EUROPEAN COMMISSION
Brussels, 02.VII.2008 C(2008) 3165 final
In the published version of this decision, some PUBLIC VERSION information has been omitted, pursuant to articles 24 and 25 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the WORKING LANGUAGE application of Article 93 of the EC Treaty, concerning non-disclosure of information covered by professional secrecy. The omissions are shown thus […]. This document is made available for information purposes only.
Subject: State Aid N 847/2006 – Slovakia “Aid to Samsung Electronics LCD Slovakia s.r.o. - MSF 2002”
Madam/Sir
1. PROCEDURE
(1) By electronic notification of 18 December 2006, registered at the Commission the next day, the Slovak authorities, pursuant to Article 88(3) of the EC Treaty, notified under the Multisectoral Framework on regional aid for large investments projects1 (hereafter referred to as “MSF 2002”) their intention to grant regional ad hoc aid for a large investment project in favour of Samsung Electronics LCD Slovakia s.r.o. (hereinafter "Samsung LCD Slovakia").
(2) By letters of 20 February 2007; 2 May 2007 and 17 August 2007 the Commission requested supplementary information on the measure. Each of these requests was followed by a request of the Slovak authorities for a deadline extension to submit the relevant information, which were accepted by the Commission.
1 OJ C 70, 19.3.2002, p. 8. as amended
J.E.pán Ján KUBIŠ minister zahraničných vecí SR Ministerstvo zahraničných vecí Slovenskej republiky Hlboká cesta 2 SK-833 36 Bratislava 1
(3) The first request was partially addressed by the Slovak authorities in a letter dated 30 March 2007 and the information was completed and extended in reply to the second information request in the letter of 15 June 2007. The request of 17 August was answered on 12 October 2007.
(4) On 9 November 2007 a meeting took place between the Slovak authorities, representatives of the beneficiary and the services of the Commission.
(5) The draft2 minutes of the meeting were commented upon and endorsed by the Slovak authorities in a letter of 13 December 2007, where the Slovak authorities also indicated that the information distributed at the meeting constituted formal submission of supplementary information in the case. The final agreed version of the minutes together with the accompanying request for supplementary information was sent by the Commission on 14 December 2007 to which the Slovak authorities replied on 17 January 2008.
(6) By letters of 17 January 2008 and 5 May 2008 the Commission sent final requests for supplementary information on the measure to which the Slovak authorities replied by letters submitted on 10 April 2008 and 23 May 2008 respectively.
2. DESCRIPTION OF THE MEASURE
2.1. Objective
(7) The notified aid measure supports an initial investment in setting-up of the liquid crystal display (hereinafter: LCD) TV module production plant in Voderady, in the Trnava district in Slovakia by Samsung LCD Slovakia.
(8) Through supporting this investment the measure aims at promoting regional development of the Western Slovakia (Západné Slovensko) region which is an assisted area pursuant to Article 87(3)(a) of the EC Treaty with a regional aid ceiling of 50% net grant equivalent (NGE) under the regional aid map for Slovakia applicable in the period of 1.5.2004 – 31.12.20063.
2.2. The beneficiary
(9) The recipient of the aid is Samsung LCD Slovakia which is a company with a limited liability, established on 28 March 2007 in Slovakia4. The beneficiary of
2 Draft Minutes were transmitted to the Slovak authorities for their comments by e-mail of 26 November 2007 (together with an advance copy of questions which were later in an extended form forwarded formally on 14 December 2007).
3 SK 72/2003 - Slovak Republic - "Regional State aid map of the Slovak Republic - prolongation until 31 December 2006", C(2004) 1757/7, 28.4.2004
4 At the time of the notification the Slovak entity was not yet incorporated and the title of the case indicated in the entire correspondence with the Slovak authorities on the case referred to Samsung Electronics Co. Ltd. It was also Samsung Electronics Co. Ltd. who applied for the aid and signed the Investment Agreement with the Slovak authorities. 2
the aid is a large enterprise, i.e. not a small or medium-sized enterprise within the meaning of Commission Regulation (EC) N° 70/2001 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises5.
(10) Samsung LCD Slovakia is a 100% subsidiary of Samsung Electronics Co. Ltd. (hereinafter Samsung Electronics); a joint-stock company with its seat in South Korea.
(11) The parent company, Samsung Electronics, is one of the world's largest electronics and information technology companies. It is organised into the following five major production business areas: Digital Media (TV sets, audio/video products, personal computers and computer peripherals); Liquid Crystal Display Business for panels in various applications (TV sets, desktop monitors or mobile products); Semiconductor Business (e.g. memory chips, hard drive devices); Telecommunication Networks Business (mobile phones, telecommunication systems), Digital Appliances (washing machines, refrigerators, air conditioners and system cooking).6
(12) Samsung Electronics belongs to Samsung Group established in 1938 in Korea. Samsung is active worldwide with a number of affiliated companies present in several different sectors, including electronics industries, machinery and heavy industries, chemical industries, financial service and others.7
2.3. The investment project
Description
(13) The planned project concerns the setting-up of new plant for the assembly of the LCD TV modules of four sizes i.e. of 32'', 40'' 46'' and 52''.
The product (LCD module) and its production process
(14) LCD modules are essential and expensive components of different LCD displays and may be used in different electronic products and devices (like PC monitors, PDAs, cellular phones, etc.).
(15) LCD module combines the display panel with a backlight, frame and associated electronics and enables the control of a signal sent by the electronic devices. Following, their assembly, the modules are shipped to the manufacturers of the downstream product (e.g. TVs, PCs, etc) who add to the LCD module the
5 OJ L 10, 13.01.2001, p. 33-42.
6 Samsung's 2006 Annual Report
7 http://www.samsung.com/AboutSAMSUNG/SAMSUNGGROUP/AffiliatedCompanies/ElectronicsIndustries/index.htm
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additional circuit boards, power supply and case to produce a finished TV set, PC, etc.
(16) The modules assembled in Voderady will only be used in the production of LCD TV sets an no other electronic devices or products. The LCD modules produced in the plant will be sold to a number of LCD TV manufacturers including both companies belonging to the Samsung group as well as unrelated customers.
(17) The first step in the module production process is the production of a panel. Panels consist of two layers of thin glass substrates between which liquid crystal materials are inserted plus a TFT array.
