The State Aid Action Plan Thibaut KLEINER DG COMP Global Competition Law Centre 19 September 2005 – Brussels

Why a reform of State aid now? Lisbon Strategy: –more growth and more employment. –Member States should be able to target aid without fear of sanction : innovation, research and development; cohesion and equal opportunity; human capital; infrastructures –and without having to submit to lengthy procedures to get approval on them Enlargement: –opportunities for growth and for future stability –but requires revising our regional policies, and to refine our focus of action.

First response to challenges (Significant Impact Test; LET + LASA) did not make it => Problematic situation Re-launch of Lisbon Strategy + arrival of a new Commissioner  Opportunity Instead of a piecemeal answer, global reform proposal, i.e. new foundations The Vision

SAAP is not the answer to everything  Roadmap  Consultation document It is not a revolution either  nothing really surprising  not changing everything But SAAP provides clarifications + direction: –gives legitimacy to State aid policy –unifies State aid in a common framework (notably by making our balancing test more explicit) –gives global picture as well as visibility for the future

Art vs Art EC Art objective, Commission has no discretion in its appreciation ≠ art broad discretion (ex: case T-67/94 Ladbroke Racing 1998) Balancing test addresses art.87.3 However, legal / economic issues: –affectation of trade (cf. de minimis aid) –distortion of competition: qualification vs. evaluation; clarifications may be needed

Specificities of State aid policy Control of States, not of undertakings State resources ≠ market power Commission requires Council’s approval to change procedural regulation Has the Commission sufficient legitimacy to impose stricter provisions on Member States? => consultation process

Ground Principles: why controlling State aid? Reasons for Controlling State aid include: –to maintain a level playing field for all companies in the single market –to avoid subsidy races –To preserve benefits of competition: system of incentives and sanctions creating efficiency and innovation But State aid may be authorised for objectives of common interest: –State aid can tackle a market failure (efficiency) –Or correct the outcome of functioning markets (equity) –To deliver: growth, employment, cohesion, environmental protection etc. Less and better targeted aid = ultimate objective

A refined economic approach Economic approach: –Is a given measure state aid? (cf. market economy investor principle, affectation of competition and trade) –Should aid be approved? (cf. balancing test; economic analysis of market failures and of distortions to competition) State intervention can contribute to increased welfare, growth and stability. But risks : –Government failure –Special interests/lobbying –How to determine appropriate amount and form of aid? –Incomplete or asymmetric information Economic analysis to evaluate: –Why markets are not delivering –whether state aid is effective in reaching objectives of common interest

The Balancing Test To decide upon the approval of a state aid measure : 1.a well-defined objective of common interest has to be identified (ex: cohesion, growth, employment, environment) 2.the aid instrument has to well target the identified objective of common interest : –State aid is the appropriate policy instrument –The aid measure has an incentive effect –The aid measure is proportional to the problem tackled 3.the distortions of competition and effect on trade should be limited so that the aid measure is not on balance contrary to the common interest.  Compatibility of State aid depends on balancing negative effects with it positive effects

Improving procedures, better enforcement & more transparency Within the current framework Simplification and consolidation, e.g. –General block exemption regulation –De minimis threshold Best practices within current rules More effective enforcement: –More systematic use of non-compliance procedures –Monitoring –advocacy Partnerships: –Member States: network (independent authorities?) –National judges –Others: Court of Auditors? Competitors?

Improving procedures, better enforcement & more transparency A new procedural regulation? to save time and increase transparency: deadlines for Com. but tougher with MS if poor quality of notifications; fewer translations? to ensure that aid measures are duly notified: systematic transitory recovery of non-notified aid; reviews of the track records of Member States in terms of notification and possible penalties? To achieve greater efficiency: consultation of market participants; additional investigative powers? Enlarge the scope of BER to cultural?

Next Steps Revisions of the State aid Rules: - SGEI (done) - RAG - R&D and innovation - Risk capital communication - Block exemption regulation - Environmental guidelines Best practices guidelines State aid network Improved and consistent decision-making