Page 1

State Aid Policy in the European Community


ISBN 978-90-411-275-49

The European Commission supports EIPA through the European Union budget Š 2008, Kluwer Law International. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, photocopying, recording or otherwise, without prior written permission of the publishers, Permission to use this content must be obtained from the copyright owner. Please apply to: Kluwer Law International, Rights and Permissions Department, P.O. Box 85889, 2508 CN, The Hague, The Netherlands. E-Mail: permissions@kluwerlaw.com. Website: www.kluwerlaw.com Printed in Great Britain.


State Aid Policy in the European Community Principles and Practice Second Edition

by

Phedon Nicolaides Mihalis Kekelekis Maria Kleis

Law & Business AUSTIN

BOSTON

CHICAGO

NEW YORK

THE NETHERLANDS


Table of Contents

Pages Note on Authors Acknowledgements Preface Table of Cases Table of Legislation and Other Official Documents Recent Policy Developments

ix xi xiii xv xxiii xxix

INTRODUCTION 1. The objectives of EC competition policy 1.1 Effective competition 1.2 Competition policy and market integration 2. The rules of competition in the EC 3. EC state aid policy and control

1 1 2 2 3 5

CHAPTER I: The Concept of State Aid 1. State aid in the EC Treaty 2. Article 87(1) EC: Aid incompatible with the common market 2.1 Aid by Member States or through state resources 2.2 Recipients of aid 2.3 Advantage granted 2.3.1 Private investor principle 2.3.2 Public Creditor Principle 2.3.3 Objective justification / Case studies 2.4 Selectivity: Specific versus general measures v

9 9 10 11 16 21 23 25 27 31


vi

Table of Contents

2.5 Effect on trade and distortion of competition 2.5.1 Effect on trade 2.5.2 Distortion of competition CHAPTER II: Exceptions under Article 87 EC 1. Aid that is compatible with the common market 2. Aid that may be compatible with the common market 3. The balancing test 3.1 Refined economic analysis 3.2 Different levels of assessment 3.3 Positive assessment 3.4 Negative assessment 3.5 Conclusion 4. Other criteria and factors in the evaluation of state aid schemes 4.1 Aid intensity 4.2 Cumulation of aid 4.3 Operating aid and export aid 4.4 Aid is temporary 4.5 Conditional approval 4.6 International competitiveness 4.7 Information requirements 5. Other exceptions to Article 87(1) EC 5.1 State aid to transport 5.1.1 Article 73 EC 5.1.2 Maritime transport 5.1.3 Air transport 5.2 Services of general economic interest (SGEI) 5.2.1 The definition of a SGEI 5.2.2 Compensation for the provision of SGEI 5.2.3 Guidelines on SGEI CHAPTER III: State Aid Procedures 1. Treaty provisions 2. Commission’s supervisory control 2.1 Introduction 2.2 Four types of state aid procedures 2.2.1 New aid (notified aid) 2.2.2 Unlawful aid (non-notified aid) 2.2.3 Misuse of aid

36 37 39 43 44 46 51 51 52 54 57 59 60 60 61 62 62 63 64 65 66 66 67 73 75 78 78 81 84 87 87 88 88 90 91 100 103


Table of Contents

2.2.4 Existing aid schemes 2.3 Recovery of aid 2.3.1 Recovery of unlawful, non-notified aid 2.3.2 Recovery of unlawful, non-notified and incompatible aid 2.4 Interested parties and the rights of defence 2.4.1 The legal provisions 2.4.2 The case law 2.5 State aid monitoring Further Reading Appendices I. A Diagrammatic Presentation of Regulation 659/1999 II. De minimis Aid: Regulation 1998/2006 III. General Block Exemption Regulation (GBER) IV. SME Definition V. Aid to Promote Risk Capital in SMEs VI. Aid for Research, Development & Innovation (R&D&I) VII. Aid for Rescue and Restructuring of Companies in Difficulty VIII. Regional Aid IX. Aid for Environmental Protection X. State Aid for Agriculture XI. Main provisions of Regulation 1370/2007 on public passenger transport services by rail and by road XII. Role of National Courts in the EC System of State Aid Control

vii

103 106 107 109 112 112 113 116 119

123 147 161 237 243 247 255 259 265 271 281 283


Note on Authors

Dr Phedon Nicolaides

Professor, European Institute of Public Administration (EIPA), Maastricht (NL)

Dr Mihalis Kekelekis

Lecturer, European Institute of Public Administration (EIPA), Maastricht (NL)

Maria Kleis

Research Assistant, European Institute of Public Administration (EIPA), Maastricht (NL)

ix


Acknowledgements

We are grateful to Kristina Kratochvilova for research assistance, Denise Grew for extensive editorial input and Cosimo Monda for publishing support.

xi


Preface

This Guide provides a concise review of the state aid policy of the European Community. It explains the principles on which this policy is based and how it is applied in practice. The Guide has been revised extensively. It includes the most recent sources of EC law on state aid and analyses the latest landmark European Commission decisions and judgements of EU Courts. It also offers useful information on how to design state aid measures. The Guide has grown out of seminars on EC state aid law and policy organised during the past decade by the European Institute of Public Administration (EIPA). These seminars have primarily taken place at EIPA’s headquarters in Maastricht, the Netherlands, as well as in many other European countries. These seminars are intended, among others, for policy-makers and practitioners managing state aid in the public administrations of the EC Member States and its partner countries. State aid policy is in continuous evolution. The European Commission launched a State Aid Action Plan in 2005. The Action Plan is now complete and has sought to simplify, consolidate and modernise the rules on state aid. Some kinds of state aid are not allowed any more, some other kinds are now possible, while certain types and amounts of aid are now subject to more detailed and rigorous assessment. State aid policy evolves also because public authorities find new methods to assist their industries and regions. This means that the European Commission and EU Courts constantly need to assess and re-interpret state aid rules, in light of new national policies and determine whether and how they may apply to innovative public measures. At the same time and as integration deepens within the EU, both the European Community and the European Commission are becoming less tolerant of state aid. The rules have become even tighter during the last two years and forms of aid that used to be permitted are no longer authorised. A “lesson� that can be drawn from the EIPA seminars is that not only xiii


xiv

Preface

should policy makers and practitioners follow closely the various European Commission decisions and rulings of EU Courts, but they should also monitor practice in other Member States. They have much to learn from the successes and failures of their counterparts in other countries of the EU and from the policies and procedures applied in those countries. In the field of state aid policy, learning what does not work and what is not allowed is as important as knowing what works and what is allowed. This book states the law as of 15 July 2008.


