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C 309/2 EN Official Journal of the European Communities 9.10.

98

STATE AID
C 53/98 (ex N 31/98)
Italy

(98/C 309/02)

(Articles 92 to 94 of the Treaty establishing the European Community)

Commission notice pursuant to Article 93(2) of the EC Treaty to other Member States and
interested parties concerning aid which Italy (Veneto region) plans to grant for subsidised
short-term loans in agriculture

By means of the following letter, the Commission has notified the Italian Government of its
decision to institute proceedings.

‘By letter of 7 January 1998, recorded as received on 13 January 1998, the Office of the Italian
Permanent Representative to the European Communities notified the Commission of the above
measures, in accordance with Article 93(3) of the Treaty.

By letter of 19 May 1998, recorded as received on 26 May 1998, the Office of the Italian
Permanent Representative to the European Communities sent the Commission the information
which the latter had requested by letter of 17 February 1998.

1. Description of the notified measure

The aid measures notified concern the Veneto region’s draft Law No 366 of 21 October
1997 on urgent measures for subsidised short-term loans in agriculture.

The purpose of the draft Law is to enable agricultural holdings to overcome financial diffi-
culties specific to the agricultural production process during 1998. To that end, the Veneto
region is authorised to grant subsidised short-term loans designed to support agricultural
holdings’ current operations.

Recipients comprise individual or collective farmers, agricultural cooperatives engaged in


processing and marketing produce and providing services, and producer organisations
recognised by current national and Community regulations.

The types of agricultural credit which the Veneto region may provide are:

—Ùloans to cover holdings’ operating needs,

—Ùloans for financial advances to members (in the case of production cooperatives and
producer organisations).

—Ùloans for purchasing plant and equipment for members’ holdings (in the case of service
cooperatives and producer organisations).

Loans must be for 12 months at the most. Subsidy must not exceed 40Ø% of the reference
rate, but may be up to 70Ø% in less-favoured agricultural areas within the meaning of the
Community rules.
9.10.98 EN Official Journal of the European Communities C 309/3

The estimated total budget for implementing the measure is ITL 12 billion.

2. Appraisal

When examining State aid subsidising the interest rates for short-term loans in agriculture to
see whether it complies with Articles 92 and 93 of the Treaty, the guidelines on national aid
in the form of short-term loans in agriculture must be borne in mindØ(Î).

The guidelines state that:

A.Ùthe Commission recognises that agriculture in the Community may, for reasons inherent
in the nature of farming and related activities, in particular seasonality of production and
structure of farm businesses, be at a relative disadvantage to operators elsewhere in the
economy both in terms of their need for, and ability to finance, short-term loans.
However, any aid destined to reduce the cost of such loans is evidently State aid of an
operating nature which fulfils the conditions of Article 92(1) of the Treaty.
Consequently, such aid must be subject to appropriate rules governing its grant.

B. The Commission considers it necessary to ensure that these subsidised loans are not used
to aid selectively specific sectors or operators in agriculture on grounds not solely related
to the abovementioned difficulties.

C. The element of aid under any programme must be limited to that which is strictly
necessary to compensate for the disadvantages referred to under point A. A Member
State wishing to apply subsidised loans under point B must quantify the financing disad-
vantages under point A, using the method which it considers appropriate but always
remaining within the limits of the gap between the interest rate paid by a typical agri-
cultural operator and the interest rate paid in the rest of the economy of the Member
State concerned for short-term loans of a similar amount per operator, not linked with
investments. This quantification and methodology must be communicated to the
Commission so that they can be taken into account when the compatibility of the aid
under Articles 92 and 93 of the Treaty is being assessed. The amount of subsidised loans
to any beneficiary must not exceed the cash flow requirements arising from the fact that
production costs are incurred before income from output sales is received. The amount
may be fixed on a flat-rate basis. In no case may the aid be linked to particular
marketing or production operations.

D. The Commission has maintained all other aspects of its policy in this area, namely that
the duration of the subsidised loans must be a maximum of one year (renewable for each
beneficiary). If the conditions under points B and C are fulfilled, these measures may
also be applied to operators involved in processing and marketing agricultural products.

By letter of 4 July 1997 the Commission notified Member States that it had decided to
suspend application of the guidelines on subsidised short-term loans in agriculture, since
problems of interpretation had arisen during the application, by some Member States, of
point C.

By letter SG(97) D/10801 of 19 December 1997 the Commission notified Member States
that the guidelines would apply again from 30 June 1998 and that their present wording did
not need to be changed.

(Î)ÙOJ C 44, 16.2.1996, p. 2.


