Part I:
Consider the notion of economic constitution;
Place competition regulation in context;
Evaluate the space that is filled by State aid;
Understand the structure of the rules.
Part II:
◦ How are other EU policies integrated into State aid
◦ What role does environmental protection play;
◦ Case law on environmental protection and state aid.
What is an economic constitution?
As early as in the 19th century the term
‘economic constitution’ could be found in the
scholars’ works.
However, it wasn’t accepted widely until the
mid of 20th century and was put into practice
for the first time in the constitution of the
Republic of Weimar.
Generally, it refers to the “sum of the laws and institutional
arrangements regulating economic activities”.
Fikentscher pointed out that “the economic constitution, in
a cotemporary sense, is constituted by the sum of
constitutional and other fundamental legal provisions
……which regulate the fundamental relationships of the
economy, the state and its citizens.”
Linck, the economic constitution is “the fundamental legal
rules and constitutional norms pursuant to which the state
defines the scope of economic freedoms, conducts
monitoring or economic regulations.”
Since the inception of the European Coal and Steel
Community through the numerous treaty revisions
and enlargement to 28 Member States, the constant
for the EU has been economic integration.
The economic area and integration is also the most
developed part of EU integration, which has been
reflected by the centrality of the internal market.
EU is often described as a “market without a state”.
“when a treaty of economic integration includes a
certain degree of positive integration, people can
regard it as some kind of economic constitution”
Does the EU have an economic constitution?
Merger Control
State Aid
To prevent cartels and
agreements in the market.
To prevent mergers and
acquisitions that reduce
competition in the market
To limit distortions of
subsidies to firms; state aid
can be permitted when is in
line with the common (EU)
To prevent abuses of
dominant market positions
Public intervention in the economy is a common
feature in modern States and may take several
forms, pursue different objectives and have
different effects. Some measures adopted by the
State aim generally at favouring its business sector
and may make demands on the public purse.
State grants;
interest rate relief;
tax relief;
tax credits;
State guarantees or
State provision of goods or
services on preferential
direct subsidies;
tax exemptions;
preferential interest rates;
guarantees of loans on
especially favourable terms;
acquisition of land or
buildings either gratuitously
or on favourable terms;
provision of goods and
services on preferential
indemnities against
operating losses;
reimbursement of costs in
the event of success;
State guarantees, whether
direct or indirect, to credit
operations preferential
re-discount rates;
dividend guarantees;
preferential public ordering;
reduction of, or exemption
from, charges or taxes,
including accelerated
depreciation and the
reduction of social
deferred collection of fiscal
or social contributions;
assistance financed by
special levies;
capital transfers;
certain State holdings in the
capital of undertakings.
consultancy advice;
advantages resulting from
the activities of agencies for
urban renewal;
assistance to help
companies invest in
environmental projects;
assistance to help a public
enterprise prepare for
legislation to protect or
guarantee market share;
public private partnerships
and contracts not open to
competitive tendering;
Receipt of landfill tax credit
free advertising on State
owned television;
infrastructure projects
benefiting specific users.
providing grants or other
forms of funding (eg
National Lottery funding);
waiving sums due (eg taxes,
social security contributions,
loan interest, dividends);
selling assets, goods or
services at below market
value; or
buying assets, goods or
services at above market
State Aid & Internal Market
Heightens Competition
Free movement of
legislation e.g.
Directive 98/34;
National Objective,
e.g. regeneration;
national heritage;
State grant;
Competition between States
Article 107 TFEU
107 (1) The
107 (2)
107 (3)
Article 108 TFEU (Not discussed in detail)
108 (1)
MS &
Commission to
108 (2)
108 (3)
MS to report
prior to
state aid
decision and
standstill of
proposed aid
In order for a measure to fall within the scope of
Article 107 (1) and constitute State aid, four
cumulative criteria must be met:
1. the measure must involve the use of State resources;
2. the measure must confer an advantage on the beneficiary;
3. the advantage must be selective, in that it is limited to
certain undertakings or the production of certain goods;
4. the measure must distort competition and affect trade
between Member States.