Table of Cases

A. COMMISSION DECISIONS Published in the Commission’s website (decisions following preliminary examination) N= Notified – NN= Non-notified • • • • • • • • • • • • • • • • •

N 781/1996, Ford Motor Company, 06/05/1997 N 118/2000, Aide aux clubs sportifs professionnenels, 28/11/2001 N 219/2001, Projet pilote Danube, 20/06/2001 N 258/2000, Leisure pool Dorsten, 21/12/2000 N 546/B/2000, Partnership support for regeneration 5: Community/ voluntary (neighbourhood) regeneration, 13/03/2001 N 638/2000 and N 639/2000, Desserte aérienne de la Corse – Montpellier, 01/03/2001 N 543/2001, Capital allowances for hospitals, 27/02/2002 N 560/2001, State aid notification: national heritage fund for Brighton West Pier Trust, 09/04/2002 N 702/B/2001, Individual cases under the MEDEA+ scheme, 12/03/2002 NN 136a/2002, Ecomusée, 21/01/2003 N 264/2002, London Underground public private partnership, 02/10/2002 N 309/2002, Surete aerienne – compensation des couts à la suite des attentats du 11 septembre 2001, 03/05/2002 N 428/2002, LTU GmbH, 19/03/2003 N 438/2002, Decreet houdene het beleid en het beheer van de zeehaven, 16/10/2002 N 707/2002, MEP – Stimulating renewable energy, 19/03/2003 N 26/2003, France Régime d'aides individuelles à caractère social – desserte aérienne entre Paris et la Corse, 08/05/2003 N 206/2003, United Kingdom Waterborne Freight Grant, 20/04/2004 xv


xvi

• • • • • • • • • • • • • • • • • • • • • • • • • • • •

Table of Cases

N 244/2003, Credit union development support, 06/04/2005 N 282/2003, Cumbria Broadband-Project ACCESS, 10/12/2003 N 464/2003, Company neutral revenue support-scheme, 16/12/2003 N 475/2003, Public Service Obligation (PSO) Notification, 08/02/2004 N 520/2003, Financial support for infrastructure works in Flemish ports, 20/10/2004 N 630/2003, Local museums, Region of Sardinia, 18/02/2004 N 126/2004, Broadband for SMEs in Lincolnshire, 14/12/2004 N 199/2004, Broadband business fund, 16/11/2004 N 307/2004, Broadband in Scotland – remote and rural areas, 16/11/2004 N 381/2004, Haut débit en Pyrénées-Atlantiques, 16/11/2004 N 382 / 2004, Haut débit en Limousin – DORSAL, 03/05/2005 N 478/2004, Coras Iompair Eireann (CIE): Notification of a legislative measure pursuant to which the Minister for Finance may guarantee capital borrowing by CIE up to 800 million, 07/06/2006 N 516/2004, Aides sociales relatif à la desserte aérienne entre la Martinique et la métropole, 20/04/2005 N 574/2004, Exemption from the waste tax for dredging sludge, 02/02/2005 N 608/2004, Flemish CHP – Certificates, 03/05/2005 NN 52/2005, Subsidies to mortgage loan instalments, 22/06/2005 N 57/2005, Regional innovative broadband support in Wales, 01/06/2005 N 267/2005, Rural broadband access project, 05/10/2005 N 284/2005, Metropolitan area networks, Ireland, 08/03/2006 N 465/2005, School support services, 23/11/2005 N 503/2005, UK – Great Yarmouth Outer Harbour, 21/12/2005 N 140/2006, Allotment of subsidies to the state enterprises at the correction houses, 19/07/2006 N 271/2006, Tax relief for supply of surplus heating, 20/12/2006 N 497/2006, Prerov Municipal Hall, 20/12/2006 N 674/2006, Siemens & Lohr, France, 21/02/2007 N 854/2006, Alcatel-Lucent, France, 10/05/2007 N 377/2007, Bataviawerf – reconstruction d’un bateau du 17ème siècle, 28/11/2007 N 764/2007, Construction of a 400MW Combined Cycle Gas Turbine (CCGT) Plant at AB Lietuvos Elektrine, 13/02/2008

Published in the OJ (decisions following formal investigation) • •

Commission Decision 215/1985, Preferential tariff charged to glasshouse growers for natural gas, the Netherlands, OJ L97, 13/02/1985 Commission Decision 659/1989, Greek Government, OJ L394, 30/12/


