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November 26, 2003

European Commission eases rules on support for innovation in shipbuilding

A new European Commission "Framework" on the subsidies EU governments give shipyards doubles the state support permitted in support of "innovation."

The European Commission says the LeaderSHIP 2015 initiative has "revealed the crucial importance of increasing the competitiveness of the EU shipbuilding industry."

The new framework on support measures for shipbuilding, adopted today, improves and strengthens support for innovation. Compared to the 1998 Shipbuilding Regulation, the new framework contains a definition of "innovation" tailored to the special needs of the shipbuilding industry.

The percentage of State support for expenditure on investments needed to fund the innovative aspects of a project is doubled from 10% to 20%.

EU Competition Commissioner Mario Monti declared: "The new rules allow industry to improve its competitiveness, in particular because the possibilities for supporting innovation are enhanced. This framework, in providing more favorable conditions than ever before for the funding of innovative research and development, recognizes the high-tech content in shipbuilding."

Innovation aid, says the EC, "must be a true incentive to innovate. It must spur shipyards to truly innovate and carry out projects that they would not carry through in the absence of public support. Therefore, funds for innovation should only be given once the product developed is new compared to the 'state of the art' within the EU. This is why the new framework links the support to expenditure directly and exclusively to the innovative part of a project. A truly innovative project will get a higher percentage of funding as compared to the 1998 Council Regulation on aid to shipbuilding up to 20% of the innovation expenditures instead of the previous threshold of 10%.

In order to facilitate a healthy transition to specialized, high technology areas, the framework maintains the possibility to grant closure aid to shipyards. In line with the 1998 Council Regulation, the new framework also refers to the relevant OECD disciplines on export credits and development aid and contains special rules on regional aid to shipbuilding.

Background

The new Framework on State aid to Shipbuilding replaces Council Regulation 1540/98 of 29 June 1998 establishing new rules on aid to shipbuilding(1) ("1998 Shipbuilding Regulation") which will expire on December 31, 2003. While the new framework simplifies the treatment of aid to the shipbuilding industry, in particular by applying the rules on training aid, aid to SMEs, employment aid and de minimis aid to the shipbuilding sector, it does recognize certain specifics that distinguish shipbuilding from other industries. These are taken into account by the favorable rules on innovation aid and special provisions on closure aid, as well as export credits and development aid.

The new framework, says the EC, "is to be distinguished from the granting of temporary aid under Council Regulation 1177/2002 of 27 June 2002 concerning a temporary defensive mechanism to shipbuilding(2) (the so-called TDM). Together with the action against Korea before the WTO, the TDM constitutes the core element of the Commission's twin-track strategy challenging Korean unfair practices in the shipbuilding sector."

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