07 EU Competition Policy and State Aids

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EUROPEAN UNION

Committee of the Regions

Factsheet

An online course (MOOC) for regional and local authorities

EU competition policyand state aids

EU competition policy gives the EU the power to

rule on mergers, takeovers, cartels and the use

of state aid. The impact of competition policy onthe regions mainly concerns state aid, corporate

behaviour and related decisions of the European

Commission. In this sense, regions are more or

less on the receiving and implementing end of EU

legislation and are far less involved in designing

it. Article 107(3) TFEUexplicitly mentions state aid

for the development of less favoured regions as

one of the categories of aid that can be exempted

from the Treaty ban on state aid. Almost half the

EU population lives in such areas.

Rationale

In order to establish a single market, a compre-

hensive regulatory framework for competition

policy was created in the 1960s to develop a com-

mon approach towards controlling competition

between companies and towards state aids. This

has given the European Commission extensive

powers to prohibit restrictive agreements (car-tels) between firms, take measures to prevent

them from abusing a dominant position, control

mergers, safeguard the liberalisation of markets,

and control state aid schemes. State aid can dis-tort competition by favouring certain firms or the

production of certain goods. However, in order

to promote the development of less favoured re-

gions, certain types of regional state aids are made

possible. Moreover, other state aids of a horizon-

tal character are also subject to exemptions. All in

all, this creates a rather complex set of rules and

procedures, which regional or local authorities are

often responsible for applying.

For various reasons (externalities, market power,coordination problems between market oper-

ators), markets sometimes do not function effi-

ciently from an economic point of view. The Trea-

ty allows some exceptions in cases where aid may

have a beneficial impact throughout the Union in

order to achieve objectives of common interest

(services of general economic interest, social and

regional cohesion, employment, research and de-

velopment, sustainable development, promotion

of cultural diversity, etc.) and for correcting mar-ket failures.

State aids and

European Structural

and Investment

FundsNational or regional programmes

supported by the European

Structural and Investment

Funds (ESIF) and schemes

therein providing state aids to

enterprises must be notified prior

to their implementation. What

the ESIF rules refer to as one of

several ex-ante conditionalities

applicable to the ESIF concernsfinancial instruments, revenue-

generating operations, public-

private partnerships, aid to SMEs,

durability of operations etc.

During the period 2007-2013,

about 20% of the structural funds

interventions were investment

aids to enterprises and the

competitiveness of SMEs remains

one of the top ESIF priorities

between 2014 and 2020 with EUR

57 billion (20%) earmrked to it.
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EUROPEAN UNION


EU competition policy

and state aids

Legal foundations and legislation

The EUs role in competition policy was set out in

the Treaty of Rome (1957), which gave it wide-rang-

ing powers to oversee and prevent activities that

it judges likely to stop competition between firms.

The legal bases of EU competition policy are Ar-

ticle 3(1)(b), Article 40 (common organisation of

agricultural markets), Title VII (common rules on

competition, taxation and the approximation of

laws), Articles 101-118 of theTreaty on the Func-

tioning of the EU (TFEU), and Protocol No 27 on

the Internal Market and Competition.

Article 3 TFEU lists the establishing of the compe-

tition rules necessary for the functioning of the in-

ternal market among the exclusive competences

of the EU. As a result, competition policy is a high-

ly Europeanised policy field. Articles 101-105 TFEU

lay down the provisions on cartels and the abuse

of dominant positions and their enforcement

through regulations, directives or Commissiondecisions, with only consultation rights for the

European Parliament. Article 106 TFEU extends

these rules to public undertakings. Articles 107-

109 provide for the prohibition of state aids and

exceptions to the rule such as state aid of a social

character, or to promote disadvantaged regions,

culture and heritage or projects of common Euro-

pean interest.

The Treaty provides for the possibility to grant aid

to two types of regions: Article 107(3)(a) TFEU regions (a areas), where

the economic situation is extremely unfavour-

able compared to the EU as a whole. These re-

gions are defined on the basis of strict EU-wide

criteria. They include NUTS 2 regions with a GDP

per capita below 75% of the EU average, andoutermost regions as defined in Article 349 of

the Treaty.

Article 107(3)(c) TFEU regions (c areas), which

are disadvantaged in relation to the national

average. These regions are defined on the ba-

sis of a wider range of criteria, including criteria

that reflect socioeconomic, geographical and

structural problems at national level. These in-

clude sparsely populated regions, former Arti-

cle 107(3)(a) TFEU regions and other problemregions, as designated by the Member States.

All sources of primary law and secondary legis-

lation are summarised in a compilation of state

aid rules in forceon the website of the European

Commissions Competition DG. Detailed rules are

set out in: The Guidelines for regional state aids 2014-

2020 (RAG), which set the basic framework for

granting regional aid between 1 July 2014 and

31 December 2020. They set out the criteria for

designating areas eligible for regional aid and

the conditions under which regional aid can be

granted.

The General Block Exemption Regulation

(GBER), which defines the criteria for exemption

from advance Commission approval for region-al aid. The new GBER entered into force on 1

July 2014.
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:12012E/TXThttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:12012E/TXThttp://ec.europa.eu/competition/state_aid/legislation/compilation/index_en.htmlhttp://ec.europa.eu/competition/state_aid/legislation/compilation/index_en.htmlhttp://ec.europa.eu/competition/index_en.htmlhttp://ec.europa.eu/competition/index_en.htmlhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:209:0001:0045:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:209:0001:0045:EN:PDFhttp://ec.europa.eu/competition/state_aid/legislation/block.htmlhttp://ec.europa.eu/competition/state_aid/legislation/block.htmlhttp://ec.europa.eu/competition/state_aid/legislation/block.htmlhttp://ec.europa.eu/competition/state_aid/legislation/block.htmlhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:209:0001:0045:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:209:0001:0045:EN:PDFhttp://ec.europa.eu/competition/index_en.htmlhttp://ec.europa.eu/competition/index_en.htmlhttp://ec.europa.eu/competition/state_aid/legislation/compilation/index_en.htmlhttp://ec.europa.eu/competition/state_aid/legislation/compilation/index_en.htmlhttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:12012E/TXThttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:12012E/TXT


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and state aids

Moreover, horizontal exemptions are also pos-

sible to support projects of common European

interest.