(18) For the purpose of the investment at hand, the panels are produced in Korea and will be shipped to Slovakia directly, where further processing into an LCD TV module is to take place in the plant in Voderady. Until recently, the whole industry producing LCD TV panels and modules was located in South East Asia (Japan, Korea, China and Taiwan). At present, however, several investments in LCD panel and module production are being carried out in the EU by Asian companies.8
(19) The size of a panel depends on the display size of the TV set that should be produced. Accordingly, panel sizes shipped to Slovakia are based on the size of the LCD TV module that will be produced in Voderady and are as such standardised.
(20) In this context, the Slovak authorities explained that the ratio of panels produced and modules produced equals approximately to 1:1 as the panels can only be used for the production of modules. Therefore in principle the number of panels and modules is equal. Indeed, the independent reports submitted by the authorities in support of some data calculations do not distinguish between panels and modules (and even use the terms interchangeably).
2.4. Other projects in the immediate proximity of the investment
(21) The investment of Samsung LCD Slovakia is part of a grouping of investments of around nine companies all of which will be located in the immediate proximity i.e. cca. 1 km from Samsung's plant.
(22) These companies will be involved in the production of different LCD module components. Some of these companies will be supplying to Samsung LCD
8 See Commission decision of 19 July 2006 in case N 245/2006 – Aid to LG. Philips LCD Poland Sp. z o.o. (MSF 2002), (hereinafter: LG Philips) concerning first module production in Europe, OJ C 278 of 21.11.2007, (the public version of the decision is available at: http://ec.europa.eu/comm/competition/state_aid/register/ii/doc/N-245-2006-WLWL-en- 19.07.2006.pdf) and Commission decision of 16 April 2008 in case NN 17/2008 (ex N 301/2007) – LIP – Italy – Aid to Digital Display Devices (hereinafter: DDD) concerning inter alia first panel production in Europe (the public version of the decision is available at: http://ec.europa.eu/comm/competition/state_aid/register/ii/doc/NN17-2008-IT-WLWL-en- 16.04.2008.pdf).
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Slovakia directly, whereas the remaining ones will be supplying to other companies from that grouping.
(23) The Slovak authorities underline that the projects constitute separate investments. The Slovak authorities invoke, in this context that: the projects are economically divisible, that they lack a single technical function and physical links, that they do not pursue a common aim and that no exclusive purchase-supply arrangements were concluded between the companies.
(24) Finally, the Slovak authorities informed that four of the concerned companies applied for regional aid9. The Slovak authorities further repeatedly confirmed that the individual notifications on these four projects will be delivered to the Commission.
2.5. Eligible expenditure of the project
(25) The eligible expenditure of the notified project covers the costs of fixed assets10 related to the setting-up of the plant and amount to SKK 11 408 000 000 (EUR 321 072 000)11 in nominal value which corresponds to SKK 10 530 070 000 (EUR 296 363 000) in discounted value12.
(26) The Slovak authorities confirm that in case any equipment is not new and is purchased by the beneficiary from various parties (including its Korean parent company), then the acquisition price will respect the arm's length principle which will be demonstrated by expert opinions to be submitted to the Slovak authorities. Furthermore, assets for whose acquisition aid was already granted prior to the purchase will be deducted from the eligible costs.
(27) The total eligible project costs broken down by year and category are presented in Table 1 below.
Table 1 - Eligible costs in nominal value (thousands of SKK)
2007 2008 2009 2010 2011 TOTAL
Land […]# […] […] […] […] 142,600
Buildings and installations […] […] […] […] […] 1,497,300
9 See also Section 3.5.1 below
10 Intangible investments do not form part of the eligible expenses.
11 To facilitate comparison, monetary figures referred to in this decision are also provided in EUR using for the conversion the exchange rate of 1 EUR = 35.531 SKK applicable as of the date of notification.
12 When calculating discounted values, the Commission used a reference rate of 5.62% applicable at the date of notification. # Information covered by the professional secrecy
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Machinery and equipment […] […] […] […] […] 9,768,100
TOTAL INVESTMENTS […] […] […] […] […] 11,408,000
2.6. Implementation of the project
(28) The works on the investment started in 2007 and will be carried out until the end of 2011.
(29) The project is expected to lead to the creation of […] production lines to be completed by the end of 2011.
(30) Production is to start in 2008 and the full production capacity of the project is estimated to be reached by the end of 2012.
2.7. Financing of the project
(31) The project will be financed by own resources of the beneficiary, bank loans and State aid in the form of grants and tax relief.
(32) As confirmed by the Slovak authorities all bank loans should be provided by independent bank institutions under market conditions and will be free of any State aid element.
(33) The detailed overview of the financing of the project broken down by year and category is presented in Table 2 below.
Table 2 – Financing of the project (in nominal terms, thousands of SKK)
2007 2008 2009 2010 2011 2012 2013 TOTAL
Equity […] […] […] […] […] […] […] 3,315,450
Loans […] […] […] […] […] […] […] 5 585 749
Grant for […] […] […] […] […] […] […] 1 824 389 investment
Grant for job […] […] […] […] […] […] […] 178 250 creation
Tax relief […] […] […] […] […] […] […] 667 546
TOTAL […] […] […] […] […] […] […] 11 571 384
(34) As seen from the Table 2, the contribution of the beneficiary (including own equity and unsubsidised bank loans) to the financing of the investment constitutes more than 25% of the eligible investment costs.
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2.8. Aid granting authority
(35) Ministry of Economy of the Slovak Republic and Center of Labor, Social Affairs and Family of the Slovak Republic will be the aid granting authorities in the case at hand.
2.9. Legal basis
(36) The proposed aid constitutes an ad hoc aid measure (i.e. not granted under an existing scheme) composed of grant and tax relief13.
