FSO cries foul

Polish car manufacturer FSO is taking the European Commission to the European Court of Justice over the condition governing the public grant to aid FSO in the EC's December 2006 decision on the matter of state subsidies. "We think that the means of compensation are incommensurate to the aid package as a whole," said Krystyna Danilczyk, a spokeswomen for FSO.

In its decision, the EC had agreed upon state aid amounting to E62 (zł.240) million and a further E16 (zł. 61.9) million in taxes and fees to be redeemed or paid in installments. The condition for receiving the aid was that, by the end of February 2011, FSO would limit production to 150,000 cars a year and would not be allowed to buy licenses to produce new models. These restrictions were applied because of anxiety that FSO might threaten the performance of other European car producers.

More specifically, the Commission worried that "the aid could lead to undue distortion of competition. The car-manufacturing sector has excess capacity and the aid could shift the difficulties and the burden of adjustment to other firms and workers in other member states."

Danilczyk said, however, that the arrangement is not entirely beneficial for the company. "FSO's restructuring plan will end in 2008, whereas the restriction on car production will end not until February 2011. A lengthy limitation could threaten the existence of the factory," she pointed out. Since 2000, following the bankruptcy of its former owner, Korean concern Daewoo Motor Corporation, FSO has undertaken restructuring. In 2005, it was taken over by the Ukrainian car manufacturer Avtozaz/Ukrauto. The majority of FSO's output is sold in Central and Eastern Europe.