La Commissione Europea ha messo oggi sotto accusa gli aiuti pubblici concessi in Olanda alle società di rimorchio che operano in Europa nei porti e nelle vie d'acqua interne, decidendo di avviare un'indagine formale per appurare se tali sovvenzioni non rientrino nelle linee guida comunitarie del 1997 sugli aiuti di Stato al trasporto marittimo - che riportiamo di seguito - e se siano pertanto da considerare incompatibili con il mercato unico europeo. Il governo dell'Unione Europea ha ricordato che l'Olanda ha accettato di modificare i propri schemi di aiuto al trasporto marittimo secondo quando previsto dalle linee guida comunitarie. Qualsiasi aiuto concesso al trasporto marittimo e non autorizzato dalla Commissione - ha spiegato Bruxelles - viene ora considerato come una nuova sovvenzione e può quindi diventare formalmente oggetto di indagine. Considerando che le linee guida comunitarie non riguardano né le vie navigabili interne né i porti - ha specificato la Commissione - sarà stabilito se gli aiuti al trasporto marittimo concessi alle società olandesi che effettuano attività di rimorchio in quei settori sono compatibili con il mercato unico europeo. La Commissione Europea, per evitare che i concorrenti delle aziende olandesi possano subire dei danni, ha intanto sollecitato l'Olanda a sospendere il pagamento degli aiuti finché non verrà fatta luce sulla vicenda.

Community guidelines on State aid to maritime transport (Published in the Official Journal: OJ C 205, 5.07.1997) (97/C 205/05) (Text with EEA relevance)

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+ Annex

1. INTRODUCTION

1.1. Development of the shipping sector: free market principle

Community maritime policy, as laid down in several communications to the Council, covers the promotion of EC shipping, external relations and maritime safety, together with shipbuilding and maritime technology. The aim has been to ensure freedom of access to shipping markets across the world for safe and environmentally friendly ships, preferably registered in EC Member States with Community nationals employed on board.

This approach has succeeded in opening up markets, particularly in Europe, and has given the consumer a wide choice of competitive shipping services, but the proportion of ships entered in Member States' registers and the number of EC seafarers employed have both declined significantly, especially over the last decade.

Underpinning the philosophy is legislation at international, Community and national levels. In particular on safety standards and working conditions, international conventions and resolutions apply and the Community actively promotes the raising of world standards in the appropriate fora, such as, in particular, the International Maritime Organisation. At the Community level, in 1986, the Council adopted a basic package of legislation on shipping, based on an openmarket, nonprotectionist philosophy (1). Broadly speaking, the Community decided that there should generally be no further requirement other than establishment in the Community to confer the right to provide shipping services between the EC and third countries or between Member States. Thus, for example, Regulation (EEC) No 4055/86 provides for the freedom to provide services for all EC established carriers, irrespective of whether they operate vessels under EC or third country flags.

The exceptions to this open trade philosophy, where trades are still restricted to vessels registered in Member States and under Member States' flags are relatively minor (certain cabotage trades in particular). The registration of a vessel in a Member State therefore offers few economic advantages; on the contrary, there may be disadvantages, such as strict manning conditions to be complied with and Member States' fiscal and social arrangements for companies and their employees, which means that, in most cases, it is relatively expensive to operate ECregistered ships with EC seafarers on board. Further, there are few costs for third country operators entering the open trades. In addition, while there are no direct or indirect taxes or duties, such as apply to most imported goods and services, applicable to shipping services to ensure some comparability between EC and nonEC operators' costs, there is direct competition between Communityregistered ships and third country vessels not only in international trades but also in most trades within the Community.

Further, the shipping industry is extremely mobile and an onerous system can easily be avoided through registering vessels in other countries (giving absolute freedom in manning) and, if necessary, establishing a nominal level of administration or management outside the Member State (to avoid its fiscal systems). Further, there has, in recent years, been a large supply of seafarers available from lowwage third countries, giving shipowners a lawcost option when selecting crews. There is also at present cyclical and structural overcapacity which means that the indusrtry is demandled and that shippers can drive down freight rates; this, combined with high fixed costs for shipowners, means that the incentive to cut costs and possibly corners increases and the pursuit of high quality in operations may not be commercially attractive. This may then undermine the longterm interests of the Community in safe, efficient, environmentally friendly transport.

1.2. Development of the shipping sector: decreasing competitiveness of EC flags

The European shipping industry faces stiff international competition and the size of the Communityregistered fleet in total worldwide maritime transport has been decreasing steadily over the last three decades. In 1970, 32 % of the world tonnage sailed under the flags of EC Member States; by 1995 this share had decreased to 14 %. The share of the major openregistry countries increased from 19 % to 38 % over the same period. There has also been a correspondingly steady decrease in the number of EC seafarers employed on board.