Table of Cases

• • • • • • • • • • • • • • • • • • • • •

xvii

1989, Commission Decision 653/1994, Air France, OJ L254, 31/12/1994 Commission Decision 337/1998, Belgium, OJ L148, 19/05/1998, Commission Decision 365/1998, SFMI-Chronopost, OJ L164, 09/06/1998, Commission Decision 580/1999, ESF Elbestahlwerk Feralpi GmbH, OJ L220, 20/08/1999 Commission Decision 590/1999, Restructuring of road haulage and the development of intermodality, OJ L227, 28/08/1999 Commission Decision 705/1999, State aid implemented by the Netherlands for 633 Dutch service stations located near the German border, OJ L280, 20/07/1999 Commission Decision 12/2000, Comite Francais d’Organisation, OJ L5, 08/01/2000 Commission Decision 796/2000, Compact Discs Albrechts GmbH, OJ L318, 16/12/2000 Commission Decision 372/2003, Olympic Airways, OJ L132, 28/05/2003 Commission Decision 433/2003, Aid scheme "Stamp duty exemption for non-residential properties in disadvantaged areas" notified by the United Kingdom, OJ L149, 17/06/2003 Commission Decision 114/2004, Measures in favour of non-profit harbours for recreational crafts, the Netherlands, OJ L34, 06/02/2004 Commission Decision 217/2005, Measures implemented by Denmark for TV2/Danmark, OJ L85, 23/02/2006 Commission Decision 351/2005, Aid scheme implemented by the Kingdom of Spain for the airline Intermediación Aérea SL, OJ L110, 30/04/2005 Commission Decision 417/2005, Belgium, OJ L150, 10/06/2005 Commission Decision 513/2006, DVB-T in Berlin-Brandenburg, OJ L200, 22/07/2006 Commission Decision 938/2006, Training aid for Ford Genk, OJ L366, 21/ 12/2006 Commission Decision 175/2007, Broadband network in Appingedam, OJ L86, 27/03/2007 Commission Decision 374/2007, Digital decoders, OJ L147, 08/06/2007 Commission Decision 582/2007, Portugal Aid to Djebel, OJ L219, 24/08/ 2007 Commission Decision 612/2007, Training aid to General Motors, OJ L243, 18/09/2007 Commission Decision 126/2008, Establishment of Investbx, OJ L45, 20/02/ 2008


Table of Cases

xviii

Not yet published in the OJ • • • • • •

C 34/2006, Introduction of DVB-T in North Rhine-Westphalia, 23/10/2007 C 49/2006, Poste Italiane – Postal savings, 22/11/2006 (opening of formal investigation) C 53/2006, Citynet Amsterdam, 11/12/2007 C 23/2007, Training aid for Vauxhall at Ellesmere Port, 10/07/2007 C 35/2007, Training aid to Volvo Cars in Gent, 12/09/2007 C 51/2007, Soutien de l'Agence de innovation industrielle en faveur du programme VHD, 13/11/2007 (opening of formal investigation)

B.

JUDGEMENTS OF THE COURT OF JUSTICE

• • • • • • • • •

C-30/59, Steenkolenmijen v High Authority, 1961 ECR 1 C-56 and 58/64, Consten-Grundig, 1966 ECR 299 C-6 & 11/69, Commission v French Republic, 1969 ECR 523 C-70/72, Commission v Germany, 1973 ECR 813 C-120/73, Lorenz v Germany, 1973 ECR 1471 C-173/73, Italy v Commission, 1974 ECR 709 C-78/76, Steinike und Weinlig v Germany, 1977 ECR 595 C-82/77, van Tiggele, 1978 ECR 25 C-61/79, Amministrazione delle Finance dello Stato v Denkavit Italiana, 1980 ECR 1205 C-730/79, Philip Morris v Commission 1980 ECR 2671 C-84/82, Germany v Commission, 1984 ECR 1451 C-323/82, Intermill v Commission, 1984 ECR 3809 C-240/83, Procureur de la République v ADBHU, 1985 ECR 531 C-290/83, Commission v French Republic, 1985 ECR 439 C-234/84, Belgium v Commission, 1986 ECR 2263 C-67/85, 68/85 and 70/85 Van der Kooy v Commission, 1988 ECR 219 C-223/85, RSV v Commission, 1987 ECR 4617 C-57/86, Greece v Commission, 1988 ECR 2855 C-263/86, Humber and Edel, 1988 ECR I-05365 C-30/87, Corinne Bodson v SA Pompes funèbres des régions libérées, 1988 ECR 2479 C-94/87, Commission v Germany , 1989 ECR 175 C-102/87, French Republic v Commission, 1988 ECR 4067 C-142/87, Belgium v Commission, 1990 ECR I-959 C-301/87, French Republic v Commission, 1990 ECR I-307 C-2/88, Imm. Zwartveld and Others, 1990 I-3365

• • • • • • • • • • • • • • • •


Table of Cases

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

xix

C-21/88, Du Pont de Nemours, 1990 ECR I-0889 C-143/88 and C-92/89, Zuckerfabrik, 1991 ECR I-415 C-303/88, Italy v Commission, 1991 ECR I-1433 C-5/89, Commission v Germany , 1990 ECR I-3437 C-41/90, Klaus Höfner and Fritz Elser v Macrotron GmbH, 1991 ECR I1979 C-313/90, CIRFS and Others v Commission, 1993 ECR I-1125 C-354/90, FNCEPA v French Republic, 1991 ECR I-5505 C-364/90, Italy v Commission, 1993 ECR I-2097 C-47/91, Italy v Commission, 1994 ECR I-4635 C-72 & 73/91, Sloman Neptun Schiffahrts AG v Seebetriebsrat Bodo Ziesemer, 1993 ECR I-887 C-159/91, Christian Poucet v Assurances Générales de France and Caisse Mutuelle Regionale du Languedoc – Roussillon, 1993 ECR I-637 C-183/91, Commission v Greece, 1993 ECR I-3131 C-189/91, Kirsammer-Hack v Sidal, 1993 ECR I-6185 C-198/91, William Cook v Commission, 1993 ECR I-1719 C-225/91, Matra v Commission, 1993 ECR I-3203 C-320/91, Paul Corbeau, 1993 ECR I-2533 C-278/92, Spain v Commission, 1994 ECR I-4103 C-364/92, Eurocontrol, 1994 ECR I-00043 C-387/92, Banco Exterior de España v Ayuntamiento de Valencia, 1994 ECR I-877 C-393/92, Municipality of Almelo and others v NV Energiebedrijf Ijsslmij, 1994 ECR I-1477 C-465/93, Atlanda, 1995 ECR I-3761 C-39/94, SFEI v La Poste, 1996 ECR I-3547 C-96/94, Centro Servizi Spediporto, 1995 ECR I-2883 C-159/94, French Republic v Commission, 1997 ECR I-5815 C-280/95, Commission v Italy, 1998 ECR I-259 C-343/95, Diego Calì & Figli Srl v Servizi ecologici porto di Genova SpA, 1997 ECR I-1547 C-353/95P, Tierce Ladbroke v Commission, 1997 ECR I-7007 C-35/96, Commission v Italy, 1998 ECR I-03851 C-55/96, Job Centre coop. arl., 1997 ECR I-7119 C-301/96, Germany v Commission, 2003 ECR I-0000 C-342/96, Spain v Commission, 1999 ECR I-2459 C-6/97, Italy v Commission, 1999 ECR I-2981 C-174/97P, FFSA v Commission, 1998 ECR I-1303 C-204/97, Portugal v Commission, 2001 ECR I-3175 C-256/97, DM Transport, 1999 ECR I-3913


