Notification of reduced rates of social security contributions for certain sectors – opening of a formal investigation procedure

Reference is made to the notification to the EFTA Surveillance Authority on 23 April 2004 of a reintroduction of the previous system of differentiated social security contributions for certain sectors, based on the ECON report on non-competition. Reference is also made to the Authority’s request for further information of 23 June 2004. The Norwegian authorities replied to this request on 6 August 2004. Reference is finally made to the Authority’s decision on 6 October 2004 to open a formal investigation procedure, assessing the compliance of the notified scheme with the State aid provisions in the EEA agreement. The letter containing this decision reached the Norwegian Mission to the EU on 13 October 2004. In the following, the Norwegian authorities will provide its comments to the Authority’s opening decision.

The Authority’s decision to open an investigation of the notified scheme calls for some clarifications as regards the content of the notification:

The Authority requests in its decision an explanation on what seems to be a lack of consistency in the notification regarding some particular business sectors. As regards the standard industrial classifications 52.120 (other retail in non-specialised stores), 52.420 (retail sale of clothing) and 52.443 (retail sale of furniture) undertakings situated in all three zones are to be regarded as partially exposed to competition (i.e. the relevant digit indication should be 0/2 for all zones). Due to an inaccuracy, this was only indicated for undertakings in zone 4. Accordingly, the non-competition scope defined in footnotes 21, 22, 23, respectively, in the list of sectors notified is also applicable to the relevant sectors in zones 2 and 3.

Additionally, the Authority points out that some sectors are notified as not being exposed to competition in one zone whereas the same sectors are not included in the listing in other zones (for instance sectors 51.479 Wholesale of household goods, 51.872 Wholesale of shipping equipment and fishing tackle and 71.110 Renting of automobiles). The reason for this is that ECON found that for some sectors there were no undertakings that would exceed the de minimis threshold within the relevant zone. In these cases, ECON concluded that it was not necessary to include these business sectors in the listing under this zone. However, for future purposes, if the wage costs of such undertakings should lead to an exceeding of the de minimis threshold, these undertakings are to be considered in the same way as undertakings falling under the relevant sector notified in other zones.

As regards chapter 2.4, page 17 of the Authority’s letter, the Norwegian authorities find that the considerations made by the Authority may reflect a somewhat simplified understanding of the method of the data collection used, and the assessment done, by ECON.

For the undertakings in the manufacturing sector, the exposure to competition is examined on the basis of regional data on export and import. However, the ECON report does not presuppose that any analysis of export and import figures is sufficient to identify sectors not affected by competition from other EEA states. Conversely, such an analysis may be sufficient to confirm that aid to a certain sector may actually affect trade. Consequently, the occurrence of direct trade in nearly all manufacturing sectors leads ECON to conclude that all these sectors may be affected by competition from other EEA States. Therefore, no further investigation and analyses are seen to be needed. The analysis is, however, made at a two-digit NACE level and some very few manufacturing sub-sectors are considered to operate in local markets only. This conclusion is not based on an import/export analysis, but on the nature and the characteristics of these sub-sectors.

As regards the undertakings in the services sector, the exposure to competition is examined mainly on the basis of the knowledge of the market situation in the different business sectors, and on interviews with a selection of enterprises.

To be classified as a purely local activity, one condition has been that the relevant service sector itself does not participate in cross-border activities. However, this is not applied as a sufficient criterion in the ECON analysis. The ECON report also evaluates whether the specific service activity located in the actual region is capable of attracting customers from another location, i.e. non-resident consumers, and vice versa, whether the same service activity located abroad is capable of attracting customers from the actual Norwegian regions.

As regards a possible future situation, the interviewed firms were asked what they considered would be the effect on their customers’ trade patterns if the price of the service rendered locally were to be increased by a specified percentage, or if the price on the same service offered by firms located in the neighbouring Nordic countries were to be increased, see appendix 3 to the report.

We note that the Authority has serious doubts as to whether the effect on trade can be automatically ruled out with respect to all the potential beneficiaries of reduced rates within the scope of the scheme. It is for the Authority, however, to assess whether any of the notified sectors or beneficiaries may be granted aid that does not affect trade between the Contracting Parties to the EEA Agreement.

With regard to the effect on trade in sectors falling outside the scope of Article 61 (1), the Norwegian authorities accept that markets considered to be only local at present, may be subject to cross-border trade in the future. If undertakings in the future would receive aid that might affect trade between the EEA States, the Norwegian authorities would be obliged to notify the aid pursuant to Section II of the Procedural rules for the implementation of Article 1 in part I of Protocol III to the EEA Agreement.

If the competitive situation were to change and the aid is not notified, the Authority may also assess the measure under the provisions of Section III. Thus, we find that the surveillance mechanisms provided for in the Surveillance and Court Agreement Protocol 3, part II, are adequate as general safeguards to ensure the necessary legal and economic certainty in the application concerning the effect on trade.

Yours sincerely,