WORLD TRADE
ORGANIZATIONG/SCM/Q2/EEC/41
24 February 2003
(03-1130)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Replies by the EUROPEAN COMMUNITI ES to the Request from KOREA1
Pursuant to Article 25.8 of the Agreement on Subsidies and Countervailing Measures
The following communication, dated 14 February 2003, has been received from the
Permanent Mission of the European Communities.
_______________
General comment
The European Community provided replies to th e following questions to the extent that the
information was available and could be collected in view of the vast amount of information requested
and the requirement to provide the information as quickly as possible. The replies are limited, in linewith Articles 25.8 and 25.9 of the Agreement on Su bsidies and Countervailing Measures (ASCM), to
the nature and the extent of any scheme on which information was requested.  Consequently, the
replies do not include any business confidential information. Finally, the replies are without prejudice
to the issue whether the scheme constitutes  a specific subsidy in the meaning of the ASCM.
I. GENERAL QUESTIONS ON THE EUROPEAN COMMUNITY (“EC”)’S LEGAL
FRAMEWORK FOR AID TO THE SHIPBUILDING SECTOR’
1. Can the EC confirm that its basic legal framework for aid to shipbuilders is set forth in
Council Regulation (EC) No 1540/98 of 29 June 1998 establishing new rules on aid to
shipbuilding
2 (“Regulation 1540/98”) and Council Regulation (EC) No 1177/2002 of
27 June 2002 concerning a temporary defensive mechanism to shipbuilding3 (“Regulation
1177/2002” hereafter)?
Reply
Yes.
2. Can the EC confirm that Regulation 1540/ 98 controls aid granted by the Member States
of the EC to the shipbuilding sector in relation to the building, conversion or repair of self-
propelled seagoing commercial vessels of 100gt and above, tugs of 365 kW and above, and
fishing vessels over 100gt for export? Can the EC also confirm that Regulation 1540/98 applies
both to aid granted directly to shipbuilding undertakings and to other entities related to themwhether directly or indirectly financed by EC Member States or their regional or local
authorities or financed through Stat e resources in any form whatsoever?
                                                     
1 G/SCM/Q2/EEC/39.
2 O.J. No L 202, 18 July 1998, p. 1.
3 O.J. No L 172, 2 July 2002, p. 1.G/SCM/Q2/EEC/41
Page 2
Reply
Generally speaking, this statement is correct. For the full scope of the Regulation 1540/98 we
refer to its preamble and its Articles 1 and 2.
3. Can the EC confirm that the different types of aid covered by Regulation 1540/98 are as
follows?:
(i) Operating aid in the form of contract-related aid supporting
shipbuilding and ship-conversion projects up to a maximum of 9 per cent
of the contract value before aid.4  Can the EC confirm that the provision
on this operating aid lapsed on 31 December 2000 but the permitted
subsidies can continue to apply to contracts entered into force before
that date, for vessels to be delivered up to the end of 2003 or even longer
in exceptional cases?
Can the EC confirm that operating aid is also contemplated in the form of state-supported
credit facilities, which are considered compatible with EC provisions if they comply with the
terms of the OECD Sector Understanding on Ex port Credits for Ships.  Is it correct that
OECD-compatible credit facilities are not coun ted towards the maximum ceiling for permissible
operating aid?
Reply
Generally speaking, these statements are correct. The specific conditions for the granting of
such aid are provided for in Article 3 of Council regulation 1540/98 (enclosed).
(ii) Closure aid to defray the normal cost s resulting from the partial closure
of shipbuilding, ship repair or ship  conversion yards and leading to an
irreversible reduction in production capacity.
Reply
Generally speaking, this statement is correct. The specific conditions for the granting of such
aid are provided for in Article 4 of Council Regulation 1540/98 (enclosed).
(iii) Restructuring aid for firms in difficult y in the form of capital injections,
debt write-offs, subsidized loans, loss compensation and guarantees,
which is granted on one-off basis and leads to an irreversible reduction
in production capacity.
Reply
Generally speaking, this statement is correct. The specific conditions for the granting of such
aid are provided for in Article 5 of Council Regulation 1540/98 (enclosed).
(iv) Other aid measures in the form of investment aid for innovation,
regional investment aid, aids to defray research and development
expenditure and aid defraying costs for environmental protection.
                                                     
