# EUR-Lex - 52012DC0209 - EN

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# 52012DC0209

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS EU State Aid Modernisation (SAM) /* COM/2012/0209 final */**

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COMMUNICATION FROM THE COMMISSION TO
THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL
COMMITTEE AND THE COMMITTEE OF THE REGIONS

EU State Aid Modernisation (SAM)

(Text with EEA relevance)

1.           Introduction: State aid
control in the present environment

1.           Europe 2020 is Europe's
growth strategy for this decade. In a changing world, the European Commission
is targeting its policies at making Europe a smart, sustainable and inclusive
economy. Those three mutually reinforcing objectives should help the EU and the
Member States deliver high levels of employment, productivity and social
cohesion.

2.           In that light, the single
market is Europe's best asset for generating sustainable growth. An effective internal
market requires the deployment of two instruments: first, regulation to create
one integrated market without national borders and, second, competition policy
including State aid control to ensure that the functioning of that internal
market is not distorted by anticompetitive behaviour of companies or by Member States
favouring some actors to the detriment of others. Competition is a major driver
of growth; it incentivises enterprises, including new ones, to enter markets
and innovate, improving productivity and competitiveness in a global context.
Competition is also a cost-effective policy as it can be deployed without any
public or private spending. Thus, as one of the instruments of competition
policy, State aid control plays a fundamental role in defending and
strengthening the single market.

3.           The economic and financial
crisis has threatened the integrity of the single market and increased the
potential for anticompetitive reactions. At the same time, the crisis has increased
the demand for a greater role of the State to protect the most vulnerable members
of society and promote economic recovery. But it has also put strains on Member
States' budgets, requiring fiscal consolidation and better use of scarce
resources. Last but not least, it has increased the disparity in Member States’
leeway to finance their policies.

4.           Europe's growth potential can
be increased by better focussing public expenditure and by creating appropriate
conditions for recovery to take off and last. In particular, public spending
should become more efficient[1],
effective and targeted at growth-promoting policies that fulfil common European
objectives.

5.           Some of that public
spending will take the form of State aid[2],
be it in the form of direct expenditure, tax incentives, State guarantees or
other. Stronger and better targeted State aid control can
encourage the design of more effective growth-enhancing policies and it can
ensure that competition distortions remain limited so that the internal market
remains open and contestable. It can also contribute to improving the quality
of public finances. A more focused framework will allow Member States to
better contribute both to the implementation of the Europe 2020 strategy for sustainable
growth as well as to budgetary consolidation.

6.           The modernisation of State
aid control is needed to strengthen the quality of the Commission’s scrutiny
and to shape that instrument into a tool promoting a sound use of public
resources for growth-oriented policies and limiting competition distortions that
would undermine a level playing field in the internal market. The current
complexity of the substantive rules as well as of the procedural framework,
applying equally to smaller and bigger cases, are challenges to State aid
control.

7.           Other elements also buttress
the need for a broad modernisation package for EU State aid policy as a whole:
the expiry of a number of key State aid instruments before the end of 2013; the
preparation of the EU Multiannual Financial Framework and of the EU Structural
Funds rules for 2014-2020; and, last but not least, the strengthening of the
economic and budgetary surveillance system under the EU semester.

8.           The objectives of
modernisation of State aid control are therefore threefold: (i) to foster sustainable,
smart and inclusive growth in a competitive internal market; (ii) to focus
Commission ex ante scrutiny on cases with the biggest impact on internal
market whilst strengthening the Member States cooperation in State aid
enforcement; (iii) to streamline the rules and provide for faster decisions.

9.           This Communication
outlines an integrated strategy for reform to achieve those objectives, which
are closely interlinked and which should be seen as integrated building blocks
of a single reform package.

2.           Objectives of State aid
modernisation and the instruments to achieve them

2.1.        Foster growth in a
strengthened, dynamic and competitive internal market

10.         The Europe 2020 growth
Strategy recognises the role of State aid for growth and its capacity "to actively
and positively contribute to the Europe 2020 objectives by prompting and
supporting initiatives for more innovative, efficient and greener technologies,
while facilitating access to public support for investment, risk capital and
funding for research and development"[3].

11.         Policies to achieve the
Europe 2020 objectives can make an important contribution to ending the crisis
and re-igniting sustainable growth. Member States and the Union will prioritise
budgetary outlays to that effect, some of which will contain State aid.

