The Renault case and the future of Social Europe

The announcement in February 1997 by French car maker Renault, of the closure of its Belgian plant has generated an unprecedented storm of protest and raised questions over the ability of European legislation to prevent multinational companies from enforcing economically motivated decisions on the location of production, without prior workforce consultation. It has also generated a much-needed debate on the use of Structural Fund resources in the relocation of business activities to areas of lower labour costs.

Renault announces closure of Belgian plant

The shock announcement by French motor manufacturer Renault, on 28 February 1997, of the closure of its plant at Vilvoorde, led to an unprecedented public display of condemnation among the political establishment of the European Union (EU). The closure of the plant, in the Belgian Prime Minister's constituency near Brussels, with the loss of 3,100 jobs, was apparently announced without prior consultation with worker representatives. The move was justified by Renault as being part of a wider reorganisation aimed at making savings of over FRF 825 million per year. The closure of the only Renault production site in Belgium is likely to lead a further 1,000 redundancies among suppliers and subcontractors; jobs which, in the current economic climate in Belgium, are unlikely to be replaced in the near future. The announcement came as a particularly heavy blow to a workforce who had thought their jobs safe, having negotiated a major flexibility and investment package only four years previously. The plant is generally regarded as being highly productive and achieving high levels of quality. The decision by Renault to close this plant in July 1997 has been interpreted by many workers as a warning that even a willingness to accept more flexible working practices can in future no longer be regarded as a guarantee for job security. The predicament of the workers at Vilvoorde has led to an unprecedented display of worker solidarity, not only among employees at other Renault production sites in Europe, but also among workers in other troubled European industries.

Decision meets with widespread condemnation

Renault's decision was initially condemned by the Belgian government as a deliberate ploy to safeguard French jobs in the run up to a general election expected in 1998 - accusations which were swiftly followed by the announcement of a further 3,000 anticipated redundancies at Renault's French production sites. Political tempers in the two neighbouring countries became frayed. The French Government retains a 47% minority stake in the privatised company and has recently refused to grant funds for early retirement packages at Renault and Peugeot, aimed at minimising the need for redundancies. Asserting that the decision to close Vilvoorde was entirely a management decision, Michel de Virville, Renault's senior vice-president in charge of personnel and external relations, argued that the action was necessary to streamline operations and would not be reversed.

On Belgian radio, a spokesperson for the Flemish Economics Minister, Eric Van Rompuy, said that Renault had breached Belgian and EU rules on informing and consulting staff on strategic decisions. He argued that under these rules Renault should have informed Vilvoorde staff about the planned closure ahead of time, and workers should have been asked for advice on the plan. In a letter to European Commission President, Jacques Santer and the Belgian Prime Minister, Jean-Luc Dehaene, he urged the EU to tighten the rules on such surprise cross-border company closures.

It later emerged that Renault had informed Mr Dehaene on 21 February of heavy losses, and had hinted that the closure of Vilvoorde was being considered as an option. Mr Dehaene had told the company that this was "totally unacceptable" (Reuters News Service, 5 March). On 26 February the Belgian Prime Minister was told of the closure by the Flemish regional government. The federal Belgian Government and the government of Flanders soon agreed to sue Renault over the procedure followed when announcing the closure. They found support from the European commissioner responsible for competition, the former Belgian Socialist politician, Karel Van Miert, who agreed that management had disregarded legislation on European Works Councils and collective redundancies. He criticised Renault's decision to close a profitable plant and said that the European Commission was "scandalised by this kind of behaviour".

Commission sees breach of Community Directives

The Belgian authorities found unprecedented, vociferous support from the European Commission. Mindful of the impact of such blatant disregard of the social implications of economically motivated decisions by a multinational company on the popular perception of European integration, the Commission was quick to condemn the actions of the French car maker.

Shortly after the news of the closure of the Vilvoorde plant broke, a spokesperson for Padraig Flynn (the commissioner in charge of industrial relations and social affairs) announced his intention to assess the legality of Renault's actions in terms of two EU Directives relating to the information and consultation of workers in the event of major restructuring:

  • the European Works Councils Directive (94/45/EC),
  • and the collective redundancies Directive (75/129/EEC) as amended (92/56/EEC).

At the same time, the spokesperson made it clear that it was up to the Belgian authorities or the trade unions to take action if they felt that Renault was closing the Vilvoorde plant without due consultation (Reuters News Service, 28 March).

