OREANDA-NEWS. Following an in-depth investigation, the Commission concluded that no private investor would have accepted to invest at the same terms as the Belgian Foreign Strategic Investments Holding (FSIH), a public authority controlled by the Walloon Government in Belgium. The public funding therefore provides a selective advantage to its recipients that their competitors who have to operate without such subsidised funding did not have.

In view of overcapacity problems in the EU's steel industry, EU State aid rules only allow fostering the long-term competitiveness and efficiency of steel manufacturing but not the support of manufacturers in financial difficulties. These rules have been consistently applied in a number of EU countries.

Margrethe Vestager, Commissioner in charge of competition policy, said: "Steelmakers across the EU are struggling with worldwide overcapacity and strong imports – the response to this challenge must be to improve the sector's long-term global competitiveness. Therefore, EU state aid rules enable Member States to for example support research activities or relieve energy costs of steel companies, and the Commission tackles international trade distortions using anti-dumping or anti-subsidy measures. It is also why EU countries and the Commission have put in place strict safeguards against state aid to rescue and restructure steel companies in difficulty. This avoids harmful subsidy races between EU countries and that uncontrolled state aid in one EU country can unfairly put at risk thousands of jobs across the EU.

Despite the illegal state aid to Duferco the company has now withdrawn almost all business activities from Belgium. The case shows that state aid to artificially keep steel manufacturers afloat that are not viable seriously distorts competition and only delays their exit from the market at the cost of taxpayers."

In October 2013, the Commission opened an in-depth investigation into the financing of several companies of the Duferco group by the Belgian Foreign Strategic Investments Holding (FSIH). The FSIH was created in 2003 by the Soci?t? wallonne de gestion et de participations (SOGEPA), belonging to the Belgian region of Wallonia, in order to invest in steel companies.

The FSIH repeatedly granted support measures amounting to €211 million in state aid to companies of the Duferco group between 2006 and 2011. This artificially boosted the companies' revenues and postponed the difficult yet necessary capacity adjustments in the Walloon steel industry. The Commission's investigation found that no market-based fund manager would have exclusively invested in one single group (Duferco) and in one sector (steel) with the aim of supporting steel production in Wallonia, as the FSIH did.

The investments therefore constitute state aid within the meaning of the EU rules. However, EU state aid rules only allow competitiveness enhancing support to viable steel companies and do not allow public aid to steel manufacturers in financial difficulties. The repeated support measures granted to Duferco's companies are therefore illegal under EU state aid rules. Belgium must now recover the aid from the beneficiaries or from their legal successors.

Despite the significant illegal state aid granted by the Walloon Government, Duferco's plants in Charleroi, La Louvi?re and Clabecq subsequently ceased steel production. The Commission is using the European Globalisation Adjustment Fund (EGF) to support the Walloon Region's efforts to re-train the workers who were made redundant.

Between 2006 and 2011, several companies of the Duferco group benefited from the support of the Walloon authorities. Following its in-depth investigation, the Commission identified five beneficiaries: Duferco's group holding company, a steel subsidiary called Duferco Industrial Investment, Duferco's joint venture with the Novolipetsk group in Steel Invest & Finance (now fully owned by Novolipetsk), and two joint ventures with the FSIH in Belgium known as Duferco Salvage Investments Holding and Duferco Long Products.

Under EU rules, public investment in companies carrying on economic activities can be considered free of state aid provided the investment is made on terms which would be acceptable to a private investor operating under normal market conditions (the market-economy investor principle – MEIP). Public investment that fails to comply with the MEIP constitutes state aid under EU law (Article 107 of the Treaty on the Functioning of the European Union – TFEU) as it gives the beneficiary an economic advantage over its competitors.

The European steel industry has a turnover of around €180 billion, with direct employment of about 360 000 people, producing around 170 million tonnes of steel per year in more than 500 production sites in 23 Member States. Effective overcapacity in the EU in 2015 has been estimated at c.a. 10-15% of total European capacity. European steel producers face global challenges, among which stiff competition from low cost countries which also experience major overcapacity, the decrease in global demand for steel, increasing energy costs, and a heavy reliance on imported raw materials.

Against this background, EU State aid rules do not allow public support for the rescue and restructuring of companies in difficulty in the steel sector. The steel sector was excluded by agreement of EU Member States and the Commission in the mid-1990s (Commission Decision No 2496/96/ECSC). Since then, the EU followed a market-driven approach to achieve the capacity adjustments and restructuring necessary to ensure a viable and sustainable steel industry in Europe. The Commission has to continue to apply State aid rules consistently to ensure a level playing field for those steelmakers that have already been carrying out painful and costly restructuring plans funded through private resources. Furthermore, as past experience has shown, allowing rescue and restructuring aid would distort competition and risk leading to subsidy races between Member States.

At the same time, EU State aid rules do allow Member States to grant state aid to enhance the global competitiveness of European steelmakers, such as for research & development, training aid and support for energy-intensive users. In recent years, several Member States have adopted measures aiming to compensate energy-intensive users, including steelmakers, for their high energy costs. Whilst these measures affect competition in the steel sector, they promote important common interest objectives. Moreover, clear limitations are set on the level of state aid that can be granted.

Since the exclusion from rescue and restructuring aid for steelmakers in difficulty in the mid-1990 it has adopted numerous negative decisions (many with recovery orders) in many EU countries, including Belgium, Germany, Italy and Poland.