C 309/4 EN Official Journal of the European Communities 9.10.98

By that letter, the Commission pointed out to Member States that the only possible interpre-
tation of point C was the one which was immediately apparent from a literal reading and
that, consequently, a subsidy from public funds for a short-term loan in agriculture must not
exceed the differential between the interest rate paid by a typical agricultural operator and
the interest rate paid in the rest of the economy of the Member State concerned for
short-term loans of a similar amount per operator, not linked with investments.

In that same letter, the Commission stated that it would undertake an appraisal, under
Articles 92 and 93 of the Treaty, of aid which would come into, or remain in force after 30
June 1998 based on the interpretation of point C. Should such aid fail to comply with the
conditions set out in the guidelines, as interpreted in that letter, the Commission would be
obliged to institute proceedings.

Given that it should apply throughout 1998, the draft regional Law notified was examined
in the light of the provisions referred to above.

The Commission took into consideration the fact that the draft regional Law follows the
definition used in the relevant Community guidelines: the maximum loan period is one year.
The Commission was also of the opinion that, in view of the broad definition of eligible
recipients and the lack of discrimination between the economic sectors and operations
covered, the subsidised loans examined were not granted selectively in terms of the type of
agricultural operator or sector.

The interest-rate subsidies are set at 40Ø% of the reference rate as a general rule, but may be
up to 70Ø% in less-favoured agricultural areas within the meaning of the Community rules.

The method submitted by the Italian authorities compares two businesses, one agricultural
and one non-agricultural, taking out a loan of the same amount, at the same interest rate.
Firstly, they consider that the rate of return on the capital invested is the same as the interest
rate. They also consider that the financial cycle for short-term operations is, on average, five
months in agriculture and one month in other sectors. Starting from the principle that it
would be acceptable to grant the agricultural sector the return differential caused by the
difference in length of the production cycles, it would be acceptable to grant aid up to
33,4Ø% of the reference rate.

Secondly, the calculation takes into consideration not only the differing lengths of the
production cycles, but also the differing rate of return in agriculture (return on capital
invested estimated at 4Ø%) compared with other sectors (return on capital invested estimated
at 10Ø%). Under these conditions, aid up to 68,1Ø% of the reference rate would be
acceptable. The reduced profitability of holdings in ‘‘less-favoured areas’’ (estimated, in the
Veneto region, at one third of those on the plains) would justify increasing the subsidy.

On the basis of the information provided by the Italian authorities, it does not appear that
the proposed level of subsidies complies with the conditions set out in the relevant
Community guidelines as interpreted by the Commission letter of 19 December 1997.

Firstly, the agricultural sector’s disadvantages compared with other sectors are demonstrated
on the basis of the relative length of time for which capital is immobilised and not on the
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basis of interest rates. Consequently, subsidy is not limited to the gap between the interest
rate paid by a typical agricultural operator and the interest rate paid in the rest of the
economy of the Member State concerned for short-term loans of a similar amount per
operator, not linked with investments. According to the Italian authorities, where
short-therm loan transactions are carried out with genuine guarantees (assets of the holding
concerned), the banking risk of lending to the agricultural sector is reduced. The difference
in interest rates between agriculture and other sectors for this type of transaction are
therefore regarded as negligible.

Secondly, the Italian authorities regard the differences in average production cycle, five
months in agriculture and one month in the remaining production sectors, as justification
for the 40Ø% interest-rate subsidy. This method of calculating the agricultural sector’s disad-
vantage results in compensating by interest-rate subsidy the additional financial costs linked
to an ‘‘agricultural’’ loan for a longer average period (five months) than a loan arranged (on
the same terms but for just one month) by a business in another sector.

The Commission had already taken the view in December 1997 that this resultØ(Ï), which is
already questionable because it allows compensation for a factor which does not relate
solely to interest-rate differential, but which is inevitably influenced by a number of metho-
dological options which lend themselves to arbitrary application, the lenght of the
production cycle being the most important of these. (Why five months for agriculture in all
cases? And why just one for other sectors? Based on these two factors, the rate of subsidy
could theoretically range from 0Ø% to 100Ø%). The Commission also considered that the
agricultural production cycle may vary considerably in length depending on the product.

It seems just as arbitrary to assume that short-term financing requirements in the non-agri-
cultural sectors would be confined to a single (one-month) loan per year (a business may
have to arrange a loan of such short duration several times in the course of a year).

Thirdly, the Commission considers that introducing a factor to compensate for the
difference in return on capital in agriculture (assessed at 4Ø%) and in the non-agricultural
sector is not covered by the Community guidelines. This potential ‘‘penalty factor’’ for the
whole of the agricultural sector, which is in no way linked to the conditions of access to
short-term loans, would in some way suggest less of a return on capital invested in an
agricultural production process than on the same capital invested in other sectors. Yet the
purpose of the Community guidelines is to compensate for agriculture’s disadvantage in
terms of access to short-term loans and not to enable certain activities to receive national aid
to make up for the difference in returns.