(37) The following acts (including the implementing provisions) constitute the national legal basis of the notified measure:
- Act No. 231/1999 Coll. On State Aid, of 24.8.1999, as amended (Collection of Laws, part 97/1999, p. 1586); - Act No. 565/2001 Coll. On Investment Incentives, of 4.12.2001 as amended (Collection of Laws, part 221/2001, p. 5772); - Decree of the Ministry of Economy of the Slovak Republic No. 235/2002 Coll., laying down details of requirements of the application for investment incentives, of 30.4.2002 (Collection of Laws, part 101/2002, p. 2302); - Act No. 595/2003 Coll. On Income Tax, as amended, Section 52 (4), (Collection of Laws, part 243/2003, p. 5606); - Act No. 366/1999 Coll. on Income Tax valid until 31 December 2003, section 35b (Collection of Laws, part 149/1999, p. 2662); - Act. No. 523/2004 Coll. On Budgetary Rules, as amended (Collection of Laws, part. 220/2004, p. 4638); - Regulation of the Ministry of Economy No. 1/2005 on providing of grants within the competence of the Ministry of Economy (Collection of Laws, part. 39/2005, p. 753); - Act No. 5/2004 Coll. on employment services, as amended (Collection of Laws, part. 4/2004, p. 22).
(38) Finally, on 17 March 2007, Samsung Electronics signed an Investment Agreement with the Slovak Republic represented by the Ministry of Economy of the Slovak Republic, which sets out provisions relating to the investment in question and contains among others a description of the obligations of the Parties to the Agreement, State Aid related issues, description of the project, etc.
2.10. Form and amount of the aid
(39) The notified ad hoc aid package will be granted in the form of a grant and a corporate income tax relief. The grant will be aimed at financing the investment costs and the costs of job creation.
13 For detailed explanation of aid forms see section 2.10 below
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(40) The overall amount of the proposed aid is SKK 2 670 185 000 (EUR 75 151 000) in nominal terms which corresponds to a discounted amount of SKK 2 313 638 000 (EUR 65 116 000). The proposed discounted value of the aid represents - on the basis of the discounted value of the eligible investment costs – an aid intensity of 21.97% GGE.
(41) The aid will be put into effect only following the European Commission’s approval decision.
(42) According to Section 3.1 of the Investment Agreement, in case that within 5 years from the submission of aid application to the Ministry of Economy the actual investment costs are lower than EUR 320 mio but at least EUR 224 mio and/or the number of the newly created jobs is lower than 1200 but at least 840, then the amount of State aid will be accordingly adjusted downwards. In case that within 5 years from the submission of aid application to the Ministry of Economy the actual investment costs are lower than EUR 224 mio and/or less then 840 new jobs were created, the notification of an alteration of aid will be submitted to the European Commission. Moreover, the Investment Agreement provides that - subject to the approval of the relevant Slovak and EU authorities - in the case where within 5 years from the submission of aid application to the Ministry of Economy the actual investment costs will be higher than EUR 320 mio but not higher than 384 mio and/or when the number of newly created jobs will be higher than 1200 but not higher than 1440, the aid intensity of 21.97% on the basis of discounted values will not be exceeded and any proportional increase of the absolute value of total State aid shall correspond to the limits specified in the MSF 2002. Finally, the Investment Agreement stipulates that in case where within 5 years from the submission of aid application to the Ministry of Economy the amount of the actual investment costs is higher than EUR 384 mio and/or the number of newly created jobs is higher than 1440, any additional aid to the project will be notified to the European Commission for the approval.
2.11. Cumulation
(43) The notified aid cannot be cumulated with aid received from other local, regional, national or Community sources to cover the same eligible costs.
2.12. Maintenance of the assisted activity
(44) The Slovak authorities confirm that each of the production lines covered by the notified project will be maintained for a minimum period of five years from the completion of the respective production line.
2.13. Incentive effect
(45) The application for aid by Samsung Electronics14 was registered by the Ministry of Economy of the Slovak Republic on 1 December 2006.
14 As mentioned in footnote 4 above Samsung LCD Slovakia was not incorporated at the time, and the parent company acted as an aid applicant. 8
2.14. Contribution to regional development
(46) Western Slovakia is a region with large socio-economic handicaps where in 2005 GDP per capita in pps15 was only 57 % of EU-27 average and the unemployment rate in 2006 stood at 9.8 %, equivalent to 120 % of EU-27 average.
(47) The investment is expected to create around 1 200 direct new jobs by the end of 2012 for a workforce with secondary and university educational background.
(48) As stated in Section 2.4 above, the project will attract further investments from the LCD sector into the region. In this context, it is estimated that it would contribute to the creation of 3 705 new jobs in the supplier chain of the Voderady plant.
2.15. Monitoring provisions
(49) The Slovak authorities committed to submit to the Commission:
- within two months of granting the aid copies of the signed Agreements on the provision of state aid between the aid provider (Ministry of Economy of the Slovak Republic, Centre of Labour Social Affairs and Family of the Slovak Republic and State aid recipient - within five years after the approval of the Commission interim reports (including information on the aid amounts disbursed, on the fulfillment of the agreement and on any investment projects which will be started at the same establishment/plant by the aid recipient); and - within six months after payment of the last tranche of the aid, based on the notified payment schedule, a detailed final report.
3. ASSESSMENT OF THE AID MEASURE AND COMPATIBILITY
3.1. Legality of the aid measure
Lawfulness of the (ad hoc) aid and stand-still clause
(50) By notifying the planned ad hoc aid measure before putting it into effect and by introducing a condition that the award of the notified aid is subject to the Commission's approval (the so-called stand-still clause), the Slovak authorities respected their obligations under Article 88(3) of the EC Treaty.16
3.2. Existence of State aid
(51) The Commission analysed whether each of the four cumulative criteria for a measure to constitute State aid within the meaning of Article 87(1) of the EC Treaty is met. These criteria include: the involvement of State resources, the
15 Purchasing power standard.
16 See also Section 3.3. below concerning the individual notification requirement under MSF 2002
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presence of an economic advantage, the selectivity of the advantage and the impact on trade and competition.
- The aid instruments (grants and tax relieves) envisaged under the measure are provided by the Slovak authorities. This constitutes State resources within the meaning of Article 87(1) of the EC Treaty. - The aid relieves Samsung LCD Slovakia from costs which it would have to bear under normal market conditions and therefore the company benefits from an economic advantage over its competitors. - As the aid is granted to a single company, the measure is selective. - The measure concerns a company operating in the electronics sector, which is subject to extensive competition and trade between Member States. Thus, there is a risk that the aid could distort competition and affect intra- Community trade.
(52) Consequently, the Commission considers that the notified measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty.
3.3. Compatibility of the aid
(53) Article 87(1) of the EC Treaty provides for the general principle of prohibition of State aid within the Community.
