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International Internet Magazine. Baltic States news & analytics Monday, 25.09.2017, 07:31

State aid control: Commission balances public-private interests

Eugene Eteris, European Studies Faculty, RSU, BC International Editor, Copenhagen, 19.05.2017.Print version
Fair competition in the EU Single Market depends on both private sector’s development and that of the member states’ government policies. The latter is regulated through the Commission’s control of state aid and government subsidies; main changes here relate to sea- and air-ports, culture and regions. Commission has taken more than 30 state aid decisions on ports and more than 50 state aid decisions on airports.

The Commission has exempted public support measures in a number of areas from prior Commission state aid control. This facilitates public investments in key infrastructure, e.g. ports and airports, in public support for a cultural sector, sport arenas, etc. Commissioner M. Vestager responsible for competition issues in the EU, made a statement (Brussels 17.05.2017) concerning simplified rules for public investment in ports and airports, as well as in culture and regional development. 


Background

EU State aid rules ensure that companies can compete on equal terms in the EU Single Market to the benefit of European consumers. The EU Treaty gives the Commission the task of enforcing those rules. Fair competition in the EU is not just a question of what private companies do; the Commission looks at what governments are doing, i.e. how state-owned companies operate and what subsidies governments provide for them.


The EU member states are normally required to notify their plans for state aid to the Commission; they go ahead only if the Commission gives a corresponding agreement.

This allows the Commission to prevent measures that distort competition, hinder trade across national borders and undermine the EU Single Market. For example, it is illegal if a state provides a better tax treatment to its national companies at the expense of more efficient competitors abroad.


Vast majority of public support measures in the member states do not cause such problems: either such measures do not constitute “state aid” and/or fall outside the scope of EU state aid control; or if they do amount to state aid but do not distort competition. They can all be implemented by the EU states without asking the Commission for permission in advance.


Thus, it is important for the EU states, companies and the citizens, to have clear guidance on State aid.


Present changes are only the latest step in the Commission's recent efforts to modernise EU state aid control. The Commission has implemented several initiatives to stimulate investment by reducing the administrative burden for public authorities and companies and by increasing legal certainty for companies receiving aid. 


Clarifying state aid

In May 2016, the Commission clarified public “measures” in the state aid category in a special “Notice on the notion of state aid”, which covered, for example, public investments in roads, inland waterways, rail, and water distribution networks.


The Commission has also taken a series of decisions, which show that measures are not state aid where their impact is essentially local, without affecting competition and trade among EU states, e.g. public investments in hospitals, old age homes, sports facilities and regional news media.


For public measures that are covered by the EU state aid control, but do not harm competition, the Commission set out clear criteria in the “General Block Exemption Regulation” and the states can rely on these criteria to support investment in important areas such as energy, environment, broadband and innovation (it could be done without asking the Commission's approval). This Regulation already exempts about 95% of all state aid measures – that's around €28 billion in state aid per year.


This reduces the administrative burden for member states and increases legal certainty for companies that receive state aid. However, less control by the Commission requires the states to take responsibility: to show citizens where public funds go and what their impact is. Therefore, cooperation between the EU states and the Commission is a key issue in making modernized state aid control.


The Commission is presently giving flexibility to the EU states to grant state aid directly, without asking the Commission's approval first, in a number of additional, important sectors while setting out clear criteria to make sure the aid does not distort competition.


Main changes in state aid

Commission’s main changes relate to ports and existing airports. Over the past few years the Commission has taken more than 30 State aid decisions on ports and more than 50 State aid decisions on airports. Thus, presently the states have a good idea of which measures they are likely to distort competition.


In particular, the new provisions exempt from prior control by the Commission public investments in existing regional airports (as long as they serve less than 3 million passengers per year; there are more than 420 airports of this size in the EU and they account for more than 80% of all airports in the EU but only about 13% of air traffic). These airports will be able to receive aid to maintain and upgrade their infrastructures, if they respect Regulation’s criteria.  


For small existing airports, the Regulation also allows EU states to help cover operating costs. By small airports is meant those handling less than 200 000 passengers per year. These may not always be as profitable as larger airports, but they can play an important role for the connectivity of a region and are unlikely to have much effect on competition. Airports of this size account for almost half of all EU airports but less than 1% of air traffic. Therefore, it should be up to the relevant region and its citizens to decide if they want to spend public funds to support these small airports.


For seaports, the Regulation now exempts investments by the EU states of up to €150 million in seaports and up to €50 million in inland ports. This includes dredging costs that certain ports need to incur to keep the waterway deep enough for ships to dock. For ports these costs are non-negotiable because of their geography, regardless of how efficient and competitive they are.


These are significant changes for public investments in seaports and airports, which clarify the rules, simplify procedures and allow the states to invest in these sectors more quickly. This can help create jobs and spur economic growth, whilst preserving competition in the EU market.

 

The Commission has also simplified EU state aid control in other areas, namely culture and multi-purpose sports arenas. Support in these areas often does not amount to state aid anyway, as was clarified in the “Notice on the notion of state aid”. Only a few large size projects are – and for these, in future even fewer projects will need to be notified to the Commission for approval.

 

The Commission has also made it simpler for public authorities to compensate companies for additional costs they face in the EU's outermost regions and sparsely populated areas. These regions often face significant economic challenges because they are remote and dependent on a few traded products. EU state aid rules allow support for these regions to meet those challenges.

 

Furthermore, in addition to the important existing exemptions under the “General Block Exemption Regulation” to support innovation, the Commission has clarified that states can support projects with a so-called “Seal of Excellence” quality label. These are innovation projects funded by the EU states that also meet the conditions for funding under the EU Horizon 2020 instrument. Present clarification helps ensuring that these projects can be implemented as quickly as possible; this can especially benefit SMEs.

 

Finally, the Commission has addressed another issue that is at the heart of fair competition in the Single Market: EU state aid rules do not allow the EU states to use state aid to incentivise the relocation of jobs from one EU country to another. New changes add safeguards to ensure that the rules work well in practice.


Thus, from now on, to benefit from the procedural speed of the “General Block Exemption Regulation”, the company benefitting from investment aid has to confirm that it did not relocate this activity from elsewhere in the EU (it will not do so in the future too).


The point of all this is to facilitate public investments that serve citizens while preserving competition. Its aim is to make it easier to grant aid on clear and simple conditions that contributes to European common goals on jobs and growth, climate, innovation and social cohesion.

 

Bottom line: the EU’s political objective is to focus the Commission's action on those issues that really matter to people, taking European action only where it is necessary and leaving the states to take responsibility for everything else. Similarly, the state aid policy is to ensure that responsibility for public measures is taken at the appropriate level in the Commission, if it genuinely affects competition and European consumers across borders, and by national authorities, if the effect is local.


Thus, the EU institutions and the states have to work together to make sure that the Commission can be “big on big things and small on small things” (as proposed in the recent “Future of Europe” program, to the benefit of EU citizens and companies.


Reference: http://europa.eu/rapid/press-release_STATEMENT-17-1367_en.htm?locale=en








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