Explanatory Memorandum to COM(2012)619 - Globalisation Fund application EGF/2012/006 FI/Nokia Salo from Finland

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Point 28 of the Interinstitutional Agreement of 17 May 2006 between the European Parliament, the Council and the Commission on budgetary discipline and sound financial management[1] allows for the mobilisation of the European Globalisation Adjustment Fund (EGF) through a flexibility mechanism, within the annual ceiling of EUR 500 million over and above the relevant headings of the financial framework.

The rules applicable to the contributions from the EGF are laid down in Regulation (EC) No 1927/2006 of the European Parliament and of the Council of 20 December 2006 on establishing the European Globalisation Adjustment Fund[2].

On 4 July 2012, Finland submitted application EGF/2012/006 FI/Nokia Salo for a financial contribution from the EGF, following redundancies in Nokia plc (Salo) in Finland.

After a thorough examination of this application, the Commission has concluded in accordance with Article 10 of Regulation (EC) No 1927/2006 that the conditions for a financial contribution under this Regulation are met.

1.

SUMMARY OF THE APPLICATION AND ANALYSIS


Key data:|

EGF Reference no.| EGF/2012/006

Member State| Finland

2.

Article (a)


Primary enterprise| Nokia plc (Salo)

Suppliers and downstream producers| 0

Reference period| 1.3.2012 – 1.7.2012

Starting date for the personalised services| 29.2.2012

Application date| 4.7.2012

Redundancies during the reference period| 1 000

Redundancies before and after the reference period| 0

Total eligible redundancies| 1 000

Redundant workers expected to participate in the measures| 1 000

Expenditure for personalised services (EUR)| 10 273 000

Expenditure for implementing EGF[3] (EUR)| 419 000

Expenditure for implementing EGF (%)| 3,92

Total budget (EUR)| 10 692 000

EGF contribution (50 %) (EUR)| 5 346 000

1. The application was presented to the Commission on 4 July 2012 and supplemented by additional information up to 21 August 2012.

2. The application meets the conditions for deploying the EGF as set out in Article 2(a) of Regulation (EC) No 1927/2006, and was submitted within the deadline of 10 weeks referred to in Article 5 of that Regulation.

3.

Link between the redundancies and major structural changes in world trade patterns due to globalisation


3. In order to establish the link between the redundancies and major structural changes in world trade patterns due to globalisation, Finland argues that the current difficulties of Nokia, Nokia Siemens Networks, almost all subcontractors and the affected regions go back to February 2011. At that time Nokia announced a significant change in the company's strategy and launched an extensive cooperation with Microsoft with regard to the use of Microsoft Windows Phone as its primary smartphone operating system, while keeping Nokia's own Symbian operating system as a software platform in lower priced phones until the end of 2016. The demand for Symbian phones has meanwhile dropped considerably, and the development and maintenance operations based on the Symbian system will therefore be discontinued.

4. The intention was to keep the Nokia Salo plant operational while reducing the company's personnel by some 12 % in offices all around the world. This led to the closure of the plant in Cluj, Romania (September 2011), for which another EGF application was presented i. Nokia Siemens Networks also announced major redundancies (November 2011). On 22 March 2012, redundancies in Nokia Salo were announced, numbering 1 000 workers out of a total of 1 700. Further redundancies are already planned, and a follow-up application from Finland for the next wave of redundancies is expected.

5. The primary reason for the redundancies is the transfer of functions within the sector to third countries outside Europe. Assembly of mobile phones, previously carried out in Salo and Cluj, has been offshored to Asia (China, South Korea, India and Vietnam, where a new Nokia plant is under construction). Component manufacture and subcontracted production had already been transferred out of Europe. Following the direction already taken by production, both design and product development have been, or are being, offshored.

6. Nokia's plan is to transfer the assembly of devices to its Asian plants, where most of the component suppliers operate. The purpose of the transfer of assembly operations to Asia is to expedite the entry of devices into the market. By working closer to the subcontractors, it will be able to bring new innovations to the market more rapidly and improve its competitiveness. At present, Nokia is losing its position in its most important markets of China and India, where several companies manufacturing cheap phones are increasing their market shares.