(54) However, the Treaty foresees certain exceptions which are laid down in Articles 87 (2) and (3) of the Treaty under which the measure can be considered compatible with the common market. In this context, the Commission has developed a series of documents (e.g. guidelines) that explain the criteria used by it applying the derogations contained in the Treaty and in examining the compatibility of different types of State aid measures. For example, pursuant to Article 87 (3) (a) of the EC Treaty, the aid may be considered to be compatible with the common market when it promotes the economic development of areas where the standard of living is abnormally low or where there is serious underemployment.
(55) As the present aid measure was notified on 18 December 2006 and its objective was to support a regional development in a disadvantaged region (having the Article 87 (3) (a) status17), the Commission assessed it on the basis of the Guidelines on National Regional Aid18 (hereinafter "RAG 1998") which set out the rules for regional aid in the period 2000-2006.
(56) Moreover, as the proposed aid amount exceeds EUR 37.5 mio19, the aid measure was individually notifiable in accordance with point 24 of the MSF 2002 and thus subject to MSF 2002 rules.20
17 See paragraph (8) above
18 OJ C 74 of 10.3.1998 as later amended
19 The amount of EUR 37.5 mio triggers an individual notification requirement for large investment projects in an area with an admissible regional aid ceiling of 50%. 10
(57) This is in accordance with the rules spelled out in the new Regional Aid Guidelines for 2007-201321, whereby according to footnote 58, individually notifiable investment projects will be assessed in accordance with the rules in force at the time of notification.
(58) It follows from the above, that in view of the measure's date of notification, its objective and the notified aid amount, RAG 1998 and MSF 2002 are the relevant rules for measure's compatibility assessment.
3.4. Compatibility with the general provisions of the RAG
(59) In its assessment, as a first step the Commission verified whether the standard compatibility criteria of the RAG 1998 were met, and in a second step, the conformity with MSF 2002 rules was considered.
(60) As a general rule, the Commission does not favour the award of ad hoc aid within the framework of regional aid22. However, in the present case the Commission takes note, in view of the information given in section 2.14 above, that the project will produce substantial positive spillovers which should provide a major contribution to the development of a disadvantaged region of the European Union and outweigh the possible distortion of competition.
(61) In the assessment of the respective criteria of the RAG 1998, the Commission came to the following conclusions:
(a) The Western Slovakia region is entirely eligible for regional aid under Article 87(3) (a) of the EC Treaty.23
(b) The notified aid is aid for initial investment as defined in point 4.4 of the RAG 1998.
(c) The beneficiary’s own contribution free of any aid to the eligible costs is above the required 25% threshold (cf. point 4.2 of the RAG 1998).
(d) The aid application was submitted before the work started on the project (cf. point 4.2 of the RAG).
(e) The aid measure covers the costs of fixed assets (land, buildings and equipment) which are eligible for aid under point 4.5 of the RAG 1998.
20 EUR 37.5. mio is an amount which triggers an individual notification requirement for large investment projects in an area with an regional aid ceiling of 50%, cf. point 21 where the scaling down mechanism is set out in connection with point 24 of MSF 2002 concerning the individual notification requirement.
21 OJ C 54 of 04.03.2006, pp. 13-45
22 See Section 2, 3rd paragraph of RAG 1998
23 In conformity with the Slovak regional aid map for the period 2004-2006, see footnote 3 above. 11
(f) In case any of the fixed assets are not new, the purchase transactions will take place under market conditions. In addition, assets for whose acquisition aid has already been granted prior to the purchase will be deducted from the eligible costs (cf. point 4.5. 2nd paragraph of the RAG 1998).
(g) Each production line envisaged by the investment will be maintained for at least 5 years after its completion (cf. point 4.10 of the RAG 1998).
(h) Any cumulation of the notified measure with aid in other forms or from different sources to the same eligible costs is excluded. The applicable adjusted aid intensity ceiling24 and cumulation rules will thus be respected (cf. 4.18 et. subs. of the RAG 1998).
3.5. Compatibility with the MSF 2002 provisions
3.5.1. Single investment project
(62) As mentioned in Section 2.4 above, the notified project forms a part of a grouping of investments which are located in the immediate proximity to each other.
(63) The Slovak authorities have explained that four of the investors from that cluster (i.e. Fine DNC Co. Ltd., Hansol LCD Inc., Samjin LND Co. ltd. and Shinwha Intertek Corp.) applied for the regional aid and the Slovak authorities already addressed the written confirmations that these projects meet the conditions of the eligibility. As informed by the Slovak authorities each of these companies already incorporated the Slovak subsidiary to which aid should be granted, their business names in Slovakia are as follows: Fine DNC Slovakia, s.r.o.; Hansol LCD Slovakia s.r.o.; Samjin LND Slovakia s.r.o. and Shinwha Intertek Slovakia s.r.o.
(64) The Slovak authorities at the same time committed to deliver the notification concerning four above-mentioned investments to the Commission in the near future.
(65) It is noted here that none out of four above-mentioned notifications was submitted to the Commission by the Slovak authorities to this date.
(66) Therefore, in absence of the notifications, it is not relevant to consider the issue of whether the neighbouring investments in Voderady plant could all constitute a single investment project within the meaning of point 49 of the MSF 2002. The current notification is thus assessed independently from other investments.
(67) The Commission however reserves the right to return to the issue of single investment project in the context of the future notifications which, in view of the Slovak authorities' commitment, are still due to be submitted.
(68) The amount of State aid to Samsung LCD Slovakia will not be affected by that assessment.
24 For detailed analysis – see Section 3.5.1.infra 12
3.5.2. Aid intensity
(69) With eligible expenditure of SKK 10 530 070 000 (EUR 296 363 000) in discounted value and an applicable standard regional aid ceiling of 50% in net grant equivalent (NGE), the maximum aid intensity permitted in accordance with the scaling down mechanism set out in point 21 of the MSF 2002 is 23.92% NGE.
(70) The total foreseen aid amount for the project of SKK 2 313 638 000 (EUR 65 116 000) in discounted value represents an aid intensity of 21.97% GGE25.
(71) As the aid intensity for the project (21.97% GGE) is below the above-mentioned adjusted maximum allowable ceiling (23.92% NGE), the proposed aid intensity is in line with point 21 of the MSF 2002.