In the light of the Community guidelines, there thus appear to be insufficient grounds for an
increase of 40Ø% to 70Ø% in less-favoured agricultural areas based on the difference in
economic profitability.

In addition to point C of the Community guidelines, these provisions appear to contravene


point B, since the subsidised short-term loans would be used to provide selective assistance
to individual agricultural businesses (those operating in less-favoured agricultural areas
within the meaning of the Community rules) for reasons not solely linked to difficulties in
obtaining short-term loans.

(Ï)ÙThe present notification is based on the same parameters concerning the length of the production cycle
as those used in the general method submitted by Italy in 1997.
C 309/6 EN Official Journal of the European Communities 9.10.98

3. Conclusion

In view of the above, the Commission considers that the measure notified does not appear
to comply with the Community guidelines on subsidised short-term loans in agriculture.

The Commission must ordinarily regard the aid in question as operating aid contrary to its
practices in applying Articles 92 to 94 of the Treaty and not contributing, in essence, to the
development of the sector or region concernedØ(Ð). The proposed measures directly favour
the improvement of agricultural production conditions for producers in the Veneto region
compared with those for other EU businesses not receiving any comparable aid. In the light
of the above, the aid examined would appear to fall under Article 92(1) of the Treaty but,
on the basis of the information available so far, the Commission takes the view that the aid
does not qualify for any of the exemptions provided for in Article 92(2) and (3).

Consequently, the Commission has decided to initiate the procedure provided for in Article
93(2) of the Treaty in respect of the notified measure.

Under this procedure, the Commission invites the Italian Government to submit its
comments. These must reach the Commission within one month of the date of this letter, be
based on the points made in this letter and enable the Commission to decide whether or not
the aid complies with the Community provisions governing State aid.

The Commission also informs the Italian authorities that, as part of the same procedure and
by publishing this letter in the Official Journal of the European Communities, it will invite the
other Member States and all interested parties to submit their comments within four weeks
of the publication date.

The Commission would draw the Italian authorities’ attention to the letter it sent to all
Member States on 3 November 1983 concerning their obligations under Article 93(3) of the
Treaty and to the notice published in Official Journal of the European Communities C 318 of
24 November 1983, which stated that any aid granted illegally, i.e. without a final decision
under the procedure laid down in Article 93(2) having been reached, may be subject to a
request for recovery. Repayment must be made in accordance with Italian law. The interest
payable from the date on which the aid was granted must be calculated on the basis of the
reference rate which the Commission uses for regional aid.

Without prejudice to the possible recovery of the aid, the Commission may refuse to charge
to the EAGGF expenditure granted for national measures directly affecting Community
measures.

Accordingly, the Commission should be notified, within 15 working days of the date of
receipt, whether this decision contains confidential information which must not be
published. Should the Commission not receive a substantiated request to that effect within
the prescribed period, it will assume agreement to the full text of the decision being

(Ð)ÙJudgment of the Court of First Instance in Case T-459/93 Siemens SA v. Commission of the European
Communities [1995] ECR II-1675.
9.10.98 EN Official Journal of the European Communities C 309/7

published. This request and the above information required by the Commission must be sent
by registered letter or by fax to:

European Commission
Directorate-General for Agriculture
Directorate B.I — Agro-economic legislation
Rue de la Loi/Wetstraat 200
B-1049 Brussels
Fax (32-2) 296Ø21Ø51’.

The Commission asks other Member States and interested parties to submit their comments,
within one month of this notice’s publication, to the following address:

European Commission
Rue de la Loi/Wetstraat 200
B-1049 Brussels.

The comments will be communicated to the Italian Government.

Non-opposition to a notified concentration


(Case No IV/M.1300 — Allied Signal/AMP)

(98/C 309/03)

(Text with EEA relevance)

On 18 September 1998, the Commission decided not to oppose the above notified concen-
tration and to declare it compatible with the common market. This decision is based on
Article 6(1)(b) of Council Regulation (EEC) No 4064/89. The full text of the decision is only
available in English and will be made public after it is cleared of any business secrets it may
contain. It will be available:

—Ùas a paper version through the sales offices of the Office for Official Publications of the
European Communities (see list on the last page),

—Ùin electronic form in the ‘CEN’ version of the CELEX database, under document number
398M1300. CELEX is the computerised documentation system of European Community
law; for more information concerning subscriptions please contact:

EUR-OP,
Information, Marketing and Public Relations (OP/4B),
2, rue Mercier,
L-2985 Luxembourg.
Tel. (352) 29Ø29-42455, fax (352) 29Ø29-42763.