(1)

State aid to shipbuilding has been subject to a series of specific EEA regimes. Compared to industrial sectors that have not been subject to specific rules, the regimes applicable to the shipbuilding sector have contained a mixture of both stricter and more lenient provisions. This Framework provides for new rules for the assessment of State aid to shipbuilding following the expiry of Council Regulation (EC) No 1540/98 of 29 June 1998 establishing new rules on aid to shipbuilding (2) on 31 December 2003, as incorporated into the EEA Agreement by EEA Joint Committee Decision No 12/1999 of 29 January 1999 (3).

(2)

The objectives of this Framework are, to the largest extent possible, to remove the differences between the rules applicable to the shipbuilding industry and to other industrial sectors and, thereby, to simplify and make more transparent the EFTA Surveillance Authority's (hereinafter referred to as ‘the Authority’) policy in this area, by extending general horizontal provisions to the shipbuilding sector.

(3)

Nevertheless, the Authority recognises that certain specific factors affecting the shipbuilding sector should be reflected in the Authority's policy of State aid control. These factors include:

(4)

The Authority acknowledges that work is being undertaken within the OECD framework to replace the 1994 Agreement on respecting normal competitive conditions in the shipbuilding and repair industry (5), which has not entered into force. This Framework is in no way intended to prejudice the outcome of that work and may be reviewed in the light of an agreement within the OECD.

(5)

In the light of these special characteristics, the objectives of this Framework, in addition to simplifying the applicable rules, are to:

(6)

In order to achieve these objectives, this Framework provides for specific measures in relation to aid for innovation, closure aid, export credits and development aid and regional aid.

(7)

Certain features make shipbuilding unique and distinguish it from other industries such as short production series, the size, value and complexity of the units produced as well as the fact that prototypes are generally used commercially. As a consequence, shipbuilding is the only sector eligible for innovation aid. Investment aid for innovation was introduced by Regulation (EC) No 1540/98 and was intended to be authorised only in duly justified cases, as an incentive to technological risk-taking. However, the implementation of this provision was not satisfactory. It is considered that the unique characteristics of the shipbuilding industry justify maintaining a sector-specific innovation aid. Therefore, this Framework aims at improving support to innovation, by taking into account notably the difficulties of application of the previous provision.

(8)

The Authority may only consider aid to shipbuilding, ship repair and ship conversion to be compatible with the common market if it complies with the provisions of this Framework.

(9)

This Framework is without prejudice to the temporary measures established by Council Regulation (EC) No 1177/2002 of 27 June 2002 concerning a temporary defensive mechanism to shipbuilding (6), as incorporated into the EEA Agreement by EEA Joint Committee Decision No 170/2002 of 16 December 2002 (7).

(10)

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

(11)

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

(12)

The general principle is that aid to shipbuilding may be granted in accordance with Article 61 of the EEA Agreement and Article 1 in Part I of Protocol 3 to the Surveillance and Court Agreement and all legislation and measures adopted on those bases, including the following provisions:

(13)

The general principle outlined in Section 24B.3.2 is subject to the following exceptions, which are justified by the specific factors presented in Section 24B.1.

(14)

Aid granted to defray expenditure by shipbuilding, ship repair or ship conversion undertakings on research and development projects may be considered compatible with the functioning of the EEA Agreement if it is in compliance with the rules laid down in the EEA Framework for State aid for research and development, or any successor arrangement.

(15)

Aid granted for innovation in existing shipbuilding, ship repair or ship conversion yards may be deemed compatible with the functioning of the EEA Agreement up to a maximum aid intensity of 20 % gross, provided that:

(16)

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

(17)

The costs eligible for the aid referred to in paragraph 16 are:

(18)

In addition, in the case of undertakings which totally cease shipbuilding, ship repair and ship conversion, the following measures may also be deemed compatible with the functioning of the EEA Agreement:

(19)

Undertakings receiving partial closure aid must not have benefited from rescue or restructuring aid in the past 10 years. Where less than 10 years have elapsed since the rescue or restructuring aid was granted, the Authority will allow partial closure aid only in exceptional and unforeseeable circumstances for which the company is not responsible.

(20)

The amount and intensity of aid must be justified by the extent of the closures involved, account being taken of the structural problems of the region concerned and, in the case of conversion to other industrial activities, of the EEA legislation and rules applicable to those new activities.

(21)

In order to establish the irreversible nature of aided closures, the EFTA State concerned shall ensure that the closed shipbuilding facilities remain closed for a period of not less than 10 years.

(22)

Aid granted for the creation of employment as well as for 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 undertakings may be considered compatible with the functioning of the EEA Agreement if it is in compliance with the substantive rules laid down in Commission Regulation (EC) No 2204/2002 of 12 December 2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment (21), as incorporated into the EEA Agreement by EEA Joint Committee Decision No 83/2003 of 20 June 2003 (22).

(23)

Aid to shipbuilding in the form of State-supported credit facilities granted to national and non-national shipowners or third parties for the building or conversion of vessels may be deemed compatible with the functioning of the EEA Agreement 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 or any successive terms laid down in such an arrangement or replacing the Arrangement.

(24)

Aid related to shipbuilding and ship conversion granted as development assistance to a developing country may be deemed compatible with the functioning of the EEA Agreement if it complies with the terms laid down for that purpose by the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and its Sector Understanding on Export Credits or any successive terms laid down in such an arrangement or replacing the Arrangement.

(25)

The Authority will verify the particular development content of the proposed aid, that the aid is necessary and that it falls within the scope of the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and its Sector Understanding on Export Credits for Ships or any successive terms laid down in such an arrangement or replacing the Arrangement. The offer of development assistance must be open to bids from different yards. To the extent that EEA public procurement rules are applicable, bidding procedures have to comply with them.

(26)

Regional aid to shipbuilding, ship repair or ship conversion may be deemed compatible with the functioning of the EEA Agreement only if it fulfils the following conditions:

(27)

All plans to grant new aid to shipbuilding, ship repair or ship conversion, either in the form of a scheme or as individual aid not covered by a scheme, shall be notified to the Authority except if they fulfil the conditions set forth in one of the State aid block exemptions (23), exempting certain categories of State aid from the requirement of prior notification.

(28)

EFTA States shall submit to the Authority annual reports on all existing aid schemes pursuant to the rules set forth in Part II of Protocol 3 to the Surveillance and Court Agreement and in its implementing provisions.

(29)

The aid ceilings stipulated in this Framework are applicable irrespective of whether the aid in question is financed wholly or in part from State resources or from resources accruing from EEA cooperation. Aid authorised under this Framework may not be combined with other forms of State aid within the meaning of Article 61(1) of the EEA Agreement or with other forms of financing obtained through the participation of EFTA States in Community programmes, the cumulation of which produces an aid intensity higher than that laid down in these guidelines.

(30)

In the case of aid serving different purposes and involving the same eligible costs, the most favourable aid ceiling will apply.

(31)

This Framework will be applicable from 1 January 2004 until 31 December 2006 at the latest. It may be reviewed by the Authority during this period.