Commissioners discussed the Renault case at their weekly meeting on 5 March. After the meeting a spokesperson for President Santer told the press that Commissioners had found the Directives to be sufficiently specific to cover this case. They had also established that the relevant Directives had been transposed correctly into the relevant national laws. The Commission underlined that it had no further powers to bring infringement proceedings against a company. Once a Directive had been properly implemented, the enforcement was a matter for the national authorities.

President Santer's statement argued that Renault had handled the closure of the Belgian plant poorly: "Regardless of whether they did or did not follow the Directives, the spirit of the law was not respected" (RAPID, 5 March). Asked if this could be interpreted as support for legal action, his spokesperson replied "you can take that as encouragement". Appearing on French television, President Santer described Renault's actions as a "serious blow to confidence in Europe".

Mr Flynn added his voice to the chorus of condemnation in a statement issued on 6 March, in which he underlined the importance of strengthening the European social dimension, to ensure that Europe did not became equated with job losses, by including a guarantee of fundamental social rights into the new Treaty: "I have been heartened to hear calls for more social Europe the past week and sincerely hope that this translates into real support for Commission proposals in the social field ... I hope this message is not forgotten when the dust settles" (RAPID, 6 March).

Despite the Commission's implicit encouragement of court action against Renault, it remains unclear at the time of writing whether Renault would indeed have a case to answer in French or Belgian law (in their implementation of the European Works Councils (EWC s) and collective redundancies Directives respectively). Some commentators argue that consultation should have taken place under the provisions of Renault's EWC agreement, which was initially signed in 1993 and therefore falls under the scope of Article 13 of the EWCs Directive (Reuters News Service, 6 March).

The company's "European Group Committee" is defined as a structure for providing information and promoting a dialogue with the social partners on the group's European-level strategic approaches to economic, financial and social matters. Under the terms of the agreement, the company is required to notify the committee about: major changes within the group; the economic, financial and social situation; the investment and production situation; the commercial and marketing situation; changes in work organisation and production processes and training strategy. While this definition seems to cover the case of mass redundancies as announced at Vilvoorde, other commentators (eg European Works Councils Bulletin) argue that the agreement makes no specific provision for an extraordinary meeting to be called in these circumstances. Thus, while the spirit of the law may have been breached, it is uncertain if the agreement will enable employee representatives to take legal recourse against the company's lack of consultation.

The collective redundancies Directive, as amended in 1992, specifies that an employer should provide the relevant authority with written notification of any planned mass redundancies. It also obliges the employer to forward a copy of this notification to employee representatives. It appears, in this case that the federal Belgian and Flemish authorities were informed a few days prior to the official announcement of the closure. Uncertainty remains over whether employee representatives were informed at all. A number of sources have stated that worker representatives at Vilvoorde were informed 10 minutes prior to the statement being released to the press. Other press reports suggest that workers found out about the closure of their plant through the media. If indeed information was given, it remains to be established whether the short notice with which it was given amounts to a breach of the Directive. If it were determined that Renault was at fault in the way in which the closure was announced, it has been argued that the company could be fined a maximum of BEF 20 million under Belgian law (Financial Times, 6 March).

Trade unions and the European Commission have questioned whether the level of fines which can be incurred if found in breach of legislation resulting from the implementation of a European Directive is high enough to act as a deterrent. In a speech to the European Parliament on 11 March, Mr Flynn rejected calls for new legislation, stating that the current situation was covered by existing legislation. He did, however, question whether the sanctions available in national law were enough to act as a real deterrent against non-compliance. The commissioner also said that he believed it necessary to complement the existing Community rules with more general rules to make information and consultation compulsory at the Member State level: "I will propose to the Commission that we will proceed in the coming weeks with the first stage of consultation of the social partners at European level on this issue and I sincerely hope that we are able, through this action, to strengthen the protection of workers . . . The Vilvoorde case shows that we still have some way to go in order to strike the right balance between corporate or economic needs and social requirements of workers and society as a whole" (RAPID, 11 March).

The impotence of current European legislation is highlighted by the fact that, despite all public pronouncements, the Belgian Government appears, so far, only to have lodged a complaint against the method adopted by Renault in the closure of the Vilvoorde plant with the OECD. This was done on the basis that the company had breached the OECD code of conduct for multinationals. A spokesperson for the Minister noted that any ruling by the OECD would not be legally binding but would be a "strong signal" to Renault.