12.         Modernised State aid
control should facilitate the treatment of aid which is well-designed, targeted
at identified market failures and objectives of common interest, and least distortive
("good aid"). This shall ensure that public support stimulates
innovation, green technologies, human capital development, avoids environmental
harm and ultimately promotes growth, employment and EU competitiveness. Such
aid will best contribute to growth when it targets a market failure and thereby
complements, not replaces, private spending. State aid will be effective in
achieving the desired public policy objective only when it has an incentive
effect, i.e. it induces the aid beneficiary to undertake activities it would
not have done without the aid. And State aid will have the greatest impact on
growth only when it is designed in a way which limits competition distortions
and keeps the internal market competitive and open. Therefore State aid control
is crucial in order to improve the efficiency and effectiveness of public
spending taking the form of State aid, with the overarching objective of
spurring more growth in internal market, for which a necessary condition is
developing competition. State aid which does not target market failures and has
no incentive effect is not only a waste of public resources but it acts as a
brake to growth by worsening competitive conditions in the internal market.

13.         State aid control already
underpins the Europe 2020 flagships. For example, the broadband guidelines
provide conditions for efficient State support to broadband rollout, supporting
the achievement of the objectives of "Digital agenda for Europe". Public
support to develop infrastructure is also instrumental to the achievement of
smart, upgraded and fully interconnected transport and energy networks as
foreseen by "Resource efficient Europe". The framework for State aid to research, development and innovation facilitates
the achievement of "Innovation Union" as well as "An industrial
policy for the globalisation era" objectives. The enforcement of
"polluter pays" principle as well as a possibility to provide aid in
order to encourage companies to go beyond mandatory EU environmental standards or
to promote energy efficiency provided for in the Environmental
aid guidelines are one of the tools to implement "Resource efficient
Europe" flagship. The possibility to support training with State funds
contributes to the goals of "An agenda for new skills and jobs". Rescue
and restructuring aid guidelines allow State aid to ailing companies only under
strict conditions and if it results in their return to long-term viability,
encouraging thereby exit of inefficient firms and bracing the companies for
global competition, contributing to "An industrial policy for a globalised
era". The link between the Europe 2020 objectives and flagship initiatives
on the one hand, and State aid rules on the other, should be further developed
to streamline the Commission’s instruments and to encourage Member States to
direct scarce public resources to common priorities.

14.         By putting an emphasis on
the quality and the efficiency of public support, State aid control can also
help Member States to strengthen budgetary discipline and improve the quality
of public finances – resulting in a better use of taxpayers' money. It is
particularly important in order to achieve smart fiscal consolidation,
reconciling the role of targeted public spending in generating growth with the
need to bring budgets under control. There is therefore also a need to embed
State aid control and more general competition concerns in the EU Semester
procedure.

15.         Robust State aid control
is also essential to ensure a well functioning single market. Such robust
control goes hand in hand with the effective implementation of EU internal
market rules and is of particular relevance in markets that have only recently
been opened and where large incumbents aided by the State still play a major
role, such as transport, postal services or, in more limited cases, energy.
State aid modernisation can improve the functioning of the internal market
through a more effective policy aimed at limiting distortions of competition,
preserving a level playing field and combating protectionism. This role of
State aid becomes more important now as we need to mobilise the full potential
of the internal market for growth.

16.         The global environment
creates challenges and opportunities for European companies. Different systems
of competition rules exist worldwide. By comparison, EU State aid rules offer a
more transparent, coherent and growth-oriented framework, while allowing comparable
levels of aid[4].
The increasing focus of the modernised EU State aid framework on
growth-enhancing goals, while ensuring a proper functioning of the internal
market should improve the competitiveness of EU companies, including outside
the EU.

17.         In the specific
circumstances when subsidies granted by a third country would lead to a
distortion of competition, WTO rules provide a basic framework to remedy specific
consequences of unlawful foreign subsidies for EU operators. In addition,
bilateral Free Trade Agreements concluded by the EU with third countries may
include also rules on subsidies to deal with specific issues not covered by the
WTO framework (e.g. Free Trade Agreement with Korea). Trade policy instruments
can be used to implement those disciplines.

18.         The proposals of the State
aid modernisations contributing to the growth objective are:

(a)
Identification and definition of common
principles applicable to the assessment of compatibility of all the aid
measures carried out by the Commission; such horizontal principles would
clarify how the Commission would assess common features that are presently not
treated in the same manner across the different guidelines and frameworks; those
principles would have to be as operational as possible and could deal with the
definition and assessment of genuine market failures, the incentive effect and
the negative effects of public interventions, including, potentially,
considerations on the overall impact of the aid.