7. At its height, the electronics and electrotechnical industry provided employment to more than 60 000 people in Finland, but by the end of 2012, this number will have fallen to 50 000. At the same time, the number of personnel in third-country subsidiaries of the companies in this industry has grown, constituting a clear statement about offshoring of functions to Asia in particular.

4.

Personnel in Finland


Personnel in subsidiaries abroad

8. To date, the mobile phone sector has been the subject of several EGF applications, all of which based on trade related globalisation[5].

5.

Demonstration of the number of redundancies and compliance with the criteria of Article 2(a)


9. Finland submitted this application under the intervention criteria of Article 2(a) of Regulation (EC) No 1927/2006, which requires at least 500 redundancies over a four-month period in an enterprise in a Member State, including workers made redundant in its suppliers and downstream producers.

10. The application cites 1 000 redundancies in Nokia plc (Salo) during the four-month reference period from 1 March 2012 to 1 July 2012. More redundancies are expected in both Nokia and its subcontractors; a separate application will be presented for them. All of these redundancies were calculated in accordance with the first indent of the second paragraph of Article 2 of Regulation (EC) No 1927/2006.

6.

Explanation of the unforeseen nature of those redundancies


11. The Finnish authorities argue that the redundancies at the Salo plant were unforeseen, as this had been explicitly exempt when Nokia announced major redundancies in Finland in February 2011. At the time, the role of the Salo plant was expected to be the production of smartphones based on the Windows Phone platform.

12. At the end of November 2011, when the plant closure in Cluj (Romania) was announced, Nokia also announced that it was reconsidering the role of the Salo plant and that some personnel reductions could be expected in 2012. On 22 March 2012, the reduction of the Salo staff by 1 000 was announced, to be implemented by the end of June. This was unforeseen after the assurances given only a year earlier, and in the light of the fact that this was the first Nokia production plant with product development operations and the place where Nokia usually launched the assembly and assembly-learning process for new and important telephone models. In addition, sizeable staff reductions had already been carried out in Finland, and further cuts of this size were not expected.

7.

Identification of the dismissing enterprises and workers targeted for assistance


13. The application relates to 1 000 redundancies all of which occurring in Nokia plc (Salo). All 1 000 workers are targeted for the measures described further below.

14. The break-down of the targeted workers is as follows:

Category| Number| Percent

Men| 36,5

Women| 63,5

EU citizens| 94,4

Non EU citizens| 5,6

15-24 years old| 2,8

25-54 years old| 80,3

55-64 years old| 16,9

> 64 years old| 0,0

15. Among these workers, there are 20 with longstanding health problems or a disability.

16. In terms of occupational categories, the break-down is as follows:

Category| Number| Percent

Legislators, senior officials and managers| 1,5

Professionals| 1,4

Technicians and associated professionals| 6,4

Clerks| 4,9

Craft and related trade workers| 10,4

Plant and machine operators and assemblers| 71,3

Elementary occupations| 4,1

17. In accordance with Article 7 of Regulation (EC) No 1927/2006, Finland has confirmed that a policy of equality between women and men as well as non-discrimination has been applied, and will continue to apply, during the various stages of the implementation of and, in particular, in access to the EGF.

8.

Description of the territory concerned and its authorities and stakeholders


18. The Salo area is part of the province of South-West Finland, which is one of the most export-driven provinces of the country (over 60 % of its industrial output is exported). The region rose to its highly productive status during the 1990s, with the strong growth of Nokia, which was then becoming the world's leading mobile phone manufacturer. As Nokia's position weakened and the global financial and economic crisis struck, the situation in Salo deteriorated in terms of employment and production, and it suffered more than other regions of Finland.

19. The economic structure of the Salo area has been exceptionally specialised since the late 1990s, with the information and communications sector accounting for more than 50 % of added value in 2008. As Nokia declined, it was initially the suppliers that suffered, with electronic components, plastic parts and other support sectors being reduced. It is only in the second phase that Nokia cut back its own production and finally its own workforce.

20. Salo is on the coast of South-West Finland, some 50 km from the provincial centre Turku, and 100 km from Helsinki. Workers mostly live locally, but some commute from Turku and an even smaller number from Helsinki.

21. The main stakeholders are the Southwest Finland Centre for Economic Development, Transport and the Environment; the Salo Region Employment and Economic Office; the City of Salo; and the City of Somero.