Commission seeks to restrict "subsidy shopping"

Commission criticism of Renault's closure of the plant at Vilvoorde became even more vociferous when the commissioner responsible for competition policy, Karel Van Miert, revealed on 6 March that Renault had made a request for an ECU 11 million subsidy (of which ECU 7 million was to come from the European Regional Development Fund) to expand its plant at one of its Spanish sites, Valladolid (there are three other Renault production sites in Spain: Palancia, Madrid and Sevilla). The plant in Valladolid has been receiving assistance from the Spanish Government to adapt the factory to produce a new model. With the closure of the Belgian plant, production of the Megane and Clio models would be moved to Valladolid. The combined funding from the Spanish Government, the region's local government and the Commission was intended to create 500 new jobs at the plant.

Mr Van Miert said that he would block such subsidies until the legality of the method of the closure of the Belgian plant had been resolved. He told BRTN radio that he would "block this dossier as long as Renault behaves the way it does". His spokesperson appeared later to contradict this statement when he highlighted that all such requests were scrutinised by Commission officials. Van Miert said that it was '"indefensible that profitable activities are moved from one side of the EU to the other with government aid. It can't be that with Spanish government aid (Renault) tries to lure activities away which are normally profitable" (Reuters News Service, 6 March).

On 7 March, the Spanish Government agreed to suspend EU aid payments for Renault's Spanish operations, in reaction to widespread condemnation of the company's handling of the closure of the plant at Vilvoorde. It has described the move as a "temporary suspension for a technical revision" and asserted that it had "no desire to be at the centre of a problem when it does not affect us". The management of Renault in Spain responded to the controversy by saying that the factory would not lose public aid, and that an answer would be found as soon as the current "political demagogical operation" had died down.

The Commission is yet to specify what Renault would have to do for aid to be unblocked. Lawyers well versed in European competition law agreed that, while it might not be fair to move jobs to "shop" for subsidies, it was questionable whether the Commission could intervene in such commercial decisions. They argued that these were uncharted waters but were sceptical of the legality of such a move. The Commission cannot block an aid request without first investigating whether it is compatible with EU rules and, in this particular case, with rules on aid to the car industry. This could take several months, during which the plan is effectively on hold. In assessing such plans, the Commission normally takes into account the development of the region where aid is to be paid. It will carry out a cost/benefit analysis of the investment project and check that public money is not being used to increase overall capacity in the European car industry, which is estimated to exceed demand by some 2 million vehicles. Valladolid is situated in the Castille-Leon province, one of the EU's poorest regions. This means subsidies can amount to as much as 40% of the total investment, which in the Renault case is valued at ECU 76 million (Reuters, 6 March).

A spokesperson for the commissioner responsible for regional policy, Monika Wulf-Mathies, said that the Commission would carry out reforms of its structural funds policy before 1999 to avoid relocation moves: "We want to promote regional development ... but pure profiting from aid needs to be ruled out" (RAPID, 10 March). The commissioner argued that this could be done by making aid conditional on long-term investment.

It was announced on 10 March that the Commission would publish a document within in following few weeks to find out how competition rules can be used to prevent "aid shopping".

Condemnation by European and international trade union organisations

European and international trade union organisations were unanimous in their condemnation of Renault's decision to close its Belgian plant without prior consultation.

The European Trade Union Confederation (ETUC) condemned Renault's move as "brutal and unacceptable", and a "clear infringement of European legislation on collective lay-offs". At its executive committee meeting on 6-7 March, it called for a massive show of support for a demonstration in Brussels on 16 March, in support of employment solidarity and European social policy: "the corporate conflict at Renault once again highlights the gap between the Europe of profit and the social Europe." The executive committee also reiterated its demands for the inclusion of chapters on employment and social rights in the new EU Treaty, and called for the establishment of a European code of conduct in the event of large-scale redundancies.

ETUC took its demands for EU action to the informal Labour and Social Affairs Council which was held in Rotterdam on 14 March. ETUC's general secretary, Emilio Gabaglio, attended the Council meeting and afterwards said he had left European ministers in no doubt that ETUC expected urgent action to examine existing provisions on information and consultation of workers, especially in the event of business restructuring and closures. Such action should be followed, if necessary, by the introduction of new measures and stricter penalties. ETUC also called for the introduction of strict rules to avoid corporate misuse of Community aid. It demands that such aid be directly tied to employment under agreements between the social partners concerned.

