The aid totalling FF 1 625,72 million which the French Government proposes to grant to the following undertakings: Valexy (FF 180,2 million), Tréfilunion (FF 574 million), GTS (FF 179,6 million), CFEM offshore equipment (FF 178,1 million), CFEM engineering (FF 126 million), C3F (FF 152 million), Chavanne-Kétin (FF 129,9 million) and Métalinor (FF 105,92 million), and which is intended either to cover expenditure connected with the workforce or direct closure costs under the 1986 to 1990 restructuring plans which the French Government submitted to the Commission, is hereby declared to be compatible with the common market under the exemption provided for in Article 92 (3) (c) of the EEC Treaty.
The aid totalling FF 1 625,72 million which the French Government proposes to grant to the following undertakings : Valexy ( FF 180,2 million ), Tréfilunion ( FF 574 million ), GTS ( FF 179,6 million ), CFEM offshore equipment ( FF 178,1 million ), CFEM engineering ( FF 126 million ), C3F ( FF 152 million ), Chavanne-Kétin ( FF 129,9 million ) and Métalinor ( FF 105,92 million ), and which is intended either to cover expenditure connected with the workforce or direct closure costs under the 1986 to 1990 restructuring plans which the French Government submitted to the Commission, is hereby declared to be compatible with the common market under the exemption provided for in Article 92 ( 3 ) ( c ) of the EEC Treaty .
The aid totalling FF 1 100,54 million which the French Government proposes to grant to the following undertakings: Valexy (FF 103,8 million), Tréfilunion (FF 672,4 million), GTS (FF 113,3 million), CFEM offshore (FF 48 million), CFEM engineering (FF 39,6 million), Métalinor (FF 123,44 million) and which is intended for the payment of the wages of the employees covered by the social plans between the time of the approval of the plan by the 'comité d'etablissement' and its actual entry into force (bridging costs), the aid for investment not linked to reducing capacity and the aid intended to cover past losses are hereby declared to be incompatible with the common market under Article 92 (1) of the EEC Treaty.
Under this Decision, the French Governement is required not to grant such aid. Within two months of the date of notification of this Decision, the French Government shall inform the Commission of the measures it has taken to withdraw the prohibited aid plans so as to bring its total level down to the amount authorized in Article 1 of this Decision.
The aid totalling FF 1 100,54 million which the French Government proposes to grant to the following undertakings : Valexy ( FF 103,8 million ), Tréfilunion ( FF 672,4 million ), GTS ( FF 113,3 million ), CFEM offshore ( FF 48 million ), CFEM engineering ( FF 39,6 million ), Métalinor ( FF 123,44 million ) and which is intended for the payment of the wages of the employees covered by the social plans between the time of the approval of the plan by the "comité d'etablissement' and its actual entry into force ( bridging costs ), the aid for investment not linked to reducing capacity and the aid intended to cover past losses are hereby declared to be incompatible with the common market under Article 92 ( 1 ) of the EEC Treaty .
Under this Decision, the French Governement is required not to grant such aid . Within two months of the date of notification of this Decision, the French Government shall inform the Commission of the measures it has taken to withdraw the prohibited aid plans so as to bring its total level down to the amount authorized in Article 1 of this Decision .
The French Government shall inform the Commission within two months of the date of notification of this Decision of the arrangements for granting the authorized aid to the recipient undertakings. With regard to the restructuring period (1986 to 1990), the French Government shall present to the Commission an annual report, before 30 June of the year following the period under review, on the financial results of the undertakings remaining in activity. The report shall indicate in particular the state of progress of the restructuring measures to be carried out (reductions in workforce, capacity shut-downs) and the turnover, gross operating profit or loss and the net profit or loss for each of the undertakings.
The French Government shall inform the Commission within two months of the date of notification of this Decision of the arrangements for granting the authorized aid to the recipient undertakings . With regard to the restructuring period ( 1986 to 1990 ), the French Government shall present to the Commission an annual report, before 30 June of the year following the period under review, on the financial results of the undertakings remaining in activity . The report shall indicate in particular the state of progress of
the restructuring measures to be carried out ( reductions in workforce, capacity shut-downs ) and the turnover, gross operating profit or loss and the net profit or loss for each of the undertakings .
