Business environment in the EU
1st Semester, Academic Year 2011/2012
Prepared by Dr. Endre Domonkos (PhD)
I. Monitoring state intervention
 Competition in the common market can be distorted not only by the
behaviour of undertakings, but also by State intervention.
 It is obvious that State intervention may involve a conflict of interests
between the economic operators benefiting from such intervention and
their competitors in the Member States, which will be placed in a less
favourable position and will press their government to redress the
situation.
 In fact, as other forms of protectionism diminish, the importance of
State aids as an anti-competitive mechanism tend to grow.
 Indeed, the four largest Member States account for 88% of all aid granted
in the Union.
 The Commission processes more than one thousand aid applications
every year.
II. The notion of State aid
 A company which receives government support obtains an advantage
over its competitors.
 Therefore, the EC Treaty generally prohibits State aid unless it is
justified by reasons of general economic development.
 To ensure that this prohibition is respected and exemptions are applied
equally across the European Union, the European Commission is in
charge of watching over the compliance of State aid with EU rules.
 As a first step, it has to determine whether a company has received State
aid, which is the case if the support meets the following criteria:
 By contrast, general measures are not regarded as State aid because they
are not selective and apply to all companies regardless of their size,
location or sector.
III. Compatible and incompatible aids I.
 Article 87 of the EC Treaty stipulates that „any aid granted… which
distorts or threatens to distort competition by favouring certain
undertakings or the production of certain gooods shall, in so far as it
affects trade between Member States, be incompatible with the common
market.”
 The Commission has devised a mechanism for fixing and revising the
reference rates used to calculate the grant equivalent of aid.
 However under the „de minimis” rule, aid of less than EUR 100 000 over
three years is judged not to affect trade between Member States and thus
need not be identified to the Commission.
 Paragraph 2 of Article 87 considers that the following shall be
compatible with the common market, provided that aid is granted
without discrimination related to the origin of the products concerned.
III. Compatible and incompatible aids II.
 Paragraph 3 of Article 87, for its part, stipulates that the following may
be considered to be compatible with the common market:
 The Council has empowered the Commission to adopt block exemption
regulations for certain categories of horizontal aid.
 A Commission decision of 22 July 1998 clarifies the circumstances in
which public funding for training may be caught by the competition
rules on State aid and sets the criteria which it applies in ascertaining
whether such aid is compatible with the common market.
 The Commission may adopt a position on the possible application of one
of the above derogations from the incompatibility of aid.
 The Member States are obliged, under Article 88 paragraph 3 of the EC
Treaty to inform it in sufficient time, through a detailed questionnaire,
of any plans to grant new aid or alter existing aid.
III. Compatible and incompatible aids III.
 Council Regulation lays down detailed rules for the application of
Article 88 of the EC Treaty.
 Under the procedure of monitoring national aids, the Commission gives
notice to the Member State proposing to grant aid to submit its
comments within a given time limit, normally set at one month.
 The other Member States are also invited to submit their comments on
the proposed aid in question, as are other interested parties.
 The Commission may decide either not to object to the proposed aid or
to require that it be abolished or to call for certain alterations to be
made to it.
 If the Member States concerned is not in agreement with the
Commission’s decision it may, within two months, refer the matter to
the Court of Justice.
IV. General aids I.
 Aid from which any undertaking whatsoever can benefit, without regard
to its geographical location or to the sector to which it belongs, is
regarded as general aid.
 The Commission has to be able to verify, prior to their being granted, the
general aids are in response to genuine economic and social needs, that
they lead to an improvement in the structures of beneficiary
undertakings and that they do not give rise to problems at Community
level.
 The Commission tries to prevent aid that does not pursue clearly
defined objectives.
 The Commission systematically prohibits State export aid within the
Community and normally prohibits aid, which does not have a
counterpart in the Community interest.
IV. General aids II.
 However, certain general aids are granted to achieve legitimate
objectives and may be approved by the Commission under certain
conditions, specified in its communications.
 In addition to regional development aids, this is generally the case for
research and development aids, aids in favour of small and mediumsized enterprises, environmental protection aids, aids for rescuing and
restructuring firms in difficulty, vocational training aids for
employment.
 The Commission established since 1986 a Community framework for
State aids for research and development.
 In order to reduce red tape, prior notification is required only for
individual research projects costing more than EZR 25 million and
benefiting of more than EUR 5 million in aid.
IV. General aids III.
 The Commission authorises subsidies helping companies adapt to
environmental standards.
 The Community framework is designed to ensure that State aid granted
for environmental purposes complies with the „polluter pays” principle
and is consistent with the internal market and the Community’s
competition policy.
 Aids granted to assist companies facing a particularly difficult market
situation, such as structural overcapacity, are accepted only in
exceptional circumstances.