xx

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Table of Cases

C-307/97, Compagnie de Saint-Gobain; 1999 ECR I-06161 C-99/98, Austria v Commission, 2001 ECR I-1101 C-107/98, Teckal Srl v Commune di Viano, 1999 ECR I-812 C-156/98, Germany v Commission, 2000 ECR I-06857 C-180 to 184/98, Pavel Pavlov and Others, 20000 ECR I-6451 C-351/98, Spain v Commission, 2002 ECR I-8031 C-379/98, Preussen Elektra AG v Schleswag AG, 2001 ECR I-2099 C-261/99, Commission v French Republic, 2001 ECR I-2537 C-382/99, Netherlands v Commission, 2002 ECR I-5163 C-400/99, Italy v. Commission, 2005 ECR I-3657 C-475/99, Ambulanz Glöckner, 2001 ECR I-09089 C-482/99 French Republic v Commission, 2002 ECR I-4397 C-53/00, Ferring SA v Agence centrale des organismes de sécurité sociale, 2001 ECR I-9067 C-57/00 and C-61/00, Freistaat & Volkswagen v Commission, 2003 ECR I-9975 C-242/00, Germany v Commission, 2002 ECR I-5603 C-278/00, Greece v Commission, 2000 ECR I-8787 C-280/00, Altmark Trans, 2003 ECR I-7747 C-355/00, Freskot, 2003 ECR I-5263 C-398/00, Spain v Commission, 2002 ECR I-5643 C-5/01, Belgium v Commission, 2002 ECR I-11991 C-34/01 to C-38/01, Enirisorse Spa, 2003 ECR I-14243 C-83/01 P, C- 93/01 P and C-94/01 P Chronopost v Ufex and Others, 2003 ECR I-6993 C-264/01, C-306/01, C-354/01 and C-355/01, AOK Bundesverband, 2004 ECR I-2493 C-110/02, Commission v Council, 2004 ECR I-06333 C-276/02, Spain v Commission, 2004 ECR I-8091 C-345/02, Pearl BV and Others v Hoofdbedrijfschap Ambachten, 2004 ECR I-7139 C-26/03, Stadt Halle, 2005 ECR I-3123 C-88/03, Portugal v Commission, 2006 ECR I-7115 C-346/03, Atzeni and Others, 2006 ECR I-1875 C-415/03, Commission v Greece (Olympic Airways), 2005 ECR I-03875 C-458/03, Paking Brixen, 2005 ECR I-8612 C-71/04, Xunta de Galicia, 2005 ECR I-7419 C-148/04, Unicredito Italiano, 2005 ECR I-11137 C-237/04, Enirisorse, 2006 ECR I-2843 C-368/04, Transalpine Ölleitung (not yet published) C-232/05, Commission v French Republic (Scott) (not yet published)


Table of Cases

• •

xxi

C-318/05, Commission v Germany (not yet published) C-199/06, CELF v SIDE (not yet published)

C. JUDGEMENTS OF THE COURT OF FIRST INSTANCE

• • • • • • • • • • • • • • • • • • • • • • • • • •

T-447 & 449/93, AITEC v Commission, 1995 ECR II-1971 T-459/93, Siemens v Commission, 1995 ECR II-01675 T-67/94, Ladbroke Racing Ltd v Commission, 1998 ECR II-00001 T-229/94, Deutsche Bahn v Commission, 1997 ECR II-1689 T-266/94, Skibsværftsforeningen and Others v Commission, 1996 ECR II1399 T-358/94, Air France v Commission, 1996 ECR II-2109 T-371/94 & T-394/94, British Airways and Others and British Midland Airways v Commission, 1998 ECR II-2405 T-106/95, FFSA v Commission, 1997 ECR II-229 T-214/95, Het Vlaamse Gewest v Commission, 1998 ECR II-717 T-82/96, ARAP v Commission, 1999 ECR II-1889 T-132/96 and T-143/96, Freistaat Sachsen v Commission, 1999 ECR II3663 T-158/96, Acciaierie di Bolzano v Commission, 1999 ECR II-3927 T-189/97, Comité d’Entreprise de la Société Française de Production v Commission, 1998 ECR II-335 T-288/97, Regione Autonoma Friuli Venezia Giulia v Commission, 2001 ECR II-1169 T-297/97, Alitalia v Commission, 2000 ECR II-3871. T-298/97, 312/97, 313/97, 315/97, 600-607/97, 1/98, 3-6/98, 23/98, Alzetto Mauro and Others v Commission, 2000 ECR II-2319 T-613/97 Ufex and Others v Commission, 2000 ECR II-4055 T-73/98, Société Chimique Prayon-Rupel SA v Commission, 2001 ECR II867 T-155/98, SIDE v Commission, 2002 ECR II-1179 T-36/99, Lenzing v Commission, 2004 ECR II-3597 T-55/99, Confederación Española de Transporte de Mercancías (CETM) v Commission, 2000 ECR II-3207 T-126/99, Graphischer Maschinenbau v Commission, 2002 ECR II-2427 T-152/99, HAMSA v Commission, 2002 ECR II-3049 T-228/99, West LB v Commission, 2003 ECR I-435 T-346/99, T-347/99 and T-348/99, Territorio Histórico de Álava and Others v Commission, ECR 2002 II-4259 T-109/01, Fleuren Compost BV v Commission, 2004 ECR II-00127