Recognizing the problem of the lack of competitiveness of the EC flags, the Commission proposed a series of positive measures in 1989, including a Community ship register (<Euros;) (2). This was intended to operate in conjunction with Member States' first national registers and guarantee shipowners State aid in return for accepting certain obligations as to employment of Community nationals in the crew. However, in the end, the Council was unable to accept the Euros approach.

In the absence of a Community measure providing a degree of harmonization, Member States took initiatives independently in order to preserve their maritime interests. Important economic considerations, maintaining employment and knowhow and the strategic value of the fleet have all been identified as influencing national policy decisions. It is also recognized that quality must not be prejudiced by costcutting by shipowners simply in order to survive in the face of lowcost competition emanating particularly from flags of convenience; quality must be preserved and improved, both in terms of the technical standards and the operation of the vessels, which entails a continuing need for training and employing people with the requisite skills.

Measures were, therefore, progressively introduced to slow down the trend to flag out, such as relaxing conditions applicable to national first rgisters, developing second or international registers or using State aid measures or a combination of these, but no approach has been wholly successful.

Flagging out of vessels is, however, not the end of the problem. Where flag State outside the Community offers an attractive international services infrastructure, flagging out has tended in recent years to be followed by relocation of ancillary activities (such as ship management) to countries outside the Community, leading to an even greater loss of employment, both on board ship and on shore. A further consequence has been a loss of maritime knowhow. A perception that there are a limited number of positions available at sea, a difficult working environment and few opportunities to develop a career has led to a decrease in the number of students at maritime training institutes and in the recruitment of young seafarers, which has compounded the negative effects on board and on shore.

1.3. State aid guidelines of 1989

In 1989, faced with the increasing use of State aid, the Commission established guidelines defining the conditions under which State aid to shipping would be considered compatible with the common market (3). The two basic objectives defining the Community's common interest were deemed to be the maintenance of ships under Community flags and the employment, to the highest possible degree of Community seafarers. The Commission sought to achieve these objectives through a Community approach, addressing the problem of the cost gap between the fleet registered in Member States and vessels flags of convenience. This was the first attempt to bring about some convergence between the Member States' actions.

Ceiling

In particular, the Commission accepted that Member States' fleets faced a difficult competitive position because of advantages available to operators flying flags of third countries, including flags of convenience. These lead to differences in operating costs. The 1989 guidelines, therefore, included the outline of a method devised to ensure that the global impact of State aid would not exceed a ceiling to be defined on the basis of the cost handicap which ships operated under the flag of a lowsalary Member State met on world markets. The calculation was based on the hypothecial operating cost of vessels under Portuguese and Cypriot flags, as representing the cheapest Community first register and a flag of convenience. Once weighted to reflect the composition of the national flag fleet in terms of vessel types, this resulted in a single national ceiling for annual operating aid, applicable to all types of vessel.

1.4. Revision of guidelines

Given the continuing decline in the Community fleets and the increasing divergence between Member States' policy responses to the perceived difficulties of the Community shipping sector, the Commission concluded that the Community's maritime strategy should be reviewed. The initial results of this review were presented in a communication (4) in March 1996.

The Commission concluded that further improving safety, access to international markets and the application of competition rules, along with efforts to enhance training and encourage employment and R& D, would enhance the competitiveness of the Community shipping sector. However, the Commission accepted that support measures may nevertheless be required for the present to maintain and develop the Community's shipping sector. The communication also raised questions about a possible new approach to State aid.

There was general consensus that the maritime State aid guidelines required revision, to take into account developments in international competition and the global trend towards liberalization of trade in goods and services, developments in the maritime sector, experience of applying the 1989 guidelines, reactions to the communication on a maritime strategy and the inventory of State aid for shipping, drawn up in line with the commitments made in the White Paper on the <Future Development of the Common Transport Policy; (5).

In terms of general principles, the objectives of promoting a safe and competitive Community fleet with the employment of the highest possible number of Community seafarers remain valid. However, the means of achieving this objective requires aid to be more closely linked with specific actions rather than an indirect reflection of hypothetical operating cost differences.

In the matter of the ceiling, the method has proved difficult to apply so as to take sufficiently into account differences in the size of vessels, productivity, crewing arrangements and the economic performance of the operator (ie. profits or losses obtained). It has, therefore, been concluded that an alternative approach to limit the intensity of aid schemes and to avoid a subsidies race is required (see Chapter 10).

The competitive difference between ships registered in the Community and those registered outside, especially those operated under flags of convenience, depends primarily on fiscal costs. This is because the cost of capital is essentially the same worldwide and equally there is no differential in the technology available. The fiscal costs (corporate taxation and wagerelated liabilities in respect of seafarers), however, have been shown by different studies to be the critical and distortive factor.