22. A widely representative working group has been set up on the reorganisation of the activities of the Nokia Salo operations. Various sub-groups deal with a range of topics, including services, well-being, studies, new jobs outside Nokia, and entrepreneurship. A local co-operation group is set up specifically to help white-collar workers. Another group, named Invest in Salo, strives to match the supply of labour to the labour needs of interested companies.

9.

Expected impact of the redundancies as regards local, regional or national employment


23. Before the start of the recession in 2008, the unemployment rate in the Salo region was about 6 %. This had doubled to 12 % by the end of 2009 and has seen a slightly rising trend since then. With the current redundancies and the expected second wave, there is a risk that the unemployment rate may rise to approximately 15 - 17 % by the end of 2012.

24. The situation of Salo differs significantly from that in other parts of Finland where Nokia has cut back its operations. Most of the staff in Nokia Salo have traditionally been employed in assembly and similar tasks, whereas the emphasis at other units in Finland has been on research and design functions. Therefore the present and future redundancies in Nokia Salo concern mostly blue-collar workers. Looking at the educational background of the workers, where some 40 % have basic education only and another 39 % have secondary-level education, these redundancies will significantly increase the proportion of the lower educated among the unemployed population of Salo. The vocational qualifications held by these workers are in most cases from sectors other than technology or technical work. They date back too long, and the workers have not acquired any experience in these areas, so they cannot build on their qualifications.

25. The financial situation of the city of Salo is weak, and the redundancies at Nokia will impact the tax revenues of the municipality. As an employer, the city will probably have to lay off a number of its own employees, and it will not be able to help the redundant Nokia workers by offering jobs to any of them.

10.

Co-ordinated package of personalised services to be funded and a breakdown of its estimated costs, including its complementarity with actions funded by the Structural Funds


26. The measures for the Nokia Salo workers are aimed at either helping them to transfer to a new job / to start their own businesses, or to commit themselves to some further training or education (or both). They include the following :

– Job-search counselling : Following personal guidance sessions provided to all workers to be dismissed (these sessions are not part of the EGF application), more in-depth counselling started on the Nokia premises, while the workers were still serving out their period of notice. It continues with individual and group counselling, organisation of and participation in job fairs, information about the local labour market and the jobs required, enhancing job-seeking skills, particularly for those who had not been out of work for many years. The duration of job-search counselling varies between 5 and 20 days, depending on the needs of the workers. It is estimated that some 600 workers will wish to take up this in-depth counselling, at a cost of around EUR 450 each. The remaining 400 workers will not need further counselling once they have taken the initial personal guidance sessions.

– Training and retraining : There are two main areas here : preparatory labour market training for those persons who may not yet have plans for a future career, and vocational re-education for those who know their objective but need the necessary qualifications. The preparatory labour market training is the logical continuation of the job-search counselling that will have preceded it. Some 170 workers are expected to take up this offer, at a cost of about EUR 2 700 each. As regards the vocational re-education, this can either build on previous qualifications and experience, or help the job seeker to start into a new direction. In certain conditions, completion of a higher education degree is possible. A wide range of courses are on offer to the workers made redundant by Nokia Salo. Some 550 workers are expected to take up this option, at a cost of EUR 6 880 each.

– Steering towards entrepreneurship and services for new entrepreneurs : For this, the Finnish authorities will use Protomo operations based at Yrityssalo, a development centre wholly owned by the city of Salo to provide business services including start-up support. Protomo is an environment for open innovation, allowing participants to process ideas into prototypes, work in teams with pilot projects, develop new kinds of products and services and start up new businesses with new jobs. Protomo brings new ideas and innovative people together. During the implementation of this EGF case, three people (based in Salo and Turku) will be employed full-time in rented premises to provide Protomo services to the targeted workers. The cost of providing this service to the estimated 240 workers will be EUR 450 000.

The Protomo concept works like a matching service for new entrepreneurs. The Protomo database is a collection of promising ideas proposed by individuals or enterprises of the region. Protomo-appointed tutors then help small groups of redundant workers to respond to the ideas in the form of a new enterprise that could either produce the goods or services for which there appears to be a need, or enable them to join the generator of the idea and work on it from the inside of an existing enterprise. The Protomo team provide the facilities and advice for this group work, and they assess the feasibility of the proposal as well as providing the necessary experts where required. The cost of providing experts and access to equipment is estimated at EUR 360 000 for the 240 participants. Protomo works with groups of 4 to 6 persons, of which it intends to set up 60, and it is expected that more than half of these groups could grow into viable new enterprises.