xxii

• • • • • • • • • • • •

Table of Legislation and Other Official Documents

T-111/01 and T-133/01, Saxonia Edelmetalle GmbH, 2005 ECR II-1579 T-116/01 and T-118/01, P&O European Ferries, 2003 ECR II-2957 T-157/01, Danske Busvognmænd v Commission, 2004 ECR II-917 T-195/01 and T 207/01, Government of Gibraltar v Commission, 2002 ECR II-2309 T-274/01, Valmont v Commission, 2004 ECR II-3145 T-291/01, Dessauer Versogungs und Verkehrsgesellschaft and Others v Commission, 2002 ECR II-5033 T-17/02, Fred Olsen, 2005 ECR II-2031 T-210/02, British Aggregates v Commission, 2006 ECR II-2789 T-351/02, Deutsche Bahn, 2006 ECR II-1047 T-289/03, BUPA v Commission (not yet published) T-155/04, Selex v Commission (not yet published) T-304/04, Italy v Commission (Wam) (not yet published)


Table of Legislation and Other Official Documents

The following list includes references to the main rules and documents. The website of DG Competition of the European Commission maintains an updated list. See: “http://eu.europa.eu/comm/competition/state_aid/legislation/� Provisions of the EC Treaty Article 36: application of competition rules to agriculture. Article 73: state aid for public transport. Article 86: exemption of providers of services of general economic interest. Article 87: general incompatibility of state aid with the common market and exceptions. Articles 88 & 89: provisions on procedures and additional rule making. Procedural Regulations: Council Regulation 659/1999 laying down detailed rules for the application of Art. 93 EC (now Art. 88), OJ L83, 27/03/1999. Commission Regulation 794/2004 on implementing rules and notification, OJ L140, 30/04/2004. Commission Regulation 271/2008 amending Regulation 794/2004, OJ L82, 25/03/2008. General Block Exemption Regulation: 07/07/2008 Enabling Regulation (empowers Commission to make implementing regulations): Council Regulation 994/1998 on the application of Articles 92 and 93 (now 87 and 88) of the EC Treaty to certain categories of horizontal aid, OJ L142, 14/05/1998. Commission Regulation 1998/2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid, OJ L379, 28/12/2006.

xxiii


xxiv

Table of Legislation and Other Official Documents

Block Exemption Regulations Commission Regulation 68/2001 on the application of Articles 87 and 88 of the EC Treaty to training aid, OJ L10, 13/01/2001. Commission Regulation 70/2001 on the application of Articles 87 and 88 of the EC Treaty to state aid to small and medium-sized enterprises, OJ L10, 13/ 01/2001. Commission Regulation 2204/2002 on the application of Articles 87 and 88 of the EC Treaty to state aid for employment, OJ L337, 13/12/2002. Commission Regulation 364/2004 amending Regulation 70/2001 as regards the extension of its scope to include aid for research and development, OJ L63, 28/02/2004. Commission Regulation 1628/2006 on the application of Articles 87 and 88 of the Treaty to national regional investment aid, OJ L302, 01/11/2006. Notices and Recommendations Notice on cooperation between national courts and the Commission in the state aid field, OJ C312, 23/11/1995. Commission Recommendation concerning the definition of micro, small and medium-sized enterprises, OJ L124, 20/05/2003. Notice from the Commission – Towards an effective implementation of Commission decisions ordering Member States to recover unlawful and incompatible State Aid, OJ C272, 15/11/2007. Rules applying to horizontal aid Environmental aid: New Community Guidelines on state aid for environmental protection, OJ C82, 23/01/2008. Export Credit Insurance: Commission Communication concerning the application of Articles 87 and 88 to short-term export credit insurance, OJ C217, 02/08/2001. Communication of the Commission to Member States amending the Communication pursuant to Articles 88 (1) of the EC Treaty


Table of Legislation and Other Official Documents

xxv

applying Articles 87 and 88 of the Treaty to short-term export credit insurance, OJ C325, 22/12/2005. Financial Transfers to Public Enterprises: Commission Directive 1980/ 723 on the transparency of financial relations between Member States and public undertakings, OJ L195, 29/07/1980; amended by Commission Directives 1985/413, 1993/84, and 2000/52 (the latter published in OJ L193, 29/07/ 2000). Commission Communication to the Member States, OJ C307, 13/11/ 1993. Fiscal aid – Direct Business Taxation: Commission Notice on the application of the state aid rules to measures relating to direct business taxation OJ C384, 10/12/1998. Government Capital Injections: Application of Articles 92 and 93 (now 87 and 88) of the EEC Treaty to public authorities’ holdings (Bulletin EC 91984). Public Land Sales: Commission Communication concerning aid elements in land sales by public authorities, OJ C209, 10/07/1997. Regional aid: Community Guidelines on national regional aid for 2007-2013, OJ C54, 04/03/2006. Research, Development and Innovation aid: Community Framework for state aid for Research and Development and Innovation, OJ C323, 30/12/ 2006. Rescue and Restructuring aid: Community Guidelines on state aid for rescuing and restructuring firms in difficulty, OJ C244, 01/10/2004. See also the new Multisectoral Framework and Rescue and Restructuring aid and Closure aid for the Steel Sector, OJ C70, 19/03/2002, which applies to steel as of August 2002. Risk Capital: Community Guidelines on state aid to promote risk capital investments in small and medium-sized enterprises, OJ C194, 19/08/2006. Services of General Economic Interest: Commission Decision on the application of Article 86(2) of the EC Treaty to state aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest, OJ L312, 29/11/2005.


