Cautious backing for EU's steel state aid regime

The European Union last night agreed a new state aid regime for the steel industry after a compromise deal that will allow Brussels to block subsidies that distort competition but still allow governments to fund closure programmes.

The regime, which will run for five years from next January, was given a cautious welcome by the British Government and British steelmakers.

Britain, supported by Denmark, Sweden and the Netherlands, had insisted that the new code be as least as tough as the existing regime for fear that countries in southern Europe would be tempted to unfairly subsidise their steel industries.

The new regime will allow steelmakers to receive aid for research and development projects, environmental protection and partial closure programmes.

The provisions agreed last night are much tougher than those originally proposed by Brussels in March, which some members states had feared would fail to tackle the problem of overcapacity and lead to further pricing wars.

Since 1993 more than pounds 6bn has been paid in state aid to ailing steel companies, mainly in southern Europe, distorting the market and hampering British Steel and other UK producers.

Had EU ministers not agreed on a new regime from 1 January, then all state aid applications would have had to have been vetted individually by the Council of Ministers.

Greg Knight, Britain's industry minister, welcomed the new code, saying: "I am pleased that after some hard negotiations, agreement has been reached on tight state aid to the steel industry. This success has avoided the undesirable prospect of a period without a code which would have encouraged further support for uncompetitive companies and would run counter to the terms of the common market."

The British Iron and Steel Producers Association gave more cautious backing, saying that whether the new code resulted in real and efficient control of state aid would depend on the commission's determination to stamp out competitive distortions.

It said that changes insisted on by the British government had closed the worst loopholes but said it was disappointed that more of the amendments proposed by the UK steel industry had not been adopted.