Britain and Spain fall foul of EC over paper aid plans

THE EUROPEAN Commission has begun proceedings against Britain and Spain over state aid proposals for two paper makers, on the grounds that they will distort the market.

The EC said it would block a British government proposal to grant pounds 20m in aid to Aylesford, a newsprint manufacturer, to help it refurbish a paper-making machine and install an extra one.

It said the grant was equivalent to 6.5 per cent of the total investment and was likely to distort competition and affect trade between member states. It also stated that Britain had not proved that the aid was vital to the planned investment.

Britain had argued that as the firm processed waste paper the aid was justified on environmental grounds.

The Commission also ruled against Spanish plans to give guarantees for seven years on loans totalling 4.5bn pesetas ( pounds 25.7m) to La Papelera Espanola, a group of firms producing and processing pulp and paper.

Spain had proposed granting the aid for restructuring under a Basque scheme to help small and medium-sized enterprises, but the Commission noted that with a workforce of 1,300, La Papelera did not qualify for such treatment.

However, the Commission did approve granting of a guarantee for six months to allow the restructuring plan to be redrawn.