4 For shipbuilding contracts with a contract value before aid exceeding £10 million, the ceiling is
9 per cent, for conversions, repairs for shipbuilding contracts of a lesser value, the ceiling is 4.5 per cent.G/SCM/Q2/EEC/41
Page 3
Reply
Generally speaking, this statement is correct. The specific conditions for the granting of such
aid are provided for in Articles 6-9 of Council Regulation 1540/98 (enclosed).
4. Can the EC confirm that Regulation 1177 /2002 reinstates operating aid up to a
maximum intensity of 6 per cent of contract value before aid in support of contracts for the
building of container ships, product and chemical tankers as well as LNG carriers to be
delivered within three years from the date of sign ing of the contract (extension of the three-year
delivery deadline remains possible in special circumstances)?
Reply
Concerning the reply to this question the European Commission would refer to Council
Regulation 1177/02 (enclosed). It can be noted that aid for LNG carriers is not permitted at this stage
(mid February 2003).
5. In the terms of the Regulation, such opera ting aid will be considered compatible with
the Common Market when there has been competition for the co ntract from a Korean shipyard
offering a lower price.  Can the EC elaborate on how this requirement is assessed in practice?
Reply
Pursuant to Article 2 of Council Regulation 11 77/02 (enclosed), the Commission is currently
assessing notifications of aid schemes from Member  States based on Council Regulation 1177/02, and
can therefore not comment on this aspect.
6. Can the EC confirm that contracts eligible for aid under Regulation 1177/2002 are those
signed from 24 October 2002 (i.e. the date that  the European Commission’s Notice announcing
the initiation of WTO dispute settlement proceedings against Korea as a result of the
investigation conducted under the Trade Barrie r Regulation concerning certain alleged
subsidies received by the Korean shipbuilding industry was published), until one month after
the European Commission gives notice in the O fficial Journal of the European Communities
that these dispute settlement proceedings ar e resolved or suspended? Is it correct that
Regulation 1177/2002 will in any event expire on 31 March 2004?
Reply
The eligibility dates mentioned in this question are correct. It is also true that the Regulation
will in any event expire on 31 March 2004; it could however be terminated earlier if the reasons for itsexistence (i.e. the non-fulfilment by Korea of a bilateral Understanding of June 2000 and the existence
of unfair Korean practices) were to disappear.
7. Can the EC confirm that aid in support of contracts for the building of LNG carriers
will, however, only be authorised for contract s signed after the European Commission gives
notice in the Official Journal of the European Communities that it confirms, on the basis of
investigations covering the period of 2002, that the Community industry has suffered material
injury and serious prejudice in this market se gment caused by the alleged Korean subsidies?
Reply
The Commission continues to monitor the market. The specific procedure and conditions for
the granting of such aid are provided for in Article 2 of Council regulation 1177/02 (enclosed).G/SCM/Q2/EEC/41
Page 4
8. Can the EC confirm that the aid permitted under the above framework provisions is
financed directly by the EC Member States or their regional or local authorities or financed
through State resources in any form whatsoever?
Reply
Only aid granted by an EC Member State or through State resources in any form whatsoever
which distorts of threatens to distort competition by favouring certain undertakings or certain goods,
insofar as it affects trade between Member Sates, falls under the EU state aid rules.
II. QUESTIONS ON THE EC’S SUBSIDY CASES
The Republic of Korea requests the European Commission (hereafter, “the
Commission”) and the EC Member States to respond to the following questions for the years1998, 1999, 2000, 2001 and up to this date.  The information should also include aid that has
been and/or will be provided based on a shipbui lding contract signed before 2001 in respect of
the ships to be delivered subsequently under th e conditions set forth in Regulation 1540/98 and
aid that may already have been approved or notified for approval under Regulation 1177/2002.
(Identification of Subsidies)
1. Identify which subsidies were or have been granted, or maintained, directly or
indirectly, to the EC shipyards in  terms of the following categories.
The information in this questionnaire is requested irrespective of whether the subsidies
are funded by the federal, regional, local authorities, other public bodies in the EC
Member States or private institutions directed or entrusted by the authorities to grant
these subsidies from their own funds or through funds made available by the EC.
Reply
These are the names and references to the aid that have been approved by the European
Commission to EU shipyards. The requested detail ed information can in general be found in the
provided references. In this regard, we would also point at the EC’s subsidy notification under
Article 25 ASCM which has been subject to review by the WTO Subsidies Committee.
− Operating aid
N 45/1998 (OJ C 409, 30/12/1998), Extension of three aid schemes for 1998 (Denmark)
N 103/1998, 11/11/1998, Shipbuilding aid scheme s for 1998 and special guarantee fund for
shipping credit (Italy)
N 208/1998, 03/06/1998, Extension of shipbuilding aid schemes for 1998 (Germany)N 212/1998 (OJ C 392, 16/12/1998), Prolongation of shipbuilding aid legislation until
31 December 1998 (Greece)
N 415/1998, 17/09/1998, Prolongation of shipbuilding aid legislation until 31 December 1998
(Netherlands)
N 602/1998, 18/12/1998, Prolongation of the contracted-related aid scheme for shipbuilding
for 1998 (Finland)G/SCM/Q2/EEC/41
Page 5
N 664/1998 (OJ C 151, 29/05/1999), Shipbuilding aid scheme 1999-2003 (Spain)
N 3/1999 (OJ C 151, 29/05/1999), Contract-related operating aid to shipbuilding (Denmark)
N 50/1999  (OJ C 313, 30/10/1999), Contract-related operating aid to shipbuilding (Finland)
N 133/1999 (OJ C 151, 29/05/1999), Fiscal investment aid for shipowners (Spain)
N 180/1999 (OJ C 288, 09/10/1999), Scheme of aid for shipbuilding for 1999-2003 (Italy)N 412/1999 (OJ C 332, 20/11/1999), Shipbuilding aid scheme for 1999 (Netherlands)N 422/1999 (OJ C 359, 11/12/1999), Shipbuilding aid schemes for 1999 (United Kingdom)N 573/1999 (OJ C 162, 10/06/2000), Interest subsidy for loans taken for vessel acquisitions
(Finland)
N 731/1999 (OJ C 94, 01/04/2000), Ship financing aid scheme 2000 (Spain)N 110/2000 (OJ C 272, 23/09/2000), Aid to shipbuilding 2000 (Germany)
N 502/2000 (OJ C 117, 21/04/2001), Measures to promote shipbuilding investment in 2000
(Italy)
N 757/2000 (OJ C 172, 16/06/2001), Modification of aid regime (Spain)
N 788/2000 (OJ C 172, 16/06/2001), Shipbuilding aid scheme 1999-2000 (Greece)
NN 174a/2001 (OJ C 164, 10/07/2002), Aid to shipbuilding 2001 (Germany)N 843/2001 (OJ C 238, 03/10/2002), Meyer Werft Papenburg - Extension of the three-year
delivery period for a cruise vessel (Germany)
N 99/2002 (OJ C 262, 29/10/2002), Prolongation of three-year delivery limit for two ships
(Denmark)
N 468/2002, 13/11/2002, Extension of three-year delivery limit for a ship (Finland)
− Restructuring aid
N 803/97, N 802/97 (OJ C 24, 29/01/1999), Reprivatisation of Volkswerft Stralsund and of
MTW-Schiffswerft, Wismar (Germany)
C 64/2001 (OJ C 254,13/09/2001), Restructuring and privatisation of Koninklijke Schelde
Groep (Netherlands)
− Closure aid
N 694/98 (OJ C 27, 29/01/2000), Aid to Volkswerft Stralsund (Germany)
C 2/1999 (OJ L 47, 19/02/2002), Aid to the shipyard ACHCN (France)
NN 130/2000 (OJ C 117, 21/04/2001), Partial closure aid to Harland & Woolf (UK)G/SCM/Q2/EEC/41
Page 6
C 40/2002, (OJ C 186, 06/08/2002), Aid to Hellenic shipyards (Greece)
− Regional investment aid
N 784/1997 (OJ C 409, 30/12/1998), Regional investment aid for the Nuovi Cantiere Apuiana
shipyard (Italy)
N 786/1997 (OJ C 409, 30/12/1998), Regional inve stment aid for the Vittoria Spa shipyard
(Italy)
N 152/1998 (OJ C 409, 30/12/1998), Investment aid to Flensburger Schiffbau Gesellschaft
(Germany)
N 157/1998 (OJ C 409, 30/12/1998), Regional investment aid for the Visentini shipyard
(Italy)
N 158/1998 (OJ C 409, 30/12/1998), Regional investment aid for the Orlando shipyard (Italy)
N 159/1998 (OJ C 409, 30/12/1998), Regional investment aid for the CRN shipyard (Italy)
N 161/1998 (OJ C 409, 30/12/1998), Regional investment aid for the De Poli shipyard (Italy)
N 344/1998, (OJ C 11, 15/01/1999), Investment aid to the shipyard Elfesis Shipbuilding and
Industrial Enterprises SA (Greece)
C 9/1998  (OJ L 301, 24/11/1999), Bremer Vu lkan Marineschiffbau GmbH (Germany)
N 557/1999 (OJ C 354, 09/12/2000), Regional investment aid for the Rodriquez C.N.
shipyard (Italy)
N 716/1999, (OJ C 232, 12/08/2000), Regional investment aid to Palumbo Spa (Italy)C 23/2001 (OJ L 203, 01/08/2002), Investment aid to Flender Werft Lübeck (Germany)
N 306/2002 (OJ C 277, 14/11/2002), Flensburger Schiffbaugesellschaft GmbH (Germany)
− R&D aid
N 725/2001 (OJ C 98, 23/04/2002), R&D ai d for Peene-Werft GmbH (Germany)
N 147/2002 (OJ C 277, 14/11/2002), R&D aid for Thyssen Nordseewerke GmbH (Germany)N 61/2002 (OJ C 277, 14/11/2002), R&D aid Kvaener Warnow Werft (Germany)N 59/2002 (OJ C 277, 14/11/2002), R&D aid - Virtual Engine Room-Passenger Ship
(Germany)
N 156/2000 (OJ C 37, 03/02/2001), Navigation a nd marine technology for the 21st century
(Germany)
(N 176/2001 (OJ C 24, 26/01/2002), R&D project "Integrating Bus Technologies into
shipbuilding" by Flensburger Schiffbau-Gesellschaft & Co. KG (Germany)G/SCM/Q2/EEC/41
Page 7
− Development aid
N 107/1998, (OJ C 69, 11/03/199), Development aid to Indonesia (Netherlands)
C 37/1998 (OJ L 292, 13/11/1999), Development aid to French Polynesia (France)
C 66/98(OJ L 274, 23/10/1999), Development aid for French Polynesia (France)
N 303/98 (OJ C 409, 30/12/1998), Developmen t assistance to China (Netherlands)
N 383/98 (OJ C 409, 30/12/1998), Development assistance to Cape Verde (Germany)
N 535/98 (OJ C 069, 12./03/1999), Development aid to Algeria (Spain)
N 283/1999 (OJ C 142, 20/05/2000), Development aid to Indonesia for the construction of
two passenger ferries (Germany)
N 631/1999, (OJ C 232, 12/08/2000), Development aid to Philippines for two rescue boats
(Germany)
C 3 /2000 (OJ C 101, 08/04/2000), Devel opment aid to Indonesia (Netherlands)
C 12/2000 (OJ L 189, 11/07/2001), Development aid to China for the construction of a high-
technology dredger
N 230 /2000 (OJ C 149, 19/05/2001), Development aid to Syria for two tugs (Netherlands)N 232/2000 (OJ C 149, 19/05/2001), Development aid to Bangladesh for one tug
(Netherlands)
N 244/2000 (OJ C 149, 19/05/2001), Development aid to Sri Lanka for one dredge
(Netherlands)
N 542/2000 (OJ C 102, 31/03/2001), Development aid to Vietnam (Germany)
N 664/2000 (OJ C 149, 19/05/2001), Development aid for seven tugs for Algeria (Spain)N 666/2000 (OJ C 149, 19/05/2001), Development aid for four tugs for Algeria (Spain)C 6/2001 (OJ L 105, 20/04/2002), Development aid to Djibouti for one tug (Netherlands)
N 314/2001 (OJ C 333, 28/11/2001), Development aid to Vietnam (Netherlands)
N 315/2001 (OJ C 333, 28/11/2001), Development aid to Yemen (Netherlands)
N 612/2001 (OJ C 62, 09/03/2002), Development aid to Indonesia (Germany)N 48/2002 (OJ C 127, 29/05/2002), Development aid to Jamaica (Netherlands)N 455/2002, 11/09/2002, Development aid to El Salvador (Netherlands)G/SCM/Q2/EEC/41
Page 8
(Legal Provisions)
2. Identify the legal provisions (EC and/or  EC Member State provisions) with full
references on the basis of which each subsidy is identified in question 1 and provide the
following information on:
(i) The eligibility criteria, including terms and conditions, of each subsidy identified
in question 1 and any anticipated changes to the criteria with the documentation
substantiating the changes, and in the case of the subsidies being terminated, the
last date that a company could apply for or claim and receive benefits under the
programme.
(ii) The procedure for authorising and granting each subsidy, identified in
question 1, both in the EC Member States and within the EC, and whether a
formal application and/or specific approval is required each time benefits are
received or the receipt of benefits is automatic after their initial authorisation.
Reply
The conditions for the granting of the various forms of permitted aid are provided for in the
relevant articles of Council Regulation 1540/98 (enclosed). References to the relevant national legal
provisions are included in the Official Journal notices listed in our reply to question II.1. According to
the Procedure Regulation of the EU on state aid (Council Regulation EC 659/99) Member States canask for aid to be authorised in the form of ad hoc aid or in the form of schemes. For shipbuilding, even
if aid has been approved in the form of schemes, notification of individual aid measures is necessary,
except for contract related operating aid.
(Operating Aid)
3. For each subsidy, identified in question 1, provided as an operating aid, please provide
the following information on:
(i) The forms in which the subsidy was or has been granted (e.g., grants,
loans, loan guarantees, bond infusions, tax benefits), the amounts
provided in each form, and terms and conditions of each form of the
subsidy.
(ii) The name and address of the agency or authority responsible for
administering and authorising the su bsidy within the EC or within an
EC Member State.
(iii) The name of the shipyard(s) to which the subsidy was or has been
provided, the type (including CGT) and buyer of the vessel, and the time
of sales contract and delivery of the vessel.  The examples of types of
vessels are following:
- Crude oil tankers (single hull only)
- Crude oil tankers (double hull only)
- Product and chemical carriers
- Bulk carriers
- Combined carriers
- General cargo ships
- ReefersG/SCM/Q2/EEC/41
Page 9
- Full container ships
- Ro-Ro vessels
- Car carriers
- LPG carriers
- LNG carriers
- Ferries
- Passenger ships including cruise ships
- Fishing vessels
- Other non-cargo vessels.
(iv) The ratio of the total amount of the subsidy to the total sales value at
delivery and order book level for ea ch type of vessel concerned for each
of the above calendar years within the period mentioned above.
(v) The total amount of the subsidies a fforded by each EC Member State
per each of the above calendar years.
(vi) The number of vessels delivered and corresponding CGT separately for
- holding owners within the EC
- holding owners outside the EC
Reply
The information is contained in the references listed in question II.2 above. We also refer to
the EC’s subsidy notification. For question (v) see the sections on shipbuilding in theCommission Surveys on state aid published on the internet
(http://europa.eu.int/comm/competition/state_aid/others/).
(Restructuring, Closure Aid, etc)
4. For each subsidy, identified in question 1, provided as a restructuring, closure aid, and
other aids, please provide the following information on:
(vii) The forms in which the subsidy is granted (e.g., grants, loans, loan
guarantees, bond infusions, interest relief, debt rescheduling, equity for
debt swaps, other debt write-offs, tax benefits), the amounts provided in
each form, and terms and conditions of each form of the subsidy.
Reply
The information is contained in the references listed in question II.1 above. We also refer to
the EC’s subsidy notification.
(viii) The name and address of the agency or authority responsible for
administering and authorising the su bsidy within the EC or within an
EC Member State.
(ix) The name of the shipyard(s) to which the subsidy was or has been
provided, and the types of vessels (including CGT) the shipyard has
produced since 1998.G/SCM/Q2/EEC/41
Page 10
Reply
The information can be found in the references provided for each closure aid and
restructuring aid case in our reply to question II.1.
(x) For each restructuring aid, the methodology applied to determine the
viability of the shipyard and to develop detailed plans, and the name of
the institution that conducted the field study and evaluated the value of
the shipyard in difficulty.
Reply
For restructuring aid, the shipyard develops a restructuring plan, submitted by the Member
State. The Commission assesses these plans based on criteria outlined in the Community guidelinesfor rescuing and restructuring firms in difficulty (OJ C 288, 09.10.1999).
(xi) The total amount of the subsidies afforded by each EC Member State
per each of the above calendar years in terms of each category of aids
(restructuring aid, closure aid, etc).
Reply
The information is contained in the references listed in question II.2 above. We also refer to
the EC’s subsidy notification.
(Equity Infusion)
5. If any of the subsidies identified in questi on 1 takes the form of equity infusion or a
debt-for-equity swap, please include the following specific information in the answers toquestions 3 and 4 in this section of the questionnaire.
(i) The name of the recipient of each investment/conversion.
(ii) The name of the federal, regional or local authorities, another public
body or private institutions directed or entrusted by public body, whichapproved the equity investment/conversion and the date at which it did
so.
(iii) The exact amount of the equity infusion.
(iv) The methodology to determine equity wo rthiness of the shipyard and, if
any reports or other documents were prepared in support thereof, the
conclusions of the studies or reports.
(v) If the government of the EC Member State concerned attempted to, or
did, secure equity investment for a shipyard in difficulty from private
sources, please describe the circumstances surrounding the investment,
any agreement entered into between the government and the private
parties, and provide all relevant documentation (e.g., a copy of the
agreement, discussion memoranda, etc.).G/SCM/Q2/EEC/41
Page 11
Reply
In the assessment of the Commission, equity to firms in difficulties are generally treated as
grants. Therefore, if equity has been provided e.g. in restructuring cases, the information is included
in the decisions published in the Official Journal, referred to above. In case the equity is provided on
normal market conditions with an expected normal return on capital, this would not be considered asstate aid.
(Loans, Loan Guarantees, Export credits)
6. If any of the subsidies identified in ques tion 1 takes the form of a loan or a loan
guarantee, please include the following specific information in the answers to questions 3 and 4
in this section of the questionnaire.
(a) Short-term loans
If short-term loans (less than one year) were provided by a public body or a private
institution directed or entrusted by a public body in EC Member States, and principalor interest was repaid, accrued and/or waiv ed during the years referred to above, please
provide the following:
(i) The types of institutions (e.g., banks, leasing firms, brokers, insurance
companies) that provide short-term commercial loans in the EC Member
States concerned. In addition, please explain the role of the government
in controlling/directing those institutions and their lending policies.  For
each type of institution, specify wh ether loans are provided in domestic
currency, foreign exchange, or both.
(ii) The predominant national average sh ort-term interest rate in the EC
Member States concerned (including copies of the source materials) for
the period concerned. If a predominant national average interest rate
does not exist, please provide the interest rate in the EC Member State
concerned for each type of short-term  financing and the weight each type
represents as a percentage of the total of outstanding short-term loans.
(iii) Specify other charges or practices used in normal commercial
transactions.
(iv) The date and amount of any forgiveness or assumption of any principal
or interest payments during the years referred to above.
(b) Long-term loans
If long-term loans (longer than one year) were provided by a public body or a private
institution directed or entrusted by a public body, which had principal or interestoutstanding during the years referred to  above, please provide the following
information:
(i) The types of institutions (e.g., banks, leasing firms, brokers, insurance
companies) that provide long-ter m credit in the EC Member States
concerned. In addition, please explain the role of the government in
controlling/directing those institutions and their lending policies.  ForG/SCM/Q2/EEC/41
Page 12
each type of institution, specify wh ether loans are provided in domestic
currency, foreign exchange or both.
(ii) The following information for each year in which a long-term loan was
approved which had principal or interest outstanding:
− If the loan has a fixed interest rate, please provide the long-term fixed interest rate(s)
available from private commercial lenders to most companies in the country in question
at the time the loan was approved.  If such a figure(s) is (are) not available, pleaseprovide the long-term variable interest rate(s) available from private commercial
lenders to most companies in the EC Member State in question during the same period.
If this figure is not available, please provide all types of short-term financing available in
the EC Member State at the time the loan  was approved, the percentage each type
represented of the total amount of short-te rm financing, and the corresponding monthly
average interest rates for each type in the period concerned.
− If the loan has a variable interest rate, please provide the long-term variable interest
rate(s) available from private commercial lenders to most companies in the EC MemberState in question at the time the loan was approved.  If a long-term variable interest rate
from commercial lenders is not available, please provide the long-term fixed interest
rate(s) available from commercial lenders to most companies in the EC Member State
concerned at the time the loan was approved .  If this figure is not available, please
provide all types of short-term financing ava ilable in the EC Member State concerned at
the time the loan was approved, the percen tage each type represented of the total
amount of short-term financing, and the corresponding monthly average interest rates
for each type in the period concerned.
− In all cases, state whether the applicable ra te is for loans provided by publicly owned or
controlled institutions or by privately held institutions, and whether such rate is subject
to any government-mandated ceiling or cap.
(iii) Specify other charges or practices used in normal commercial
transactions.
(iv) Provide the date and amount of any forgiveness or assumption of any
principal or interest payment.
Reply to the questions above
In the assessment of the Commission, loans to firms in difficulties are generally considered as
aid. Therefore, if loans have been provided e.g. in  restructuring cases, this information is included in
the decisions published in the Official Journal, referred to above. In case the loans are provided on
normal market conditions with an expected normal return on capital, this would not be considered as
state aid.
(c) Loan guarantees
For any loans with principal or interest outs tanding that were guaranteed or insured by
a public body or a private institution directed or entrusted by a public body in EC
Member States, please provide, as relevant, th e information requested in sections (i) and
(ii) above.G/SCM/Q2/EEC/41
Page 13
Reply
Some such schemes have been used in some Member States. The guarantees were evaluated
and, if appropriate, given an aid value, which was counted within the 9 per cent operating aid ceiling
permitted at the time. Guarantees with an aid value are no longer permitted since 1 January 2001, and
since the end of 2000 no loan guarantees have been approved by the Commission.
(d) Export credit facilities
To the extent that export credit guarantees or export loans are granted which the EC
and its Member States consider to be co mpatible with the requirements of the OECD
Arrangement on Guidelines for Officially Supported Export Credits and, in particular,
of Annex I thereto, i.e. the Sector Understanding on Export Credits for Ships, explain
the grounds for such compatibility and supply relevant supporting factual evidence.
Reply
The schemes assessed by the Commission must fulfil the requirements of the relevant OECD
provisions (1981 or 2002 Understanding of export credits for ships) in order for the Commission to beable to approve such schemes.
(Tax Benefits)
7. If any of the subsidies identified in questi on 1 takes the form of a tax benefit, please
include the following specific information in  the answers to question 3 and 4 in this
section of the questionnaire.
(i) The type of the tax benefits: i.e. deduction from taxable income, credit
toward taxes payable, exemption from taxes owed, deferral of taxes
owed, or other type of tax benefit.
(ii) The specific methods of the companies using these tax subsidies to
calculate the tax benefits they claim and a sample calculation using a
blank tax form.
(iii) If a company is in a tax loss situation, the effects of the tax benefit
programme on the company.
(iv) If tax losses are generated through the use of this tax benefit programme,
whether the company carry forward th ese losses?  What are the normal
tax provisions for loss carried forward?  Please provide the relevant
provisions of the tax laws and regulations.
(v) If the programme involves deferral of taxes owed, please provide the
predominant national average sh ort-term interest rate in the EC
Member State concerned.
Reply
In the assessment of the Commission, tax benefits are recalculated to a grant equivalent and
evaluated as grants. Therefore, for e.g. aid for re structuring, such provisions are included in the
decisions published in the Official Journal, referred to above.G/SCM/Q2/EEC/41
Page 14
(Other Relevant Matters)
8. Please provide the following information for the period from 1998 until to date (per
calendar year except for the current year) based on the vessels delivered.
- The total turnover of the EC shipyards per EC Member State and the
breakdown of these total turnover figures into the turnover figures for each type
of vessel.
- Actual production, in CGT, of the EC sh ipyards per EC Member State both on a
total basis and for each shipyard and  type of vessel.
- The Commission’s plans for the followin g three years in terms of limitations of
production capacity or the release of the limitations currently imposed for each
EC Member State and shipyard.   
Reply
According to Council directive 1013/97 (OJ L 148, 6.6.1997), the shipbuilding capacity in the
territories of the former German Democratic Republic was reduced to 327,000 cgt, and this limitation
can be maintained until the end of the year 2005.
According to the Commission decision on case C 56/95 (OJ C 354, 21.11.1997) authorising
restructuring aid to civil Spanish shipyards, the annual production capacity for the concerned yards
(Puerto Real, Sestao, Sevilla, Barreras, Juliana) had to be reduced to 210,000 cgt. Furthermore, their
annual production shall not exceed that limit for a period of ten years from the date (6/8-1997) of the
letter announcing the decision.
According to Commission decision on case C 40/02 (OJ C 186, 6.8.2002) Hellenic shipyards
will not increase the production capacity in the civil shipbuilding sector for the next ten years from the
date (5/6-2002) of the decision.
(Statistical Data for Specified Subsidies)
9. Please provide information of the statistical data permitting an assessment of the trade
effects of the subsidies provided or to be pr ovided in accordance with the following subsidy
schemes.
The information to be supplied include:
- the eligibility criteria;
- the name of the shipyard(s) and type of the vessel(s) (including the
relevant CGT) benefiting directly or indirectly of the aid;
- in the case of operating aid, the intensity of the aid;
- the amount of the aid;
- the form in which the aid has been or will be granted;
- which authority has granted or will grant the aid.G/SCM/Q2/EEC/41
Page 15
(i) The Commission’s approval of the sale of Eastern German shipyard
MTW-Schiffswerft to the Norwegian Group Aker Yards ASA and the
approval of a second and most likely final tranche of DM 175.1 million of
restructuring aid to the shipyard.5
Reply
The information can be found in OJ C 24, 1999 and in state aid case N 802/97.  It can be
noted that the restructuring aid to shipyards in th e new eastern German lands was authorised only on
condition of strict reductions (40 per cent in average) in capacity.
(ii) The Commission’s approval of a DM 129.6 million restructuring aid for
Volkswerft shipyard in Stralsund.6
Reply
The information can be found in OJ C 24, 1999, and in state aid case N 803/97. It can be
noted that the restructuring aid to shipyards in th e new eastern German lands was authorised only on
condition of strict reductions (40 per cent in average) in capacity.
(iii) According to the information available, on Lürssen's takeover of Bremer
Vulkan Marine (BVM) Schiffbau in bankruptcy, the Land of Bremen
offered DEM 900,000 investment aid (i.e. 15 per cent of the intended
total investment envisaged).  Moreover, the Land agreed to contribute
DEM 4.6 million to the cost of employing 110 new workers on Lürssen'swharf and waived DEM 5 million debt plus unspecified interest that
BVM owed the Land's 100 per cent owned Hanseatische Industrie
Beteiligungen GmbH (HIBEG). The two latter measures constituted un-
notified aid and were, therefore, illegal State aid to Lürssen, which was
enabled to expand its capacity and improve its prospects to compete fornavy and other orders.
Reply
The aid was approved by the European Commission in 1999. The decision stated the
following: The measures which Germany has implemented and will implement in favour of navalshipbuilding and in favour of Lürssen Mari time Beteiligungen GmbH & Co. KG, totalling
DEM 10.5 million (EUR 5.25 million), are measures necessary for the protection of Germany's
essential security interests within the meaning of  Article 223(1)(b) of the EC Treaty. Accordingly,
Articles 92 and 93 of the EC Treaty are not applicable to those measures. Accordingly, Articles 92
and 93 of the EC Treaty are not applicable to those measures. The investment aid of DEM 900,000
(EUR 450,000), as far as it relates to building, conver sion or repair of yachts, is compatible with the
common market pursuant to Article 92(3)(c) of the Treaty.
Further information can be found in OJ L 301, 1999 and in state aid case C 9/98 .
(iv) The Commission’s approval of aid to be granted by Germany for the
restructuring of the shipyard Volkswerft in Stralsund for a total
investment aid of DEM 34.2 million.
7
                                                     