xxvi

Table of Legislation and Other Official Documents

Community Framework for state aid in the form of public service compensation, OJ C297, 29/11/2005. State Guarantees: Commission Notice on the application of Articles 87 and 88 of the EC Treaty to state aid in the form of guarantees, OJ C155, 20/06/ 2008. Rules applying to sectoral aid Agriculture: Council Regulation 26/1962 applying certain rules of competition to production of and trade in agricultural products, OJ 30, 20/04/1962. Regulation 1/2004 on aid to agricultural SMEs, OJ L1, 03/01/2004. New Guidelines for state aid in the agriculture and forestry sector 2007 to 2013, OJ C319, 27/12/2006. Commission Regulation 1857/2006 on the application of Articles 87 and 88 of the EC Treaty to state aid to small and medium-sized enterprises active in the production of agricultural products and amending Regulation 70/2001, OJ L358, 16/12/2006. Commission Regulation 1535/ 2007 for de minimis aid, OJ L337, 21/12/2007. Fisheries: Commission Regulation 1595/2004 on the application of Articles 87 and 88 of the EC Treaty to state aid to small and medium-sized enterprises active in the production, processing and marketing of fisheries products, OJ L291, 14/09/2004. Guidelines for the examination of state aid to fisheries and aquaculture, OJ C229, 14/09/2004. Commission Regulation 875/2007 for de minimis aid, OJ L193, 25/07/2007. Air Transport: Application of Articles 92 and 93 (now 87 and 88) of the EC Treaty and Article 61 of the EEA agreement to state aid in the aviation sector, OJ C350, 10/12/1994. Community Guidelines on financing of airports and start-up aid to airlines departing from regional airports, OJ C312, 09/12/2005. Maritime Transport: Council Regulation 4055/86 applying the principle of freedom to provide services to maritime transport between Member States and between Member States and third countries, OJ L378, 31/12/1986. Community Guidelines on state aid to maritime transport, OJ C13, 17/01/2004. Road, Rail and Inland Waterway Transport: Council Regulation 1191/ 1969 on action by Member States concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway, OJ L156, 28/06/1969. Council Regulation 1107/1970 on the granting of aid for transport by rail, road and inland waterway, OJ L130, 15/06/1970. Council


Table of Legislation and Other Official Documents

xxvii

Regulation 543/1997 amending Regulation 1107/1970 on the granting of aids for transport by rail, road and inland waterway, OJ L84, 26/03/1997. Regulation 1370/2007 of the European Parliament and of the Council on public passenger transport services by rail and by road and repealing Regulations 1191/ 1969 and 1107/1970 (in force as from 3 December 2009), OJ L315, 03/12/ 2007. New Community Guidelines for state aid to rail undertakings, 30/04/ 2008. Broadcasting: Commission Communication on aid to public service broadcasting, OJ C320, 15/11/2001. Coal: Council Regulation 1407/2002, OJ L205, 02/08/2002. See also Commission Communication, OJ C152, 26/06/2002. Electricity: Commission Communication on stranded costs, 26/07/2001. Shipbuilding: Community Framework on aid to shipbuilding, OJ C317, 30/ 12/2003. See also Commission Communication concerning the prolongation of the Framework on state aid to shipbuilding, OJ C260, 28/10/2006.


Recent Policy Developments 2007-2008

2007

Commission Regulation 875/2007 for de minimis aid in the fisheries sector, OJ L193, 25/07/2007 Notice from the Commission – Towards an effective implementation of Commission decisions ordering Member States to recover unlawful and incompatible State aid, OJ C272, 15/11/2007 Regulation 1370/2007 of the European Parliament and of the Council on public passenger transport services by rail and by road and repealing Regulations 1191/69 and 1107/70, OJ L315, 03/12/2007. Commission Regulation 1535/2007 for de minimis aid in the sector of agricultural production, OJ L337, 21/12/2007 2008

Revision of the Communication from the Commission on the application of state aid rules to public service broadcasting – Questionnaire for public consultation, 10/01/2008 Review of the Community Framework on state aid to shipbuilding – consultation paper, 26/02/2008 General Block exemption Regulation: 07/07/2008 Commission Regulation 271/2008 amending Regulation 794/2004, 25/03/ 2008 xxix


xxx

Recent Policy Developments

New Community Guidelines on state aid for environmental protection, OJ C82, 01/04/2008 New Community Guidelines for state aid to rail undertakings, 30/04/2008 Commission Notice on state aid in the form of guarantees, OJ C155, 20/06/ 2008.


INTRODUCTION

The purpose of this Guide is to provide a concise review of the state aid policy of the European Community (hereinafter “EC”), as reflected in the administrative practice of the European Commission (hereinafter “Commission”) and the case law of the European Court of Justice (hereinafter “ECJ”) and the European Court of First Instance (hereinafter “CFI”). The state aid policy of the EC cannot be understood fully without appreciating first the broader objectives of EC competition policy. After all, the rules on state aid form part of the overall competition objectives of the EC. A good indication of the importance of competition policy is given by the fact that the Treaty of Lisbon assigns to the “exclusive competence” of the European Union (hereinafter “EU”) the establishment of “competition rules necessary for the functioning of the internal market”. 1.

THE OBJECTIVES OF EC COMPETITION POLICY

Competition policy is an instrument for fostering the achievement of the EC’s basic aims. Article 2 EC defines a number of “tasks” for the EC such as the achievement of high-level of economic growth, prosperity, competitiveness, social protection, employment and cohesion between Member States. For the achievement of those tasks, Article 2 EC requires the establishment of a common market, an economic and monetary union and the pursuance of common policies. Competition policy is one of those common policies. The Treaty goes on in Article 3(g) to specify that the activities of the EC include “a system ensuring that competition in the internal market is not distorted”. Earlier in the same Article it is defined that this “internal market is characterised by abolition between Member States of obstacles to the free 1


