UK stands firm as Commission gets set for coal verdict

Date: 07/05/1998

By Peter Chapman

THE UK is standing firm over its opposition to German and Spanish coal subsidies as the European Commission prepares to rule on their legality.

British officials said this week that London was maintaining its tough stand despite the decision by Celtic Coal to abandon plans to take Bonn to court over its aid to German producers.

"British government policy remains the same. The UK does not pay subsidies and it does not tolerate the situation where they can distort the market," said one.

Wales' biggest producer of high-quality anthracite coal withdrew its threat of legal action after thrashing out a 'commercial agreement' with the two German companies it accused of dumping subsidised coal on the British market. Under the deal,

German producers Preussag Anthrazit and Sophia Jacoba agreed to buy some of Celtic's coal.

However, London is now putting its weight behind similar cases brought by other, smaller Welsh mining companies against German aid. It had already introduced its own complaint against the Spanish subsidy regime.

"We have made representations to the Commission. They know our position and will take it on board," said a UK coal policy expert.

One of the new complaints concerns a bar on British coal imports by some German power stations. London sees such restrictions as a further blow to small producers already squeezed out of the domestic market because of competition from the gas sector.

Germany and Spain have argued repeatedly that they need to subsidise their industries to compensate for production costs that are between three and five times the world market price. Although German Chancellor Helmut Kohl tried to force a deal to slash subsidies to domestic producers last year, he was forced to compromise in the face of industrial action.

Under the final deal, Kohl offered subsidies worth 4.75 billion ecu in 1998 and agreed that this annual figure would only be cut to 4.25 billion ecu by the turn of the century.

The UK argues that if it were not for the subsidies paid by the German and Spanish governments, its industry's costs would be low enough for its firms to compete with rivals in local markets.

Meanwhile, Commission sources insist that the institution has no intention of bowing to political pressure - notably from a German government rendered particularly sensitive by the prospect of elections later in the year - to fudge its investigation into the issue.

A spokesman for Energy Commissioner Christos Papoutsis said the institution still expected to rule on the aid on, or shortly after, its original 20 May deadline.

He added that Celtic Coal's decision to drop its complaint had not made any difference to the Commission's probe.

"In the German case, just because Celtic Coal has reached a deal does not mean we should not look at the issue.

We have to see if Community law is being correctly applied or not."