5 European Commission News Release No IP/98/720.
6 European Commission News Release No IP/98/186.
7 European Commission News Release No IP/99/962.G/SCM/Q2/EEC/41
Page 16
Reply
The information can be found in OJ C 27, 2000 and in state aid case N 694/98. It can be noted
that the restructuring aid to shipyards in the new eastern German lands was authorised only on
condition of strict reductions (40 per cent in average ) in capacity.
(v) Until 1999, the German KG system continued to be in operation whereby
investors received tax allowances permitting the offset of the losses from
vessel depreciation against income tax. While the scheme was not limited
to shipbuilding, it was extensively used in that field to finance
containership newbuildings.8
Reply
The information on this scheme can be found in the OJ referred to in the footnote .
(vi) In 1999, the Commission approved indirect shipbuilding aid in Italy in
the form of a tax credit (9 per cent) and a subsidised interest rate
(8.9 per cent grant equivalent) to promote shipyard investment.9
Reply
The aid value of the approved measures fell within the 9 per cent operating aid ceiling for any
given ship, thus complying with Council regu lation 1540/98. Further information can be found in
OJ C 288, 1999 and in state aid case N 180/1999.
(vii) Section 5 of Italian Law No 261 of 31 July 1997 establishing aid to
shipbuilding and shipyards as impl emented in the Ministerial Decree
No 539 dated 17 December 1999 provides for the establishment of the so-
called “Fondo centrale di garanzia per il credito navale”. The mainactivity of the Fund is to hedge the refund of capital or interests in
relation to State aid to the shipbuilding industry.
Reply
This fund has to this date not issued any guarantees and therefore no subsidy has been
conferred.
(viii) The UK Shipbuilding Industry Competitiveness Minister, Alan Johnson,
informed the House of Commons on 24 May 1999 that the UK
government had approved the following for the benefit of Appledore
Shipbuilders Ltd.: more than  £1 million from the Shipbuilding
Intervention Fund (SIF) to build a fisheries protection vessel for the IrishNavy and about £500,000 Regional Selective Assistance towards a three
year  £6.5 million dry dock expansion project.
Reply
The first amount concerns operating aid falling under Council Regulation 1540/98, while the
other concern regional investment aid appr oved as state aid case N 16/95, OJ C 295 1995.
                                                     