Potential new entrepreneurs are helped with advice, relevant training, counselling, consultation and support, and some start-up grants are also provided. The start-up grants will support the new entrepreneur with a subsistence allowance during the early months of the new enterprise. The cost of the necessary training is estimated at EUR 240 000 for the 240 workers. Protomo will also be able to provide external experts with special know-how for the aspiring entrepreneurs; this service is estimated at EUR 120 000 for the 240 workers concerned.

– Support for starting independent business operations : This is a start-up grant, assuring an income for an aspiring entrepreneur for up to 18 months of initial operation. The basic allowance consists of EUR 31,36 per day. A variable supplement is added to this, which may not exceed 60 % of the basic allowance. It is estimated that some 60 persons will qualify for this allowance, and that the average paid out to them over the course of the implementation period will be EUR 6 000. During this phase, the beneficiaries will continue to receive counselling and support from Protomo.

– Mobility assistance : This provides both for travel expenses and removal expenses. Job seekers may not be able to find new employment in the immediate area, so may need to travel to attend job interviews, and may need to move to a new place to take up vacancies. Travel expenses are calculated on a mileage basis, with accommodation reimbursed if necessary. Removal expenses are reimbursed up to EUR 700.

– Employment services at the Service Point : The workers from Nokia Salo are provided with a Service Point which takes care of them during the implementation phase. Originally started inside the Nokia premises, the Service Point sets out to advise the affected workers from the outset by providing a much more personal and in-depth service to them than the public employment office would normally be able to deliver. Special attention is paid to ensuring that none of the workers slip into long-term unemployment. Following the intensive initial effort of the Service Point, it remains available to guide the workers as they proceed with their individual measures. The cost of maintaining the Service Point for all 1 000 targeted workers is estimated at EUR 900 000.

– Pay subsidies : These can be made available to employers willing to hire the targeted workers in the full knowledge of deficiencies in the competence or vocational skills of the person to be employed, and willing to ensure that they are given every support and the necessary on-the-job training as they settle into unfamiliar jobs. The duration is fixed according to the needs of the worker, and it is estimated that it will amount to an average of EUR 7 500 per worker benefiting from this scheme.

– Company based data acquisition scheme : This scheme enables the Employment and Economic Development Offices, the Centres for Economic Development, and the Ministry of Employment and the Economy to conduct telephone interviews with companies and gather up-to-date information on the enterprises' personnel needs. This information enables the offices to guide the workers in the right direction and help them with their choices of training courses. The interviews are carried out in a centralised manner and the results made available to the actors in a sorted form. The cost of providing this service is estimated at EUR 120 000.

– Career guidance, and vocational and competence mapping : The vocational competencies and educational background of people who have been involved in assembly work at Nokia for a long time vary greatly, and these can be assessed by means of vocational and competence mapping. With a view to individual guidance and creation of training plans, it is essential to know the starting point of each worker. Vocational and competence mapping serves as a counterpart to the information on the personnel needs of enterprises received through reports and statistics based on telephone interviews with enterprises. As a rule, the vocational and competence mappings are acquired from vocational education institutions as a contracted service. This is expected to be taken up by 450 workers at a cost of EUR 500 each.

– Work-capacity evaluations : Some of those dismissed have certain limitations in their work capacity, which must be investigated before making agreements on new plans and support measures concerning employment. For the purposes of work-capacity evaluations, the Employment and Economic Development Office can guide a job-seeker towards the necessary medical examinations. The cost of these is estimated to vary around an average of EUR 2 500 per person.

27. The expenditure for implementing the EGF, which is included in the application in accordance with Article 3 of Regulation (EC) No 1927/2006, covers preparation and management (setting up the necessary systems, travel expenses and translations), communication (at local, regional and national levels) and certification and monitoring. Communication at national scale was already undertaken at the time when an EGF application was first considered, and again at the time when it was submitted to the Commission. The people made redundant by Nokia will be informed that the services provided to them are co-funded by the EGF. Best practices in implementation will be highlighted, with a focus on the people who benefited and found new employment.