In principle, operating aid should be exceptional, temporary and degressive. In the case of maritime transport, however, the problem of the competitiveness of the EC fleet on the world market is a structural one, deriving in large part from external factors. As the immediate prospects of resolving this cost gap problem do not appear good, the need for aid measures to allow shipowners to operate Communityregistered ships competitively in the global market is not likely to be short term.

In the international context, the Community has pressed for liberalization of world maritime transport services in discussions under the WTO framework but important trading partners were unwilling to accept the proposals tabled and further debate has been postponed until the next round of comprehensive negotiations on services, which is due to take place no later than the year 2000. It also seems unlikely, in the immediate future, that there will be international agreements on the application of competition rules for maritime transport, including restriction of national aid schemes.

In the future, the level of aid may be progressively reduced, provided that the world economic and political situation allows it. In particular, if the new disciplines that are presently being negotiated in the framework of GATS relating to the potentially distortive effects of subsidies on trade in services entered into force, the current guidelines would be amended accordingly. For the present, the situation should be monitored through regular review of aid in the light of the competitiveness of Community fleets in the world market.

2. SCOPE AND GENERAL OBJECTIVES OF THE REVISED STATE AID GUIDELINES

The Community approach to State aid needs to accommodate differences in the priorities and approaches of the Member States while ensuring that competitive distortions are kept to a minimum.

The Commission's role is to set the parameters within which State aid will be approved. Aid schemes should not be at the expense of other Member States' economies and must be shown not to risk distortion of competition between Member States to an extent contrary to the common interest. State aid must always be restricted to what is necessary to achieve its purpose and be granted in a transparent manner. The cumulative effect of all aid granted by State authorities (including national, regional and local levels) must always be taken into account.

2.1. Scope of revised State aid guidelines

These guidelines cover any aid granted by EC Member States or through State resources in favour of maritime transport. This includes any financial advantage conferred in any form whatsoever funded by public authorities (whether at national, regional, provincial, departmental or local level). For these purposes, <public authorities; may also include public undertakings and Statecontrolled banks. Arrangements whereby the State guarantees loans or other funding by commercial banks may also fall within the definition of aid. The guidelines draw no distinction between types of beneficiary in terms of their legal structure (e.g. companies, partnerships or individuals), nor between public or private ownership, and any reference to companies shall be taken to include all other types of legal entity.

These guidelines do not cover aid to shipbuilding (within the meaning of the Seventh Directive (6), as extended by Council Regulation (EC) No 1904/96 (7), or any subsequent instrument including Council Regulation (EC) No 3094/95 (8) intended to give effect to the State aid provisions of the OECD agreement respecting normal competitive conditions in commercial shipbuilding and shiprepair when it enters into force) or aid for fishing vessels. Investments in infrastructure are not normally considered to involve State aid within the meaning of Article 92 (1) of the Treaty, if the State provides free and equal access to the infrastructure for the benefit of all interested operators. However, the Commission may examine such investments if they could directly or indirectly benefit particular shipowners. Finally, the Commission has established the principle that no State aid is involved where public authorities contribute to a company on a basis that would be acceptable to a private investor operating under normal market economy conditions (9).

These guidelines will apply from the date of their publication in the Official Journal of the European Communities; however, they are without prejudice to aid schemes which have already been authorised prior to the publication. Nonetheless, these latter schemes will be subject to review under Article 93(1) of the Treaty and shall be amended where necessary within 18 months after these guidelines have become applicable.

2.2. General objectives of revised State aid guidelines

The Commission has stressed (10) that increased transparency of State aid is necessary so that not only national authorities in the broad sense but also companies and invidivuals are aware of their rights and obligations. These guidelines are intended to contribute to this and to clarify what State aid schemes may be introduced in order to support the Community maritime interest Since this is considered to be enhancing the competitiveness of the Community fleets, State aid may generally be granted only in respect of ships entered in Member States' registers (11). This policy should:

- safeguard EC employment, (both on board and on shore),

- preserve maritime knowhow in the Community and develop maritime skills, and

- improve safety.

However, State aid may, in certain exceptional cases, be granted in respect of ships entered in registers under (3) of Annex, provided that the Member State concerned establish that the register contributes directly to the objectives mentioned above.

Additionally, flagneutral aid measures may be approved in certain exceptional cases where a benefit to the Community is clearly deemonstrated (see point 3.1 and Chapter 7).

Further objectives of the common transport policy (12) may also be taken into account, such as the construction of a Community framework for sustainable mobility and, as part of this, the promotion of short sea shipping and development of its full potential.

