This Decision is addressed to the Kingdom of Spain.
Done at Brussels, 24 February 1999.
For the Commission
Karel VAN MIERT
Member of the Commission
(1) OJ C 103, 4.4.1998, p. 3.
(2) Vitoria-Gasteiz is a municipality located in Álava, one of the three provinces forming the Autonomous Community of the Basque Country.
(3) See footnote 1.
(4) OJ C 266, 25.8.1998, p. 6.
(5) Scheme approved by the Commission by letter SG (96) D/11028 of 13 December 1996 (State aid N 529/96). The Decree of the Basque Regional Government establishing the scheme (Decree No 289/1996 of 17 December 1996) was published in Official Gazette of the Basque Country No 246, 23.12.1996, p. 20138).
(6) In the light of information submitted by the complainants (who presented a study conducted by an engineering company specialised in the design of refrigerator manufacturing plants), the Commission decided also to examine whether the cost of Demesa's investments had not been artificially increased in order to obtain a larger grant.
(7) Sixth additional provision of Provincial Law (Norma Foral) 22/1994 of 20 December 1994 (Official Journal of the Province of Álava (BOTHA) No 5, 13.1.1995), whose validity was extended for 1996 by the fifth additional provision of Provincial Law 33/1995 of 20 December 1995 (BOTHA No 4, 10.1.1996) and for 1997 by point 2.11 of the single-derogating provision of Provincial Law 24/1996 of 5 July 1996 (BOTHA No 90, 9.8.1996) in conjunction with the seventh additional provision of Provincial Law 31/1996 of 18 December 1996 (BOTHA No 148, 30.12.1996). The tax credit may be granted for 1998 pursuant to the 11th additional provision of Provincial Law 33/1997 of 19 December 1997 (BOTHA No 150, 31.12.1997) and for 1999 pursuant to the seventh additional Provision of Provincial Law 36/1998 of 17 December 1998 (BOTHA No 149, 30.12.1998).
(8) Provincial Law 24/1996 on corporation tax.
(9) 33 production centres, 33 commercial subsidiaries and 19 branches.
(10) EUR 2388 million (EUR 1 = USD 1,1410, Inf[fmxeuro]uro exchange rate, February 1999).
(11) The maximum limit for regional aid in the Basque Country, in accordance with the Spanish regional aid map (OJ C 25, 31.1.1996, p. 3).
(12) EUR 71133388,63.
(13) The interest rate applied can be between two and five points lower than the nominal interest rate.
(14) Gross grant equivalent.
(15) EUR 17783347,16.
(16) According to an article in the Spanish press (El País, 11. November 1998), reporting on trade union action, Demesa employed 170 workers, 90 % of whom did not have open-ended employment contracts.
(17) See Article 6 of the Economic Agreement, as amended by Law 38/1997 of 4 August 1997. The Provincial Councils of the other two provinces of the Basque Country (Vizcaya and Guipúzcoa) also have powers in the tax field.
(18) See Article 26 of Provincial Law 24/1996.
(19) 15 % of the amount invested in new tangible fixed assets; 10 % of the accounting result set aside in a reserve for investments; 30 % of R & D Expenditure; 15 % of investments in environmental protection; 25 % of investments made with a view to developing exports. See Articles 37, 39, 41, 42 and 43 of Provincial Law 24/1996.
(20) The regional authorities refer in particular to the "theory of competitive advantage developed by Prof. Michael Porter". Among works published by this author, see for example The Competitive Advantage of Nations, The Free Press, New York, 1990 or, more recently, "Clusters and New Economics of Competition", in Harvard Business Review, Vol. 76, Issue 6, November/December 1998, pp. 79 to 90. In that article, clusters are defined as "geographic concentrations of interconnected companies and institutions in a particular field" (p. 78). "They include, for example, suppliers of specialised inputs such as components, machinery, and services, and providers of specialised infrastructure. Clusters also often extend downstream to channels and customers and laterally to manufacturers of complementary products [...]. Finally, many clusters include governmental and other institutions [...] that provide specialised training, education, information, research, and technical support." The characteristic feature of this definition is summed up by the words "geographic concentration". The author also states in the article that "government policies in developing economies often unwittingly work against cluster formation. Restrictions on industrial location and subsidies to invest in distressed areas, for example, can disperse companies artificially".
(21) OJ C 209, 10.7.1997, p. 3.
(22) "Los principios y normas de armonización fiscal en el concierto económico" (tax harmonisation principles and rules in the economic agreement), Fundación Banco Bilbao Vizcaya, 1997.
(23) [1997] ECR I-135.
(24) This amount differs slightly from the figure of ESP 412,5 million obtained by multiplying the surface area of 100000 m2 by the price per square metre.
(25) See footnote 16.
(26) Daewoo Electronics had also considered setting up a plant creating 300 new jobs at Verdun, France. CECED likewise lodged a complaint against the aid that the French authorities were intending to grant in connection with that investment. In December 1997 the Commission requested information from the French authorities, which replied that Daewoo Electronics had suspended the project.