28. The personalised services presented by the Finnish authorities are active labour market measures within the eligible actions defined by Article 3 of Regulation (EC) No 1927/2006. The Finnish authorities estimate the total costs at EUR 10 692 000, of which the expenditure for personalised services at EUR 10 273 000 and the expenditure for implementing the EGF at EUR 419 000 (3,92 % of the total amount). The total contribution requested from the EGF is EUR 5 346 000 (50 % of the total costs).

Actions| Estimated number of workers targeted| Estimated cost per worker targeted (EUR)| Total costs (EGF and national cofinancing) (EUR)

11.

Personalised services (first paragraph of Article 3 of Regulation (EC) No 1927/2006)


Job-search counselling| 270 000

Training and retraining (vocational)| 6 3 784 000

Training and retraining (preparatory)| 2 459 000

Entrepreneurship promotion (Protomo operations)| 1 450 000

Entrepreneurship promotion (Protomo service procurement)| 1 360 000

Entrepreneurship promotion (Protomo training)| 1 240 000

Entrepreneurship promotion (service procurement)| 120 000

Support for starting independent business operations| 6 360 000

Mobility assistance| 60 000

Employment services at the service point| 1 900 000

Pay subsidy| 7 2 700 000

Company based data acquisition system| 1 120 000

Career guidance and vocational competence mapping| 225 000

Work capacity evaluations| 2 225 000

Sub total personalised services|| 10 273 000

12.

Expenditure for implementing EGF (third paragraph of Article 3 of Regulation (EC) No 1927/2006)


Preparatory activities|| 72 000

Management|| 152 000

Information and publicity|| 183 000

Control activities|| 12 000

Sub total expenditure for implementing EGF|| 419 000

Total estimated costs|| 10 692 000

EGF contribution (50 % of total costs)|| 5 346 000

29. Finland confirms that the measures described above are complementary with actions funded by the Structural Funds and that measures are in place to ensure that all double financing will be prevented. A co-ordination group to address sudden structural change is in operation in the area of South-West Finland, and has among its responsibilities to agree on the division of responsibilities between the ESF and the EGF. The steering group of this project is tasked with the management, steering and determination of strategic guidelines and goals for the activity. The project group on the other hand is responsible for the initiation of measures in the Salo region, and monitoring and assessment of the practical progress of structural change on the basis of strategic goals set by the steering group. Regional actors, including the social partners and the joint municipal authority for education, are widely represented in the working groups.

13.

Date(s) on which the personalised services to the affected workers were started or are planned to start


30. Finland started the personalised services to the affected workers included in the co-ordinated package proposed for co-financing to the EGF on 29 February 2012. This date therefore represents the beginning of the period of eligibility for any assistance that might be awarded from the EGF.

14.

Procedures for consulting the social partners


31. The social partners have been, and continue to be, involved in the process from the outset. For further information, please see point 29 above.

32. The Finnish authorities confirmed that the requirements laid down in national and EU legislation concerning collective redundancies have been complied with.

15.

Information on actions that are mandatory by virtue of national law or pursuant to collective agreements


33. As regards the criteria contained in Article 6 of Regulation (EC) No 1927/2006, the Finnish authorities in their application:

· confirmed that the financial contribution from the EGF does not replace measures which are the responsibility of companies by virtue of national law or collective agreements;

· demonstrated that the actions provide support for individual workers and are not to be used for restructuring companies or sectors;

· confirmed that the eligible actions referred to above do not receive assistance from other EU financial instruments.

16.

Management and control systems


34. Finland has notified the Commission that the financial contribution will be managed by the Ministry of Employment and the Economy, which also manages ESF funds. The same Ministry also acts as the certifying authority. There is a strict separation of duties and of reporting relationships between the departments responsible for these two functions. The management functions have been assigned to the Employment and Entrepreneurship Department, while the certifying functions are within the Human Resources and Administration Unit. The Ministry has prepared a manual setting out in detail the procedures to be followed.

17.

Financing


35. On the basis of the application from Finland, the proposed contribution from the EGF to the coordinated package of personalised services (including expenditure to implement EGF) is EUR 5 346 000, representing 50 % of the total cost. The Commission's proposed allocation under the Fund is based on the information made available by Finland.