 NB: This is a broad overview of the operation of the State aid
Alberto D‘Argenio, “ Sconto Ici alla Chiesa: la Ue processa
l’Italia ” ,
“The tax exemptions granted to the Church from the Italian
State have led to an official EU investigation of state aid
incompatible with competition rules. After four years of
exchanging information, two dismissals (of the court case) and
a number of counterclaims, Brussels is putting in motion a
“thorough investigation” of the tax privileges granted to the
ecclesiastical authorities in areas where “the Church
corporation” (it owns about 100,000 buildings) is a national
leader: hospitals, private schools, hotels and other commercial
facilities that enjoy total exemption from payment of local
municipal property tax (ICI) and 50% exemption on corporate
tax (IRES). [This gives the Church] annual savings of close to
two billion euros and thus competitive advantages over secular
A key distinction between State aid and the rest
of competition policy is that, while State aid is in
principle prohibited under Article 107(1)), 107(2)
and 107 (3) reflect recognition that markets may
not always work properly left alone and may need
some intervention from the State to work more
The Treaty expressly provides for certain noneconomic reasons – which have been interpreted
to include environmental reasons - to constitute
legitimate justifications for the grant of State aid.
Non economic in
107 (2) and (3)
Art. 3(3) TEU: “The Union shall establish an
internal market. It shall work for the sustainable
development of Europe based on balanced
economic growth and price stability, a highly
competitive social market economy, aiming at
full employment and social progress, and a high
level of protection and improvement of the
quality of the environment.
requirements must be integrated into the
definition and implementation of the Union’s
policies and activities, in particular with a view to
promoting sustainable development”
The question is whether environmental
considerations can or should be taken into
account in assessing the compatibility of
State aid with the Treaty?
Guidelines on State aid for environmental
protection, OJ 2008 C 82/1, points 5-14.
Commission Regulation (EC) No 800/2008
(General block exemption Regulation)
Regulation (EC) No 994/98
Consultation on the Community Guidelines on
State aid for environmental protection and
environmental support measures in the General
Block Exemption Regulation (Due end 2013).
(6) The primary objective of State aid control in the
field of environmental protection is to ensure that
State aid measures will result in a higher level of
environmental protection than would occur without
the aid and to ensure that the positive effects of
the aid outweigh its negative effects in terms of
distortions of competition, taking account of the
polluter pays principle (hereafter ‘PPP’) established
by Article 174 of the EC Treaty.
NB: The Guidelines do not apply to some areas, for
example the financing of environmental protection
measures relating to air, road, railway, inland
waterway and maritime transport infrastructure
SECTION 4 - Aid for environmental protection - Article 17
"environmental protection" means any action designed to remedy or prevent damage
to physical surroundings or natural resources by the beneficiary’s own activities, to
reduce risk of such damage or to lead to a more efficient use of natural resources,
including energy-saving measures and the use of renewable sources of energy;
Article 18
Investment aid enabling undertakings to go beyond Community standards for
environmental protection or increase the level of environmental protection in the
absence of Community standards.
Investment aid enabling undertakings to go beyond Community standards for
environmental protection or increase the level of environmental protection in the
absence of Community standards shall be compatible with the common market
within the meaning of Article [107](3) of the Treaty and shall be exempt from the
notification requirement of Article [108] (3) of the Treaty, provided that the
conditions laid down in …this Article are fulfilled.
Article 1- empowers the Commission to
declare, in accordance with Article 107 …that,
aid in favour of…environmental protection, …
is compatible with the common market and
not subject to the notification requirement of
Article 108 (3).
Commission approves €20.5 million of aid to Renault for the
development of diesel hybrid commercial vehicles – The European
Commission has decided that the aid granted by France to the
motor vehicle manufacturer Renault to help it conduct a research
and development programme complies with the EU rules on State
The aim of the project is to develop a diesel hybrid technology for
vans. At the end of the project, Renault will equip the Trafic and
Master ranges with a new hybrid engine. The diesel consumption
and CO2 emissions for these two models will be reduced
considerably. The Commission concluded that the State aid
addresses a genuine market failure without giving rise to an undue
distortion of competition; it provides both necessary and sufficient
spur to Renault to carry out an R&D project it would not otherwise
have launched of its own volition.
