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PAGE 48 EC COMPETITION POLICY NEWSLETTER Vol. 1, N° 2, Summer 1994

State Aid

Main developments between 1st April and 28th July 1994

Some of the questions you always wanted to ask about state aid

by Jonathan Faull, DG IV-E-1

Why do we need a state aid policy?

Because competition may be distorted by advantages given

by public authorities to certain companies or categories of

companies which compete with other, less fortunate

companies in the EC. As the single market becomes a reality

and other forms of protection and distortion of competition

become rarer, the public purse is seen as the last refuge of

authorities seeking to favour companies operating in their

territory.

State aid may also have more honourable objectives: regional

development, helping companies restructure, compensating

for natural disasters, encouraging employment and training

of the long-term unemployed or under-skilled school-leavers.

The purpose of the EC's state aid policy is to provide for

central control and checking, sorting out the good from the

bad, allowing some and prohibiting others.

Why

should the Commission do it?

Who else? Can Member States be expected to control their

own state aid or each other's? No. If there is one role in the

EC for which the Commission is ideally suited, it is state

aid.

Why

should DG IV do it?

State aid control is best understood as part of competition

policy. The objectives and techniques are not very different

from those found in the other areas of DG IV's activity:

market analysis, assessment of impact on competition,

application of a legal regime with complex procedures. Like

the French Republic, competition policy is "une et

indivisible": a seamless collection of measures designed to

prevent distortions of competition wheresoever and by

whomsoever initiated, unless authorised on the basis of

predictable, specific criteria laid down beforehand and under

procedures based on the rule of law.

Some other DGs are responsible for state aid in their

particular areas of expertise: agriculture (DG VI), transport

(DG VII), fisheries (DG XIV), coal (DG XVII). The

Secretariat-General and the Legal Service have important

roles to play in state aid procedures, as do other DGs which

are regularly consulted on DG IV proposals and initiatives.

What

is state aid anyway?

The Commission's decisions and the Court's case law devote

considerable attention to this important question. The notion

of state aid encompasses not only subsidies, but also tax

exemptions and investments from public funds made in

circumstances in which a private investor would have

withheld support. The aid must come from the "state", which

includes all levels, manifestations and emanations of public

authority. Any act or omission by a public authority which

reduces the costs of a company or category of companies is

liable to constitute state aid. The aid must favour certain

undertakings or the production of certain goods: this serves

to distinguish state aid to which Article 92(1) applies from

general measures to which it does not. For a recent

formulation, see Advocate General Jacobs's Opinion in

Joined Cases C-278/92 to C-280/92,

Spain v. Commission,

para. 28: "..State aid is granted whenever a Member State

makes available to an undertaking funds which in the normal

course of events would not be provided by a private investor

applying normal commercial criteria and disregarding other

considerations of a social, political or philanthropic nature".

Another way of looking at this question is to ask "what is

not state aid?" When a state injects funds into a company it

owns on terms or in circumstances in which a private

investor would have done so, it has not granted state aid. If

a state changes its tax laws to provide a tax cut for all

companies meeting certain objective conditions, this is not

state aid. If a state subsidises a new infrastructure project for

general use, it has not granted state aid.

How

does the Commission hear about state aid?

Member States are obliged to notify all plans to grant or

alter aid and this obligation is enforceable in all the courts

of the Member States. Companies complain about aid

granted to their competitors. Aid is usually publicised and

DG IV monitors the media, data bases and national and

regional budgets.

What

are current priorities?

The Commission decides on more than 1000 state aid cases

a year based on notifications, information on unnotified aid

and complaints. In its control of state aid the Commission

applies rules laid down in previous decisions and

increasingly in formalized codes, frameworks or guidelines.

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