State aid to shipbuilding (II)

1) OBJECTIVE

To remove the differences between the rules applicable to the shipbuilding industry and to those applicable to other industrial sectors.

2) ACT

Framework on state aid to shipbuilding [Official Journal C 317 of 30.12.2003].

3) SUMMARY

Background

Since the early 1970s, state aid to shipbuilding has been subject to a series of specific Community regimes. This framework, which replaces Council Regulation (EC) No 1540/98, is designed to remove the differences between the rules applicable to the shipbuilding industry and those applicable to other industrial sectors. However, it takes account of specific factors affecting the shipbuilding sector, namely:

• the nature of the world shipbuilding market (overcapacity, depressed prices, etc.);
• the nature of ships as very large capital goods in respect of credit facilities;
• the difficulty of applying the World Trade Organisation (WTO) rules on unfair trading practices to the shipbuilding sector;
• the existence of agreements within the Organisation for Economic coordination and development (OECD) in the shipbuilding sector; this mainly concerns the 1994 Agreement on respecting normal competitive conditions in the shipbuilding and repair industry, which has not entered into force and which the OECD is in the process of replacing.

Definitions

For the purposes of this Framework, the following definitions shall apply:

• shipbuilding: the building of self-propelled seagoing commercial vessels;
• ship repair: the repair or reconditioning of self-propelled seagoing commercial vessels;
• ship conversion: the conversion of self-propelled seagoing commercial vessels of not less than 1 000 gt, on condition that conversion operations entail radical alterations to the cargo plan, the shell, the propulsion system or the passenger accommodation;
• self-propelled seagoing commercial vessels, including:

- vessels of not less than 100 gt used for the transportation of passengers and/or goods;

- vessels of not less than 100 gt for the performance of a specialised service (for example, dredgers and ice breakers);

- tugs of not less than 365 kW;

- fishing vessels of not less than 100 gt;

- unfinished shells of vessels.

Scope

Aid to shipbuilding includes aid to any shipyard, related entity, shipowner or third party which is granted, whether directly or indirectly, for the building, repair or conversion of ships.

The Framework provides for special measures in relation to investment aid for innovation, closure aid, export credits, development aid and regional aid.

Research, development and innovation aid

Aid granted to defray expenditure by shipbuilding, ship repair or ship conversion firms on R&D projects may be considered compatible with the common market if it complies with the rules laid down in the Community framework for state aid for research and development.

Aid granted for innovation in existing shipbuilding, ship repair or ship conversion yards may be deemed compatible with the common market up to a maximum aid intensity of 20% gross, provided that it contributes to the search for innovative products and processes.

Closure aid

Aid to defray the costs resulting from the total or partial closure of shipbuilding, ship repair or ship conversion yards may be considered compatible with the common market provided that the resulting capacity reduction is of a genuine and irreversible nature.

The costs eligible for aid are:

• payments to workers made redundant or retired before the legal retirement age;
• the costs of counselling services to workers made or to be made redundant or retired;
• payments to workers for vocational retraining;
• expenditure incurred for the redevelopment of the yard, its buildings, installations and infrastructure for use other than shipbuilding.

Companies receiving partial closure aid must not have benefited from rescue and restructuring aid in the past ten years. For further information, see the Community guidelines on state aid for rescuing and restructuring firms in difficulty.

Employment aid

Aid granted for the creation of employment, the recruitment of disadvantaged and disabled workers or to cover the additional costs of employing disadvantaged and disabled workers in shipbuilding, ship repair or ship conversion firms may be considered compatible if it complies with the substantive rules laid down in Commission Regulation (EC) No 2204/2002.

Development aid and export credits

Aid to shipbuilding in the form of development aid or export credits may be considered compatible with the common market if it complies with the terms of the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and with its Sector Understanding on Export Credits for Ships.

Regional aid

Regional aid to shipbuilding, ship repair or ship conversion may be considered compatible with the common market on condition that it fulfils the following conditions:

• aid must be granted for investment in upgrading or modernising installations with a view to improving productivity and must not be linked to financial restructuring of the yards concerned;
• in the regions referred to in Article 87(3)(a) of the EC Treaty and in compliance with the regional aid map, the intensity of the aid must not exceed 22.5%;
• in the regions referred to in Article 87(3)(c) of the EC Treaty and in compliance with the regional aid map, the intensity of the aid must not exceed 12.5 % or the applicable regional aid ceiling, whichever is the lower.

Aid must cover eligible expenditure as defined in the Community guidelines on regional aid.

Member States are required to submit annual reports to the Commission on all existing aid schemes. This Framework will be applicable from 1 January 2004 until 31 December 2006 at the latest. It may be reviewed by the Commission during this period, in particular in the light of the Community's international obligations.

Last updated: 03.02.2004