Battle to recoup illegal subsidies hots up

Date: 17/09/1998

By Chris Johnstone

TEN years after it first ruled that state subsidies to Spanish pots and pans manufacturer Magefesa were illegal, the European Commission may soon try to force Spain to reclaim the cash by taking Madrid to court.

Magefesa, a household name in Spain but not outside, has become a textbook case of how legal and procedural points can be used to stall aid repayment.

Far from being an exception, it is in fact symptomatic of the Commission's uphill struggle to get a grip on subsidies.

Over the next month, Competition Commissioner Karel van Miert will seek to ensure that such incidents become a thing of the past by stepping up his efforts to convince national governments that reform of state aid rules is overdue.

Van Miert's original proposals for a shake-up, which would have cut the time frame for dealing with cases and prevented companies from launching court action to delay the repayment of subsidies, were in part provoked by the shock of finding out that almost half the Commission's demands for aid repayment since 1984 had gone unheeded.

In some cases, the companies concerned had gone out of business since they were ordered to pay back the money. But in many others, they were alive and thriving and had resorted to legal manoeuvres to neutralise the Commission's demands.

Van Miert's first bid to introduce new rules was defeated last May by a powerful coalition of EU governments which balked at two key aspects of the proposals.

Germany, in particular, objected to the attack on the right of companies to seek injunctions in local courts, freezing the repayment of aid while their appeals were being considered. Recurrent appeals can put back the repayment day almost indefinitely, but Bonn warned that the proposed amendment to the rules would require a change in the German constitution.

Plans to trim the time spent translating documents and the cost of state aid investigations by publishing all the details only in the most relevant languages, with fuller versions on demand in others, also ran into widespread opposition, even though translation into all 11 EU official languages can add six months, sometimes even more, to the procedure.

Germany was joined by France, Austria and Italy in its fight against Van Miert's reform plans first time around. With Austria now in the EU's driving seat, its disapproval has been temporarily neutralised, but the Commissioner still needs to find a way to win over the other opponents of change.

To do this, he has been dropping hints to the Council of Ministers that he is prepared to be flexible on both points, while keeping the main lines of his reform on track.

A resolution agreed by EU governments in which they promised to stop companies from stalling over aid repayments might be enough to satisfy Van Miert for now, although it would have the obvious disadvantage of not having any force in law.

Meanwhile, a British proposal to publish the Commission's final decisions on subsidies in the relevant languages, with a meaningful summary in others, offers a way out of the translation problem.

Member states' responses to whatever compromises the Commission and the Austrian presidency are able to agree should start to become clearer at a working group of national experts next Friday (25 September), with EU industry ministers due to deliver their verdict on the proposals at a meeting in Brussels on 16 November.

While sympathising with the Commission's problems, European employers' lobby UNICE is not warming to the compromises which seem to be taking shape.

The federation's competition expert argued that a resolution agreed by governments pledging to improve their clawback of illegal aid would be very weak. "We have heard that is an option being looked at, but we would not want them to give away anything on this. I do not think the Commission should be satisfied with this," she insisted.

UNICE has, however, lined up with national ministers in taking a firm line on openness in subsidy investigations, calling for full translations of all the available data to be provided.

The employers' lobby has also been arguing, without success, for the Commission to give more information to all firms with a stake in subsidy cases.

This demand has come up against the basic problem that state aid procedures are a two-way street between the Commission and national governments. Introducing a third party into the equation would demand a rewrite of EU treaties, says Van Miert, who argues that this is not possible or desirable at this stage.

He believes that tinkering with the treaty rules could provide another unwelcome opportunity for some governments, such as Germany, to try to pare the Commission's powers.

Previous attempts by some governments to earmark sensitive sectors, such as banking and television, as no-go areas for Commission scrutiny during the negotiations on the Amsterdam Treaty, offered a taste of things to come if that Pandora's box were opened.

Major feature on Commission efforts to reduce state aids in EU countries.