3. FISCAL AND SOCIAL MEASURES TO IMPROVE COMPETITIVENESS

3.1. Fiscal treatment of shipowning companies

In the shipping sector, Member States have responded to the difficulties caused by the diverse factors affecting international competition in different ways, reflecting different circumstances. Some have been able to rely on general measures whilst others have resorted to State aid. The discussions on the Euros proposal have shown that the possibility for harmonization in this area is, for the time being, limited.

Many third countries have developed significant shipping registers, sometimes supported by an efficient international services infrastructure, attracting shipowners with a fiscal climate which is considerably milder than within EC Member States. The low tax environment has resulted in there being an incentive for companies not only to flag out their vessels but also to consider corporate relocation. It should be emphasised that there are no effective international rules at present to curb such tax competition and few administrative, legal or technical barriers to moving a ship's registration from a Member State's register. This leaves all Member States having significant fleets with a common problem: the creation of conditions which allow fair competition with flags of convenience seems the best way forward.

The question of fiscal competition between Member States should be addressed. At this stage, there is no evidence of schemes distorting competition in trade between Member States to an extent contrary to the common interest. In fact, there appears to be an increasing degree of convergence in Member States' approaches to shipping aid. Flagging out between Member States is a rare phenomenon. Fiscal competition is mainly an issue between EU Member States on the one hand and third countries on the other since the cost savings available to shipowners through third country registers are considerable, in comparison to the options available within the Community. Furthermore, profits in shipping, which would be subject to tax, have been depressed in recent years so that the differences between effective rates of tax in the Member States have been marginal considerations. The continual decline of the fleets registered in Member States, while the proportion of world shipping under control of EC shipowners has remained relatively stable over the last decade testifies to this.

In order to counter this tendency, many Member States have taken special measures to improve the fiscal climate for shipowning companies, including, for instance, accelerated depreciation on investment in ships or the right to reserve profits made on the sale of ships for a number of years on a taxfree basis, provided that these profits are reinvested in ships.

These fiscal alleviation measures which apply in a special way to shipping are considered to be State aid. Equally, the system used in certain Member States and third countries of replacing the normal corporate tax system by a tonnage tax is a State aid. Tonnage tax means that the shipowner pays an amount of tax linked directly to the tonnage operated. The tonnage tax will be payable irrespective of the company's actual earnings, or profits or losses made.

Such measures have been shown to safeguard high quality employment in the onshore maritime sector, such as management directly related to shipping and also in associated activities (insurance, brokerage and finance). In view of the importance of such activities to the economy of the Community and in support of the earlier stated objectives, these types of fiscal incentive can generally be endorsed. Further, safeguarding quality employment and stimulating a competitive shipping industry established in a Member State through fiscal incentives taken together with other initiatives on training and enhancement of safety will facilitate the development of Community shipping in the global market.

The Commission is aware that the income of shipowners is nowadays often obtained from the operation of ships under different flags, for instance, when making use of chartered vessels under foreign flag or by making use of partner vessels within alliances. It is also recognized that the incentive for expatriation of management and ancillary activities would continue if the shipowner obtained a significant financial benefit from maintaining different establishments and accounting separately for Community flag earnings and other earnings. This would be the case, for example, if the nonCommunity flag earnings were liable either to the full rate of corporate taxation in a Member State or a low rate of tax overseas if overseas management could be demonstrated.

The objective of State aid within the common maritime transport policy is to promote the competitiveness of the EC fleets in the global shipping market. Consequently, fiscal alleviation schemes should, as a rule, require a link with a Community flag. However, they may also, exceptionally, be approved where they apply to the entire fleet operated by a shipowner company established within a Member State's territory liable to corporate tax, provided that it is demonstrated that the strategic and commercial management of all ships concerned is effectively carried out from within the territory and that this activity contributes substantially to economic activity and employment within the Community. The evidence furnished by the Member State concerned to demonstrate this economic link should include details of vessels owned and operated under Community registers, EC nationals employed on ships and in landbased activities and investments in fixed assets. It must be stressed that the aid must be necessary to promote the repatriation of the strategic and commercial management of all ships concerned in the EU and, in addition, that the beneficiaries of the schemes must be liable to corporate tax in the Community. Also the Commission would request any available evidence to show, that all vessels operated by companies benefiting from these measures comply with the relevant international and Community safety standards, including those relating to onboard working conditions.

Where fiscal schemes are approved on the above exceptional basis, the Commission will require the provision of regular reports, demonstrating the effect of the measure (in conjunction with any other State aid scheme operating in the Member State) on the Communityregistered fleet operated from the Member State and on employment of EC seafarers. The Commission will closely monitor the situation regarding possible distortion of competition in trade between Member States.

