EU Regional State Aid Policy
Committee of the Regions
Lunchtime meeting
3 July 2014
DG Competition
Miek Van der Wee
European Commission
DG Competition
Overview
1. Rationale for State aid control
2. Basic principles of EU State Aid policy
3. Regional aid
4. State aid Modernisation (SAM)
5. Conclusion
6. Q&A
DG Competition
1. Rationale for State aid control
2. Basic principles of EU State Aid policy
3. Regional State aid
4. State aid Modernisation (SAM)
5. Conclusion
6. Q&A
DG Competition
Why do we control State aid ?
■ MS are tempted to subsidise national firms to
strengthen their competitive position or to delay
restructuring
■ Negative effects:
►
Distorted price signals  inefficient allocation of resources
►
Weakening of dynamic incentives to innovate and adapt
►
Subsidy races  Impact on public finance and cohesion
DG Competition
Question 1
The less developed Member States grant higher levels of
State aid than the more developed Member States
True
False
DG Competition
State aid and cohesion - 1
2007-2012
10 Richest MS
7 Poorest MS
129
33
State aid
(as % of GDP)
0.64%
0.86%
State aid
(annual, per capita)
€ 212
€ 72
€ 44 bn
€ 6 bn
GDP per capita
(EU27 = 100)
State aid Volume
(billion € / year)
DG Competition
State aid and cohesion - 2
DG Competition
Why do we control State aid ?
■ State aid is not always “bad” though:
►
►
Markets do not always deliver optimal outcomes due to
market failures:
●
Externalities,
●
Imperfect information
●
Equity issues
SA can be effective instrument to overcome market failures
■ Therefore: Need for a nuanced approach to State aid
DG Competition
1. Rationale for State aid control
2. Basic principles of EU State Aid policy
3. Regional State aid
4. State aid Modernisation (SAM)
5. Conclusion
6. Q&A
DG Competition
Basic principles of SA policy - 1
■ EU SA policy established in 1958 Treaty of Rome
■ Main objective:
►
Avoid distortion of competition in internal market
►
Support economic and social cohesion
DG Competition
Basic principles of SA policy - 2
■ Substance (Article 107 TFEU):
►
SA in principle “incompatible” with the common market
►
Exemptions from ban defined in the Treaty
■ Procedure (Article 108 TFEU):
►
COM has exclusive competence to control exemptions
►
Ex ante control: Notification + Standstill obligation
►
Violation of SA rules:
●
Complaints + Ex Officio investigations
●
EC orders recovery of illegal & incompatible SA
DG Competition
Basic principles of SA policy - 3
Two key questions in State aid:
Q 1: When does a measure constitute “State aid” ?
 Definition of “State aid”
Q 2: When is a State aid measure “compatible” with the
Internal Market?
 Compatibility of State Aid?
DG Competition
Question 1:
When does a measure constitute “State aid”?
DG Competition
Definition of “State aid”
Definition of “State aid” is contained in Art. 107(1) 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, insofar as it affects trade between Member
States, be incompatible with the common market”
DG Competition
Definition of State aid
■ Four criteria defining a measure as “State aid” :
►
Aid granted by a Member State or through State
resources;
►
Providing an advantage (“favouring”) to an undertaking
►
It is selective (“certain” undertakings or “certain” goods)
►
It effects trade between Member States
■ All four criteria need to be fulfilled simultaneously!
DG Competition
Definition of State aid: Examples
■ Examples of state aid measures:
► Grants
to individual companies
► Reduction of corporate tax rate & social security
contributions
► Interest rate subsidy
► Land sold below market price
■ Examples of non-aid measures:
► Measures
applying to all companies in all sectors (no
discretionary power)
► Regulatory
measures with no state resources
DG Competition
Question 2:
When is a State aid measure compatible with
the internal market ?
DG Competition
Compatibility: “Exemptions”
■ TFEU defines exemptions from ban on SA such as:
►
Aid to promote the development of less developed regions
or of certain economic activities
►
Aid to promote culture and heritage conservation
■ Exemptions are not unconditional:
►
Aid should contribute to an objective of common interest
►
Aid should “not adversely affect trading conditions to an
extent contrary to the common interest”
► COM controls application of exemptions
DG Competition
Compatibility: “Balancing test”
■ Assessment of compatibility  “balancing test”:
►
Benefits (contribution to objective of EU interest)
►
Costs (distortion of competition and trade)
■ Compatibility assessment covers i.a.
►
Contribution to objective of common interest?
►
Incentive effect?
►
Is the aid proportional?
►
Distortions of competition limited?
