Applicants ‘ignoring rules’ on steel aid

Date: 30/11/00

By Peter Chapman

THE European Commission is warning countries applying for EU membership to stop propping up their steel industries with generous state handouts.

Senior official Humbert Drabbe, who is in charge of monitoring government aid to traditional industries in the Commission's competition directorate-general, has voiced concern about the progress made by candidate countries in reforming the industry, which once proudly supplied much of the iron to countries behind the former Iron Curtain.

"I must say I am worried about the state of preparation of the steel sector," Drabbe told a conference in Brussels earlier this month, insisting that the lack of effort by applicants to restructure the industry threatened to stall the accession process.

"When I take a general view of the candidate countries, the picture which emerges is the following: state aid is routinely being granted to steel companies. Bail-out actions to companies in difficulties involving state resources are being launched," he said.

Union rules on state aid to the steel sector only allow governments to hand out subsidies to the industry for research and development, environmental purposes and social measures designed to ease the pain caused by plant closures.

But under the bilateral 'Europe agreements' they signed with the EU as a precursor to membership of the bloc, candidate countries were also given one last chance to provide aid for "restructuring purposes".

Strict criteria must be met before aid can be paid in these cases, including assurances that the subsidy will make the sector viable again without further hand-outs; that it is not excessive; and that it is accompanied by reductions in capacity in the country concerned.

But Drabbe argues that candidate countries are blatantly ignoring these rules. "Real restructuring operations which satisfy the objectives of the Europe agreements are rare," he said. "We have several examples to support this statement: for example, steel companies that are only surviving because of regular grants of operating aid and steel companies close to bankruptcy being saved using state resources. So far we have not received any restructuring programme which we have been able to approve according to our criteria."

Drabbe points out that steel firms in existing Union member states have already had to take painful decisions to close plants and cut capacity, and insists that their counterparts in central and eastern Europe will have no choice but to do the same.

He says that despite poor demand for their products, many steel companies in the candidate countries continue to run plants which are not needed and employ workers who stay idle. "The low-capital utilisation rate of around 67%, similar to the level in the member states 20 years ago, is an indicator of the serious situation," said Drabbe.

The European Commission is warning countries applying for EU membership to stop propping up their steel industries with generous state handouts.