In all cases, the benefits of schemes must facilitate the development of the shipping sector and employment in support of the Community interest. Consequently, the fiscal advantages mentioned above must be restricted to shipping activities; hence, in cases where a shipowning company is also engaged in other commercial activities, transparent accounting would be required in order to prevent <spill over; to nonshipping related activities. This approach would help EC shipping to be competitive, with tax liabilities comparable to levels applying elsewhere in the world, but would preserve a Member State's normal tax levels for other activities and personal remuneration of shareholders and directors.

3.2. Labourrelated costs

In January 1997, the Commission issued a communication on monitoring of State aid and reduction of labour costs (13), in general covering all sectors of the economy and concentrating particularly on the lowerskilled end of the market. This warns of the risks of labour cost alleviation directed towards specific sectors which can upset the proper functioning of the internal market and thus be detrimental to the competitiveness of Community industry and longterm job creating. In particular, the Commission considers the potentially negative effects of this approach on sectors with overcapacity or in crisis (defined as those in which the demand for Community products is stagnating or falling), sensitive sectors (those where there is significant intraCommunity trade and competition), and sectors in international competition.

However, maritime transport presents a special case, as the Commission accepted in adopting its guidelines on State aid in 1989 and the communication on reduction of labour costs. In particular, <aid in the field of social security and seafarers' income taxation, tending to reduce the burden borne by shipping companies without reducing the level of social security for the seafarers and resulting from the operation of ships registered in the Community may be considered compatible with the common market.; The Commission considers that this approach remains valid.

Maritime transport is a sector experiencing a certain overcapacity worldwide and where international competition is fierce. However, the problem identified in the industrial sectors with overcapacity or in crisis is that aid can have the effect of transferring difficulties - and unemployment problems - to EC competitors who do not enjoy such advantages. In maritime transport, demand for quality is increasing and there is an estimated growth potential in the market; further, there is a lack of trained and qualified seafarers worldwide. It can therefore be concluded that aid supporting employment of, particularly, skilled Community seafarers should not be discouraged on this basis. The degree of cooperation between carriers through conferences and consortia, etc. in liner trades and the proportion of crosstrading in bulk operations mean that the centre of gravity in competition is between EC and nonEC carriers. Finally, the communication suggests that the differentiels between the lowwage countries and the Member States are very significant and integrating new production technology, innovation, quality and training can more durably improve performance in terms of competitiveness and employment. While this is true for most industrial sectors, it is largely not the case in maritime transport, for the reasons outlined in Chapter 1.

Support measures for the maritime sector should, therefore, aim primarily at reducing fiscal and other costs and burdens borne by EC shipowners and EC seafarers (i.e. those liable to taxation and/or social secutiry contributions in a Member State) towards levels in line with world norms. They should directly stimulate the development of the sector and employment, rather than provide general financial assistance.

In line with the objective, therefore, the following action on employment costs should be allowed for EC shipping:

- reduced rates of contributions for the social protection of EC seafarers employed on board ships registered in a Member State,

- reduced rates of income tax for EC seafarers on board ships registered in a Member State.

For this type of aid, a maximum reduction of liabilities to zero may be permitted, allowing Member States to bring employmentrelated costs to levels in line with world norms which often entail exemption from tax and social security liabilities for seafarers. However, no subsidy on net wages of EC seafarers may be granted, as this might lead to a distortion of competitive conditions between Member States. The alleviation of fiscal burdens would not remove the interest of the shipowner in negotiating an appropriate salary package with potential crew members and their labour representatives. Seafarers from Member States with lower wage levels would still, therefore, have a competitive advantage over those from other Member States with higher wage expectations. In any event, EC seafarers will continue to be more expensive than the cheapest available in the global market. Hence, there is no danger of overcompensation entailed in this measure.

For internal fiscal reasons some Member States prefer not to apply reduced rates as mentioned above, but instead may reimburse shipowners - partially or wholly - for the costs resulting from these levies. Such an approach may generally be considered as equivalent to the reduced rate system as described above, provided that there is a clear link to these levies, no element of overcompensation, and that the system is transparent and is not open to abuse.

4. CREW RELIEF

A separate measure identified in the Commission's 1989 guidelines as in the common interest of the Community is aid for crew relief. This tends to reduce the costs of employing EC seafarers, especially those on ships operating in distant waters. Although in 1989 the Commission limited aid of this type to 50 % of the total costs incurred for these reasons, the development of the new approach to a ceiling means that it is not necessary to impose a specific limitation for this type of measure. Aid, which is subject to the ceiling, may, therefore, be granted in the form of payment or reimbursement of the costs of repatriation of EC seafarers working on board ships entered in Member States' registers.

5. INVESTMENT AID

At present, some Member States grant aid for newly built vessels only, others also for the purchase of certain categories of secondhand vessels or for conversion or modernization of existing vessels. These schemes have tended to create or maintain overcapacity, leading to lower freight rates, thus stimulating EC operators to cut costs, in many cases by flagging out. Further, the system has induced shipowners in some instances to make decisions about buying and selling ships for fiscal rather than commercial reasons.

