(BRUSSELS) - The European Commission is studying Poland's rejection of its demand to cut capacity at the Gdansk shipyard, a spokeswoman said Tuesday as fresh tensions between Brussels and Warsaw flared.

On the eve of a deadline set by the Commission, Poland rejected on Monday its demand for the capacity cut, which the European Union's executive arm had set as a condition for the historically important shipyard receiving state aid.

"For the time being, all we can say is that we have received (the response) and that (Competition Commissioner Neelie Kroes' office) is examining it," Commission spokeswoman Amelia Torres told AFP.

If Warsaw fails to appease Brussels concerns, the Commission could order the past aid to be reimbursed, threatening the shipyard's future.

Although Poland has satisfied the Commission's demands concerning two other shipyards, Warsaw has held out over the Gdansk yard, which holds particular historic importance for the Poles.

A strike by 17,000 workers in August 1980 at what was then the Lenin Shipyard forced authorities to the negotiating table and led to the creation of Solidarity, the communist bloc's first free trade union.

Under EU rules, state aid for struggling shipyards can only be granted in the context of a deep restructuring aimed at restoring long-term viability of the yard.

In particular, they require private investors to be brought in and excess capacity to be cut, even though that can jeopardise jobs.

"What the Commission wants to see of course is not a closed Gdansk shipyard but a genuine, far reaching restructuring of the company which will ensure its long-term viability," Torres told reporters later.

"And that is in the interest of the people who work in the shipyard and the region," she added.

In response to the Commission's demands, Warsaw sent a 200-page document, saying it wanted to keep two slipways in operation in Gdansk, instead of just one as Brussels had demanded.

The European Commission is responsible for checking that state aid does not breach EU rules, which aim to prevent competition in Europe from being distorted.

Text and Picture Copyright 2007 AFP. All other Copyright 2007 EUbusiness Ltd. All rights reserved. This material is intended solely for personal use. Any other reproduction, publication or redistribution of this material without the written agreement of the copyright owner is strictly forbidden and any breach of copyright will be considered actionable.