08 Nov 2017

Gecić Law Advises in Yet Another Landmark Decision Before the European Commission

Gecić Law acted as legal counsel to the Government of Serbia and the Železara Smederevo steel mill with respect to an European Commission (EC) investigation on the historical State aid received by the old company, and the potential responsibility of Hesteel Serbia to reimburse it, under the Stabilisation and Association Agreement (SAA). On Wednesday, November 8, 2017, Johannes Hahn, Commissioner for European Neighborhood Policy and Enlargement Negotiations, informed the Prime Minister of the Republic of Serbia, Ana Brnabić, that the European Commission concluded that “the HeSteel-owned steel mill does not have to reimburse any state aid received in the past” (link).

Leading Practice in the Region

This marks a second historic positive decision, in relation to Smederevo steel mill, and third in total, before the European Commission, achieved by our Firm’s Competition / State aid and European Law, Trade & Enlargement teams, together with our partners, following the recent decision not to impose anti-dumping measures on steel producers from Serbia as well as a greenlight in case of Air Serbia/ Etihad. It is important to note that the state aid analysis is completely independent of the recent anti-dumping case, which also ended with a positive outcome for the Smederevo steel mill.

Once again, sincere thanks from the team go to the Serbian Government, headed by the Prime Minister Ana Brnabić, Serbia’s Mission to the EU in Brussels and the management of the Smederevo steel mill, for giving us their vote of confidence and guiding the overall efforts of Serbian teams in Belgrade and Brussels.

Call for Caution – More Investigations are Inevitable

Despite the clearly positive tone of said message, Commissioner Hahn’s notification includes a very important forewarning for all stakeholders in the Serbian economy and foreign investors – Serbia’s obligations arising from the SAA give the European Commission undisputed authority to investigate and analyze compliance with the EU State aid rules. According to the Delegation of the European Commission to the Republic of Serbia, the Commissioner noted that “[t]he Commission was required to conduct this analysis based on the Serbia’s obligations under the EU-Serbia Stabilisation and Association Agreement, which commits Serbia to respecting the EU state aid regime, in particular for companies in restructuring.” [emphasis added].

This subtle, but very clear message, coupled with the fact that latest Screening Report for Chapter 8 – Competition Policy is primarily concerned with matters relating to state aid, present a direct indication that the EC will, given this unequivocal SAA legal basis, continue to diligently follow and analyze all relevant State-aid cases, with specific focus on the firms that underwent, or are planned to undergo, the restructuring process and/or privatization in line with the EU State aid regime.

On a related note, we warmly suggest reading our recent piece regarding the State aid spotlight on corporate profit tax, following mounting pressure on Serbia and Montenegro from the EC to amend their respective Corporate Profit Tax Acts to bring tax incentives in line with EU law.

Leading Serbian Steel Manufacturer

The Smederevo steel mill is Serbia’s leading producer of steel and is the second largest Serbian exporter and is currently responsible for nearly 1% of Serbia’s GDP. The previous company, Železara Smederevo was formerly owned by US Steel, having been acquired through the privatization process, and sold back to the Government of Serbia in 2012, marking the exit of US Steel from the country. In April 2016, China’s HBIS submitted a binding offer to buy a considerable number of assets of Železara Smederevo for a total of 46 million euro ($53.9 million) and established HBIS Group Serbia Iron & Steel d.o.o. Beograd – Hesteel Serbia.