Subsidies for fleet renewal are not common in other transport modes (road haulage, aviation). Since they tend to distort competition, the Commission has been reluctant to approve such schemes, except where part of a structural reform leading to reductions in overall fleet capacity.

Following the submission by the Commission of its communication (14) on shipbuilding, the Council held on 24 April 1997 decided to extend the Seventh Directive on shipbuilding until 31 December 1998. Therefore, investment for new ships must comply with those rules or any other Community legislation that may replace them.

Within the framework of the present Guidelines, other investment aid may however be permitted, in line with the Community safe seas policy (15), in certain restricted circumstances to improve equipment on board vessels entered in a Member State's registers or to promote the use of safe and clean ships, such as providing incentives to upgrade Communityregistered ships to standards which exceed the mandatory safety and environmental standards laid down in international conventions and anticipating agreed higher standards, thus enhancing safety and environmental controls. Such aid must comply with the shipbuilding provisions, as referred to in the second paragraph of point 2.1, when applicable.

Since shipping is essentially very mobile, regional aid for maritime companies in disadvantaged regions, which often take the form of investment aid to companies investing in the regions, may only be permitted where it is clear that the benefits will accrue to the region over a reasonable time period. This would, for example, be the case if the investment related to the construction of dedicated warehouses or purchase of fixed transhipment equipment. Investment aid for maritime companies in disadvantaged regions may then only be permitted where is also complies with the regional aid rules (see Chapter 6, below).

6. REGIONAL AID ON THE BASIS OF ARTICLE 92 (3) (a) AND (c)

In the context of regional aid schemes, the Commission will apply the general rules set out in its communications on national regional aid (16) or future amendments thereto.

7. TRAINING

Many training schemes followed by seafarers and supported by the State are not considered to be State aid because they are of a general nature (whether vocational or academic). These are, therefore, not subject to notification and examination by the Commission.

State aid, notification is, however, required. This may be the case if, for example, a particular scheme is specifically related to onboard training and the benefit of State financial support is received by the training organization, the cadet, seafarer or the shipowner. State aid to training will be approved, provided the aid meets the Commission's general criteria (e.g. proportionality, nondiscrimination and transparency, where appropriate, relating to training carried out on board ships entered in Community registers). Exceptionally, training on board other vessels may be supported where justified by objective criteria, such as the lack of available places on vessels in a Member State's register.

Where financial contributions are paid for onboard training, the trainee may not, in principle, be an active member of the crew but must be supernumerary. This provision is to ensure that net wage subsidies cannot be paid for seafarers occupied in normal crewing activities.

Similarly, to safeguard and develop maritime expertise in the EC and the competitive edge of the EC maritime industries, further extensive research and development efforts are necessary, with a focus on quality, productivity, safety and environmental protection. For such projects, State support may also be authorised within the limits set by the Treaty (17).

8. RESTRUCTURING AID (INCLUDING PRIVATIZATION)

Although the guidelines on restructuring and rescuing firms in difficulty (18) apply to transport only to the extent that the specific nature of the sector is taken into account, the Commission will apply those guidelines in considering restructuring aid for maritime companies.

9. PUBLIC SERVICE OBLIGATIONS AND CONTRACTS

Direct aids aiming at covering operating losses are, in general, not compatible with the common market.

However, subsidization can, in principle, be accepted for public service obligations (PSO). A PSO is defined as any obligation imposed upon a carrier to ensure the provision of a service satisfying fixed standards of continuity, regularity, capacity and pricing, which standards the carrier would not assume if it were solely considering its economic interest.

PSOs may be imposed for scheduled services to ports serving peripheral regions of the Community or thinly served routes considered vital for the economic development of that region, in cases where the operation of market forces would not ensure a sufficient service level.

The Commission's practice in assessing contracts relating to PSOs is generally to consider that reimbursement of operating losses incurred as a direct result of fulfilling certain public service obligations is not State aid within the meaning of Article 92 (1) of the Treaty. Notification is not, therefore, required under Article 93 (3), provided that the following criteria are met:

- for public service contracts to be consistent with the common market and not to constitute State aid, the Commission expects public tenders to be made, as the development and implementation of schemes must be transparent and allow for the development of competition,

- adequate publicity must be given to the call for tender and all requirements concerning the level and frequency of the service, capacity, prices and standards required, etc. must be specified in a clear and transparent manner to ensure that all Community carriers with the right of access to the route (according to Community law) have had an equal chance to bid,

- the Member State can then award a contract to the successful bidder (except in exceptional and duly justified cases, whichever bidder requires the lowest financial compensation) and reimburse the extra costs incurred by the operator as a result of providing the service. This should be directly related to the calculated deficit made by the operator in providing the service. It should be accounted for separately for each such service so that it can be verified that there is no overcompensation or crosssubsidy and that the system cannot be used to support inefficient management and operating methods. Where a grant is made by the Member State on this basis and it is limited to reimbursement of extra costs incurred (together with a reasonable return on capital employed), the scheme will be considered not to amount to State aid.