8 The scheme was authorised by the European Commission on 1 March 1995 (Official Journal No C 266,
13 October 1995, p. 16).
9 European Commission News Release No IP/00/1513.G/SCM/Q2/EEC/41
Page 17
(ix) The Netherlands are operating a “Commanditaire Vennootschappen”
investment scheme pursuant to which private investors investing in a
partnership limited by shares can claim back tax on funds invested in the
partnership set up specifically to build a ship.  While this scheme should
be withdrawn, the information is that tax relief might continue to begranted in different forms.
Reply
We refer to the general comments in the introduction of this questionnaire.
(x) In 1999, the Commission approved the Spanish aid scheme for
shipbuilding 1999-2003.  This included operating aid in the form ofcontract-related aid up to 9 per cent of the contract value but also
included closure aids, restructuring aids, investment aid for innovation,
regional investment aid, aid for R&D and aids for environmental
protection, aid to shipowners in the form of subsidised loans and interest
rate support.
10
Reply
All aid, besides contract related operating aid, has to be individually notified to the
Commission, which would take separate decision on  whether such aid would be allowed or not.
Therefore, if any aid other than operating aid would have been approved by the Commission, it wouldbe included in the list under question II.1 above.
(xi) In 2000, the Commission authorised some French aid measures under
the Loi de Finance for contract-related aid but also for investment aid of
22.5 per cent and 12.5 per cent intensity, respectively, and for R&D aidgranted within the Community framework for R&D aid.
Reply
All aid, besides contract related operating aid, has to be individually notified to the
Commission, which would take a separate decision  on whether such aid would be allowed or not.
Therefore, if any aid other than operating aid would have been approved by the Commission, it would
be included in the list under question II.1 above.
(xii) In 2001, the Dutch Government increased its budget for aid to the
shipbuilding industry by an extra US$28 million after the budget of
DF 130 million had been exhausted.11
Reply
This is a normal procedure in case there was more orders, and thus more contract related aid
provided than originally budgeted.
                                                     
10 European Commission News Release No IP/99/182.
11 Dutch top up shipbuilding subsidy, Fairplay, 5 July 2001.G/SCM/Q2/EEC/41
Page 18
(xiii) AP Moller in Denmark was reported as potentially receiving over
500 million Kroner in subsidies for its Lindoevaerft shipyard.12
Reply
We refer to the general comments in the introduction of this questionnaire.
(xiv) Germany is reported to have been preparing to subsidise the interest
rates of shipbuilding loans allegedly under the OECD CIRR regime for
an amount of EUR 50 million set aside in its 2002 budget.13
Reply
If Germany needs to put aside a budget in order to be able to provide financing in accordance
with the OECD sector agreement for ships, this is normal procedure.
(xv) Aid granted by the Dutch authorities in support of the restructuring of
Koninklijke Schelde Groep through capital injections of
EUR 47.7 million and an interest free loan of EUR 20.4 million.14
Reply
The European Commission in June 2002 approved €51.1 million in support of the
restructuring of Koninklijke Schelde Groep (KSG) linked to the sale of the company to Damen
Shipyards Group (Damen). The aid consisted of capital injections of €47.7 million and interestsubsidies worth €7.4 million. However, this aid was not directly linked civil shipbuilding. The aid
linked to civil shipbuilding as defined in the Sh ipbuilding regulation 1540/98 was not approved. The
state aid case number was C 64/01. The decision will be published in the Official Journal in the near
future.
(xvi) The Shipyard Improvement Programme and the SS Marketing Services
launched in the UK to assist UK shipyards sales of newly built small
vessels.  The SS Marketing Service is reported to be initially financed
(until 2003) by the British government up to £2.8 million.
15
Reply
This information is not correct. The British go vernment funding for the SS Marketing Service
is limited to £176,000 up to the end of January.
(xvii)  The granting of soft loans up to about US$ 1.45 Billion for the accession
of 40 German-built ships by Indonesia without the German shipbuilder
having been admitted through the open bidding process and with the
official prices having been fibbed.16
                                                     
12 Moller Shipyard may receive new subsidy, Dow Jones International News, 4 September 2001.
13 Germany prepares subsidy package for shipyards under new CIRR regime, Lloyd’s List, 25 July 2001.
14 Commission investigates restructuring and privatisation of mixed shipyard KSG in The Netherlands , European
Commission press conference of 25 July 2001.
15 UK drives to attract small vessel newbuild market , Lloyd’s List, 19 June 2001; UK yards targeting smaller but
profitable vessel market , The Shipping Times, 28 June 2001.
16 40-ship German deal queried , Fairplay, 13 December 2001.G/SCM/Q2/EEC/41
Page 19
Reply
We refer to the general comments in the introduction of this questionnaire.
(xviii)  The additional subsidies granted by the state government of Schleswig-
Holstein in September 2001 further to the decision of the German federal
government to  provide an additional DM 80 million for the country’s
yards as a result of the order rush that took place in the second half of
2000 in view of the imminent expiry of the EC operating aid scheme.17
Reply
This is normal procedure in case there was more orders, and thus more contract related aid to
be provided, than originally budgeted.
(xix) The government funds provided for the modernisation of the Vulkan
group’s Eastern German shipyards and reportedly misused by Vulkan’s
management.18
Reply
We refer to the general comments in the introduction of this questionnaire.
(xx) The reportedly generous export credit guarantees granted by the French
export credit agency Coface to Chantiers de l’Atlantique in connection
with certain cruise ships being built for troubled Renaissance.19
Reply
We refer to the general comments in the introduction of this questionnaire.
(xxi) The participation of the French government in the establishment of
Cruiseinvest LLC, a Marshal Islands-incorporated company to acquire
six of the 684-passenger Renaissance ships from judicial sales held in
Gibraltar and in the UK. Cruiseinvest is understood to have paid the
outstanding value of the existing mo rtgages on the ships, an amount in
excess of $700 million.  However, the operation has been described as a
simple change of pocket of the money as all the investors behind the
Marshal Islands company held first guarantees on the mortgages.  They
are reported to get back almost 98 pe r cent of the amount actually paid,
while the remaining 2 per cent is to cover the unpaid salaries to the
crews and judicial costs.  In addition to Credit Agricole-Indosuez, which
had issued all the mortgages for th e ships, among those represented by
Cruiseinvest there would be Alsthom, the owner of Chantier de
l'Atlantique that built the ships and the French Government through its
export credit agency Coface.20
                                                     
17 Schleswig-Holstein State grants subsidy to its shipyards , Lloyd’s List, 20 September 2001.
18 Firmer Vulkan bosses facing fraud retrial , Lloyd’s List, 18 September 2001.
19 Alstom shipyard plan scuppered , Financial Times, 12 November 2001.
20 French investors pay $700m to buy back six Renaissance cruiseships , Lloyd’s List, 29 November 2001.G/SCM/Q2/EEC/41
Page 20
Reply
We refer to the general comments in the introduction of this questionnaire.
(xxii)  The financing of a new ferry to be built at Chantiers de l’Atlantique by
the French regions of Bretagne and P ays de Loire reportedly using tax
break schemes.21
Reply
The concerned ferry will not be built at the shipyard mentioned in the question, but at a
shipyard in another EU Member state.
(xxiii)  The financing of two cruise ships for owner Royal Olympic cruises by a
German banking consortium " led by the government's Kreditanstalt für
Wiederaufbau"  up to 80 per cent of the total sales price of
EUR 312 million.  A guarantee was reportedly secured for EUR 70
million of that amount from the city government of Hamburg.22
Reply
We refer to the general comments in the introduction of this questionnaire.
(xxiv)  The aid granted by Spain for the restructuring of publicly owned
shipyards and leading to the cr eation of IZAR, currently being
investigated by the European Commission.23  An earlier aid package
granted in 1998 and consisting of special tax credits was declared
incompatible with the Common Market by Commission Decision
2000/131/EC of 26 October 1999.24
Reply
Information on these issues can be found in the references mentioned in the question and in
the footnote.
The German government's reconstruction and development bank, Kreditanstalt für
Wiederaufbau in Frankfurt is reported to ha ve provided another soft loan of EUR 81.8 million
as part of a programme for building an inter-island passenger vessel for Indonesia at a German
yard.25
Reply
This aid has been provided in the form of development aid in accordance with relevant
provisions in the OECD understanding on export cr edits for ships. Further information can be found
in OJ C 62, 2002 and state aid case N 612/01.
                                                     
