British government to put case for approving Rover-BMW aid

Date: 01/07/1999

By Renée Cordes
BRITISH officials will try to convince EU regulators next week to approve the subsidies promised by the UK government to persuade German carmaker BMW to invest more in its Rover plant.

The meeting between officials from the UK's department of trade and industry and EU regulators next Wednesday (7 July) will be the first since last week's formal announcement that the British government and BMW had reached agreement on a €230-million package of state aid, although London informed the European Commission of the planned investment in May.

In return for the aid, BMW has pledged to pump a third of its annual investment budget of about €15 billion into the UK over the next five years, mainly to save 9,000 jobs at its Rover factory in Longbridge in the English Midlands.

Although the Commission has cleared aid to several other carmakers in the past, albeit under strict conditions, Acting Competition Commissioner Karel van Miert warned late last week that the institution might not approve the deal, which has not yet been formally notified.

The Commission is questioning whether the aid was genuinely essential to secure BMW's investment, voicing doubts that the car manufacturer had seriously considered investing the money in Hungary instead, as it has claimed.

EU rules on aid to the car sector require that such subsidies are "indispensable". In other words, the company receiving the money must prove that it could have invested in another site and would have done so if it had not received the subsidies.

Ironically, this rule has often led to situations where economically thriving regions or countries have been allowed to channel more funds to attract car investments than poorer ones.

A spokesman for Van Miert said last week that he "remained to be convinced" that the German auto-maker had considered investing in Hungary as a viable alternative, but he added that the Commission still lacked the information it needed to reach a conclusion. Sources say the Acting Commissioner is concerned that BMW might have made the threat simply to force the UK government's hand.

British officials insist that they have followed all necessary procedures and remain confident the aid will be approved. "The UK has one of the best records for state aid among all the member states and we plan to keep that record." said one, urging the Commission not to use this case to send a message to the industry. "We certainly hope the Commission would be more scrupulous and honest than that." he added, stressing that the parties involved had kept officials informed of the investment plan long before last week's announcement.

Auto industry analysts said they were confident the subsidies for BMW would overcome all the necessary regulatory hurdles. "I am firmly convinced that this will go through." said Markus Plümmer, an analyst at WestLB Research in Düsseldorf. "The key question is whether the money could have been invested in another location, and clearly Hungary was a serious consideration."