The duration of public service contracts should be limited to a reasonable and not overlong period (normally in the order of five years), since contracts for significantly longer periods could entail the danger of creating a (private) monopoly. After expiration of the contract period, such contracts should be subject to retendering in accordance with the procedure described above.

Restrictions of access to the route to a single operator may only be granted if, when the public service contract is awarded according to the above mentioned procedure, there is no competitor providing, or having a demonstrated intention to provide, scheduled services on the route. The terms of any restriction or exclusivity must in any case be compatible with the provisions of Article 90 of the EC Treaty.

It must be stressed that if there is evidence that the Member State has not selected the cheapest offer, or if complaints are received alleging unfairness in the awarding procedure, the Commission will request information in order to verify whether the award includes State aid elements. If aid has been granted in breach of the procedural requirements of the Treaty, the Commission may issue an interim order suspending payment of aid and will in appropriate cases open the procedure under Article 93 (2) of the Treaty.

Although it is considered appropriate for Member States to make maximum use of the above procedures, exceptions may be justified, such as in the case of island cabotage involving regular ferry services. In those instances, measures must be notified and will continue to be assessed under the general State aid rules. In its assessment of compatibility with the Treaty, the Commission will verify whether or not aid may divert significant volumes of traffic or involve overcompensation, which could allow the selected carrier to crosssubsidise operations on which other Community carriers compete.

10. LIMITS TO AID

As was explained above, certain Member States support their maritime sectors through tax reduction whilst other Member States prefer to make direct payments - for instance, by providing reimbursement of seafarers' income tax. In view of the current lack of harmonization between the fiscal systems of the Member States, it is felt that the two alternatives should remain possible. Obviously, those two approaches may, in some instances, be combined. However, this risks cumulation of aid to levels which are disproportionate with the objectives of the Community common interest and could lead to a subsidy race between Member States.

A reduction to zero of taxation and social charges for seafarers and of corporate taxation of shipping activities is the maximum level of aid which may be permitted. To avoid distortion of competition, other systems of aid may not provide greater benefit than this. Consequently, although each aid scheme notified by a Member State will be examined on its own merits, it is considered that the total amount of aid in the form of direct payments in the framework of Chapters 3, 4, 5 and 6 should not exceed the total amount of taxes and social contributions collected from shipping activities and seafarers; to do so would, it is considered, affect trading conditions to an extent contrary to the Treaty provisions, as the aid would be disproportionate to the objective. This approach to limiting aid will replace the previous system of an annual ceiling based on the calculated hypothetical cost gap between vessels under the cheapest Community flag and a flag of convenience (see point 1.3).

11. FINAL REMARKS

The implementation of these guidelines presupposes discipline on the part both of Member State authorities and of the Commission, particularly in respect of the formal obligations to provide notification and the time limits to be adhered to. To expedite the examination of aid measures, Member States must notify the Commission of proposed aid measures at the draft stage, supplying all the particulars necessary for their assessment, in accordance with Article 93 (3) of the EC Treaty. The Commission considers that a Member State has failed to fulfil its obligations to notify where an aid measure has been put into effect either in accordance with national law or by giving a financial commitment to potential beneficiaries.

The Commission will use all the measures at its disposal to ensure that Member States fulfil their obligations under Article 93 (3). If aid is granted or measures are adopted without observing the notification requirements, the Commission has the power to apply the precedent established by the <Boussac; case (Case C301/87), France v. Commission (19) judgment of 14 February 1990), by taking an interim decision under Article 93 (2) of the Treaty on the basis of the information available to it. Further, any aid granted illegally (i.e. without a final positive decision of the Commission) may be subject to a demand for recovery from the beneficiary, following the principles established by the Court in the <Tubemeuse; case (Case C142/87, Belgium v. Commission (20), judgment of 21 March 1990); recovery of aid must comply with the provisions of domestic law concerned and interest must be charged from the time the aid was paid, the interest rate used being the reference rate used by the Commission in connection with regional aid (21).

The Commission seeks to ensure that nationals and companies of all Member States have full access to the facilities, products and services found in one Member State without discrimination. In the case of establishment by entry in shipping registers, this principle has been applied since the judgment of the Court of Justice of 25 July 1991 in Case C221/89, The Queen v. Secretary of State for Transport, ex parte: Factortame Ltd, et al (22). Similarly, State aid may not discriminate on grounds of nationality between companies established in a Member State.