This Decision is addressed to the French Republic.
Done at Brussels, 28 June 1989.
For the Commission
Leon BRITTAN
Vice-President
2 360 ( 36 %)
Large welded tubes
3 342
3 046 ( 91 %)
2 550
2 250 ( 88 %) // // // // //
In 1986, Valexy accounted for 35 % of the French market in the above products, with 40 % of the market being supplied by other Community producers . In the same year, Valexy supplied 73 % of its output to the French market, 16,5 % to other Community markets and 10,5 % to non-Community markets .
GTS, which in 1986 had an output of 525 000 tonnes of tubes intended for the gas and oil market ( more than 90 % of its output ), produces 35 times the amount accounted for by the French market in such products ( 15 000 tonnes ). Its sales in 1986 accounted for 9,5 % of non-Community markets ( mainly the USSR ), 19 % of Community markets outside France and 80 % of the French market . International trade is on a particularly high level in the products in question .
With regard to Tréfilunion, the EEC market in its products was 4,62 million tonnes in 1985, of which 1,24 million tonnes were accounted for by imports ( 27 %). In the same year, Tréfilunion sold 63 % of its output on the French market, 21 % on the other Community markets and 16 % on non-Community markets .
With regard to CFEM engineering, 53 % of its output in 1986 was sold on the French market, 14 % on other Community markets and 33 % on non-Community markets . By comparison, French production of this type of product, of which CFEM engineering accounts for some 5 %, amounted to 617 000 tonnes in 1986, of which 570 000 tonnes were supplied in France ( 92,5 %) and 47 000 tonnes were exported ( 7,5 %).
There are no detailed figures available for C3F and Chavanne-Kétin, but it may be said that their products ( supplies for the steel industry such as rolling mill rollers and metal crushers ) involve considerable intra-Community trade .
The products in which Métalinor deals ( scrap iron and scrap from non-ferrous metals ) also involve considerable trade between Member States, for example to countries whose steel industries have a large proportion of electric steel plants .
On the other hand, as the French Government has itself emphasized, re-establishing the viability of the undertakings concerned depends on the carrying-out of the restructuring programmes initiated with State assistance . Without such assistance, given their previous financial losses and the difficulties facing the sectors concerned in the Community ( 1 ), the undertakings would not have been able to obtain on the capital market the financial resources necessary for carrying-out their recovery programmes . Consequently, not only their return to viability, but also the very existence of the undertakings would have been undermined . Accordingly, the financial assistance in question is aid liable to distort competition within the meaning of Article 92 ( 1 ) and does not simply reflect the normal behaviour of a shareholder .
V
Article 92 ( 1 ) of the EEC Treaty provides that in principle any aid having features such as those described above, i.e . aid which affects trade between Member States and threatens to distort competition by favouring certain undertakings or the production of certain goods, shall be incompatible with the common market .
The derogations from this principle provided for in Article 92 ( 2 ) do not apply in this particular case, given the nature and objectives of the proposed aid .
Article 92 ( 3 ) specifies the aid which may be considered to be compatible with the common market . The derogations may be applied only if the Commission establishes that, in the absence of aid, market forces would not in themselves be enough to prompt the possible recipients of the aid to take action in order to achieve one of the objectives referred to .
The proposed aid is not covered by the derogation provided for in Article 92 ( 3 ) ( a ) concerning "aid to promote the economic development
of areas where the standard of living is abnormally low or where there is serious underemployment '. The geographical areas within the Community eligible for this possible derogation were
determined on the basis of a method for the application of Article 92 to regional aid ( 1 ). None of the areas in mainland France, in which all of the undertakings in question are situated, is eligible for regional aid under Article 92 ( 3 ) ( a ). In any case, the French authorities did not notify the aid under this heading but as sectoral aid .
Nor can the derogation provided in Article 92 ( 3 ) ( b ) be invoked, since the aid is not intended to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State .
The derogation provided for in Article 92 ( 3 ) ( c ) relates to "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 '.
As has already been pointed out above, the aid in question has not been granted as part of a regional aid scheme . This aspect will not be taken into account here, except to mention that, in a significant number of cases, the production plants concerned are situated in areas eligible for French regional aid because of the employment difficulties with which they are confronted ( steel producing areas in Nord and Lorraine, and the region of Le Havre ). From this point of view, the number of jobs maintained through the rationalization of the industry is not inconsiderable in the regions concerned .