2

Phedon Nicolaides, Mihalis Kekelekis and Maria Kleis

movement of goods, persons, services and capital.” Therefore, the EC system can be interpreted as pursuing two closely related objectives: effective competition and market integration. 1.1 Effective competition Competition policy is one of the major pillars on which the action of the EC in the economic field rests. As will be explained later on, the EC, and in particular the Commission, have been assigned broad powers in the competition field in order to ensure the achievement of a market economy with free competition. Competition policy promotes consumer welfare, encourages the optimal allocation of resources and grants to economic agents appropriate incentives to pursue productive and innovative efficiency. An open market economy can only be effectively maintained by preventing collusive agreements between firms or abuses of a dominant position, by ensuring competitive market structures through merger control, and by abolishing unjustified state aids that distort competition by artificially keeping non-viable firms in business. 1.2 Competition policy and market integration At the same time competition policy is closely linked to the creation of the single market. In this connection, competition policy ensures that the dismantling of the barriers to trade, movement and establishment is not undermined by market segmentation created by firms and public authorities. This link was confirmed and developed by the ECJ in the Consten-Grundig case, concerning a sole distribution agreement granted by a German supplier to a French distributor, combined with an exclusive trademark right. Particularly the ECJ stated: “(…) an agreement between producer and distributor which might tend to restore the national divisions in trade between the Member States might be such as to frustrate the most fundamental objectives of the Community. The Treaty, whose preamble and content aim at abolishing the barriers between states, and which in several provisions gives evidence of a stern attitude with regard to their appearance, could not allow undertakings to reconstruct such barriers. Article 85(1) is designed to pursue this aim, even in the case of agreements of undertakings placed at different levels in the economic process.”1


State Aid Policy in the European Community: Principles and Practice

3

It is now well accepted that the Community’s competition policy supports the completion of the internal market, as laid down in Article 2 EC. “The complementarity between those two policies is also clearly shown by the EC’s objective of creating an internal market. On the one hand, the internal market is an essential condition for the development of an efficient and competitive industry. On the other hand, competition policy is an important tool for achieving the goal of, and maintaining, an internal market, in particular via the enforcement of rules ensuring that the regulatory barriers to trade which have been removed are not replaced by private or other public restrictions having the same effect.”2 2.

THE RULES OF COMPETITION IN THE EC

Effective tools are needed in order to achieve the goals of competitive and integrated markets within the EC. The Treaty has granted the Council and the Commission powers to achieve those goals. Articles 81 to Article 89 EC provide for the common rules on competition and the means by which these are to be achieved. Article 81 EC prohibits all agreements and concerted practices between undertakings, which may affect trade between Member States and have the object or effect to restrict competition within the common market. Article 81(3) EC includes a possibility, under certain conditions, for exemptions from that prohibition. Article 82 EC prohibits the abuse of a dominant position, which may affect trade between Member States. Article 83 EC refers to the responsibility of the Council of Ministers (hereinafter the “Council”) to adopt Regulations and Directives to give effect to the principles set out in Articles 81 and 82 EC, whereas Articles 84 and 85 EC refer to the responsibilities of both the Member States and the Commission during the transitional period before such Regulations and Directives have been enacted. Articles 86 to 89 EC provide rules governing the activities of Member States in ensuring that public undertakings do not distort competition, as well as rules governing the activities of Member States in providing state aid in whatever form, such as subsidies or special tax advantages, to undertakings. The need for a common competition policy was recognised early in the process of European integration. The Treaty establishing the European Coal 1 2

Cases 56 and 58/64 1966 ECR 299, at p. 340. See also Nicolaides, Phedon and Van der Klugt, Arianne, The Competition Policy of the European Community, EIPA, 1994, at p. 9. XXVth Report on Competition Policy 1995, at p. 15.


4

Phedon Nicolaides, Mihalis Kekelekis and Maria Kleis

and Steel Community (ECSC) signed in Paris on 18 April 1951 had extensive rules on competition. The Commission had exclusive jurisdiction to decide over these two products, i.e. coal and steel, and the competition rules could not be enforced before the national courts until the Commission had found an infringement. The ECSC Treaty expired on 23 July 2002. Finally, Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation)3, which substitutes Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings4 with effect from 1 May 2004, provides for the mandatory notification of mergers, acquisitions and other kinds of concentration activity that have a Community dimension. The Merger Regulation forms part of the Commission’s endeavour to modernise the legal instruments that constitute the basis of EC competition policy. The modernisation of competition rules also included, among others, the adoption of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 EC, which became effective on 1 May 2004 as well.5 The reason for the adoption of this new Regulation was that, given the EC’s enlargements and the continuous globalisation of the economy, a centralised authorisation system, managed by the Commission, would no longer ensure effective application of competition rules and thus the completion of the single market. In this regard the reform contained three central objectives: rigorous enforcement of competition law by concentrating on the most important cases involving a real EC interest; effective decentralisation of its application, with the Commission, the national competition authorities and the national courts having concurrent powers to apply EC competition rules and simplification of enforcement procedures, with the ending of the system of notification and authorisation of agreements between undertakings. Clarification and review of the substantive rules was also necessary in the overall reform process of competition policy, by taking account of the way markets currently operate without losing sight of the integration objectives enshrined in the Treaty.6 The Community now has a competition system that is based on more transparent rules which give prominence to the economic effects of corporate practices rather than their legal form and which are primarily enforced by national competition authorities rather than the Commission. 3 4 5 6

OJ L24, 29/01/2004. OJ L295, 13/10/1989, with amendments introduced by Council Regulation (EC) No 1310/ 1997, OJ L180, 09/07/1997. OJ L1, 04/01/2003. Foreword by Mario Monti, “XXXII Report on Competition Policy”, 2002, at p. 5.


State Aid Policy in the European Community: Principles and Practice 3.