DG Competition
Compatibility: “Codification of criteria”
■ COM codified “compatibility criteria” for main
categories of SA
►
Criteria: Eligible projects and costs, max. aid intensities …
►
Guidelines, Regulations, Notices for :
●
Horizontal aid: Regional aid, SME, Training, RTD,
Environment, …
●
Sectoral aid: Broadband, Airlines, Audiovisual, …
■ Published on DG Competition’s website:
http://ec.europa.eu/competition/state_aid/legislation/compilation/index_en.h
tml
DG Competition
Compatibility: “Procedural aspects”
■ General Rule: All aid to be notified & approved
■ Exceptions:
►
Aid under approved aid schemes
►
Aid under General Block Exemption Regulation (GBER)
●
COM defined clear compatibility criteria for certain types
of aid (SME aid, Regional Investment aid, …)
●
Aid measures satisfying these conditions are exempted
from notification & standstill requirement
■ Aid not falling under these exceptions and granted
without Commission approval is “illegal aid”
DG Competition
State aid Architecture
NO
De Minimis
AID
Too small to distort trade
No Notification
No Information
Cumulation control
Block
AID Exemption
Regulation
• Routine aid
• Clear compatibility criteria
• Limited risk of distortion
No Notification
Information sheet
Guidelines, • Criteria published
AID frameworks, • Potential compatibility issues
(distortion, incentive effect, …)
etc.
Directly on
AID
TFEU
• Very limited experience
• No criteria published
• Ad hoc assessment
DG Competition
Ex Ante Notification
Ex Ante Notification
1. Rationale for State aid control
2. Basic principles of EU State Aid policy
3. Regional State aid
4. State aid Modernisation (SAM)
5. Conclusion
6. Q&A
DG Competition
Regional State
aid aid - Importance
Total State aid
2007-2013
(€360 bn)
EU cohesion policy
2007-2013
(€347 bn)
Regional aid
(€98 bn)*
DG Competition
* estimates
Regional aid
■ Purpose of regional aid:
To promote the development of disadvantaged areas by
addressing their economic handicaps
■ How?
►
Support for investment and job creation by undertakings
► Support for operating expenses of undertakings
■ Criteria set out in RAG + GBER:
► Where
can regional aid be granted?
► What can aid be granted for?
► How much aid can be granted?
DG Competition
Regional aid maps
To be effective: regional aid should target problem areas
■ Areas with abnormally low standard of living  Art.107(3)(a)
►
Reference point is EU average
►
Criterion
 GDP/cap lower than 75% EU average
 Outer Most Regions (Art. 349 TFEU)
■ Other disadvantaged areas  Art. 107(3)(c)
►
Ex-Article 107(3)(a) regions (2011-2013)
►
Sparsely populated area s
►
Other problem regions with population of at least 50,000
DG Competition
Regional aid maps
Comparison population coverage 2006-2013 and 2014-2020:
Types of region
'a' areas
- GDP/cap < 75%
- Outermost regions
‘c’ areas
2014-2020
2006-2013
25.8%
33.0%
24.9%
32.1%
0.9%
0.9%
21.8%
13.6%
- Former ‘a’ regions
6.9%
- Sparsely populated
0.6%
- Other ‘c’ areas
14.3%
Total ‘a’ + ‘c’
47.6%
DG Competition
46.6%
Regional aid maps
Regional aid map also places limits on the amount of investment
aid that can be granted in each region:
Assisted area
(% EU GDP/head)
Large firms
2006-13 2014-20
Medium
firms
Small
firms
'a' areas (<45%)
50%
50%
+10%
+20%
'a' areas (45%-60%)
40%
35%
“
“
'a' areas (60%-75%)
30%
25%
“
“
15%
“
“
15%
15%
“
“
10%-15%
10%
“
“
Ex 'a' areas (until end ‘17)
Sparsely populated areas,
external border areas
Other 'c' areas
DG Competition
Regional aid maps 2013
DG Competition
Regional aid maps 2014-2020
Population coverage (%)
Bulgaria, Estonia, Latvia, Lithuania
Greece
Malta
Poland
Romania
Slovenia
Slovakia
Czech Republic
Portugal
Hungary
Spain
Ireland
Cyprus
Italy
Belgium
UK
Finland
Germany
Austria
France
Sweden
Denmark
Luxembourg
Netherlands
Total 2014
‘a’ areas
100.0
100.0
100.0
100.0
100.0
100.0
88.5
88.1
85.0
76.7
68.6
51.3
50.0
34.1
29.9
27.0
26.0
25.8
25.8
24.1
12.3
8.0
8.0
7.5
100.0
45.9
DG Competition
86.3
89.4
52.9
88.5
88.1
69.2
70.4
6.8
29.0
3.9
2.9
‘c’ areas
54.1
100.0
13.7
10.6
47.1
15.8
6.3
61.8
51.3
50.0
5.0
30.0
23.2
26.0
25.8
25.8
21.2
12.3
8.0
8.0
7.5
Investment aid: “Eligible projects”
■ Investment in tangible and intangible assets relating to
In 'a' regions & SME in 'c' areas:
LEs in 'c' areas:
- Setting up of a new establishment;
- Diversification of output of establish-
- Setting up of a new establishment;
- Diversification of activity of establish-
-
ment into products not previously
produced in the establishment;
Extension of the capacity of an
existing establishment;
Fundamental change in the
production process.
ment, if new activity is not same as or
similar to activity previously performed in the establishment;
- Diversification of existing establishments into new products or new
process innovations.