In sectoral terms, the Commission may consider to be compatible with the common market aid for restructuring or conversion that is in line with the following criteria ( 2 ):
( a ) sectoral aid should be limited to cases where it is justified by circumstances in the industry concerned, for example, in order to overcome a structural or cyclical crisis; in restoring the viability of the undertakings, the aid should not preserve the status quo or postpone decisions or changes which are inevitable;
( b ) industrial problems and unemployment should not be transferred from one Member State to another;
( c ) since adjustment takes time, a limited use of resources to reduce the social and economic cost of change is admissable in certain circumstances and subject to strict conditions;
( d ) the intensity of aid should be proportionate to the problems it is designed to resolve so that distortions of competition are kept to a minimum .
In the light of these criteria, the Commission notes that :
1 . the restructuring programmes described above were necessary for the rationalization of the undertakings concerned . The undertakings, which were confronted with serious structural difficulties that threatened their existence, were not capable of financing their programmes from their own resources alone;
2 . the viability prospects of the undertakings remaining in activity have been examined and certified by independent experts .
Such prospects are satisfactory, since they are expected to be as follows by 1990 :
( million FF )
1.2.3.4.5Net profit
Turnover
Gross operat - ing profit ( GOP ) ( 1 )
GOP as a % of turnover // // // // //
Valexy ( small tubes )
85
1 454
150
10,33 %
Tréfilunion wire
49
1 909
175
9,45 %
GTS large welded tubes lower assumption
1
1 355
67
4,9 %
upper assumption
11
1 531
81
5,3 %
CFEM engineering
20,4
752
35,7
4,75 %
C3F forging and foundry business
37
1 040
127
12,21 %
Chavanne-Kétin foundry business
9
337
38
11,28 % // // // // //
( 1 ) The gross operating profit or loss, i.e . turnover minus operating costs, is an indicator of an undertaking's capacity to generate the capital to cover depreciation and financial charges and to provide a return on equity capital .
( 1 ) Mention should be made here of the framework for aid to the steel sectors not covered by the ECSC Treaty ( OJ No C 320, 13 . 2 . 1988, p . 3 ). In that framework, the Commission noted that the market conditions for steel products prevailing since the 1970s had produced grave problems of over-capacity . It also noted that the crisis had affected both ECSC and non-ECSC steel activities . It should be mentioned that the scope of this Decision is specific and not general as was that of the framework; there is, however, no contradiction between the two measures, which arise from the monitoring of aid to the non-ECSC steel industry .
( 1 ) Commission communication ( OJ No C 212, 12 . 8 . 1988, p . 2 ).
( 2 ) Eight Report on Competition Policy, point 1.7.6 .
The gross operating profit criterion may be considered to be satisfactory in all six cases, since write-offs and financial charges can be financed from own resources, sometimes even leaving an appreciable net profit . The recovery is very noticeable compared with 1986, when the six undertakings recorded losses and indeed gross operating losses, with the sole exception of C3F, which achieved a modest gross operating profit of 0,7 % of turnover . These improvements reflect productivity gains, the rationalization of management and production ( marked by an increase in the rate of capacity utilization and a fall in financial costs ) and, in the case of Tréfilunion, the shift in production to higher value-added products .
In the case of GTS, the gross operating profit is sufficient to allow a profit to be achieved after depreciation and financial charges . It should be noted that the above forecasts are bases on cautious market assumptions . More than 90 % of this undertaking's market is accounted for by the oil and gas industry . That market is characterized by large scale contracts which are concluded in the light of the trend in oil and gas prices, which determine the transport requirements for such products . Such contracts can lead to significant fluctuations in turnover and profits . Recent trends indicate that the outlook for GTS is favourable .