5

EC STATE AID POLICY AND CONTROL

State aid control constitutes a basic pillar of EC competition policy. State intervention influences the way markets operate by favouring certain undertakings, whereas at the same time causing serious damage to their competitors operating in the same and/or different member states. The Commission’s avowed aim is to ensure that state intervention does not interfere with the smooth functioning of the internal market or harm the competitiveness of EU undertakings, as well as to enhance structural reform.7 State intervention may, thus, go against the objective of a market economy with free and undistorted competition, as enshrined in the Treaty. In order to fulfil this objective of market integration, strict state aid control is needed, so as to maintain a level playing field and ensure that state intervention is kept to a minimum, where markets and undertakings continue to operate effectively. In light of the above, new legislation is adopted regularly with the ultimate aim to direct Member States towards meeting the Lisbon objectives and respond to successive European Council calls for “less and better targeted aid”.8 It is important to note in this regards that, as the State Aid Scoreboard of Autumn 2007 reports, the period 2000-2006 “[...] shows a moderate downward trend, with clearly lower overall aid levels. The vast majority of Member States also continues to shift the emphasis from supporting individual companies or sectors towards tackling horizontal objectives. This movement is even more accentuated in the EU-10 Member States as they continue to adjust their State aid policies and practices to the requirements under EU State aid law and policies”. The table below shows the trend in the level of state aid in the EU Member States, 1996-2006. The State Aid Scoreboard of Autumn 2007 also reports the following interesting facts about state aid: Overall average annual national aid in the EC: (2006) Overall aid: EUR 66.7 billion, of which, • Aid to manufacturing & services: EUR 47.9 billion • Agriculture and fisheries: EUR 16.6 billion • Coal: EUR 3.5 billion • Transport excluding railways: EUR 2.2 billion • Other: EUR 0.6 billion for the other non-manufacturing sectors, such as oil and gas extraction, electricity, gas and water supply and construction. 7 8

XXXII Report on Competition Policy, 2002, at p. 93. State Aid Scoreboard – Autumn 2007 Update.


48.0

2000

50.5

2001

56.8

2002

52.0

2003

2004

0.70

0.90

78.9

1.12

0.55

50.2

0.73

0.43

40.3

0.61

0.43

42.6

0.60

59.1

0.46

0.46

45.9

0.62

62.3

0.48

0.50

50.6

0.65

65.6

0.53

0.41

41.6

0.56

57.0

0.49

0.42

43.7

0.59

61.7

0.44

47.5

0.42

44.2

0.58

60.9

0.43

47.3

0.60

66.6

2005

0.41

44.7

0.56

61.1

0.42

47.9

0.58

66.7

2006

0.46

46.0

0.61

61.6

0.50

53.1

Annual average 2001-2003

0.42

44.2

0.58

61.2

0.43

47.6

Annual average 2004-2006

Note: The exceptionally high figure in 1997 can be largely attributed to the Credit Lyonnais case in France (approximately EUR 21 bn). Similarly the relatively high figure in 2002 is due in part to the substantial guarantee awarded as a part of the restructuring package to Bankgesellschaft Berlin AG (C 28/2002). For the EU-10, data on agriculture are available for 2004, 2005 and 2006 only. Source: DG Competition, DG Energy and Transport, DG Agriculture and DG Fisheries.

as % of GDP

58.3

0.93

as % of GDP

Total state aid less agriculture, fisheries and transport in EUR billion

77.9

Total state aid less railways in EUR billion

EU-15

as % of GDP

Total state aid less agriculture, fisheries and transport in EUR billion

0.62

57.1

1999

as % of GDP

66.1

1998

67.5

98.9

1997

Total state aid less railways in EUR billion

EU-25

1996

6 Phedon Nicolaides, Mihalis Kekelekis and Maria Kleis


State Aid Policy in the European Community: Principles and Practice

7

State aid to manufacturing and services in the EC: (2006) • Horizontal objectives: 85% (compared to 76% in 2004 and around 50% in the mid 90s) • The remaining 15% was aid directed at specific sectors: coal (7%), services (5%) and manufacturing (2%) including rescue and restructuring aid. State aid in 2006 Total (EUR billion) [less railways]

Total (EUR billion) [less agric., fish., transp.]

Total [less railways as % GDP]

Total [less agric., fish., transp. as % GDP]

EU-25

66.7

47.9

0.58

0.42

EU-10

5.6

3.2

0.91

0.52

Austria

2.3

1.6

0.90

0.60

Belgium

1.2

0.9

0.39

0.28

Cyprus

0.1

0.1

0.76.

0.48

Czech Republic

0.8

0.6

0.66

0.51

Denmark

1.3

1.0

0.59

0.46

Estonia

0.1

0.0

0.41

0.08

Finland

2.6

0.6

1.53

0.35

France

10.4

7.4

0.58

0.41

Germany

20.2

16.0

0.87

0.69

Greece

0.6

0.3

0.26

0.15

Hungary

1.4

0.8

1.57

0.93

Italy

5.5

3.8

0.37

0.26

Ireland

1.0

0.5

0.57

0.28

Luxembourg

0.1

0.0

0.32

0.13

Lithuania

0.1

0.0

0.54

0.23

Latvia

0.3

0.0

1.80

0.15

Malta

0.1

0.1

2.29

1.77


Phedon Nicolaides, Mihalis Kekelekis and Maria Kleis

8

Total (EUR billion) [less railways]

Total (EUR billion) [less agric., fish., transp.]

Total [less railways as % GDP]

Total [less agric., fish., transp. as % GDP]

Netherlands

1.9

1.3

0.35

0.24

Poland

2.3

1.2

0.85

0.45

Portugal

1.5

1.4

0.93

0.91

Slovakia

0.2

0.2

0.51

0.45

Slovenia

0.3

0.1

0.83

0.48

Spain

4.9

3.9

0.50

0.39

Sweden

3.5

2.9

1.15

0.94

United Kingdom

4.2

3.1

0.22

0.16

Share of aid instrument for manufacturing and services (EU-25, 20042006) Aid instrument

Share (%)

Grants

50.29

Tax exemptions

42.57

Soft loans

3.12

Guarantees

1.60

Tax deferrals

1.52

Equity participation

0.90

State Aid Policy in the European Community: Principles and Practice – Second Edition  

The book not only explains the principles on which European state aid policy is based and how it is applied in practice, but also highlights...