(1)

On 4 November 1998, the Authority adopted the “Multisectoral framework on regional aid for large investment projects” (1). The multisectoral framework became applicable from 1 January 1999 for an initial trial period of three years. Its validity was extended in 2001 until 31 December 2002.

(2)

This Framework only applies to regional aid, as defined by the Guidelines on National Regional Aid (2), that aims to promote initial investment, including job creation linked to initial investment, on the basis of Articles 61(3)(a) and (c) of the EEA Agreement. This Framework is without prejudice to the assessment of aid proposals under other provisions of the EEA Agreement such as Article 61(3)(b). For the steel and synthetic fibres sectors, it also applies to large individual aid grants for small and medium-sized undertakings that are not exempted by other provisions. This Framework does not apply to restructuring aid cases, which will continue to be covered by the Authority Guidelines on State aid for rescuing and restructuring firms in difficulty (3). Similarly, this Framework will not affect the operation of the existing horizontal frameworks, such as the Authority framework for State aid for research and development (4) and the Authority Guidelines on State aid for environmental protection (5).

(3)

The aid intensity of regional investment aid that is not exempted from the notification obligation laid down in Article 1(3) of Protocol 3 to the Surveillance and Court Agreement, will be limited on the basis of the criteria laid down in this Framework.

(4)

Under this Framework no advance notification of aid below certain thresholds for large investment projects is required, provided that aid is granted in accordance with an aid scheme approved by the Authority. However, this Framework does not affect the EFTA States’ obligation to notify new individual (ad hoc) aid that is not exempted from the notification obligation laid down in Article 1(3) of Protocol 3 to the Surveillance and Court Agreement. The rules laid down in this Framework apply also to the assessment of such individual (ad hoc) State aid measures.

(1)

The maximum aid ceilings fixed by the Authority for all areas eligible for regional aid are in general designed to provide an appropriate level of incentive necessary for the development of the assisted regions. However, as they provide a single ceiling, they are usually in excess of the regional handicaps when applied to large-scale projects. The purpose of this Framework is to limit the level of incentive available for large projects to a level that avoids as much as possible unnecessary distortions of competition.

(2)

Large investments can effectively contribute to regional development, amongst other things by attracting other companies to the region and introducing advanced technologies as well as by contributing to the training of workers. However, these investments are less affected by important region-specific problems in disadvantaged areas. First of all, large investments can produce economies of scale that reduce location-specific initial costs. Secondly, they are in many respects not tied to the region in which the physical investment takes place. Large investments can easily obtain capital and credit on global markets and are not constrained by the more limited offer of financial services in a particular disadvantaged region. Moreover, companies making large investments can access a geographically wider pool of labour, and can more easily transfer a skilled workforce to the chosen location.

(3)

At the same time, if large investments receive large amounts of State aid by benefiting from the full regional ceilings, there is an increased risk that trade will be affected and thus of a stronger distortion effect vis-à-vis competitors in other EEA States. This is because the beneficiary of the aid is more likely to be a significant player on the market concerned and, consequently, the investment for which the aid is awarded may modify the conditions of competition in that market.

(4)

Additionally, companies making large investments usually possess a considerable bargaining power vis-à-vis the authorities granting aid. Indeed, investors in large projects often consider alternative sites in different EEA States, which may lead to a spiral of increasingly generous promises of aid, possibly to a level much higher than what is necessary to compensate for the regional handicaps.

(5)

The outcome of such subsidy auctions is likely to be that large investments receive aid intensities that exceed the additional costs resulting from the choice of locating the investment in a disadvantaged area.

(6)

The amount of aid exceeding the minimum necessary to compensate for the regional disadvantages is a very likely cause of perverse effects (inefficient location choices), higher distortion of competition and, since aid is a costly transfer from taxpayers in favour of aid recipients, net welfare losses.

(7)

Recent experience has shown that large investment projects benefiting from regional investment aid are more capital-intensive than smaller investment projects. As a consequence, a more favourable treatment of smaller investment projects translates into a more favourable treatment in assisted areas of projects that are more labour intensive, thus contributing to job creation and unemployment reduction.

(8)

Certain types of investment are likely to cause serious distortion of competition, and their beneficial effect on the region concerned is doubtful. This is true in particular for investments in sectors where a single company has a high market share, or where the existing sectoral production capacity increases significantly, without a corresponding increase in demand for the products concerned. More generally, distortion of competition is likely in sectors suffering from structural problems, where the existing production capacity already exceeds the market demand for the product, or where the demand for the products concerned is persistently declining.

(1)

Without prejudice to the compatibility criteria laid down in the Guidelines on National Regional Aid, and without prejudice to the notification obligation laid down in point (4) in section 26A.3 or to the transitional rules laid down in section 26A.8, regional investment aid concerning investments involving eligible expenditure (6) for the thresholds set out below shall be subject to an adjusted lower regional aid ceiling, on the basis of the following scale:

(2)

Thus, the allowable aid amount for a project above EUR 50 million will be calculated according to the formula: maximum aid amount = R × (50 + 0,50 B + 0,34 C); where R is the unadjusted regional ceiling; B is the eligible expenditure between EUR 50 million and EUR 100 million; and C is the eligible expenditure above EUR 100 million, if any (7).