The Commission will closely monitor the effects of aid schemes to ensure that competition in trade between Member States is not distorted and that Community objectives are being served.

(1) The 1986 package, OJ No L 378, 31. 12. 1986, pp. 1, 4, 14 and 21, consists of four Regulations:

- Regulation (EEC) No 4055/86 applying the principle of freedom to provide maritime transport between Member States and between Member States and third countries, as last amended by Regulation (EEC) No 3573/90 (OJ No L 353, 17. 12. 1990, p. 16);

- Regulation (EEC) No 4056/86 laying down detailed rules for the application of Articles 85 and 86 of the Treaty to maritime transport, as last amended by the Act of Accession of Austria, Finland and Sweden,

- Regulation (EEC) No 4057/86 on unfair pricing practices in maritime transport,

- Regulation (EEC) No 4058/86 concerning coordinated action to safeguard free access to cargoes in ocean trades.

(2) A future for the Community shipping industry - measures to improve the operating conditions of Community shipping;, COM(89) 266 final, 3. 8. 1989.

(3) <Financial and fiscal measures concerning shipping operations with ships registered in the Community;, SEC(89) 921 final, 3. 8. 1989.

(4) <Towards a new Maritime Strategy;, COM(96) 81 final, 13. 3. 1996.

(5) <The Future Development of the Common Transport Policy: a global approach to the construction of a Community framework for sustainable mobility;, COM(92) 494 final, para 59.

(6) Council Directive 90/684/EEC on aid to shipbuilding, OJ No L 380, 31. 12. 1990, p. 27, as last amended by Directive 94/73/EC (OJ No L 351, 31. 12. 1994, p. 10).

(7) OJ No L 251, 3. 10. 1996, p. 5.

(8) OJ No L 332, 30. 12. 1995, p. 1.

(9) Application of Articles 92 and 93 of the EEC Treaty to public authorities' holdings, Bulletin EEC 9 1984.

(10) XXII Report on Competition Policy, 1992, and <Towards a New Maritime Strategy;, COM(96) 81 final , 13. 3. 1996.

(11) See Annex.

(12) Commission White Paper: <The Future Development of the Common Transport Policy;, COM(92) 494 final.

(13) OJ No C 1, 3. 1. 1997, p. 10.

(14) <Shipbuilding Policy - Options for the Future. First Reflections;, SEC(97) 567.

(15) <A common policy on Safe Seas;, COM(93) 66 final.

(16) Communication on the method for the application of Article 92 (3) (a) and (c) to regional aid (OJ No C 212, 12. 8. 1988, p. 2).

If a scheme is to be considered to include

(17) Framework for Aid to Research and Development (OJ No C 45, 17. 2. 1996, p. 5), and Framework for Environmental Aid (OJ No C 72, 10. 3. 1994, p. 3).

(18) <Guidelines for restructuring and rescuing firms in difficulty; (OJ No C 368, 23. 12. 1994, p. 12).

(19) [1990] ECR I307.

(20). [1990] ECR I959.

(21) Commission Communication to the Member States, letter SG(95) D/1971 of 22 February 1995.

(22) [1991] ECR I3905.

ANNEX

DEFINITION OF MEMBER STATES' REGISTERS

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Member States' registers ; should be understood as meaning registers governed by the law of a Member State applying to their territories forming part of the European Community.

1. All the first registers of Member States are Member States' registers.

2. In addition, the following registers, located in Member States and subject to their laws, are Member States' registers:

- the Danish International Register of Shipping (DIS),

- the German International Shipping Register (ISR),

- the Madeira International Ship Register (MAR),

- the Canary Islands register.

3. Other registers are not considered to be Member States' registers even if they serve in practice as a first alternative for shipowners based in that Member State. This is because they are located in and subject to the law of territories where the Treaty does not, in whole or in substantial part, apply. Hence, the following registers are not Member States' registers:

- the Kerguelen register (the Treaty does not apply to this territory),

- the Dutch Antilles' register (this territory is associated to the Community; only Part IV of the Treaty applies to it. It is responsible for its own fiscal regime),

- the registers of:

- Hong Kong (the Treaty does not apply to this territory),

- Isle of Man (only specific parts of the Treaty apply to the Isle - see Article 227 (5) (c) of the Treaty. The Isle of Man parliament has sole right to legislate on fiscal matters),

- Bermuda and Cayman (they are part of the territories associated to the Community; only Part IV of the Treaty applies to them. They have a fiscal autonomy).

4. In the case of Gibraltar, the Treaty applies fully and, although the territory is not considered part of the UK, the Gibraltar register is, for the purposes of these guidelines, considered to be a Member State's register.