Forbes has reported today that the European Commission said it has opened an in-depth inquiry into a 31 million Euro subsidy paid to the French domestic appliance manufacturer Fagor Brandt by the French authorities.
The commission has concerns that the aid may be used to finance repayment of a 22.5 million Euro of unlawful aid the firm received in 2002.
‘We must make sure that the new aid is not used to finance the repayment of the old incompatible aid and that the restructuring of Fagor Brandt does not harm other European firms in the market,’ says competition commissioner Neelie Kroes said in a statement.
Between 2004 to 2006 Fagor Brandt made increasing losses. These difficulties arose from more intense competition on the market, particularly as a result of the emergence of low cost companies from Asia and Turkey, and from the development of competition from retailers.
Also contributing to the difficulties was the obligation to repay 22.5 million Euro of illegal aid, plus interest, that it received in 2002 This was later declared incompatible with EU state aid rules by an EU Commission decision in Dec 2003.
On Aug 6 this year, French authorities notified the EU executive of a project to grant 31 million Euro restructuring aid to Fagor Brandt. According to the French authorities, in the absence of such aid Fagor Brandt would be unable to cope with the losses expected for 2007 or to find additional financing on the market.
In its preliminary assessment into the matter, the commission doubted that the aid would be compatible with the EU rules on restructuring aid, especially regarding the long-term viability of the company and the limitation of aid to the minimum necessary.
The EU executive also has concerns about the likely negative impact of the aid on trade between member states, since Fagor Brandt is mainly competing with other European manufacturers. The aid could support the company at the expense of its European competitors and their workers.