated market at the European level, as indicated by the share of exports in the sector as percentage of turnover. The multitude of languages spoken inside the Community constitutes an additional barrier to the ‘Europeanisation’ of the sector’ (41).

(60)

Nonetheless, with regards to both books and the other publishing products concerned by the aid measures at hand, it should be emphasised that the existence of the abovementioned limitations is underpinned by the statistical data submitted by Italy which documents the limited incidence of cross-border trade in the EU in the relevant products.

(61)

In addition, since the aid is primarily aimed at publications in the Italian language, it is unlikely that publications in another language would be real substitutes and in turn that subscribers and/or advertisers would switch between them due to the subsidy. It would thus seem that the distortion of intra-EU trade and competition is likely to be very limited. Further, the Community interest is also ensured by the eligibility and equal treatment of applicants based in other Member States.

(62)

Furthermore, the stated aim of the aid is to preserve information pluralism, which is an objective enshrined in Article 11 paragraph 2 of the Charter of Fundamental Rights of the European Union (42).

(63)

Finally, the evaluation concerning the potentially limited trade and competition distortion of the measures under review and, in particular, their proportionality to the stated objectives is also underpinned by the combination of factors including: the duration of the schemes, which are of five and 10 years; the high number of beneficiaries, which is expected to reach 500 undertakings for each measure; and the overall limited funds available, which amount to a grand total of about EUR 179,3 million, for the entire period.

(64)

In the light of the foregoing, the Commission has found that the measures under review constitute State aid in the meaning of Article 87(1) of the EC Treaty.

(65)

The factual and statistical information submitted by the Italian authorities has documented the likely limited effect on trade of the measures under review.

(66)

The limited distortion of trade and competition, and the proportionality of the measures to the objective of promoting publishing products in the Italian language are underpinned by the duration of the schemes, the large number of beneficiaries, and the overall limited funds available,