The European Metalworkers' Federation (EMF), which represents most of the workers in the automobile industry, argued that Renault's approach seriously transgressed the 1993 agreement setting up a European Group Committee in the company. Aware of the problems facing the European car industry, the EMF stressed the importance of holding broadly-based discussions at the European level on the future of the industry. The main issues to be addressed are seen to be:

  • problems of overcapacity;
  • the promotion of cooperation between European manufacturers to explore new markets, cut costs and share production sites;
  • the adoption of an integrated transport policy;
  • the development of environment-friendly vehicles;
  • a constructive partnership between the assembly sector and its suppliers; and
  • the reorganisation and reduction of working time.

The EMF called upon the European Commission to establish a high-level consultative body for the car industry involving the social partners. The demand for the setting up of such a forum was echoed by ETUC.

The World Labour Confederation said that Renault's unilateral measure demonstrates to what extent relocation plays a part in Europe and "condemns the way a company can ridicule procedures adopted at the international level and the non-respect of national laws on the matter". The European Confederation of Independent Trade Unions noted that the events demonstrate that the EWCs Directive is '"often not correctly implemented and comprises many shortcomings. Its revision, in 1999 at the latest is obviously required".

The birth of the Euro-strike

The unexpected closure of the Vilvoorde plant generated unprecedented levels of sympathy action, not only among Renault workers from production sites across Europe, but also from car workers in Belgium fearful of a similar fate, as well as workers in other threatened industries. Much of this activity was organised by Renault's European Group Committee with the support of the EMF.

Renault's European Group Committee had immediately denounced the lack of consultation, which it sees as being entirely against the spirit of the Directive and the agreement with the company. It called for an immediate extraordinary meeting of the full Committee. In the meantime, representatives from French and Belgian unions met on 2 March, and were joined by their Spanish colleagues the following day. They agreed to seek to prevent the closure of the plant at Vilvoorde and explore all possible legal avenues, and organised a one-hour strike on 7 March in which they sought to involve Portuguese and Slovenian colleagues. A protest was also staged around the extraordinary meeting of the French works council on 6 March, at which management refused to allow participation of the Belgian representatives. Management finally addressed the EWC at a meeting on 11 March where it reiterated the rationale behind the closure. The EMF attacked the symbolic nature of the consultation with the workforce, without any intention to reassess the options, and asked management to suspend the decision pending further consultations. This option was rejected by the company.

Thousands of car workers in Belgium, France and Spain staged protests on 7 March. Renault plants in the three countries were hit by coordinated one hour stoppages, while workers at Volkswagen, Volvo, Opel and Ford plants in Belgium staged sympathy actions. The Spanish trade unions had immediately come out in support of their Belgian counterparts and criticised the Spanish Government for its indiscriminate use of aid requests. According to Spanish trade union sources, 90% of workers joined the one-hour stoppage. This figure was disputed by management, but it did admit that production was, in fact, stopped.

Workers at Renault in Portugal expressed sympathy with the colleagues in Belgium, France and Spain, but did not join in the one-hour stoppage. The situation of the French car maker in the country is currently under delicate negotiations over the preservation of 1,800 jobs with government financial support (a reduction from 3,500 jobs). A representative of the Portuguese Renault workers was, however, present at the meeting of the European Group Committee on 11 March.

Over 10,000 workers attended a demonstration outside Renault headquarters near Paris on 11 March. Renault workers had come from Belgium, France, Spain, Portugal and Slovenia. This unprecedented show of support is described by some commentators as the first in a line of Euro-strikes which, it is argued, are likely to result as job losses across European multiply (European Business, 12-19 March). The level of support engendered by the closure of the plant at Vilvoorde is all the more surprising when looking at recent events at Ford's Halewood plant in the UK which were met with very little resistance, especially at the European level.

Commentary

The events surrounding the closure of the Belgian plant of French car maker Renault raise a multitude of questions which are set to occupy the minds of European policy-makers for a long time after the dust of history has settled on the people of Vilvoorde.

Firstly, the ability of a multinational company to flaunt the spirit of EU legislation in such disregard of the social implications of its actions, highlights the persistent gap between the reality of economic and social Europe. In the run-up to Economic and Monetary Union, the Commission is aware that it can ill afford to ignore the impact of budgetary stringency and the location decisions of multinational companies on employment opportunities and social integration, if it is to engender further support for the European project.