21 Regions to finance new French ferry , Fairplay, 8 January 2002; Brittany ferries poised to order another
newbuild , Lloyd’s List, 9 January 2002.
22 Olympic Explorer going nowhere fast , Lloyd’s List, 18 January 2002.
23 European Commission Notice 2002/C 21/03 – State Aid – Spain – C/40/00 (ex NN 61/00) – Further
restructuring of Spanish shipbuilding – Invitation to submit comments pursuant to Article 88(2) of the EC Treaty, O.J. C 21,
24 January 2002, p. 17.
24 O.J. No. L 37, 12 February2000, p. 22, r ecently upheld by the European Court of Justice in judgment of
21 March  2002, case C-36/00.
25 German bank clears loan for Indonesian ferry project , Lloyd’s List, 8 February 2002.G/SCM/Q2/EEC/41
Page 21
(xxv)  The French Government’s participat ion in the rescue of the Compagnie
Marseillaise de Réparation shipyard through provision of funds
amounting to EUR 1.6 million.26
Reply
We refer to the general comments in the introduction of this questionnaire.
(xxvi)  The aid granted by the Greek Government to Hellenic Shipyards in
connection with the privatisation of the company.  The Commission
approved part of this aid on 5 June 2002, while at the same time
initiating a detailed investi gation on the remaining part.27
Reply
Information on this case can be found in OJ C 186, 6.8.2002 and in state aid case C 40/02.
(xxvii)  The financing of a new car ferry to be built at German Jos L Meyer
shipyard for French Channel operator  Brittany Ferries.  According to
the press, 75 per cent of the cost of the ship is to be financed under
French tax-break provisions by a banking pool which includes Credit
Agricole Indosuez, BNP Paribas, Crédit Coopératif, Crédit Industriel de
l'Ouest and Germany’s KVF.28
Reply
We refer to the general comments in the introduction of this questionnaire.
(xxviii)  The granting of aid by the Dutch Government for the building of four
new 540-TEU container ships at shipyard Bodewes Scheepswerf
Vlharding for Indonesia’s Arpeni Pratama Ocean Line.29
Reply
We refer to the general comments in the introduction of this questionnaire.
(xxix)  The package of subsidies worth EUR 24 million approved by the
German parliament (plus EUR 48 million to be provided by German
coastal states) ahead of the approva l of the EC temporary defensive
mechanism to shipbuilding and reportedly designed to support the
construction of container vessels and tankers at German yards.30
Reply
It is a normal procedure that a Member State sets aside a budget in order to be able to provide
permissible aid.
                                                     
26 Paris backs Marseilles yard plan , Fairplay, 7 May 2002.
27 European Commission News Release No IP/02/816.
28 Unions fail to persuade Brittany Fe rries to switch to  local shipyard , Lloyd’s List, 10 June 2002.
29 Arpeni plans orders in the face of delays , TradeWinds, 21 June 2002.
30 Berlin defies Brussels’ aid delay , Fairplay, 27 June 2002; IG Metall urges coastal states to pay up yard aid ,
Lloyds List, 30 July 2002; German yards get subsidy go-ahead , Fairplay, 31 July 2002.G/SCM/Q2/EEC/41
Page 22
(xxx)  The financing of the building of a new ferry at insolvent German
shipyard Flender Werft secured by a consortium of banks composed,
inter alia , by German government's reconstruction and development
bank  Kreditanstalt für Wiederaufbau (KfW) and the Schleswig-Holstein
government-owned Landesbank Kiel.31
Reply
We refer to the general comments in the introduction of this questionnaire.
(xxxi)  The financial aid provided to Germ an shipowners to compensate for
non-wage labour costs and approved by the Commission on
5 June 2002.32
Reply
This measure concerns labour costs on ships under German flag, which has no relation to
shipbuilding.
(xxxii)  The aid granted by the French Government to support the creation of
Soreni Ship Repair Company after the bankruptcy of the shipyard
Ateliers et Chantiers du Havre Constructions Navales in 1999.  This aid
is currently being investig ated by the Commission.33
Reply
Since the issue is under examination by the European Commission, we refer to the OJ
referred to in the footnote.
(xxxiii)  The Spanish Government is reported to be finalizing a proposal to
provide EUR 500 million in state credits to help the country’s
shipbuilding and maritime sector face up competition from, particularly,
Asian yards.34  Please indicate whether this proposal has already been
adopted and provide details of the support measures envisaged therein.
Reply
We refer to the general comments in the introduction of this questionnaire.
(xxxiv)  Before resigning, in October 2002, the former Dutch economic affairs
minister announced that the Dutch Government would grant the
domestic shipbuilding industry a new EUR 60 million subsidy package.35
Please indicate whether the measu re has been adopted and whether any
subsidies under the scheme have already been granted.
                                                     
31 Flender gains newbuilding support , Fairplay, 4 July 2002; German shipbuilding battle , Fairplay International
Shipping Weekly, 11 July 2002.
32 European Commission News Release No IP/02/812.
33 European Commission Notice 2002/C 222/04 – State Aid – France – Aid C 55/2002 (ex NN 53/2002) ) Aid to
Soreni Ship Repair Company (shipbuilding) – Invitation to submit comments pursuant to Article 88(2) of the EC Treaty, O.J.No C 222, 18 September 2002, p. 21.
34 Spanish aid to bolster technology capacity , Lloyd’s List, 3 October 2002.
35 Subsidy uncertain as cabinet falls , Fairplay, 16 October 2002.G/SCM/Q2/EEC/41
Page 23
Reply
We refer to the general comments in the introduction of this questionnaire.
(xxxv)  The German shipyard Meyer Werft is reported to have won an order
from Indonesia’s government-owned shipowning company Pt Pelni for a15,000 GT passenger ferry. Germany’s government-owned
reconstruction and development bank Kreditanstalt für Wiederaufbau is
reported to have provided an EUR 81.8 million soft loan to finance the
construction of the vessel.
36
Reply
See reply to question (xxvi) above.
(xxxvi)  In October 2002, the Danish Government announced to have secured a
broad political agreement to reintroduce shipbuilding subsidies.
According to the plan, the new subsidies would be provided half by the
government directly and half through the specialist shipfinancier DSF.37
Please provide the details of this new subsidy package and whether any
subsidies under the scheme have already been granted.
Reply
We refer to the general comments in the introduction of this questionnaire.
(xxxvii)  The Dutch shipyard Volharding is reported to have applied for
operating aid under the temporary defensive mechanism in relation to a
contract for the building of a 5,700 DWT ordered by an Italian owner.
In addition to the information listed  in the chapeau of question 9, please
indicate (i) whether the aid has been already notified to the Commission
for approval and, if so, please provide a copy of the notification; (ii) if
the aid has already been approved by the Commission, please provide a
copy of the relevant decision; (ii) explain in detail how the requirement
that there has been competition for the contract from a Koreanshipyard offering a lower price ha s been assessed by the competent
Dutch authorities and the Commission.
38
Reply
We refer to the general comments in the introduction of this questionnaire. Concerning the
question on competition from a Korean contract, see reply to question I.5. above.
(xxxv iii) The authorities of the German Stat e of Hamburg are reported to have
approved a 4 million EUR subsidy package for the benefit of Hamburg
shipyards on 12 November 2002 for the purpose of implementing the
temporary defensive mechanism.  The Federal German Government is
                                                     
36 Jakarta and Meyer Werft in ferry deal  and Meyer Werft bullish on better times ahead , Lloyd’s List,
23 October 2002.
37 DSF hole in Denmark plan for yard aid , Lloyd’s List, 24 October 2002.
38 Subsidy saves shipyard subsidiary  and All is well at Volharding , Fairplay, 8 November 2002.G/SCM/Q2/EEC/41
Page 24
reportedly expected to provide further 2 million EUR for the benefit of
Hamburg shipyards.39
Reply
It is a normal procedure that a Member State sets aside a budget in order to be able to provide
permissible aid.
(xxxix)  German yard Kvaerner Warnow Werft is reported to have applied for
operating aid of 6 per cent intensity under the temporary defensive
mechanism in relation to a contract for the building of four 2,532 TEU
container ships ordered by Norway and Cayman Islands-based Andreas
Ove Ugland.  The vessels will reportedly be then chartered to the
German shipping company Hamburg Sued. It is also reported that theproject will be financed by Germany’s government-owned
reconstruction and development bank Kreditanstalt für Wiederaufbau.
In addition to the information listed  in the chapeau of question 9, please
indicate (i) whether the aid has been  already notified to the Commission
for approval and, if so, please provide a copy of the notification; (ii) if theaid has already been approved by th e Commission, please provide a copy
of the relevant decision; (ii) explain in detail how the requirement that
there has been competition for th e contract from a Korean shipyard
offering a lower price has been asse ssed by the German authorities and
the Commission.
40
Reply
We refer to the general comments in the introduction of this questionnaire. Concerning the
question on competition from a Korean contract, see reply to question I.5. above.
(xl) Two German yards belonging to the Aker Kvaerner Group, Aker MTV
in Wismar and Kvaerner Warnow Werft in Rostock, are reported to
have applied for operating aid of 6 per cent intensity under the
temporary defensive mechanism in rela tion to a contract for the building
of six 2,500 TEU container ships ordered by the Islamic Republic of IranShipping Lines.  The two yards are reported to have applied for
financing to Germany’s government-owned reconstruction and
development bank Kreditanstalt für Wi ederaufbau.  In addition to the
information listed in the chapeau of question 9, please indicate
(i) whether the aid has been already notified to the Commission for
approval and, if so, please provide a copy of the notification; (ii) if the
aid has already been approved by th e Commission, please provide a copy
of the relevant decision; (ii) explain in detail how the requirement that
there has been competition for th e contract from a Korean shipyard
offering a lower price has been asse ssed by the German authorities and
the Commission.
41
                                                     
39 German Hamburg Approves 4.0 Mln Euro Subsidy for Shipyards , German News Digest, 13 November 2002.
40 Germans plead for state yard aid , Fairplay, 13 November 2002; German Kvaerner Warnow Werft Receives
128.6 Mln Euro Order, German News Digest, 13 November 2002; Ugland takes plunge – Norway and Cayman Islands-
based Andreas Ove Ugland is back into newbuilding in a big way , Tradewinds, 15 November 2002.
41 AkerKvaerner in six boxship deal for Iran , Lloyd’s List, 19 November 2002.G/SCM/Q2/EEC/41
Page 25
Reply
We refer to the general comments in the introduction of this questionnaire.  Concerning the
question on competition from a Korean contract, see reply to question I.5. above.G/SCM/Q2/EEC/41
Page 26
I
(Acts whose publication is obligatory)
COUNCIL REGULATION (EC) No 1540/98
of 29 June 1998
establishing new rules on aid to shipbuilding
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty establishing the European Community, and in particular Articles 92(3)(e),
94 and 113 thereof,
Having regard to the proposal from the Commission (1),
Having regard to the opinion of the European Parliament (2),
Having regard to the opinion of the Economic and Social Committee (3),
Whereas the agreement respecting normal competi tive conditions in the commercial shipbuilding and
repair industry concluded between the European Community and certain third countries within the
framework of the Organisation for Economic Coop eration and Development (OECD) (hereinafter
referred to as ‘the OECD Agreement’) (4) has still not entered into force because the United States of
America has failed to ratify it; whereas, therefore, Council Regulation (EC) No 3094/95 of
22 December 1995 on aid to shipbuilding (5) has not yet entered into force;
Whereas, in accordance with Article 10 of Regulation (EC) No 3094/95, the relevant rules of Council
Directive 90/684/EEC on aid to shipbuilding (6) will continue to apply, in the absence of entry into
force of the OECD Agreement, until 31 December 1998 at the latest;
Whereas a satisfactory balance between supply and demand in world shipbuilding has still not been
fully established, so that prices remain depressed; whereas the competitive pressures on Communityshipbuilders are expected to grow further as overall ship demand after the year 2000 is predicted to
fall and available world shipbuilding capacity is expected to continue to rise;
Whereas, although Community yards have made progress in improving competitiveness, the rate at
which they are improving productivity needs to be increased in order to close the gap with their
international competitors, particularly in Japan and Korea;
Whereas a competitive shipbuilding industry is important to the Community and contributes to its
economic and social development by providing a substantial market for a range of industries and by
maintaining employment in a number of regions, many of which are already suffering a high rate of
unemployment;
                                                     