3.5.3. Compatibility with the rules under point 24 (a) – market share test -and (b) – capacity test - of the MSF 2002
a. Product concerned: product envisaged by the investment and/or downstream product
Product envisaged by the investment project (72) According to point 52 of the MSF 2002 ‘product concerned’ means the product envisaged by the investment project and, where appropriate, its substitutes considered to be such, either by the consumer (by reason of the product’s characteristics, prices and intended use) or by the producer (through flexibility of the production installation).
(73) As mentioned in 13 above, the product envisaged by the investment under scrutiny concerns the production of LCD TV modules of the following sizes: 32'', 40'', 46'' and 52''.
(74) The Slovak authorities further explain and confirmed at the meeting with the Commission services of 9 November 2007 that it will not be possible to produce modules below 32'' or over 52'' based on the current production plan.
Downstream product
(75) Point 52 of the MSF 2002 stipulates further that when a project concerns an intermediate product and a significant part of the output is not sold on the market, the product concerned may be deemed to include the downstream products (which in this case would be the LCD TV sets).
(76) According to the information submitted by the Slovak authorities, the business model practiced by Samsung group ensures that the company is not solely dependent on suppliers or customers belonging to the Samsung group and that the
25 As the aid intensity expressed in gross grant equivalent is equal or higher than the net grant equivalent, the aid which respects the applicable aid ceiling in gross terms will always remain below this ceiling also in net terms. Therefore, it is not necessary to calculate the net grant equivalent of the aid. 13
relevant purchase and supply contracts are driven by the price efficiency rationale. Accordingly, different components of the module are bought from different companies, including those from outside the group.26 Also as regards the sales side, Samsung's LCD TV modules are sold to different companies manufacturing TV sets including those outside the Samsung group.
(77) Also, in this case, the Voderady plant will be supplied by different independent module component suppliers and will sell to companies from outside the Samsung group. Indeed, the output of Voderady plant will be supplied not exclusively to Samsung group companies (Samsung Electronic Slovakia s.r.o. located in Galanta, Slovakia and Samsung Hungary) but also to Sony, Matsushita, JVC, Toshiba, Beko, Vestel, Loewe, B&O and others. According to statistics presented by the Slovak authorities it is expected that approximately 60% of the output of the Voderady plant will be supplied to entities not related to the Samsung Group.
(78) Moreover, the Slovak authorities also indicated that Samsung Electronics' LCD Business (of which the aid beneficiary forms part) and Digital Media Business (which produces the LCD TV sets) are separate divisions and they act in their dealings as independent parties27.
(79) In light of the above, the Commission considers that although LCD TV module is an intermediate product, the whole output of the Voderady plant will be sold under market conditions and therefore, it is not necessary to include the downstream product (i.e. LCD TV set) in the analysis.
(80) In this context, it is also recalled that in the earlier decisions (e.g. the above- mentioned LG Philips and a decision concerning Toshiba’s investment in Poland28), the Commission stated that the different components of flat screen LCD TV sets (e.g. modules and their components or LCD TVs themselves) constitute separate and stand alone products in their own right that can be (and often are) produced separately from a wide variety of raw materials. Moreover, such products can be (and eventually will be) sold and marketed separately to a variety of manufacturers.
b. Relevant product market
(81) The definition of the relevant product market requires the examination of whether other products could be considered as substitutes to the LCD modules subject to the notification in question.
(82) In this context, the Commission analysed what other products could be considered substitutable with the product concerned on the demand side (in view of their
26 On the basis of the current data, more than 50% will be supplied by third parties (AUO, CMO and CPT). 27 For description of Samsung's divisions, see paragraph (11) above
28 Case N 905/2006, Aid to Toshiba Television Central Europe Sp. z o.o., paragraphs 51-52 in particular. 14
characteristics, prices and intended use) or the supply side (through flexibility of the production installations).
(83) In the relevant analysis presented below, the Commission has also taken into account the findings of previous Commission decisions concerning the sector.
(84) First, the Commission in its decisions (LG Philips and DDD) found that flat panel technology is a clearly distinct market from that of cathode ray tube (CRT) technology and concluded that for the purposes of market analysis, the CRT and flat panel technologies belong to different segments. This is so in the light of prices, customer preferences and supply-side substitutability (i.e. equipment, production lines and technology differ significantly). Moreover CRT is an obsolete technology which is rapidly being replaced by flat panel technology. The Commission maintains this view in the assessment of the present case. The Slovak authorities also share the opinion that the CRT technology belongs to a separate segment.
(85) Second, there are several technologies which belong to the wider category of flat panel technologies. These include LCD technology, PDP technology as well as digital light processing technology, organic light emitting diode technology and other.
(86) Within the category of flat panel technologies, the Commission maintains that there are several reasons to restrict market analysis to the two most common technologies, i.e. LCD and PDP technologies.
(87) This would constitute a narrow definition of the flat panel display technology and presumably the worst case scenario for the purpose of assessing market share. Moreover, from a TV set manufacturer perspective, the LCD and PDP modules are roughly similar. For both technologies, the module contains not only the display but also important electronic functions, facilitating the assembly of the finalized TV. This also means that there are no significant impediments for a TV set manufacturer to switch from PDP to LCD TV production and vice versa.29 The Slovak authorities also argued that in general customers do not distinguish between LCD and PDP technologies and both of them are competing with the CRT market. Therefore, according to Slovak authorities, LCD and PDP technologies belong to the same relevant market.
(88) However, it appears that PDP displays are serving the larger segments of the flat panel display market starting at a display size of 32''-35'', so the PDP market is only competing with the larger segment of the LCD market. Moreover, it also noted that LCD technology has evolved rapidly making it possible to produce screen sizes of up to 52" at prices which are affordable for home use, at least by relatively prosperous consumers. Thus the industry data shows that within the EEA the LCD technology has made substantial gains in market share at the expense of PDP in TVs for home use, while the PDP technology is increasingly oriented towards very large screens for use in public places for information or entertainment purposes. While the possibility of further technological change
29 See paragraphs 90-91 of LG Philips
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cannot be entirely excluded, all the indicators available today suggest that this trend will continue. Therefore, in order to cover all plausible scenarios, the Commission also considers it justifiable to assess the narrowest scenario, i.e. that of LCD modules considered separately (i.e. without taking the PDP modules into account).