The United Kingdom notified the exemption from Climate
Change Levy (CCL) charged to suppliers of electricity
produced from Coal Mine Methane (CMM) from abandoned
coal-mines. CMM is a potent greenhouse gas, currently
venting into the atmosphere. At present, there are four CMM
extraction sites being utilised for electricity generation with
a total generating capacity of 35 MW.
The aim of the scheme is to incentivise the industry to
develop further installations at about 40 further sites of
abandoned coalmines, with around 175 MW added capacity.
Because of the uncertainty over the exact level of the
environmental benefit from the scheme, the Government
intends to hold a review of the exemption in 2004/2005.
Aid or Not?
The measure will give an advantage to
electricity generators using CMM as input,
and is therefore selective. The advantage is
granted through state resources as the State
suffers a loss of tax revenues. The recipients
exercise an economic activity on markets on
which there is trade between Member States.
The scheme thereby distorts or threatens to
distort competition and could affect trade
between Member States.
The Italian authorities notified, according to Article
108(3) of the Treaty on the Functioning of the
European Union (TFEU), the partial public financing
for the construction of an intermodal terminal
(rail-road) in the Province of Trento.
The main objective of the measure is to encourage
rail freight transport in the Province of Trento by
means of creating an adequate rail network. The
measure also aims to secure the environmental
benefits associated with the transfer of lorries
from road to rail. Aid or Not?
As the aid is not covered by the Environmental
Guidelines, it would have to be assessed directly
on the basis of Article 107(3)(c) TFEU. According
to constant Commission practice, an aid can be
authorized on the basis of Article 107(3)(c) TFEU
if it has an incentive effect, meets a clearly
defined objective of common interest, is
necessary and proportional to meet this objective
and must not affect trade to an extent contrary
to the common interest.
The Commission … doubts … the assessment …
on the basis of Article 107 (3)(c) TFEU.
Save as otherwise provided in the Treaties,
any aid granted by a Member State or
through State resources in any form
whatsoever which distorts or threatens to
distort competition by favouring certain
undertakings or the production of certain
goods shall, in so far as it affects trade
between Member States, be incompatible with
the internal market.
The following shall be compatible with the internal market:
(a) aid having a social character, granted to individual consumers,
provided that such aid is granted without discrimination related
to the origin of the products concerned;
(b) aid to make good the damage caused by natural disasters or
exceptional occurrences;
(c) aid granted to the economy of certain areas of the Federal
Republic of Germany affected by the division of Germany, in so
far as such aid is required in order to compensate for the
economic disadvantages caused by that division. Five years after
the entry into force of the Treaty of Lisbon, the Council, acting
on a proposal from the Commission, may adopt a decision
repealing this point.
The following may be considered to be compatible with the internal market:
aid to promote the economic development of areas where the standard of living
is abnormally low or where there is serious underemployment, and of the
regions referred to in Article 349, in view of their structural, economic and
social situation;
aid to promote the execution of an important project of common European
interest or to remedy a serious disturbance in the economy of a Member State;
aid to facilitate the development of certain economic activities or of certain
economic areas, where such aid does not adversely affect trading conditions to
an extent contrary to the common interest;
aid to promote culture and heritage conservation where such aid does not
affect trading conditions and competition in the Union to an extent that is
contrary to the common interest;
such other categories of aid as may be specified by decision of the Council on a
proposal from the Commission.
Only advantages granted directly or indirectly through State resources
are to be considered aid within the meaning of 107 (1).
The distinction made in the provision between ‘aid granted by a Member
State’ and aid granted ‘through State resources’ does not mean that all
advantages granted by a State, whether financed through State resources
or not, constitute aid but is intended merely to bring within that
definition both advantages which are granted directly by the State and
those granted by a public or private body designated or established by
the State.
The measure in question must necessarily mean that the State will incur
a cost of some kind.