With regard to the activities of CFEM which are kept in operation ( corresponding to around 60 % of the 1986 turnover figure ), it should also be noted that the gross operating profit is sufficient to allow a net profit . As with GTS, CFEM engineering is subject to fluctuations in its level of activities, depending on the conclusion of contracts . In addition, CFEM's activities comprise a higher proportion of project study and development and a lower proportion of manufacture than other undertakings involved in primary steel processing, which means a lower level of depreciations to be covered than in the case of other undertakings;
3 . by closing several establishments and by concentrating or reducing capacity in various ways in sectors suffering from surplus capacity at Community level, the restructuring programmes for the eight undertakings concerned contribute to solving the structural problems facing the primary steel processing sectors and do not have the effect of transferring the relevant industrial problems and unemployment from one Member State to another;
4 . in so far as the proposed aid is restricted to covering the costs of social measures for staff leaving the workforce and costs directly associated with the closure operations, it may be authorized .
The social measures relate to early retirement and non-active status allowances ( 1 906 employees ), training and retraining leave ( 1 161 employees ), redeployment ( 541 employees ), redundancy ( 827 employees ), the "fonds national pour l'emploi' ( 73 employees ), assisted departure ( 427 employees ) and other measures ( 194 employees ). Their total cost is FF 1 123,12 million ( ECU 158,2 million ). For the purposes of this Decision, as far as Métalinor is concerned, the Commission took into account only 80 % of this type of expenditure as corresponding to the EEC portion of the undertaking's activities ( see point 11 ).
The costs directly associated with closures and with the reorganization of production relate to the closure and restructuring of plants, the demolition of buildings, the transfer and resiting of equipment, the termination of contracts in connection with closures, the handling of disputes and proceedings in this connection, capital losses on transfers of assets, and the depreciation of fixed assets ( amortizations and stocks ). These costs amount to a total of FF 502,6 million ( ECU 70,8 million ). In the case of Métalinor the Commission has taken account of only 80 % of this
type of costs ( EEC portion ), i.e . FF 16 million .
The total amount of aid which the Commission considers compatible with the proper functioning of the common market since it meets the criteria for exemption provided for in Article 92 ( 3 ) ( c ) of the EEC Treaty is thus FF 1 625,72 million ( ECU 229 million ) out of the notified total of FF 2 783,6 million ( ECU 392 million ), of which FF 2 726,26 million ( ECU 384 million ) are assessed in this Decision as falling within the scope of the EEC Treaty .
The Commission considers that, up to this amount, which is proportionate to the scale of the problems to be overcome, the aid may be considered to contribute to the development of the activities concerned without adversely affecting trading conditions to an extent contrary to the common interest;
5 . by contrast, examination of the other expenditure to which the French authorities propose to provide assistance shows that the aid threatens to affect trading conditions to an extent contrary to the common interest .
The expenditure in question is, firstly, that referred to under the headling of "bridging costs', i . e . FF 481,7 million ( ECU 67,8 million ). Such costs are incurred in respect of the wages of the employees covered by the various social mesaures between the time when the social plan was adopted by the "comité d'etablissement' and the time when it actually entered into force, after the necessary administrative procedures had been completed . It is impossible to check whether the employees concerned did or did not during that period contribute to the productive activity of the undertaking . Contributing to the cost of such wages would therefore entail the risk of covering the operating costs of such undertakings through State aid, which cannot be deemed to be compatible with the proper functioning of the common market in sectors suffering from considerable surplus capacity .
The costs in question are, secondly, investment expenditure totalling FF 300,9 million ( ECU 42,4 million ) for investment to be covered out by Tréfilunion and GTS on the development of new products, research and development, anti-pollution and energy conservation measures and productivity gains . The costs also relate to State contributions to writing-off of past losses totalling FF 317,94 million ( ECU 44,8 million ). Such aid is directly linked to the re-establishment and maintenance of the future financial and technical structure of the undertakings concerned . Given the market situation in the sectors concerned, in which there is considerable surplus capacity, authorizing such aid would amount to giving certain producers an undue advantage and, consequently, to creating a distorsion of competition contrary to the common interest . The Commission considers that this type of expenditure forms part of the risk normally assumed by undertakings, for which the State is not responsible .
The total amount of the aid which the Commission considers to be incompatible with the proper functioning of the common market pursuant to Article 92 ( 1 ) of the EEC treaty is FF 1 100,54 million ( ECU 155 million ), since such aid is not eligible for any of the exemptions provided for in Article 92 ( 3 ) of the EEC Treaty .
HAS ADOPTED THIS DECISION :
