EC prompts U-turn on Intel aid

EU: The European Commission responded with bemusement to the Government's decision yesterday to withdraw its proposal to award State aid to Intel's operation at Leixlip, Co Kildare.

Commission officials pointed out that the Government's action came before Brussels had even decided to launch a formal inquiry into the plan.

"It doesn't suggest that the Irish Government was very confident in its case," said one commission source.

In his statement yesterday, Minister for Enterprise, Trade and Employment Micheál Martin said the commission was about to launch such an inquiry with "clear indications... that the aid would not be approved at the end of that process".

The commission was concerned that the Government's aid to Intel would not create new jobs, would not result in any transfer of research and development, and could aggravate Intel's already dominant position in the European microchip market.

The Government's decision to withdraw the proposal followed intense, high-level, but ultimately unsuccessful, lobbying of the commission, which included a personal intervention by the Taoiseach with the commission president José Manuel Barroso.

Some officials perceived Irish pressure over the case to be heavy-handed and possibly counterproductive.

Commission sources yesterday dismissed fears that the decision spelt the end of Ireland's policy of subsidising high-tech investors but warned that approval of such schemes could no longer be taken for granted. "It does mean that the aid will have to be duly justified. You can't get approval just because it's in a high-tech sector," said one senior official.

In his statement yesterday, Mr Martin suggested that the commission's opposition to the Government's proposal was inconsistent with the Lisbon Agenda's aim of encouraging high-tech investment in the EU.

"Indeed, in all of my discussions on this case, I have emphasised the vital importance of attracting this type of investment in leading-edge technologies to the EU if we are to make progress in relation to the Lisbon Agenda, which president Barroso has so strongly supported since becoming president of the commission," he said.

The commission is drawing up new guidelines for state aid to encourage technological innovation, and officials said yesterday that there was no reason why Irish schemes should not qualify under the new rules.

The commission insists that the relative prosperity of Co Kildare was "not one of the decisive factors" informing its opposition to the Intel subsidy. Some experts in EU competition law believe, however, that yesterday's decision could signal a subtle change of attitude towards Ireland within the commission and that future State aid proposals could face more rigorous testing in Brussels than has traditionally been the case.

There is no doubt that competition for foreign direct investment has become keener in an enlarged EU, with the 10 new member states eager to exploit their low-cost bases and to compete with Ireland in setting low corporate tax rates. Ireland's remarkable success in attracting such investment and the country's leap to the top of Europe's wealth league has drawn attention to the use of state subsidies to attract foreign companies.

The commission argues that it is in Ireland's interest for the EU's state aid rules to be enforced rigorously because Ireland could not compete in a bidding war with some of the EU's bigger member states.

"The Irish Government may have handed out large amounts over the years but not as big as Germany and France are capable of spending," one official said.