First of all, it should be pointed out that the definition of State is very
broad, covering both regional or local authorities and public authorities
and public bodies, including publicly owned companies.
Case C-248/84 Germany v Commission [1987] ECR 4013, para 17
No State resources involved:
In Sloman Neptun, a measure enabling
certain shipping undertakings flying
the German flag to subject seafarers
who were nationals of non-member
countries to working conditions and
rates of pay less favourable than those
applicable to German nationals was not
considered to involve State resources.
In Kirsammer-Hack v Sidal, the
exclusion of SMEs from the national
system of protection against unfair
dismissal was not considered to entail
any direct or indirect transfer of State
State resources involved
the Italian special administration
procedure for large companies in
difficulties. The Court considered that
in view of the priority accorded to
debts connected with the pursuit of
economic activity, authorisation to
continue trading might involve an
additional burden for the public
authorities; as might involve an
additional burden for the State other
features of the system such as the
State guarantee, a reduced rate of tax,
exemption from the obligation to pay
fines and other pecuniary penalties or
waiver in practice of public debts
wholly or in part.
In Ecotrade v AFS and Piaggio, the
Court was asked to give guidance to
the national court under Article 267 on
In Ladbroke, the Court considered that
the fact that certain sums were
continuously subject to the State’s
control, and therefore at the disposal
of the competent national authorities,
was sufficient for them to be
categorised as State resources.
It is settled case law that the concept of aid is much wider than that of
subsidy because it embraces not only direct financial benefits to the
undertaking but also, and more generally, any advantages granted by
public authorities which, in various forms, alleviate the charges which
are normally included in the budget of an undertaking.
Thus, public financing of a bonus paid to workers in the coal sector was
found by the Court to give an advantage to the undertakings concerned
since it led to an increase in workers’ pay which artificially reduced the
production costs of the undertakings.(Case 30/59 Steenkolenmijnen
Limburg [1961] ECR 19)
The public financing of a transitional supplement paid to the employees
of an undertaking and intended to maintain their level of pay despite a
reduction in their working hours was considered by the Commission
and, on appeal, confirmed by the Court, to constitute an advantage to
the undertaking since it alleviated the undertaking’s normal budgetary
burdens. (Case C-5/01 Belgium v Commission (‘Cockerill’) [2002] ECR I11991)
For a measure to constitute State aid, it must favour ‘certain
undertakings or the production of certain goods’. This is the so-called
‘selectivity’ or ‘specificity’ test. Generally speaking, the State intervenes
in the economy in various ways and through a series of different
measures, a number of which do not favour only certain undertakings
but may apply to all the undertakings of a Member State. These are
general measures which do not meet the selectivity test.
The fact that some undertakings may benefit more than others from a
particular measure does not necessarily mean that the measure is
selective. For instance, measures which aim to reduce the taxation of
labour are of more benefit to undertakings in labour intensive sectors
than in capital intensive sectors. This does not make them ‘State aid’.
Selectivity can result from limiting the benefit of the measure to one or
several sectors of activity where this is not justified by the nature or
general scheme of the system. This occurs when neither the large
number of eligible undertakings nor the diversity and size of the sectors
to which those undertakings belong provide any grounds for concluding
that a State initiative constitutes a general measure of economic policy.
When the State confers even a limited advantage on an undertaking
which is active in a sector where competition prevails, there is a
distortion or risk of distortion of competition. The condition is therefore
easily fulfilled.
The concept of effect on trade is extremely broad in scope. In CETM, the
Court recalled that when: aid from State resources strengthens the
position of an undertaking compared with other undertakings competing
in intra-Community trade, the latter must be regarded as affected by
that aid … Furthermore, an aid may be of such a kind as to affect trade
between Member States and distort competition even if the recipient
undertaking, which is in competition with undertakings from other
Member States, does not itself participate in crossborder activities.
Where a Member State grants aid to an undertaking, internal supply may
be maintained or increased, with the consequence that the opportunities
for undertakings established in other Member States to offer their
services to the market of that Member State are reduced.