(89) Third, the Commission addressed the issue of the size of the LCD modules that should be taken into account. It is recalled that the Voderady plant will manufacture LCD TV modules of four sizes i.e. of 32'', 40'' 46'' and 52''. In this context, the Commission observes that although the LCD modules are used in a series of electronic devices, the size of 22'' normally constitutes a cut-off point, as of which the TV sets are produced, whereas smaller modules are in general used for other purposes.
(90) It should be borne in mind, however, that the division is not a very strict one, as the market is developing fast and larger information technology displays (for instance in the case of notebooks or computer monitors) are being introduced on the market, while smaller LCD TVs are also produced. Therefore, the Slovak authorities hold the view that a broad definition including all sizes of modules is justified. They also consider that the different screen sizes form a continuum and consumers are choosing between all segments, therefore no distinction should be drawn in particular between the medium-size and large-size segments.
(91) In light of the above considerations, and in line with the approach taken in the LG Philips case, the Commission assessed market shares on the market including all TV module sizes as well as on the market for the TV modules of 22'' and above.
Plausible relevant product markets
(92) In light of the elements set out is sub-section b. above, the relevant product markets of flat panel display TV modules is identified according to the criterion of the underlying technology (i.e. LCD and PDP considered together or separately) and that of the size of the module (i.e. all module sizes and modules of 22'' and above).
(93) Accordingly, four plausible relevant markets have been identified30:
(A) LCD and PDP TV modules (broad market definition)
(B) LCD TV modules
(C) LCD and PDP TV modules equal or above 22-inches
(D) LCD TV modules equal or above 22-inches (narrow market definition)
30 In this context, it is recalled that in the LG Philips decision, the market share remained below the 25% threshold stated in point 24(a) of the MSF 2002. Therefore the decision on the determination of the relevant product and geographic markets was left open.
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c. Relevant geographical market
(94) The Slovak authorities consider that the relevant geographic market should be global as both manufacturing and sales are highly globalised.
(95) Even though the LG Philips decision analysed market shares at both EEA and global geographic markets, the decision included indications that both manufacturing and sales of LCD modules are highly globalised: there are no significant impediments to trade in TV display units in terms of technical requirements; there are also no significant price differences between the regions. Until recently, the production of LCD panels, modules and finished TVs were all completed in the Far East and the finished LCD TV was then exported around the world.
(96) However, over the last years, there is an evident change in business models whereby technology (first TV set production, followed by module and ultimately, as in the case of DDD, panel production) is being gradually transferred from Asia to Europe and European demand is increasingly met by European production.
(97) Indeed, as the LCD module sector is concerned, several manufacturers have started to build LCD module plants in Europe as part of their strategy to support the fast-growing European LCD TV market. Establishing a production base near their TV costumers will also help the process of supporting them via the timely supply of products and technical assistance.
(98) This trend points to more regionalised markets which is also reflected in the fact that the Voderady plant will mainly supply the European market.
(99) Therefore, in the case at hand the analysis of the four plausible relevant product markets as identified in paragraph (93) above will be performed at the level of both plausible geographic markets (i.e. the worldwide market and the EEA-wide market).
d. Market shares
(100) Point 24 (a) of the MSF 2002 specifies that a project will not be eligible for aid in the case the aid beneficiary accounts for more than 25% of the sales of the product concerned before the investment or will after the investment account for more than 25%.
(101) To examine whether the project is compatible with point 24 (a) of the MSF 2002, the Commission has to analyse the market shares of the aid beneficiary at group level before and after the investment on the four plausible relevant product markets and two plausible relevant geographic markets (see Tables 3 – 6 below).
(102) As the investment of Samsung started in 2007 and full production is foreseen to be realised in 2012, the Commission will thus examine the market share of Samsung in 2006 and in 2013.
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Methodology and data sources employed by the Slovak authorities
(103) For the calculations, the Slovak authorities have submitted data from the independent market research consultant, Display Search.
(104) In particular, the calculation of the market share of Samsung regarding LCD and PDP modules relies on the data provided by the multi client study “Quarterly Global TV Shipment and Forecast Report, Q1- 2007”.
(105) While for some of the data needed in the assessment it is possible to rely on data directly compiled by Display Search, for some other data the Slovak authorities estimated the relevant figure on the basis of explicitly made and documented assumptions.
- S-LCD joint venture (106) An important explanation concerning the figures reported by Display Search concerned Samsung group's market share resulting from a joint venture established in Korea between Samsung Electronics Co. Ltd with the Japanese Sony Corporation covering LCD module production.
(107) This 50%-50% joint venture, which is called S-LCD, was concluded in 2004 for the manufacture and supply of LCD modules belonging to the category of the so- called G7 generation.31 Later, in July 2006 the co-operation between the two parties was extended to the manufacture and supply of LCD modules belonging to the so-called G8 generation.32 S-LCD supplies from its plant in South Korea both to Samsung and Sony.
(108) In the notification, the Slovak authorities indicate that in the Display Search report the figures corresponding to the S-LCD's production have been fully attributed to Samsung33.
(109) The Slovak authorities consider that this approach contributes to an artificial inflation of the market share of Samsung. Consequently, the Slovak authorities point out that the shareholding ratio and the provisions governing the joint- venture ensure that modules produced by S-LCD are under purchase obligation clause supplied in a 50%-50% ratio to Sony and Samsung (i.e. volume of the production is equally distributed between Samsung and Sony) and that neither of the two parties exercise control over the other party's allocated 50% ratio. Consequently, 50% of the production and revenue of the joint venture should be deducted from the figures reported in the Display Search study to arrive to a fair view of the market share of Samsung on the LCD module market.
31 32'' and 40'' panels belong to the so-called G 7 category of LCD products and 46'' and 52'' belong to the so-called G 8 category of LCD products.
32 See footnote above
33 Because of the crucial importance of this element for our assessment, the Commission services requested the Slovak authorities to provide for an explicit, clear and unequivocal written confirmation in this context.