While the new RAGs establish rules to assess the

more substantial cases of regional aid, the new

GBER has been extended. Both the categories of

measures and the aid amounts have increased.

This allows the Commission to focus on cases in-

volving large amounts of aid with a significant po-

tential impact on the internal market.

In December 2013, the European Commis-

sion adopted a revised Regulation on small aid

amounts (de minimis) that fall outside the scope

of EU state aid control because they are deemedto have no impact on competition and trade in

the internal market. Measures that fulfil the crite-

ria of the Regulation do not constitute state aid

in the meaning of EU rules and therefore do not

need to be notified to the Commission for approv-

al before they are implemented. The de minimis

Regulation exempts aid amounts of up to EUR

200 000 per undertaking over a three year period.

Governance and implementation

EU competition policy is among the exclusive

competences of the EU and largely governed by

the Commission through regulations and deci-

sions. A reform of EU competition rules in 2004 led

to a certain decentralisation of its management

designed to increase the involvement of national

authorities.

The notification of state aids involves procedures

during which the European Commission requests

Services of General

Economic Interest

Companies providing Services of

General Economic Interest (SGEI)

for public authorities can come

under state aid control becauseoverly generous compensation

could cross-subsidise other

commercial activities carried

out by these companies, thereby

distorting competition. In its 2003

Altmark judgment, the European

Court of Justice held that public

service compensation does not

constitute state aid when fourcumulative conditions are met:

the recipient undertaking must

have public service obligations

and the obligations must be

clearly defined;

the parameters for calculating

the compensation must be

objective, transparent and

established in advance

the compensation cannot

exceed what is necessary to

cover all or part of the costs

incurred in the discharge of

the public service obligations,

taking into account the relevant

receipts and a reasonable profit;

where the undertaking

which is to discharge publicservice obligations is not

chosen pursuant to a public

procurement procedure, which

would allow for the selection

of the tenderer capable of

providing those services at the

least cost to the community, the

level of compensation needed

must be determined on the

basis of an analysis of the costsof a typical well-run company.

Where at least one of the Altmark

conditions is not fulfilled, the

public service compensation

will be examined under state

aid rules. In 2012, the European

Commission adopted a new SGEI

packageclarifying the conditions

under which state aid in the formof public service compensation is

compatible with the TFEU.
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.188.01.0004.01.ENGhttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.188.01.0004.01.ENGhttp://ec.europa.eu/competition/state_aid/overview/public_services_en.htmlhttp://ec.europa.eu/competition/state_aid/overview/public_services_en.htmlhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62000J0280:EN:HTMLhttp://ec.europa.eu/competition/state_aid/legislation/sgei.htmlhttp://ec.europa.eu/competition/state_aid/legislation/sgei.htmlhttp://ec.europa.eu/competition/state_aid/legislation/sgei.htmlhttp://ec.europa.eu/competition/state_aid/legislation/sgei.htmlhttp://ec.europa.eu/competition/state_aid/legislation/sgei.htmlhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62000J0280:EN:HTMLhttp://ec.europa.eu/competition/state_aid/overview/public_services_en.htmlhttp://ec.europa.eu/competition/state_aid/overview/public_services_en.htmlhttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.188.01.0004.01.ENGhttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.188.01.0004.01.ENG


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and state aids

Disclaimer

The content of this document and any opinions expressed therein do not

necessarily represent the official position of the European Committee of the

Regions (CoR). It is addressed to the participants of the online course (MOOC)of the CoR on regions, EU institutions and policy-making. Reproduction and

translation for non-commercial purposes are authorised, provided the source is

acknowledged and the CoR is given prior notice and sent a copy.

Manuscript completed in October 2015

European Committee of the Regions |Directorate for CommunicationRue Belliard/Belliardstraat 99101 |1040 Bruxelles/Brussel |Belgium

www.cor.europa.eu

European Union, 2015

information from the notifying Member State.

Within two months, the Commission has to de-

cide whether the aid is compatible with EU rules

or whether an in-depth investigation is necessary.The related procedural regulation was revised in

2013, introducing the possibility to conduct state

aid inquiries.

Under the 2014-2020 regional aid guidelines, ap-

proximately 47.7% of the EU-28 population live

in assisted regions, 25.8% in a areas and 21.8% in

c areas. An important element in the new guide-

lines is the more restrictive approach towards aid

to large enterprises and/or large investment pro-

jects in the more developed assisted areas (i.e. inc areas). Controls and research had shed doubt on

the effectiveness of aid in these regions. Large en-

terprises in c regions are only granted aid for new

investments under certain conditions. This restric-

tion does not apply to aid for large companies in

a areas, where the balance between the contribu-

tion to development and the distortion of compe-

tition is more favourable.

As regards state aids, in recent years, the Com-

mission has dealt with about 600-700 state aidmeasures, including 250 to 350, which concerned

schemes and about 100 individual aids. Between

2007 and 2012, Member States spent some EUR 75

billion on state aid for regional development. This

represented 0.11% of EU GDP and 18.3% of total

non-crisis state aid. About 85% of regional aid was

spent in the less developed regions with a GDP

below 75% of the EU average. Around 40% of all

regional aid was spent under the GBER.

Documents

07 EU Competition Policy and State Aids