The weakness of EU employee protection legislation and its apparent inability to prevent social dumping must be a cause for concern and needs to be addressed in future legislative proposals on employee representation. Recent events may well influence Commission decision-makers in their drafting of legislation on national employee representative bodies to supplement EWCs. A proposal in this area is imminent and could be accelerated by the events at Vilvoorde. However, it has to be questioned whether bodies which have the right only to consultation can be effective in preventing such decisions. If information and consultation rights cannot be enforced at the level of EWCs, it seems unlikely that this can be done at the national level, when multinational companies clearly have the ability to play different national interests off against one another.

On the other hand, progress in the area of European workplace organisation is unmistakable, and was displayed during the demonstrations and stoppages which have marked this dispute. This is particularly noteworthy as national interests have in the past overriden European-level solidarity at a time when competition for jobs is intensifying. Disputes over the move of the French Hoover plant to Scotland and the recent negotiations at Ford were marked by a distinct lack of cross-country solidarity.

The latter case highlights continuing incongruence in the approach to the use of subsidies. The threatened closure of Ford's Halewood plant on Merseyside was, in many ways, similar to the situation at Renault, but did not attract as much international attention. One has to ask whether this is due to the personalities involved in the Renault case. How much of the Commission's response was conditioned by the plant's proximity to Brussels, the fact that it lies in the constituency of Jean-Luc Dehaene, Belgian Prime Minister and one-time candidate for the post of Commission President, or the vociferous support of the Belgian commissioner responsible for competition policy, Karel van Miert?

In any case, it seems clear that greater coordination between competition and regional policy is required to ensure that European funds cannot be used to replace viable operations with production in cheaper locations which attract European funding. A first step in this direction was taken by commissioner Wulf-Mathies (a former leader of the German public sector union ÖTV) who suggested that such funding should be tied to long-term investment.

Some commentators have questioned the use of subsidies to avoid the issue of considering more seriously the impact of high wage and social costs in many EU countries. A study by the association of German automobile manufacturers, VDA, shows that Spanish and British car workers cost around DEM 27.5 per hour, whereas the cost is DEM 44.6 in Belgium and DEM 62.4 in Germany. Renault argued that, while average net pay in Belgium is similar to that in France, the high level of social security contributions means that costs are in fact 30% higher in Belgium than in France, and 48% higher than in Spain.

It has long been argued by employers that wage and social costs have an important impact on location decisions. Trade unions have in the past refuted such claims, arguing that other factors such as infrastructure, proximity to markets, level of training of the workforce, productivity and quality were more important considerations. In the Renault case, it appears that the car maker decided to shift production, despite high levels of productivity and quality of output at the Belgian plant. The Financial Times recently warned that the decision by General Motors to locate a production site in Eastern Europe may well indicate the shape of things to come, if the issue of labour and social costs is not addressed. Indeed, the European Commission has taken these ideas on board in its Essen conclusions on employment strategy, which called for a reduction of indirect labour costs.

The role of governments attempting to attract new investments to their own countries at the expense of others also requires further scrutiny. It was recently reported that the British and French Governments were in competition over attracting GBP 1 billion investment for a new Toyota plant. Also in the recent Ford Halewood case, the company's European chair, Jac Nasse, commented that governments were queueing up to offer aid to attract the investment for a new multi-purpose vehicle which is planned for Halewood if the British Government agrees to a GBP 65 million aid package.

Finally, what has gone largely ignored in the debate is the necessity to address the issue of the future of the European car industry which, it is assumed, currently operates with an annual overcapacity of 2 million vehicles. It is interesting to note that the push by the motor industry to increase productivity levels at a time when there is increasing competition, produces even more overcapacity which obviously means more job losses. For example, there have been three recent UK cases where struggles over changing working practices have caused resentment between management and unions:

  • Ford - Halewood. Management is asking for further productivity-enhancing changes, while at the same time cutting jobs;
  • Rover- Longbridge. Management and unions are in dispute over changes to work patterns and pay; and
  • Peugeot- Coventry. Strike action is being taken over longer shift patterns.

The resolutions by the EMF (outlined above) highlight this concern and the setting up of an expert group on the European car industry would help begin to address some of the issues which have been described by one commentator as the "great European car wars" (The Economist, 8 March). (Tina Weber, ECOTEC, Mark Gilman, IRRU)

For further details of Belgian reactions to the Vilvoorde closure, see Record BE9703102F, and for further details on French reactions, see Record FR9703122F.

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