1 OJ C 114, 15.4.1998, p.14.
2 OJ C 138, 4.5.1998.
3 OJ C 129, 27.4.1998, p.19.
4 OJ C 375, 30.12.1994, p.3.
5 OJ L 332, 31.12.1995, p.1. Regulation as last amended by Regulation (EC) No 2600/97 (OJ L 351,
23.12.1997, p.18).
6 OJ L 380, 31.12.1990, p.27.G/SCM/Q2/EEC/41
Page 27
Whereas a complete abolition of aid to the sector is not yet possible in view of the difficult market
situation and the need to encourage yards to make  the necessary changes to improve competitiveness;
whereas, a tight and selective aid policy should be continued in order to support these efforts and to
ensure fair and uniform conditions for intra-Community competition; whereas such a policy
constitutes the most appropriate approach in terms of ensuring the maintenance of a sufficient level of
activity in European shipyards and, thereby, the su rvival of an efficient and competitive European
shipbuilding industry;
Whereas the Community's aid policy for the shipbuilding sector has remained essentially unchanged
since 1987; whereas that policy has generally achieved its objectives but requires adaptations so that it
is better able to address the future challenges facing the industry;
Whereas, in particular, operating aid is not the most cost-effective way of encouraging the European
shipbuilding industry to improve its competitiveness; whereas, accordingly, operating aid should be
phased out and the focus shifted more towards other forms of support to promote the necessary
improvements in competitiveness, such as investment aids for innovation;
Whereas operating aid will therefore end on 31 December 2000;Whereas operating aid in the form of development assistance to developing countries should continue,
subject to stricter conditions;
Whereas a clearer distinction is needed between investment aid and restructuring aid; whereas
restructuring aid should be granted only exceptionally and subject to strict rules, such as applying the
principle of ‘one time/last time’, requiring genuine capacity reductions as a counterpart for the aid and
tighter monitoring procedures; whereas investment aid should be allowed only to improve the
productivity of existing installations in existing yards situated in areas eligible for regional investment
aid, subject to certain limitations on aid intensities in order to minimise possible distortions tocompetition;
Whereas investment aid for innovation should be allowed, provided that it is for genuinely innovative
projects that will improve competitiveness; whereas aid for research and development and aid for
environmental protection should also be permitted so that the shipbuilding industry is not deprived ofthese aid possibilities that are available to all other industrial sectors; whereas closure aid should
continue to be allowed to facilitate structural adjustment;
Whereas, although it is proposed to continue to treat ship conversion in the same way as shipbuilding
to a certain extent, aid to the ship repair sector should continue not to be permitted except for
restructuring, closure, investments under regional  aid schemes, innovation, research and development,
and environmental protection;
Whereas close and transparent monitoring is necessary if the aid policy is to be effective;Whereas, the Commission is to present to the Council a regular report on the market situation and
appraise whether European yards are affected by anti-competitive practices; whereas, if it isestablished that anti-competitive practices of any kind are causing injury to industry, the Commission
is, where appropriate, to propose to the Council measures to address the problem;
Whereas the first such report is to be presented to the Council no later than 31 December 1999;
Whereas this Regulation is without prejudice to any amendments necessary to comply with
international commitments of the Community concerning state aid to the shipbuilding industry,G/SCM/Q2/EEC/41
Page 28
HAS ADOPTED THIS REGULATION:
CHAPTER I
DEFINITIONS AND AID
Article 1
Definitions
For the purposes of this Regulation, the following definitions shall apply:
(a) ‘self-propelled seagoing commercial vessels’ shall mean:
- vessels of not less than 100 gt used for the transportation of passengers and/or
goods,
- vessels of not less than 100 gt for the performance of a specialised service
(for example, dredgers and ice breakers),
- tugs of not less than 365 kW,
- fishing vessels of not less than 100 gt for export outside the Community,
- unfinished shells of the abovementioned vessels that are afloat and mobile.
For the purposes of the above, ‘self-propelled seagoing vessel’ shall mean a vessel that, by means of
its permanent propulsion and steering, has all the characteristics of self-navigability on the high seas.
Military vessels (i.e. vessels which according to their basic structural characteristics and capability are
specifically intended to be used exclusively for military purposes, such as warships and other vessels
for offensive or defensive action) and modifications made or features added to other vessels
exclusively for military purposes shall be excluded, provided that any measures or practices applied in
respect of such vessels, modifications or features are not disguised actions taken in favour ofcommercial shipbuilding inconsistent with this Regulation;
(b) ‘shipbuilding’ shall mean the building, in the Community, of self-propelled seagoing
commercial vessels;
(c) ‘ship repair’ shall mean the repair or reconditioning in the Community of self-
propelled seagoing commercial vessels;
(d) ‘ship conversion’ shall mean the conversion, in the Community, of self-propelled
seagoing commercial vessels of not less than 1000 gt, on condition that conversion
operations entail radical alterations to the cargo plan, the shell, the propulsion system
or the passenger accommodation;
(e) ‘aid’ shall mean State aid within the meaning of Articles 92 and 93 of the Treaty.
This shall include not only aid granted by the State itself but also that granted byregional or local authorities or other public bodies and any aid elements contained in
financing measures taken directly or indirectly by Member States in respect of
shipbuilding, repair or conversion undertakings which cannot be regarded as a
genuine provision of risk capital according to standard investment practice in a
market economy;G/SCM/Q2/EEC/41
Page 29
(f) ‘contract value before aid’ shall mean the price laid down in the contract plus any aid
granted directly to the yard;
(g) ‘related entity’ shall mean any natural or legal person who:
(i) owns or controls an undertaking engaged in shipbuilding, ship repair or ship
conversion, or
(ii) is owned or controlled, directly or indirectly, whether through stock
ownership or otherwise, by an undert aking engaged in shipbuilding, ship
repair or ship conversion.
Control shall be presumed to arise once a person or undertaking engaged in shipbuilding, ship repair
or ship conversion owns or controls an interest of more than 25 per cent in the other or vice versa.
Article 2
Aid
1. Aid granted, whether directly or indirectly, for shipbuilding, ship repair and ship conversion,
financed by Member States or their regional or local authorities or through State resources in any
form whatsoever, may be considered compatible wi th the common market only if it complies with the
provisions of this Regulation. This provision applies not only to aid granted to undertakings engaged
in such activities but also to related entities.
2. For the purposes of this Regulation, aid granted indirectly includes all forms of aid to
shipowners or to third parties which are available as aid for the building or conversion of ships such
as credit facilities, guarantees and tax concessions. Concerning tax concessions, these provisions shallbe without prejudice to the Community guidelines on State aid to maritime transport (
 1), and in
particular point 3.1 thereof, and any amendments thereto.
3. No aid granted pursuant to this Regulation may be conditional upon discriminatory practices
against products originating in other Member States. In particular, aid granted by a Member State to
its shipowners or to third parties in that State fo r ship building or ship conversion may not distort, or
threaten to distort, competition between shipya rds in the Member State and shipyards in other
Member States in the placing of orders.
CHAPTER II
OPERATING AID
Article 3
Contract-related operating aid
1. Until 31 December 2000, production aid in support of contracts for shipbuilding and ship
conversion, but not ship repair, may be considered compatible with the common market provided thatthe total amount of all forms of aid granted in support  of any individual contract (including the grant
equivalent of any aid granted to the shipowner or third parties) does not exceed, in grant equivalent, a
common maximum aid ceiling expressed as a percentage of the contract value before aid. For
shipbuilding contracts with a contract value before aid of more than ECU 10 million, the ceiling shall
be 9 per cent; in all other cases the ceiling shall be 4.5 per cent.
                                                     
1 OJ C 205, 5.7.1997, p.5.G/SCM/Q2/EEC/41
Page 30
2. The aid ceiling applicable to a contract shall be that in force at the date of signature of the
final contract.
However, the preceding subparagraph shall not apply in respect of any ship delivered more than three
years from the date of signing of the final contract. In such cases, the ceiling applicable to that
contract shall be that in force three years before the date of delivery of the ship. The Commission
may, however, grant an extension of the three-year delivery limit when this is found justified by thetechnical complexity of the individual shipbuilding project concerned or by delays resulting from
unexpected disruptions of a substantial and defensible nature in the working programme of a yard due
to exceptional circumstances, unforeseeable and external to the company.
3. The grant of aid in individual cases in application of an approved aid scheme shall not require
prior notification to, or authorisation from, the Commission.
However, where there is competition between different Member States for a particular contract, the
Commission shall require prior notification of the relevant aid proposals at the request of any Member
State. In such cases, the Commission shall adopt a position within 30 days of notification; such
proposals may not be implemented before the Commission has given its authorisation. By its decision
in such cases, the Commission shall ensure that the planned aid does not affect trading conditions to
an extent contrary to the common interest.
4. Aid in the form of state-supported credit facilities granted to national and non-national
shipowners or third parties for the building or conversion of vessels may be deemed compatible with
the common market and shall not be counted within the ceiling if it complies with the terms of OECD
Council Resolution of 3 August 1981 (OECD Understa nding on Export Credits for Ships) or with any
agreement amending or replacing that Understanding.
5. Aid related to shipbuilding and ship conversion granted as development assistance to a
developing country shall not be subject to the ceil ing. It may be deemed compatible with the common
market if it complies with the terms laid down fo r that purpose by OECD Working Party 6 in its
Agreement concerning the interpretation of Artic les 6 to 8 of the OECD Understanding on Export
Credits for Ships or with any later addendum or corrigendum to the said Understanding.
The Commission must be given prior notification of any such individual aid proposal. It shall verify
the particular development content of the proposed aid and satisfy itself that it falls within the scope
of the Understanding referred to in the first subpa ragraph and that the offer of development assistance
is open to bids from different yards.
CHAPTER III
CLOSURE AND RESTRUCTURING AID
Article 4
Closure aid
1. Aid to defray the normal costs resulting from the total or partial closure of shipbuilding, ship
repair or ship conversion yards may be considered compatible with the common market provided that
the resulting capacity reduction is of a genuine and irreversible nature.
2. The costs eligible for the aid referred to in paragraph 1 are:
- payments to workers made redundant or retired before legal retirement age,G/SCM/Q2/EEC/41
Page 31
- the costs of counselling services to workers made or to be made redundant or
retired before legal retirement age, including payments made by shipyards to
facilitate the creation of small enterprises which are independent of the
shipyards in question and whose activities are not principally shipbuilding,
ship repair or ship conversion,
- payments to workers for vocational retraining,
- expenditure incurred for the redevelopment of the yard(s), its buildings,
installations and infrastructure for use other than that specified in points (b),
(c) and (d) of Article 1.
3. In addition, in the case of undertakings which totally cease shipbuilding, ship repair or ship
conversion, the following measures may also be deemed compatible with the common market:
- aid of an amount not exceeding the hi gher of the following two values, as
determined by an independent consultants report: the residual book value of
the installations, ignoring that portion of any revaluation since
1 January 1991 that exceeds the national inflation rate, or the discounted
value of the contribution to fixed costs obtainable from the installations over
a three-year period (less any advantages the aided undertaking derives fromtheir closure);
- aid such as loans or loan guarantees for working capital needed to enable the
undertaking to complete unfinished works provided that this is kept to the
minimum necessary and a significant proportion of the work has already been
done.
4. The amount and intensity of aid must be justified by the extent of the closures involved,
account being taken of the structural problems of the region concerned and, in the case of conversion
to other industrial activities, of the Community legislation and rules applicable to those new activities.
5. In order to establish the irreversible nature of aided closures, the Member State concerned
shall ensure that the closed shipbuilding, ship repair  and ship conversion fac ilities remain closed for a
period of not less than ten years.
Article 5
Restructuring aid
1. Aid for the rescue and restructuring of undertakings in difficulties, including capital
injections, debt write-offs, subsidised loans, lo ss compensation and guarantees, may exceptionally be
considered compatible with the common market provided that it complies with the Community
guidelines on State aid for rescuing and restructuring firms in difficulty (
1).
Furthermore, in cases of restructuring, the following additional specific conditions must also be
respected:
                                                     