■ Acquisition of assets linked to establishment that has closed
■ No replacement investment!
DG Competition
Investment aid: “Eligible costs”
Two ways to calculate “eligible costs”:
■ Costs calculated on the basis of investment costs:
►
Material assets (land, building, equipment)
►
Immaterial assets (Transfer of technology, Patents, Knowhow licenses, …)
■ Costs calculated on the basis of wage costs:
Wage costs arising from job creation as a result of the initial
investment (two-year wage cost)
DG Competition
Investment aid: “How much aid?”
■ Maximum allowable aid is defined as a percentage of
eligible costs of the initial investment
■ Maximum aid intensity is set in the regional aid maps
and depends on:
►
The level of development of the region
►
The size of the enterprise
►
The size of the investment project
●
Regional aid ceilings set in regional aid maps apply to
investments with a total eligible cost of less than 50 Mio€
●
For larger investment projects (LIPs): scaling down of
maximum aid intensity ceiling
DG Competition
Investment aid: “Other conditions”
■ Maintenance of investment (or jobs) in the region:
►5
years for large enterprises
►3
years for SMEs
■ 25% of investment should be from own contribution or
external finance, but totally free of public support
■ Formal application for aid before works on the project
started (formal incentive effect)
DG Competition
Operating aid
■ Aid not linked to investment project, but aimed at
reducing a firm’s current expenses
■ Permitted exceptionally in cases where investment aid
alone is not enough to trigger regional development:
►
The least developed ‘a’ regions (SME only)
►
The sparsely populated ‘c’ regions (SME + LE)
►
Outer Most Regions (SME + LE)
■ MS to demonstrate that the aid is “proportionate”:
►
No over-compensation of extra costs facing companies as
a result of specific regional handicaps
DG Competition
1. Rationale for State aid control
2. Basic principles of EU State Aid policy
3. Regional State aid rules
4. State aid modernisation (SAM)
5. Conclusion
6. Q&A
DG Competition
SAM - Objectives
■ Communication on “State Aid Modernisation” (2012)
►
Support growth in times of budget constraints
►
"More with less“
■ Stricter control of more distortive aid:
►
Prove real incentive effect
►
Limit aid to what is necessary (proportionality)
■ Simplify rules for "good aid"  Review of GBER
DG Competition
State aid under GBER schemes
■ Situation 2011  63% of aid measures in EU were
implemented under GBER
14%
GBER
Notified Schemes
23%
Notified Individual Aid
63%
■ Ambition 2014-20  90% of aid under GBER
DG Competition
SAM – Impact on Regional aid
Facilitate granting of less distortive aid that contributes to
cohesion:
■ Widening the scope of the GBER:
►
Investment aid schemes
►
Individual investment aid (< € 7.5 mio in normal ‘c’ region)
►
Operating aid (<10% of turnover or <25% of labour cost)
■ No need to notify, but:
►
Transparency
►
Evaluation of large schemes
DG Competition
Regional aid under GBER schemes
DG Competition
SAM - Impact on Regional aid
■ Notification requirement for more distortive aid:
►
Large investment aid projects
►
Investment projects of companies closing down activities
►
Operating aid schemes exceeding GBER ceilings
■ Stricter assessment
►
Incentive effect on the basis of counter-factual analysis
►
Proportionality  Double ceiling:
►
●
Regional aid intensity ceiling
●
Minimum aid needed for project to go ahead
Black list: Aid linked to delocalisation
DG Competition
1. Rationale for State aid control
2. Basic principles of EU State Aid policy
3. Regional State aid rules
4. State aid modernisation (SAM)
5. Conclusion
6. Q&A
DG Competition
Conclusion
■ Nuanced approach to SA control
►
SA can distort markets + undermine cohesion
►
SA can also be effective tool to address market failures
■ TFEU: SA Prohibition + Exemptions controlled by COM
■ SAM:
►
Facilitate granting of less distoprtive aid measures
contributing to EU2020 objectives
►
Stricter control of most distortive aid measures
►
This is also reflected in reform of regional aid for 2014-2020
DG Competition
Thank you !
DG Competition