36. Considering the maximum possible amount of a financial contribution from the EGF under Article 10(1) of Regulation (EC) No 1927/2006, as well as the scope for reallocating appropriations, the Commission proposes to mobilise the EGF for the total amount referred to above, to be allocated under heading 1a of the financial framework.

37. The proposed amount of financial contribution will leave more than 25 % of the maximum annual amount earmarked for the EGF available for allocations during the last four months of the year, as required by Article 12(6) of Regulation (EC) No 1927/2006.

38. By presenting this proposal to mobilise the EGF, the Commission initiates the simplified trialogue procedure, as required by Point 28 of the Interinstitutional Agreement of 17 May 2006, with a view to securing the agreement of the two arms of the budgetary authority on the need to use the EGF and the amount required. The Commission invites the first of the two arms of the budgetary authority that reaches agreement on the draft mobilisation proposal, at appropriate political level, to inform the other arm and the Commission of its intentions. In case of disagreement by either of the two arms of the budgetary authority, a formal trialogue meeting will be convened.

39. The Commission presents separately a transfer request in order to enter in the 2012 budget specific commitment appropriations, as required in Point 28 of the Interinstitutional Agreement of 17 May 2006.

18.

Source of payment appropriations


40. The amount of payment appropriations initially entered on the budget line 04 05 01 in 2012 will be fully consumed after the adoption by the two arms of the budgetary authority of the proposals submitted to date for mobilising the EGF and therefore insufficient to cover the amount needed for the present application. A reinforcement of the payment appropriations of the EGF budget line will be requested either through a transfer, in case a source of available appropriations can be identified, or an Amending budget. Appropriations from this budget line will be used to cover the amount of EUR 5 346 000 needed for the present application.

19.

Proposal for a


DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the mobilisation of the European Globalisation Adjustment Fund in accordance with point 28 of the Interinstitutional Agreement of 17 May 2006 between the European Parliament, the Council and the Commission on budgetary discipline and sound financial management (application EGF/2012/006 FI/Nokia Salo from Finland)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to the Interinstitutional Agreement of 17 May 2006 between the European Parliament, the Council and the Commission on budgetary discipline and sound financial management[6], and in particular point 28 thereof,

Having regard to Regulation (EC) No 1927/2006 of the European Parliament and of the Council of 20 December 2006 establishing the European Globalisation Adjustment Fund[7], and in particular Article 12(3) thereof,

Having regard to the proposal from the European Commission[8],

Whereas:

The European Globalisation Adjustment Fund (EGF) was established to provide additional support for workers made redundant as a result of major structural changes in world trade patterns due to globalisation and to assist them with their reintegration into the labour market.

The Interinstitutional Agreement of 17 May 2006 allows the mobilisation of the EGF within the annual ceiling of EUR 500 million.

Finland submitted an application to mobilise the EGF, in respect of redundancies in the enterprise Nokia plc (Salo), on 4 July 2012 and supplemented it by additional information up to 21 August 2012. This application complies with the requirements for determining the financial contributions as laid down in Article 10 of Regulation (EC) No 1927/2006. The Commission, therefore, proposes to mobilise an amount of EUR 5 346 000.

The EGF should, therefore, be mobilised in order to provide a financial contribution for the application submitted by Finland,

HAVE ADOPTED THIS DECISION:

20.

Article 1


For the general budget of the European Union for the financial year 2012, the European Globalisation Adjustment Fund (EGF) shall be mobilised to provide the sum of EUR 5 346 000 in commitment and payment appropriations.

21.

Article 2


This Decision shall be published in the Official Journal of the European Union.

Done at Brussels,

22.

For the European Parliament For the Council


The President The President

[1] OJ C 139, 14.6.2006, p. 1.

[2] OJ L 406, 30.12.2006, p. 1.

[3] In accordance with the third paragraph of Article 3 of Regulation (EC) No 1927/2006.

[4] EGF/2011/014 RO/Nokia.

[5] Regular updates here : ec.europa.eu/social

[6] OJ C 139, 14.6.2006, p. 1.

[7] OJ L 406, 30.12.2006, p. 1.

[8] OJ C […], […], p. […].