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(110) To support this, the letter of 23 May 2008 from the Slovak authorities more explicitly stated: "The Slovak authorities hereby confirm that the LCD TV module shipment attributed to Samsung Electronics Co. Ltd in the "DisplaySearch Quarterly Global TV Shipment and Forecast Report" of 14 March 2007 include not only the production and revenue of Samsung Electronics Co. Ltd, but also 100% of the production and revenue of S-LCD (the joint venture between Samsung Electronics Co. Ltd and the Sony Corporation). The confirmation issued by the Ministry of Economic Affairs of the Slovak Republic as the authority granting the proposed state aid is based on a declaration by the NPD Group's DisplaySearch subsidiary (document No DS 00155) confirming that Samsung Electronics Co. Ltd's share of the relevant market in all its surveys includes 100% of S-LCD's production (in units) and revenue."
(111) In view of this, in the data presented by the Slovak authorities, 50% of the production and revenue of the joint venture (i.e. 3 million units in 2006 and […] million units in 2013) has been deducted from the figures reported in the Display Search study in order to arrive to a fair view of the market share of Samsung on the module market.
- Data on the EEA level (112) Since no data on the size of the module market at European level is tracked by Display Search, the Slovak authorities have estimated the corresponding figures. The method applied determines the European LCD module market on the basis of the ratio European/worldwide sale of LCD TV sets multiplied by the worldwide sale of LCD modules.
(113) This approach, which relies on Europe's share in LCD TV set sales when determining the size of the upstream module market, may however overestimate the size of the EEA module market in case the European demand for LCD TV sets is largely met by imports (e.g. from Asia). In such a case demand for modules arises in the place of production of the TV outside Europe even if subsequently the TV set is shipped and sold in Europe. It appears that at least in the first half of this decade it was indeed primarily Asian import of flat screen TV sets which satisfied European demand.
(114) However, as pointed in paragraph (96) above, there is also strong indication of an evident change in business models whereby technology (first TV set production, followed by module and ultimately panel production) is being gradually transferred from Asia and European demand is increasingly met by European production. Since different firms move at different speed, this may result in important changes in market presence and market shares in Europe as the whole process unfolds.
(115) Over the long run and as the above described process develops, it is indeed the demand for flat screen TV sets in Europe that determines the size of the upstream EEA module market. It is therefore acceptable to calculate EEA-wide shares on the basis of the approach proposed by the Slovak authorities
- Future extrapolations
(116) With regard to the calculation of the market share of Samsung, for the year 2006 data were extracted directly from the independent study of Display Search, while 19
for the year 2013, i.e. the year following the completion of the investment the Slovak authorities had to perform certain assumptions.
(117) The first assumption used consisted in using the growth of the market which was forecast by DisplaySearch for 2010 for extrapolations of LCD/PDP module sales in the subsequent years.
(118) The Commission is aware that this could lead to an overestimate of the growth rate from 2011 to 2013 since overtime there is a diminishing rate of growth in the shipment of LCD and PDP TV sets, which is characteristic to products incorporating new technologies. Overtime, the penetration rate of the product concerned reaches a saturation point in which the product is substituted by a new one (similarly to mobile phones, for instance).
(119) However, the Commission notes that already the data provided to cover the period until 2010 is based on forecasts of the evolution of the market made by Display Search and not based on real data reported by the companies (market shares based on real data reported by the companies at brand level were only available in the course of notification on a quarterly year basis until 2006). In any event, the first Display Search projections for the year 2011 concerning the global LCD TV market seem to confirm the assumption of the Slovak authorities concerning future growth of the market.
(120) Secondly, the Slovak authorities provided data only for 2006 regarding the sales of plasma PDP modules by Samsung SDI, a company belonging to Samsung group and active on the market of PDP module production (Samsung Electronics Co. Ltd holds 19.68% of Samsung SDI).
(121) In this context, the Slovak authorities and the company informed the Commission that the information on prospective evolution of Samsung SDI shipments until 2013 could not be shared since Samsung SDI is a competitor of Samsung Electronics on the flat panel display market (moreover, both companies supply Samsung Electronics DM which is an LCD and PDP TV set manufacturer). According to the information submitted, there is just a normal shareholder relationship between Samsung Electronics Co. Ltd. and Samsung SDI, where Samsung Electronics Co. Ltd. does not have an effective control over policies of Samsung SDI. Also, Samsung SDI is not a consolidated entity in respect to the financial statements of Samsung Electronics Co. Ltd.
(122) Furthermore the Slovak authorities invoked that the PDP market is losing its share significantly in favour of the LCD technology, thus as regards market shares of Samsung Group on the combined LCD and PDP module market, Samsung SDI's position has a decreasing importance. Moreover, Samsung SDI has a share of around [10-25] % on the PDP market which is not expected to rise as it does not manufacture PDP modules in several size categories and has to face tough competition, especially from Matsushita, the strongest player on this market. On this basis and given the substitution between PDP and LCD technologies it is unlikely that the presence of Samsung SDI on the PDP market would increase substantially so as to bring the combined market share of Samsung Electronics and Samsung SDI above 25 % of the joint LCD and PDP module market.
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(123) Therefore, for the purposes of calculating the combined market share, the Commission assumed a scenario where Samsung SDI's share in the PDP market in 2013 would be equal to its position in 2006.
(124) In reference to both of the above mentioned methodological issues, the Commission also notes that the data corresponding to the size of the market after the investment (i.e. in 2013), both at the EEA and worldwide levels, should be interpreted with care, since they remain highly speculative in a rapidly evolving market subject to continuous innovation and fierce competition. Therefore, the Commission finds it justifiable to accept the above mentioned assumptions employed by the Slovak authorities to calculate the market shares of the beneficiary after the investment.