(3)

By way of example, for a large company investing EUR 80 million in an assisted area where the unadjusted regional aid ceiling is 25 % net grant equivalent (NGE), the maximum allowable aid amount would be EUR 16,25 million NGE, which corresponds to an aid intensity of 20,3 % NGE. For a large company investing EUR 160 million in the same area, the maximum allowable aid amount would be EUR 23,85 million NGE, which corresponds to an aid intensity of 14,9 % NGE.

(4)

However, EFTA States are required to notify every case of regional investment aid if the aid proposed is more than the maximum allowable aid that an investment of EUR 100 million can obtain under the scale and the rules laid down in point 26A.3(1) (8). Individually notifiable projects will not be eligible for investment aid in either of the following two situations:

The burden of proving that the situations to which points (a) and (b) refer do not obtain lies with the EFTA State (9). For the purpose of applying points (a) and (b) apparent consumption will be defined at the appropriate level of the PRODCOM classification (10) in the EEA, or, if such information is not available, on the basis of any other market segmentation generally accepted for the products concerned and for which statistical data are readily available.

(1)

As regards the steel industry as defined in Annex B to this Framework (11), the Authority notes that for a fairly long period of time, ECSC steel companies functioned without recourse to investment aid such as had been available to the rest of the industrial sectors. Steel companies have integrated this factor in their strategies and are used to it. Given the specific features of the steel sector (in particular its structure, the existing over-capacity at European and world level, its highly capital intensive nature, the location of the majority of steel plants in regions eligible for regional aid, the substantial amounts of public funds devoted to the restructuring of the steel sector, and the conversion of the steel areas) and the experience gained when less strict rules on State aid applied in the past, it appears justified to continue to prohibit investment aid to this sector, irrespective of the size of the investment. Accordingly, the Authority considers that regional aid to the steel industry is not compatible with the common market. This incompatibility also applies to large individual aid grants made to small and medium-sized enterprises which are not exempted by other provisions.

(1)

The Authority has consistently considered in the past that investment in sectors that do, or might, suffer from serious overcapacity or persistent decline in demand increases the risk of distortion of competition, without bringing the necessary counterbalancing benefits to the region concerned. The proper way to recognise that these investments are less beneficial from a regional point of view is to reduce investment aid to projects in sectors where structural problems prevail, to a level below that permitted for other sectors.

(2)

Until now, several sensitive industrial sectors have been subject to specific, stricter rules on State aid (12). In accordance with point 3 in section 26.1 of the previous multisectoral framework, these specific sectoral rules continues to apply.

(3)

One of the objectives of the previous multisectoral framework was to provide for the possibility of replacing the existing sectoral rules with a single instrument. Subject to the transitional rules laid down in section 26A.8 below, the Authority wishes through the present revision to include these sensitive industrial sectors within this Framework.

(4)

By 31 December 2003, sectors where serious structural problems prevail will be specified in a List of sectors annexed to the Framework. No regional investment aid will be authorised in these sectors, subject to the provisions laid down in this section.

(5)

For the purpose of drawing up the List of sectors, serious structural problems will in principle be measured on the basis of apparent consumption data, at the appropriate level of the CPA classification (13) in the EEA, or, if such information is not available, on the basis of any other market segmentation generally accepted for the products concerned and for which statistical data are readily available. Serious structural problems will be deemed to exist when the sector concerned is declining (14). The List of sectors shall be updated periodically, with a frequency to be determined at the time at which the List of sectors is decided.

(6)

As from 1 January 2004, and for sectors included in the List of sectors with serious structural problems, all regional investment aid concerning an investment project involving eligible expenditure above an amount to be determined by the Authority at the time of drawing up the List of sectors (15) must be individually notified to the Authority. The Authority will examine such notifications in accordance with the following rules: firstly, the aid project must comply with the general assessment criteria laid down in the guidelines on national regional aid; secondly, the eligible expenditure as defined under point 26A.11(3) exceeding an amount to be determined by the Authority at the time of drawing up the List of Sectors will not be eligible for investment aid, except for the cases referred to in point 26A.5(7).

(7)

By way of derogation from point 6 in section 26A.5, the Authority may authorise investment aid for sectors included in the List of sectors on the basis of the aid intensities laid down in section 26A.3 of this Framework, provided that the EFTA State demonstrates that, although the sector is deemed to be in decline, the market for the product concerned is fast growing (16).

(1)

In drawing up this Framework, the Authority has attempted to ensure that, as far as possible, it is clear, unambiguous, predictable and efficient and that the additional administrative burden it entails is kept to a minimum.

(2)

In order to ensure transparency and effective monitoring, it is appropriate to establish a standard format in which EFTA States should provide the Authority with summary information in the form laid down in Annex A, whenever aid for investments above EUR 50 million is granted in pursuance of this Framework. On implementation of aid falling under this Framework, EFTA States must, within 20 working days starting from the granting of the aid by the competent authority, forward to the Authority such summary information.