1 OJ C 368, 23.12.1994, p.12.G/SCM/Q2/EEC/41
Page 32
- the undertaking has not been granted any such aid pursuant to Regulation
(EC) No 1013/97 (1),
- the aid is a one-off operation, with clear and unequivocal undertakings from
the Member State concerned that no further aid will be granted to the
undertaking or its legal successors in the future,
- there is a genuine and irreversible reduction in the shipbuilding, ship repair or
ship conversion capacity of the undertaking concerned commensurate with
the level of aid involved (in that regard the level of actual production in the
preceding five years will be the determining factor in the level of capacity
reduction required),
- the closed capacity must have been regularly used for shipbuilding, ship
repair or ship conversion up to the date of notification of the particular aid in
accordance with Article 10,
- the closed capacity must remain closed to shipbuilding, ship repair or ship
conversion for not less than 10 years from the Commission's approval of the
aid,
- if the closed capacity is re-used for alternative purposes, these must be
independent of the shipyard in question and the activities must not be relatedprincipally to shipbuilding, ship repair or ship conversion,
- the Member State concerned must agree to cooperate fully with monitoring
arrangements established by the Commission, including on-site inspections,
where appropriate by independent experts.
2. In assessing the regularity of production and the capacity reduction involved, the Commission
shall base its decision not only on the theoretical capacity of the yard(s) of the undertaking but also on
the level of actual production over the preceding five years. No account will be taken of capacity
reductions in other undertakings in the same Member State unless capacity reductions in the
beneficiary undertaking are impossible without undermi ning the viability of the restructuring plan.
3. The Commission shall seek the views of Member States on all such cases where the aid is in
excess of ECU 10 million before adopting a position on them.
4. In the case of restructuring operations lasting several years and involving large amounts of
aid, the Commission may require that aid be disbursed in instalments subject to prior notification andapproval by the Commission.
CHAPTER IV
OTHER MEASURES
Article 6
Investment aid for innovation
Aid granted for innovation in existing shipbuilding, ship repair and ship conversion yards may be
deemed compatible with the common market up to a maximum aid intensity of 10 per cent gross,
                                                     
1 OJ L 148, 6.6.1997, p.1.G/SCM/Q2/EEC/41
Page 33
provided that it relates to the industrial application of innovative products and processes that are
genuinely and substantially new, i.e. are not currently used commercially by other operators in the
sector within the Community, and which carry a risk of technological or industrial failure, subject to
the following conditions:
- the aid is limited to supporting expenditure on investments and engineering
activities directly and exclusively related to the innovative part of the project,
- the amount and intensity of the aid is limited to the minimum necessary
taking account of the degree of risk associated with the project.
Article 7
Regional investment aid
Aid granted for investment in upgrading or modernising existing yards, not linked to a financial
restructuring of the yard(s) concerned, with the objective of improving the productivity of existing
installations, may be deemed compatible with the common market provided that:
- in regions meeting the criteria for the option contained in Article 92(3)(a) of
the Treaty and complying with the map approved by the Commission for
each Member State for the grant of regional aid, the intensity of the aid does
not exceed 22.5 per cent,
- in regions meeting the criteria for the option contained in Article 92(3)(c) of
the Treaty and complying with the map approved by the Commission foreach Member State for the grant of regional aid, the intensity of the aid does
not exceed 12.5 per cent or the applicable regional aid ceiling, whichever is
the lower,
- the aid is limited to support eligible expenditure as defined in the applicable
Community guidelines on regional aid.
Article 8
Research and development
Aid granted to defray expenditure by shipbuilding, ship repair or ship conversion undertakings on
research and development projects may be considered compatible with the common market if it is in
compliance with the rules laid down in the Comm unity framework for State aid for research and
development (
1), or any successor arrangements.
Article 9
Environmental protection
Aid granted to defray expenditure by shipbuilding, ship repair or ship conversion undertakings for
environmental protection may be considered compatible with the common market if it is in
compliance with the rules laid down in the Comm unity guidelines on State aid for environmental
protection (2), or any successor arrangements.
                                                     
