The general state aid framework
In December 2011 the European Commission adopted a Framework for assessing state aid for shipbuilding. The Framework provides compatibility criteria with reference to the aid granted.
As the Framework originates from 2004 it cannot be seen as a means to face the current financial crisis, but it can definitely be used as such. Just a few days ago a major Bank announced its gradual withdrawal from the German shipping-finance sector. In this regard, the CIRR case assessed by the Commission this February, where interest compensation was granted as state aid to banks that finance the purchase or conversion of a vessel built by a German shipyard, might offer some indication on how the Framework can be used with creativity during the financial crisis.
In this spirit it is worth emphasizing that the Framework addresses European shipbuilders. Aid can be granted to shipyards and to ship owners, but the actual “shipbuilding” has to take place within the Union. By this, the Framework incorporates a proposal of the European Economic and Social Committee (EESC) according to which the general aim of the new Framework should be the improvement of the conditions under which European shipyards compete globally.
Innovation aid
The most important innovation of the new Framework is the part on innovation aid indeed. This is the kind of aid that is granted for innovation for shipbuilding, ship repair or ship conversion, as is the case for any other kind of aid in this framework. Innovation means either something technologically new or substantially improved products and processes, whereby the Framework and the Commission’s practice specify further what can be considered an innovative product and what an innovative process. A further prerequisite for the envisaged project to be qualified as innovative is the risk of commercial or technological failure. Finally the decisive state of the art is that of the shipbuilding industry within the European Union.
Practically more interesting may be the maximum aid intensity; that is the part of the total cost of the project that can be financed through state resources. In the normal case of an innovation aid the maximum aid intensity cannot exceed 20%. However this changes significantly when it comes to projects that have a positive impact on the environment.
Providing incentives for an environmentally friendly development has been the core concern of this part of the Framework. It was even asked by Commission, whether it would be appropriate to restrain innovation aid to projects that are related to “greener” ships. However it seems that in the following public consultation the argument prevailed, that excluding other types of innovation, at least in a general manner, would significantly lessen the attractiveness of a number of projects and consequently the effectiveness of the instrument. This follows from the more than plausible assumption, that the availability of state aid even for a small part of a project can change significant parts of the relevant risk assessment and affect positively the financing structure.
In the abovementioned ecological spirit the aid intensity increases up to 30% in the following cases: a) When the innovation has the objective of increasing environmental protection and leads to compliance with adopted Union standards at least one year before they enter into force, b) when, in the absence of Union standards, it can be argued that the innovation increases the level of environmental protection, or c) even when the innovation makes it possible to go beyond Union standards. It is characteristical that the Commission chooses to formulate in a quite general manner leaving it to state authorities and interested businesses to give its concrete form to an area which, according to the EESC offers one of the greatest competitive advantages to European shipbuilding.
With regard to eligible costs two final prerequisites have to get our attention. Firstly the cost of the aid, in order to be eligible for a compensation must be directly and exclusively related to the innovative part of the project. Secondly, only such aid will be considered compatible that results in the recipient changing its behaviour so that it increases its level of innovation activity.
Export aid
Although there is no material change with regard to provisions on export credit, where a general reference to the “1998 OECD Arrangement on Guidelines for Officially Supported Export Credits” takes place, the development of international negotiations deserves a moment of attention. The decision of the OECD not to recommence the discussions on the “Agreement Respecting Normal Competitive Conditions in the Commercial Shipbuilding and Repair Industry”, which would be of a more comprehensive and more binding (compare: Agreement – Arrangement) nature, leaves a regulatory gap and reveals a major dilemma of the European state aid legislation: how to protect and promote competition in a complex market, such as the European one, while at the same time trying to enhance its competitiveness in an environment where protectionist measures are often applied.
The new Framework will apply until 31 December 2012.
For further information please contact:
Dr. Stavros Kitsakis Panagiota Xylaki
[email protected] [email protected]