 The Community guidelines on State aid for rescuing and restructuring
firms in difficulty set out the Commission’s approach to examining aid
of this type.
IV. General aids IV.
 Vocational training aid is exempt from the notification requirement.
 The Commission regulation on the application of Articles 87 and 88 of
the EC Treaty to State aid for employment allows Member States to grant
aid for job creation and the recruitment of disadvantaged or disabled
workers without having to apply for prior authorisation from the
Commission.
 Other types of employment aid are not prohibited but require prior
notification.
 In force until 2006, the regulation introduces a block exemption system
for both types of State aid mentioned above, up to certain ceilings so as
to avoid any distortional effects.
 It covers selective measures for certain sectors or regions, and not
general employment-policy measures, which do not constitute State aid.
V. Regional aid
 Article 87(3)(a) of the Treaty applies State aid to promote the
development of „areas where standard of living is abnormally low or
where there is serious underemployment”.
 This is why Article 87 (3)(a) status is granted on the basis of an EU
criterion (NUTS II regions with a GDP per capita (PPS) lower than 75% of
the EU 15-average GDP per capita (PPS) are also eligible under Article 87
(3) (a).
 Article 87(3)(c) of the Treaty covers aid to other types of (national)
problem regions „aid to facilitate the development of … certain
economic areas”.
 The list of regions qualifying for this exemption is also decided by the
Commission, but on a proposal by Member States.
VI. Sectoral aids I.
 The Commission’s policy on sectoral aids:
 The „Community framework” encompassing national measures may
therefore be elaborated when the conditions in a sector so dictate.
 The „Community framework” includes guidelines for the objectives to be
attained at Community level and a description of how to achieve that.
 The framework for aids to sectors in crisis could generally be based on
the criterion of „overcapacity”.
 In February 2002, the Commission considered that the specific sectoral
frameworks should be integrated into a multisectoral framework.
 It has therefore approved the recasting of the rules applicable to
regional aid to large investment projects.
VI. Sectoral aids II.
 Under this framework no advance notification of aid below certain
thresholds for large investment projects is required, provided that aid is
granted in accordance with a regional aid scheme approved by the
Commission.
 In the field of aid to shipbuilding a Council Regulation implements the
provisions of the OECD Agreement.
 In the field of a maritime transport sector, the Commission adopted
new guidelines for State aid.
 The Steel Aid Code applies to steel firms the Community rules
applicable to aid for research and development and for environmental
protection with a view to ensuring fair competition in this particularly
sensitive industry.
VII. Public undertakings I.
 The public sector, made up of public undertakings, joint ventures and
undertakings controlled by the public authorities by means of holdings,
varies in size from one EU country to another.
 While remaining neutral with regard to the legal position on ownership
in the Member States, the EC Treaty stipulates, in Article 86, that „in the
case of public undertakings and undertakings to which Member States
grant special or exclusive rights, Member States shall neither enact nor
maintain in force any measures contrary to the rules contained in this
Treaty…”.
 Such undertakings therefore have the same obligations as private firms,
including those laid down in Article 12 (prohibition of discrimination on
grounds of nationality) and 81 to 89 (rules of competition).
 However, Article 86(2) allows exceptions to the rules of competition of
the Treaty in favour of public utility undertakings.
VII. Public undertakings II.
 Indeed, governments grant certain public enterprises statutory
monopoly protection.
 These exclusive rights could prevent, however, the creation of a real
internal market in the sectors in question, if Member States could
protect from competition their monopolistic enterprises.
 Member States must, therefore, not take measures, which could lead
their public enterprises enjoying monopoly rights to infringe
Community rules on competition or the free movement of goods and
services.
 The Commission’s Directive obliges Member States to supply the
Commission, at the latter’s request, with information on public funds
made available directly or indirectly to public undertakings.
VII. Public undertakings III.
 The Commission recognises that the operation of services of general
economic interest – in the sense of Article 86(2) of the EC Treaty – must
not be prejudiced.
 Commission directives have paved the way for liberalisation in the
satellite telecommunication sector.
 The Commission Directive (Directive 88/301) on free competition on the
Community markets in telecommunications terminal equipment.
 The Commission Directive (Directive 2002/77) on competition in the
markets for electronic communications networks and services.
VIII. Application of State aid law by national courts I.
 The Commission Notice on the enforcement of State aid law by national
courts, adopted in April 2009, underlines the key role of national courts
in the enforcement of European State aid law.
 They may be called upon to apply State aid law in a variety of scenarios:
 Article 88(3) of the EC Treaty provides that Member States may not
implement new State aid measures before they have been approved by
the Commission ('standstill obligation').