(27) "Aims To Lead Global Refrigerator Market", June 1997, http://www.dwe.daewoo.co.kr/news.
(28) Report entitled "World Major Household Appliances to 2001", The Freedonia Group Inc., March 1998. See also the article published in the Financial Times on 2 July 1997, p. 13: "Rough and tumble industry. Domestic appliance groups are adopting varied tactics to boost market share in Europe's stagnant market", which reports that the market in refrigerators and ovens has reached saturation point.
(29) See http://www.fagorelectrodomesticos/mcc.es. Fagor is a company belonging to the Mondragón Corporación Cooperativa (MCC) group http://mondragon.mcc.es/spanish(indice.html) headquartered at Mondragón (Guipúzcoa, Basque Country). With more than 100 subsidiaries and branches and 29 % of its turnover generated outside Spain, MCC is the largest industrial group in the Basque Country and one of the five leading industrial groups in Spain. In 1997 it generated a turnover of ESP 726706 million (EUR 4367591023,28), of which ESP 86000 million (EUR 516870409,77) was from sales of household appliances, as compared with a total turnover of ESP 354247 million in 1992. The MCC group employs 34397 people and has assets valued at ESP 1541621 million (EUR 9265328813,72). It has four plants in Asia, four in Latin America and two in Africa (including two factories producing refrigerators in Argentina and Morocco).
(30) See footnote 31.
(31) See footnote 32.
(32) Information provided by CECED in the context of these proceedings.
(33) "Electrolux to phase out production at two UK factories", 14 October 1997, http://www.electrolux.se/corporate/pressnotes.
(34) "Electrolux intends to move production from refrigerator factory in Finland", 27 October 1997, http://www.electrolux.se/corporate/pressnotes.
(35) See http://www2.whirlpool.com/htm/corp/investor.
(36) The Whirlpool group's largest factory in western Europe.
(37) See http://www.merloni.it/fr_azi.htm.
(38) Intra-Community trade in household refrigerators (CN codes 8418 21, 8418 22 and 8418 29) amounted to EUR 677692000 in 1996 and EUR 732189000 in 1997; 6,91 % (1996) and 7,67 % (1997) of these sales involved products originating in Spain, while 8,23 % (1996) and 7,41 % (1997) corresponded to goods introduced into the Spanish market from other Member States. Intra-Community trade in combined refrigerator-freezers and refrigerator-freezers fitted with separate external doors (other than for use in civil aircraft) (CN codes 8418 10 91 and 8418 10 99) amounted to EUR 484470000 in 1996 and EUR 555665000 in 1997; 19,41 % (1996) and 17,72 % (1997) of these sales involved products originating in Spain, while 10 % (1996) and 9,42 % (1997) corresponded to goods introduced into the Spanish market from other Member States.
(39) According to information provided by the regional authorities, the shareholders in Gasteizko Industria Lurra SA are the Municipal Council of Vitoria-Gasteiz (58,22 %) and Sprilur SA (41,78 %). Sprilur SA is in turn controlled by the Basque Government, which holds 95,52 % of its capital.
(40) The reference rate is 10,56 % for the period 1 January to 31 July 1997 and 6,22 % for the period 1 August to 31 December 1997.
(41) This is the sum of the two amounts obtained by applying on a pro rata basis the reference rates established for the two periods in 1997 (January to July and August to December) to the respective number of months (six and three) during which the land was used in each of those two periods).
(42) See footnote 21.
(43) Article 6(1)(a) of the Decree defines strategic projects as projects which involve an investment of not less than ESP 10000 million or the creation of at least 300 jobs. Certain projects 'with complex financing arrangements' may also be deemed strategic.
(44) The list of "preferential interest areas" is set out in Annex I to the Decree.
(45) OJ C 74, 10.3.1998, p. 9.
(46) See footnote 32.
(47) MCC has carried out an extensive internationalisation programme affecting both its industrial plants and its commercial presence.
(48) See p. 42 of the letter of 6 March 1998.
(49) [1987] ECR 4013.
(50) [1996] ECR I-4551.
(51) In their reply to the Commission's notification of its decision to initiate proceedings, the Spanish authorities merely stated that "Demesa was granted, by means of Decision 737/97 of 21 October 1997, the tax concessions provided for in the Sixth Additional Provision of Provincial Law 22/1994 (tax credit equivalent to 45 % of investments) for its investment project".
(52) See Competition law in the European Communities, Volume IIA: Rules applicable to state aid, Office for Official Publications of the European Communities, Luxembourg, 1995, p. 62.
(53) Only the provisions which are relevant for the purposes of assessing the state aid elements are quoted here.
(54) [1974] ECR 709.
(55) See footnote 55.
(56) See footnote 11.
(57) [1994] ECR I-4103.
(58) See footnote 23.