1 OJ C 45, 17.2.1996, p.5.
2 OJ C 72, 10.3.1994, p.3.G/SCM/Q2/EEC/41
Page 34
CHAPTER V
MONITORING PROCEDURES AND ENTRY INTO FORCE
Article 10
Notification
1. Aid to shipbuilding, ship repair and ship conversion undertakings covered by this Regulation
shall be subject to, in addition to the provisions of Article 93 of the Treaty, the special notification
rules provided for in paragraph 2.
2. The following shall be notified to the Commission in advance by the Member States and
authorised by the Commission before they are put into effect:
(a) any aid scheme – new or existing – or any amendment of an existing scheme covered
by this Regulation;
(b) any decision to apply a generally applicable aid scheme, including generally
applicable regional aid schemes, to the undertakings covered by this Regulation in
order to verify compatibility with Article 92 of the Treaty, in particular in cases
referred to in Articles 6, 7, 8 and 9 unless the aid is below the de minimis threshold of
ECU 100 000 over any three-year period;
(c) any individual application of aid schemes in the following cases:
(i) those referred to in the second subparagraph of Article 3(3) and in
Article 3(5), Article 4, and Article 5; or
(ii) when specifically provided for by the Commission in its approval of the aid
scheme concerned.
Article 11
Monitoring of application of aid rules
1. To enable the Commission to monitor application of the aid rules contained in Chapters II to
IV, Member States shall supply it with:
(a) monthly reports on each shipbuilding and ship conversion contract by the end of the
third month following the month of signing of each contract, in accordance with the
annexed Schedule 1;
(b) completion reports on each shipbuilding and ship conversion contract, including those
signed before the entry into force of this Regulation, by the end of the month
following the month of completion, in accordance with the annexed Schedule 1;
(c) where requested by the Commission, yearly reports, to be provided by 1 March of the
year following the year subject to the report, giving details of the total amount of aid
granted to each individual national shipyard during the previous calendar year, in
accordance with the annexed Schedule 2;
(d) in the case of shipyards able to build merchant ships over 5000 gt, yearly reports to be
provided not later than two months after th e annual general meeting has approved theG/SCM/Q2/EEC/41
Page 35
shipyard's yearly report, giving publicly available information on capacity
developments and on the structure of ownership, in accordance with the annexed
Schedule 3; such reports shall be submitted biannually after the first annual report has
been submitted unless the Commission decides to request yearly reports to continue;
(e) in the case of shipyards which have received restructuring aid in accordance with
Article 5, quarterly reports on the attainment of the restructuring objectives, includingthe following elements: disbursement and use of the aid, investments, productivity
performance, employment reductions, viability;
(f) in the case of shipyards benefiting from contracts supported by aid in the form of
development assistance, such information as the Commission may require to enable it
to ensure that the conditions of Article 3(5) are respected.
2. In the case of shipyards engaged in both commercial and military shipbuilding, ship repair or
ship conversion, the reports referred to in (d) of paragraph 1 shall be accompanied by an attestation bythe statutory auditor certifying the apportionment of the overheads to these two fields. In addition,
separate information shall be submitted on the turnover in the commercial and military fields.
3. On the basis of the information communicated to it in accordance with Article 10 and
paragraph 1 of this Article, the Commission shall draw up an annual overall report to serve as a basisfor discussion with national experts and the Council. The report shall also be sent to the European
Parliament for information. Separate half-yearly reports will be drawn up on cases involving
restructuring aids.
4. If a Member State does not fully comply w ith its reporting obligations as laid down in
paragraph 1, the Commission may, after consultation and after having given due notice, require that
that Member State suspend outstanding payments of aid already approved until such time as all due
reports have been received by the Commission.
If the reporting by a Member State under paragraph 1 is punctual but incomplete and at the time of
reporting that Member State specifies those yards wh ich have not fulfilled their reporting obligations,
the Commission shall limit its possible requirement for suspension of outstanding aid payments to
such yards only.
Article 12
Commission report
The Commission shall present to the Council a regular report on the market situation and appraise
whether European yards are affected by anti-competitive practices. If it is established that industry is
being caused injury by anti-competitive practices of any kind, the Commission shall, where
appropriate, propose to the Council measures to address the problem.
The first report shall be presented to the Council no later than 31 December 1999.
Article 13
Entry into force
This Regulation shall enter into force on 1 January 1999.
It shall apply until 31 December 2003.G/SCM/Q2/EEC/41
Page 36
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Luxembourg, 29 June 1998.
For the Council
The President
R. COOK.G/SCM/Q2/EEC/41
Page 37ANNEX
Schedule 1
REPORT OF MERCHANT SHIP ORDERS/COMPLETIONS
(Delete as appropriate)
Section 1:  Contract details Section 3:  Financial arrangements
1. New building/Conversion Currency ECU
(Prevailing
rate)% of
contract
price
2. Company 3. Yard 4. Yard No
5. Registered owner (name and nationality)
6. Holding owner (name and nationality)
7. Vessel’s country of registration
8. Date contract signed 9. Completion/delivery date14. Contract price15. Estimated contract loss (if any)16. Contract related aid
A. Granted to yard:
     (a) grants
     (b) credit facilities
     (c) specific fiscal concession     (d) other support
B. Granted to customer or ultimate owner:
     (a) grants
     (b) credit facilities
     (c) guarantees     (d) fiscal concession     (e) other support
17. Date aid granted
Section 2:  Ship details
10. Type of vessel (by OECD category)
11. Dead-weight (dwt) ………………………………………………………… Contact for inquiries: …………………………..
12. Gross tonnage (gt) 13. Compensated gross tonnage (cgt)
……………………………………     …………………………………………...………………………………………………….. Date: …………………………………...
Position: ……………………………………….. Signature: ……………………………...G/SCM/Q2/EEC/41
Page 38Schedule 2
REPORT OF COMP ANY FINANCIAL SUPPORT
Name of company …………………………………………………………
Section 1:  Public aid Section 2:  Turnover and profit/(loss)  to be completed by all companies in receipt of
direct production aid
Operating aid 1. Contract value
2. Costs/lossDirect
aid
receivedIndirect
aid
supportLegal basis
(including date of
approval by
Commission)Reporting
yearPrevious
year
1. Contract support:
(a) related to contracts concluded before
1 January of the year concerned
(b) related to contracts concluded after1 January of the year concerned, ofwhich:
- related to development assistance to
developing countries- related to contracts subject toArticle 3(3)10. Turnover
11. Of which related to merchant shipbuilding and ship
conversion:
(a) related to contracts concluded before 1 January of the yearconcerned(b) related to contracts concluded after 1 January of the year
concerned, of which:
   – related to development assistance to developing countries12. Losses(if any)13. Of which related to merchant shipbuilding and ship
conversion:
Costs (1) Aid
receivedLegal basis
(including date of
approval by
Commission)(a) related to loss on contracts
(b) related to movement in provisions
(c) related to restru cturing expenditures
2. Investments
3. Social aids
4. Other cash closure costs
5. Asset disposal costs/receipts6. Rescue and restructuring costs7. Research and development costs8. Environmental protection
9. Other costs
(1) Including for 3, details of numbers of workers involved.G/SCM/Q2/EEC/41
Page 39REPORT OF COMPANY FINANCI AL SUPPORT (cont.)
Section 3:  Cash flow  (to be filled in for all companies which have registered losses under
12 and have received f unding from any public sources)
Reporting
yearPrevious
year
Expenditures
14. Trading losses before depreciation
15. Investment expenditure16. Other expenditures17. Other changes in working capital
Contact for inquiries:
……………………………………….……. Date: …………………………………...
Position: ……………….………………….. Signature: ……………………………...Source of funds
18. Equity receipts:
   (a) from public shareholders
   (b) from private shareholders19. Loans and overdrafts:   (a) from public sources
   (a’) of which contract support
   (b) from private sources   (b’) of which with state guaranteeG/SCM/Q2/EEC/41
Page 40
Schedule 3
REPORT ON YARDS ABLE TO BUILD MERCHANT SHIPS
OF OVER 5000 GRT
1. Name of the company (…………………………………………..)
2. Total available capacity (……………………………………..) (cgt)3. Data on the dock/berth
Dock or berth Maximum size of ships (grt)
(…………………………………………..) (…………………………………………..)(…………………………………………..) (…………………………………………..)
(…………………………………………..) (…………………………………………..)
4. Description of any plans for future capacity expansion or reduction5. Production (expressed in cgt) for the year and production levels in the preceding four years
6. Structure of ownership (capital structure, sh are of direct and indirect public ownership)
7. Financial statements (balance sheet, profit and loss statement, including, if available, separate 
accounts covering the shipbuilding activities of holding)
8. Transfer of public resources (including debt guarantees, bond infusions, etc.)
9. Exemptions from financial or other obligations (including tax privileges, etc.)10. Capital contribution (including equity infusions, withdrawal of capital, dividend, loans and their 
refunding, etc.)
11. Debt write-off
12. Transfer of losses
*  *  *G/SCM/Q2/EEC/41
Page 41
I
(Acts whose publication is obligatory)
COUNCIL REGULATION (EC)No 1177/2002
of 27 June 2002
concerning a temporary defensiv e mechanism to shipbuilding
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty establishing the European Community, and in particular
Articles 87(3)(e),89 and 133 thereof,
Having regard to the proposal from the Commission (1),
Having regard to the Opinion of the European Parliament (2),
Whereas:1. The European Commission and the Government of the Republic of Korea, hereinafter
‘Korea’, signed the Agreed Minutes relating to world shipbuilding on 22 June 2000, hereinafter ‘the
Agreed Minutes’, with the aim of restoring fair and transparent competitive conditions. However, the
commitments under the Agreed Minutes, notably th e commitment of ensuring an effective price
surveillance mechanism, have not been effectively implemented by the Korean side and therefore a
satisfactory result has not been obtained.
2. Operating aid has not been effective in ensuring that the European shipbuilding industry is not
injured by competition not respecting normal competitive conditions in the shipbuilding market.Accordingly, as follows from Article 3 of C ouncil Regulation (EC)No 1540/98 of 29 June 1998
establishing new rules on aid to shipbuilding (
3),contract-related operating aid to shipbuilding may not
be granted in respect of contracts agreed as from1 January 2001.
3. However, as an exceptional and temporary measure, and in order to assist Community
shipyards in those segments that have suffered adve rse effects in the form of material injury and
serious prejudice caused by unfair Korean competition, a temporary defensive mechanism should be
authorised for limited market segments and for a short and limited period only.  Regulation
(EC)No 1540/98 should apply mutatis mutandis .
4. The situation in the Community shipbuilding i ndustry is heterogeneous.  According to the
Commission’s Fourth and Fifth Reports on the Situat ion in World Shipbuilding, approximately half of
compensated gross tonnage produced in Community shipyards concerns the market segments in
which Community shipyards are in a strong position on the international market.  However, in other
segments, there is evidence that Community shipyard s have suffered adverse effects in the form of
material injury and serious prejudice caused by unfair Korean competition.  Therefore, contract-
related temporary support may be authorised in certain circumstances in those segments, namelycontainer ships and product and chemical tankers.
5. Considering the exceptional development in the sector of LNG carriers, the Commission will
continue to monitor this market.  Contract-related temporary support may be authorised in this sector
if the Commission confirms, on the basis of investigations covering the period of 2002, that the
                                                     
1 OJ C 304 E, 30.10.2001, p. 208.
2 OJ C 140 E, 13.6.2002, p. 380.
3 OJ L 202, 18.7.1998, p.1.G/SCM/Q2/EEC/41
Page 42
Community industry has suffered material injury and serious prejudice in this sector caused by unfair
Korean practices to the same extent as has been found for container ships and product and chemical
tankers.
6. Support of 6 per cent of contract value before aid may be authorised in order to effectively
enable Community shipyards to overcome unfair Korean competition.
7. The temporary defensive mechanism should only be authorised after the Community initiates
dispute settlement proceedings against Korea, by requesting consultations with Korea, in accordance
with the World Trade Organisation’s Understanding on the Rules and Procedures for the Settlement
of Disputes and may no longer be authorised if these dispute settlement proceedings are resolved, or
suspended on the grounds that the Community considers that the Agreed Minutes have been
effectively implemented.
HAS ADOPTED THIS REGULATION:
Article 1
For the purposes of this Regulation, the relevant definitions listed in Article 1 of Regulation
(EC)No 1540/98 shall apply. In addition, the following definitions shall apply:
(a) ‘container ships’ shall mean ships designed with a single deck hull with an
arrangement of holds to carry containers (standard or non-standard; refrigerated ornon-refrigerated), whose holds are fitted with cell guides to facilitate the positioning
of the containers, as may be some of the deck storage space.  Other ships combining
cargo carrying capacity for containers and other cargo are considered as container
ships if the larger part of the cargo carrying capacity is dedicated to containers;
(b) ‘chemical tankers’ shall mean ships designed with a single deck hull with an
arrangement of integral and/or independent tanks suited to carry chemical products in
liquid form. Chemical tankers are characterised by the ability to carry and handle
several substances at the same time and the particular equipment of the tanks with
coatings, reflecting the nature and hazard of the cargo carried;
(c) ‘product tankers’ shall mean ships designed with a single deck hull with an
arrangement of integral and/or independent tanks suited to carry refined petroleum
products in liquid form;
(d) ‘LNG carriers’ (Liquefied Natural Gas carr iers) shall mean ships designed with a
single deck hull with fixed integral and/or independent tanks suited to carry natural
gas in liquid form.
Article 2
1. Subject to paragraphs 2 to 6, direct aid in support of contracts for the building of container
ships, product and chemical tankers as well as LNG carriers shall be considered compatible with the
common market when there has been competition for the contract from a Korean shipyard offering a
lower price.
2. Direct aid in support of contracts for the building of LNG carriers may only be authorised
under this Article for final contracts signed after the Commission gives notice in the Official Journal
of the European Communities that it confirms, on the basis of investigations covering the period of
2002, that Community industry has suffered material injury and serious prejudice in this market
segment caused by unfair Korean practices.G/SCM/Q2/EEC/41
Page 43
3. Aid under this Article may be authorised for shipbuilding contracts up to a maximum
intensity of 6 per cent of contract value before aid.
4. This Regulation shall not apply in respect of any ship delivered more than three years from
the date of signing of the final contract.  The Commission may, however, grant an extension of the
three-year delivery limit when this is found justified by the technical complexity of the individual
shipbuilding project concerned or by delays resulting from unexpected disruptions of a substantial anddefensible nature in the working programme of a yard due to exceptional circumstances,
unforeseeable and external to the company.
5. The Commission will keep under review the market segments eligible for aid under
paragraph 1, with regard to evidence clearly proving that a specific market segment within the
Community has been directly injured by unfair and non-transparent competitive conditions.
6. Regulation (EC)No 1540/98 shall apply mutatis mutandis .
Article 3
Aid covered by Article 2 shall be subject to the provisions of Article 88 of the Treaty.  The
Commission shall adopt a decision in accordance with Regulation (EC)No 659/1999 of
22 March 1999 laying down detailed rules for the application of Article 88 (
1)of the EC Treaty (2).
Article 4
The Regulation shall be applied to final contracts signed from the entry into force of this Regulation
until its expiry, with the exception of final contracts signed before the Community gives notice in the
Official Journal of the European Communities that it has initiated dispute settlement proceedingsagainst Korea by requesting consultations in accordance with the World Trade Organisation’s
Understanding on the Rules and Procedures for the Settlement of Disputes and final contracts signed
one month or more after the Commission gives notice in the Official Journal of the European
Communities that these dispute settlement proceedings are resolved, or suspended on the grounds that
the Community considers that the Agreed Minutes have been effectively implemented.
Article 5
This Regulation shall enter into force on the day following that of its publication in the Official
Journal of the European Communities and shall expire on 31 March 2004.
This Regulation shall be binding in its entirety and directly applicable in all Member States.Done at Luxembourg, 27 June 2002.
For the Council
The President
M. ARIAS CAÑETE
__________
                                                     
1 The numbering of Articles in the Treaty establishing the European Community has been changed in
the Treaty of Amsterdam.
2 OJ L 83, 27.3.1999, p.1.