 National courts also play an important role in the enforcement of
recovery decisions adopted by the Commission under Article 14(1)
of Council Regulation (EC) No 659/1999.
 The General Block Exemption Regulation, which entered into force in
August 2008 and has direct effect in the Member States' legal systems,
could also give rise to disputes before national courts.
VIII. Application of State aid law by national courts II.
 In this context national courts may have to assess whether a certain aid
measure meets a certain requirement of the Regulation or not, so that
no individual notification is necessary and the standstill obligation
under Article 88(3) of the EC Treaty does not apply.
 When called upon to apply State aid rules to a case pending before it, a
national court must respect any relevant Community rules in the area of
State aid and the existing case law of the Community courts.
 Cooperation with the Commission:
 The Commission is committed to support national courts where they
need assistance in reaching a decision on a pending case.
 Commission support to national courts can take two different forms:
IX. Request for information or opinion on State aid issues
 Given the key role which national courts play in the enforcement of the
State aid rules, the Commission is committed to helping national courts
where the latter find such assistance necessary for their decision on a
pending case, as is stated in the Commission Notice on the enforcement
of State aid law by national courts.
 The Commission thereby wishes to make a fresh attempt at establishing
closer cooperation with national courts.
 When supporting national courts, the Commission must respect its duty
of professional secrecy and safeguard its own functioning and
independence.
 In fulfilling its duty under Article 10 of the EC Treaty towards national
courts, the Commission is therefore committed to remaining neutral
and objective.
IX. Request for information I.
 A national court may, inter alia, ask the Commission for the following
types of information in its possession:
 Information concerning a pending Commission procedure;
 In the absence of a decision, the national court may ask the Commission
to clarify when this is likely to be adopted.
 In addition, national courts may ask the Commission to transmit
documents in its possession.
 In transmitting information to national courts, the Commission needs
to uphold the guarantees given to natural and legal
persons under Article 287 of the EC Treaty.
IX. Request for information II.
 Articles 10 and 287 of the EC Treaty do not lead to an absolute
prohibition for the Commission to transmit to national courts
information covered by professional secrecy.
 The duty of loyal cooperation requires the Commission to provide the
national court with whatever information the latter may seek.
 There are further scenarios where the Commission may be prevented
from disclosing information to a national court.
 In particular, the Commission may refuse to transmit information to a
national court where such transmission would interfere with
the functioning and independence of the Communities.
 The Commission will endeavour to provide the national court with the
requested information within one month from the date it receives the
request.
X. Request for opinion I.
 A national court may ask the Commission for its opinion on economic,
factual and legal matters concerning the application of the State aid
rules.
 Possible subject matters for Commission opinions include, inter alia:
 Such opinions can relate to each of the criteria under Article 87 of the EC
Treaty.
 Whether a certain aid measure meets a certain requirement of a Block
Exemption Regulation so that no individual notification is necessary
and the standstill obligation under Article 88(3) of the EC Treaty does
not apply.
 Whether a certain aid measure falls under a specific aid scheme which
has been notified and approved by the Commission or otherwise
qualifies as existing aid.
X. Request for opinion II.
 Where the national court is required to order the recovery of interest, it
can ask the Commission for assistance as regards the interest
calculation and the interest rate to be applied.
 The legal prerequisites for damages claims under Community law and
issues concerning the calculation of the damage incurred.
 Moreover, unlike the authoritative interpretation of Community law by
the Community courts, the opinion of the Commission does not legally
bind the national court.
 Timing
 The Commission will endeavour to provide the national court with the
requested opinion within four months from the date it receives the
request.
XI. Provisions in the field of State aid in the Treaty of Lisbon
 The Treaty of Lisbon made some modifications in the field of State aid.
 The Treaty of Lisbon amended the list of state aids which were
compatible with the internal market in relation to cases when a Member
State might grant aid automatically, and when the Commission might
authorise such aid.
 The first group includes three cases:
 In the category on non-automatic aid, for which the Member State
requires permission from the Commission, the Treaty of Lisbon adds aid
to promote economic development of the overseas territories of
Guadeloupe, French Guiana, Martinique, Réunion, the Azores, Madeira
and the Canary Islands.
Conclusion
 The Commission tries to ensure that aid to undertakings does not
constitute the resurgence of protectionist measures in a new form.
 For the majority of State aid cases, the most relevant exemption clauses
are those of Article 87(3)(a) and 87(3)(c) of the Treaty:
 The State aid exemptions are the followings:
 State aid reforms aims to redirect aid to Lisbon-related objectives, such
as R&D&I, risk capital measures, training, renewable energy/climate
change and other measures for protection of the environment.
 State aid control is important because it contributes to avoid a wasteful
use of public resources.