(125) In reference to paragraph (93) of the present decision the market shares of Samsung at group level on the plausible relevant product and plausible geographic markets are as follows:
Table 3: (A) LCD & PDP TV modules
Worldwide sales of LCD and PDP TV modules
Volume (in 1,000 units) 2006 2013 Value (in million US$) 2006 2013 Total sales 63,619 229,320 Total sales 29,366 47,333 Samsung (LCD) 7,939 […] Samsung 4,325 […] SDI (PDP) 2,320 […] SDI 1,663 […] Samsung total M/S 16.1% [15-25]% Samsung total M/S 20.4% [15-25]%
EEA sales of LCD and PDP TV modules
Volume (in 1,000 units) 2006 2013 Value (in million US$) 2006 2013 Total sales 24,214 64,459 Total sales 10,391 13,035 Samsung 3,313 […] Samsung 1,714 […] SDI 716 […] SDI 476 […] Samsung total M/S 16.6% [15-25]% Samsung total M/S 21.1% [15-25]%
Table 4: (B) LCD TV modules
Worldwide sales of LCD TV modules
Volume (in 1,000 units) 2006 2013 Value (in million US$) 2006 2013 Total sales 54,111 206,222 Total sales 22,381 41,075 Samsung 7,939 […] Samsung 4,325 […] Samsung total M/S 14.7% [15-25]% Samsung total M/S 19.3% [15-25]%
EEA sales of LCD TV modules
Volume (in 1,000 units) 2006 2013 Value (in million US$) 2006 2013 Total sales 21,277 57,628 Total sales 8,392 11,337 Samsung 3,313 […] Samsung 1,714 […] Samsung total M/S 15.6% [15-25]% Samsung total M/S 20.4% [15-25]% 21
Table 5 - (C) LCD and PDP TV Modules equal or above 22”
Worldwide sales of LCD and PDP TV modules equal or above 22”
Volume (in 1,000 units) 2006 2013 Value (in million US$) 2006 2013 Total sales 49,885 215,328 Total sales 26,966 44,460 Samsung 7,469 […] Samsung 4,246 […] SDI 2,320 […] SDI 1,663 […] Samsung total M/S 19.6% [15-25]% Samsung total M/S 21.9% [15-25]%
EEA sales of LCD and PDP TV modules equal or above 22”
Volume (in 1,000 units) 2006 2013 Value (in million US$) 2006 2013 Total sales 19,385 61,103 Total sales 9,523 12,281 Samsung 3,313 […] Samsung 1,714 […] SDI 716 […] SDI 476 […] Samsung total M/S 20.8% [15-25]% Samsung total M/S 23.0% [15-25]%
Table 6 - (D) LCD TV modules equal or above 22”
Worldwide sales of LCD modules equal or above 22”
Volume (in 1,000 units) 2006 2013 Value (in million US$) 2006 2013 Total sales 40,377 192,230 Total sales 19,982 38 202 Samsung 7,469 […] Samsung 4 246 […] Samsung total M/S 18.5% [15-25]% Samsung total M/S 21.3% [15-25]%
EEA sales of LCD modules equal or above 22”
Volume (in 1,000 units) 2006 2013 Value (in million US$) 2006 2013 Total sales 16,448 54,272 Total sales 7,523 10,583 Samsung 3,313 […] Samsung 1,714 […] Samsung total M/S 20.1% [15-25]% Samsung total M/S 22.8% [15-25]%
(126) It is concluded that on the basis of the data submitted, under the four plausible relevant product markets and the two geographic markets segmentations, Samsung's market share at group level remains below the 25% threshold of the sales of the product concerned (both in volume an value terms). Therefore the test in point 24 (a) of the MSF 2002 is complied with.
(127) In these circumstances, the Commission leaves the definition of the relevant product and geographic market open.
e. Capacity increase
(128) In accordance with point 24(b) of the MSF 2002, the Commission verified if the average annual growth rate of the apparent consumption of the products
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concerned over the last 5 years is above the average annual growth rate of the European Economic Areas' GDP (which would indicate that the market is not in structural decline).
(129) The compounded annual growth rate of EEA GDP for 2001-2006 is 1.97% in volume terms and 3.98% in value terms.
(130) The following tables indicate, on the basis of data submitted by the Slovak authorities, the compound annual growth rates (CAGR) over the years 2001-2006 of the different plausible relevant markets in Europe in volume and value terms.
Table 7 – Compound annual growth rates in Europe, 2001-2006
CAGR in volume CAGR in value terms terms (A) LCD & PDP TV modules 202.24% 144.39% (B) LCD TV modules 231.69% 230.85% (C) LCD and PDP TV Modules equal or above 22” 236.82% 148.79% (D) LCD TV modules equal or above 22” 507.66% 388.92%
(131) The growth rates of the relevant markets in the EEA are well above the CAGR of EEA GDP both in volume and value terms. The test under 24 (b) of the MSF 2002 is complied with.
(132) Therefore, the Commission concludes that the investment project under scrutiny is compatible with point 24 (b) of the MSF 2002.
3.6. Conclusion
(133) In view of the above, the notified regional aid favours regional development in a region eligible for regional aid pursuant to Article 87(3)(a) of the EC Treaty. It is in line with the RAG 1998 and respects the conditions of the MSF 2002. Consequently, the aid measure is compatible with Article 87(3)(a) of the EC Treaty.
4. DECISION
(134) The Commission has accordingly decided to consider the aid planned by the Slovak authorities to Samsung LCD Slovakia in a total amount in discounted value of SKK 2 313 638 000 representing an aid intensity of 21.97% gross to be compatible with the EC Treaty.
(135) The Commission reminds the Slovak authorities of their commitment to submit to the Commission: (i) within two months of granting the aid copies of the relevant acts on the provision of state aid between the aid authority and the aid recipient; (ii) within five years starting from the approval of the aid by the Commission, an intermediary report (including information on the aid amounts being paid, on the 23
execution of the aid contract and on any other investment projects started at the same establishment/plant); (ii) a detailed final report within 6 months after payment of the last tranche of the aid, based on the notified payment schedule.
(136) The Commission reminds the Slovak authorities of their commitment to notify to the Commission any plans to manufacture LCD modules other than 22'' and above within five years of the completion of each production line.
(137) The Commission also reminds the Slovak authorities that - in view of their commitment to lodge individual notifications for projects of four companies which invest in the immediate proximity of Samsung LCD Slovakia project and which applied for the aid (i.e. the companies Fine DNC Co. Ltd., Hansol LCD Inc., Samjin LND Co. ltd. and Shinwha Intertek Corp. and their Slovak subsidiaries which have been already incorporated) - no aid can be granted to these four projects before the Commission has authorised the aid. This is based on the information from the Slovak authorities that several other investors which are also active around Samsung LCD Slovakia project did not apply for the aid.
(138) If this letter contains confidential information, which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/community_law/state_aids/index.htm
Your request should be sent by registered letter or fax to:
European Commission Directorate-General for Competition State Aid Greffe B-1049 Brussels Fax No: 32 2 296 12 42
Yours faithfully, For the Commission
Neelie KROES Member of the Commission
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