VW heralds autumn of aid battles

Date: 12/09/1996

By Chris Johnstone

COMPETITION Commissioner Karel Van Miert's appearance and manner were symbolic as he delivered last week's ceasefire announcement in the Commission's state subsidy battle with the car giant Volkswagen, Saxony and the German government.

Heavily bandaged after a summer accident, tired and lacking the usual off-the-cuff quips and humour, Van Miert did not mince his words. Saxony and Volkswagen's demand to be given a free hand to pay and receive illegal subsidies amounted to the biggest and most blatant challenge to the Commission's state aid rules for years.

If the Commission had bowed to their demands, the EU might as well have given up on its efforts to police the payment of subsidies. The climb down from an open conflict with the EU's most powerful member state saved face on both sides.

The Commission dropped its threatened fast-track court action against the illegal aid. Germany neutralised the disputed 48-million-ecu aid, but kept the argument about acceptable aid to former East Germany on the boil with a proposal for reforms of the EU's rules.

The courts will still probably have the last word on how much cash the Federal government can pump into Volkswagen.

But Van Miert's troubles are only just beginning, as he faces up to the prospect of several more bruising battles this autumn.

At the same time, the Belgian Commissioner is trying to win the support of member states for a modest streamlining of the Commission' own state aid procedures and keep them sweet over his bid to widen his powers to vet large cross-border mergers and partnerships under the merger regulation.

That could prove to be a tough juggling act.

The competition directorate-general's autumn in-tray includes more delicate German dossiers, with final decisions pending on illicit aid to shipbuilder Bremer Vulkan and subsidies to Leuna, the East German petro-chemical plant, and on whether state guarantees for German regional banks and special rules on bank solvability amount to illegal government help.

An explosion of financial cases centres on France, where the list includes aid to Société Marseillaise de Crédit, Crédit Foncier and the insurer GAN.

Added to this are expectations of fresh developments in the case of Crédit Lyonnais, already the biggest state aid ever dealt with by the Commission, and the conclusion of its investigation into an Italian rescue package for Banco di Napoli.

French Industry Minister Franck Borotra is also requesting clearance of a series of sectoral aid packages for his country's struggling textile and shoe producers - industries which France has claimed in the past are suffering from competitive devaluations by Italy and which it now argues are special cases on economic and social grounds.

On his home ground,Van Miert will have to respond to a sensitive demand from the Walloon regional government to bail out steelmaker Forges de Clabecq, which will otherwise face the prospect of bankruptcy, and must close the Maribel case, which centres on the use of Belgian government cash to help exporters.

This weight of dossiers and German brinkmanship over Volkswagen has led some to suggest that the competition directorate-general (DGIV) is facing a subsidy crisis both in terms of its overall workload and because of the increasing tendency for member states to dig their heels in over aid projects.

DGIV is ready to admit to the first, but downplays the second. Volkswagen was a very particular case, they argue, for several reasons.

First of all, there was Volks-wagen itself, Europe's biggest car producer and an enormously powerful, ruthless and influential company which could apparently make the federal government follow where it led. Then there was the back-up role played by the Saxon Land, which has taken a vociferous soapbox stand against Brussels interference, and has positioned itself as the leader of the new Länder.

Thirdly, there was the telling silence of rival European car companies keen not to sour an often cosy relationship (only Opel voiced muffled cries of concern to the Commission about the Volkswagen case).

Finally, and perhaps most significantly, there was the existence of a broad clause in the Maastricht Treaty, the famous Article 92 (2) C, which somewhat vaguely holds out the promise of a special subsidy consideration for the five new Eastern Länder.

Although the Commission repeatedly denied any linkage between this treaty clause and the illegal subsidy to Volkswagen, it did serve to widen the debate and cloud what Brussels would have liked to have been a clear-cut case of illegal aid.

Belgium's Forges de Clabecq case, a similarly hot regional aid dossier, will be politically delicate for Van Miert, but does not have all the ingredients which came together in the Volkswagen case.

The state aid workload is, however, clearly mounting. The Commission handled a record 680 notifications of aid cases in 1995, up from 510 in 1994. At the end of July this year, notifications stood at around 340, with 50 non-notified cases being pursued and two ongoing files. Full investigations were launched into 30 cases.

Part of the increase is due to the entry of three new member states into the EU in January 1995, while part is the price of the Commission's success in training governments to be more open about aid.

Now DGIV is looking to streamline its procedures further. A reflection paper spelling out just how this can be done will go before the full Commission by the end of this month and governments will be asked to approve any changes when industry ministers meet in Brussels on 14 November.

The paper contains two principal proposals. The first is a demand that the threshold for Commission involvement in subsidy cases be increased from the current 100,000 ecu. The new threshold has still to be finalised, although 200,000 ecu is regarded as a useful cut-off point to prevent too many small and insignificant cases getting in the way of more important dossiers.

The second target is to streamline procedures to allow cases to be processed faster and to provide greater clarity for firms on the progress of investigations.

So far, the paper does not include the oft-repeated demand from companies that the Commission set itself firm deadlines for wrapping up state aid cases. Streamlining can only go so far, with the Commission anxious to ensure that it does not cut any legal corners which would allow companies to appeal against its decisions - and win - in the European Court of Justice.

DGIV warns that in the near future, the Commission and member states will have to give it more staff to cope with the growing subsidies caseload. At that stage, the question will be whether staff can be transferred from other departments or whether more national experts will have to be brought in.

The latter would open DGIV to accusations that its carefully nurtured reputation for impart-iality was being watered down.