(3)

EFTA States must maintain detailed records regarding the granting of individual aid falling under this Framework. Such records must contain all information necessary to establish that the maximum aid intensity determined under this Framework is observed. EFTA States must keep a record regarding an individual aid for 10 years from the date on which it was granted. On written request, the EFTA State concerned must provide the Authority, within a period of 20 working days or such longer period as may be fixed in the request, with all the information that the Authority considers necessary to assess whether the provisions of this Framework have been complied with.

(1)

This Framework will be applicable for a period ending on 31 December 2009. Before 31 December 2009, the Authority will evaluate the Framework. The Authority may amend this Framework before 31 December 2009 on the basis of important competition policy considerations or in order to take into account other EEA policies or international commitments. Such review will not, however, affect the prohibition of investment aid to the steel industry.

(2)

As regards the steel sector as defined in Annex B, the provisions of the Framework will be applied as from 1 January 2003. The existing specific sectoral rules for certain steel sectors that were not covered by the ECSC Treaty (17) will cease to be applicable from that date. As regards the motor vehicle sector as defined in Annex C, and the synthetic fibres sector as defined in Annex D, the provisions of the Framework will be applied as from 1 January 2003. However, notifications registered by the Authority before 1 January 2003 for the motor vehicle sector and the synthetic fibres sector will be examined in the light of the criteria in force at the time of notification.

(3)

As regards sectors other than those mentioned in point 26A.7(2), the provisions of this Framework will be applied as from 1 January 2004. The previous multisectoral framework will remain applicable until 31 December 2003. However, notifications registered by the Authority before 1 January 2004 will be examined in the light of the criteria in force at the time of notification.

(4)

The Authority will examine the compatibility with the EEA Agreement of investment aid granted without its authorisation:

(1)

Until the date of applicability of the List of sectors to which point 26A.5(4) refers:

(2)

Before the date of applicability of the List of sectors to which point 26A.5(4) refers, the Authority will decide whether and to what extent the motor vehicle sector as defined in Annex C and the synthetic fibres sector as defined in Annex D must be included in the List of Sectors.

(3)

As regards the shipbuilding sector, the existing rules under EEA Joint Committee Decision No 12/99 will be in force until 31 December 2003. Before this date, the Authority will have examined whether aid to the shipbuilding sector is to be covered by this Framework and included in the List of sectors.

(1)

In order to ensure the implementation of the rules laid down in this Framework, the Authority will propose appropriate measures within the meaning of Article 1(1) of Protocol 3 to the Surveillance and Court Agreement. These appropriate measures will include the following:

(2)

The necessary amendments must be made by the EFTA States within a period ending on 31 December 2003, except for the measures regarding the steel sector, for which the amendments must be made with effect from 1 January 2003, and regarding the synthetic fibres sector and the motor vehicle sector for which the amendments must be made with effect from 1 January 2003. The EFTA States are invited to give their explicit agreement to the proposed appropriate measures within 20 working days from the date on which the letter is notified to them. In the absence of any reply, the Authority will assume that the EFTA State in question does not agree with the proposed measures.

(1)

EFTA States are invited to use the notification form attached to this Framework (Annex E) for the purpose of notifying aid proposals pursuant to this Framework.

(1)

The following definitions of the terms used in this Framework will apply:

(2)

“Investment project” means an initial investment within the meaning of Section 25.4 of the Guidelines on National Regional Aid. An investment project should not be artificially divided into sub-projects in order to escape the provisions of this Framework. For the purpose of this framework an investment project includes all the fixed investments on a site, made by one or more undertakings, in a period of 3 years. For the purpose of this Framework, a production site is an economically indivisible series of fixed capital items fulfilling a precise technical function, linked by a physical or functional link, and which have clearly identified aims, such as the production of a defined product. Where two or more products are produced from the same raw materials, the production units of such products will be deemed to constitute a single production site.

(3)

“Eligible expenditure”, shall be determined in accordance with the rules laid down in the Guidelines on National Regional Aid for this purpose.

(4)

“Regional aid ceiling” refers to the maximum aid intensity authorised for large companies in the assisted area concerned at the time of the granting of the aid.

Maximum aid intensities are determined in accordance with the Guidelines on National Regional Aid, on the basis of the Regional Aid Map approved by the Authority.

(5)

“Product concerned” means the product envisaged by the investment project and, where appropriate, its substitutes considered to be such, either by the consumer (by reason of the product’s characteristics, prices and intended use) or by the producer (through flexibility of the production installations). When the project concerns an intermediate product and a significant part of the output is not sold on the market, the product concerned will be deemed to include the downstream products.

(6)

“Apparent consumption” of the product concerned is production plus imports minus exports.

(7)

Where the Authority determines in accordance with this Framework the average annual growth of the apparent consumption of the product concerned, it will take into consideration, where appropriate, any significant change in that trend.

(8)

Where the investment project concerns a service sector, and in order to determine the size and the evolution of the market, the Authority will, instead of using apparent consumption, use the turnover of the services concerned on the basis of the market segmentation generally accepted for the services concerned and for which statistical data are readily available.