(b)
Revision and streamlining of State aid
guidelines, to make them consistent with those
common principles. The revision will follow a general approach based on
strengthening the internal market, promoting more effectiveness in public
spending (use of State aid only where it represents a real added–value); a
clearer definition of the market failures that need to be addressed and greater
scrutiny of the incentive effect will play an important role in that context to
ensure value for money and avoid distortions. A more systematic assessment of
the potential negative effects of State aid - notably in terms of distortions
of allocative and dynamic efficiency, subsidy races and market power - will
also need to be pursued. Thus, for example, revised Rescue and Restructuring
Guidelines for non-financial firms will become a very important instrument for
controlling that very distortive type of aid in order to ensure that the market
process of exit is interrupted by State intervention only when truly justified.
Similarly, when market conditions permit, a new set of rules for rescuing and
restructuring financial institutions will be put in place for the post-crisis
environment, consistent with the future proposals for EU crisis management and
resolution. Finally, the identification of best practices with regard to Europe
2020 spending priorities should allow for rapid clearance of cost-effective and
growth enhancing aid. As for the streamlining, in a first stage, several guidelines,
including guidelines for Regional Aid, Research & Development &
Innovation, Environmental aid, Risk Capital and Broadband (types of aid which
account for more than two-thirds of aid granted in the EU), could be aligned
and possibly consolidated with the common principles by the end of 2013. This
could also allow seeking synergies between different aid regimes and satisfying
multiple objectives. The individual adoption of each of the
guidelines will take place progressively and without delay during this period.
Other guidelines will then be progressively aligned and consolidated.

2.2.        Focusing enforcement on
cases with the biggest impact on internal market

19.         The drive towards more
efficient spending should not translate into micro control of all public
expenditure but rather into prioritisation and stronger scrutiny of the aid
with a significant impact on the single market, such as those measures covering
large and potentially distortive aid, including fiscal aid. In parallel, the
analysis of cases of a more local nature and with little effect on trade should
be simplified. That outcome could be achieved by defining more proportionate
and differentiated rules and by modernising State aid control procedures, with
increased responsibility of Member States in designing and implementing support
measures. It will require a clearer definition of the rules and an enhanced ex
post monitoring by the Commission to ensure adequate compliance. It will
also lower administrative burden for public authorities and for beneficiaries
when smaller amounts of aid are involved.

20.         The proposals of the State
aid modernisation contributing to the prioritisation objective are:

(a)
a possible review of the de minimis
Regulation, on the basis of a detailed impact assessment, taking
into account the situation in all Member States and in the internal market
taken as a whole, as well as the budgetary implications of such a review, in order to examine whether the current threshold still corresponds
to market conditions;

(b)
possible changes to the Council Enabling
Regulation to allow the Commission to declare that
certain categories of aid are compatible with the internal market and are therefore
exempted from ex ante notification. It would in turn permit an increase of
types of aid that, based on Commission's experience, could benefit from such
simplified control, without weakening efficient supervision by the Commission and
ex post monitoring. Those new types of aid which could be covered by the
Enabling Regulation could include for instance: aid granted to culture; aid to
make good the damage caused by natural disasters: aid to (partly) EU-funded
projects such as JESSICA; and others.

(c)
a revision and possible extension of the General
Block Exemption Regulation, for the categories of aid covered by the
revised Enabling Regulation, in order to contribute to better channel public
resources towards certain well-established objectives while simplifying the
administrative treatment of well designed measures with relatively low amounts
of aid.

21.         Should the Commission
decide to increase the size and scope of aid measures exempt from notification
obligation, responsibilities of Member States for ensuring the correct enforcement
of State aid rules would increase. With more measures exempt from the
notification requirement, Member States will have to ensure the ex ante compliance
with State aid rules of de minimis measures and block-exempted schemes
and cases, in strict coordination with the Commission which will continue to
exercise ex post control of such measures. The Commission will expect
better cooperation from Member States in terms of quality and timeliness of
submission of information and notifications' preparation, as well as effective
national systems (including private enforcement) to
ensure that State aid measures exempt from ex ante notification
obligation comply with Union law. A lower administrative burden through less
notification obligations can only be envisaged if it is accompanied by
increased commitment and delivery on the part of the national authorities in
terms of compliance. Consequently, ex post control by the Commission
will have to be increased, also because the current results of the monitoring
of the implementation of block exempted measures by Member States reveal
frequent lack of compliance with State aid rules. In such a way, effectiveness
of enforcement can be ensured.

2.3.        Streamlined rules and
faster decisions

22.         Over time, State aid rules
have developed into a complex legal framework. There is scope to clarify and
simplify the rules, enhance consistency and streamline the assessment process.
There is a need to better explain State aid concepts and to consolidate our
horizontal and substantive rules.

23.         The Commission is obliged
to examine all allegations concerning potential aid without in practice being
able to set priorities for complains handling. In addition the Commission is
not always in a position to obtain complete and correct information from
parties, which may prolong procedures. There is a need to streamline and reform
procedures in order to deliver decisions within business-relevant timelines, in
close cooperation with Member States. Elements of the package contributing to
that objective are:

(a)
clarification and better explanation of the notion
of State aid: the notion of aid is an objective concept defined directly by
the Treaty in Article 107 as any measure that results from an intervention by
the State or through State resources, that is liable to affect trade between
Member States, that confers an advantage on the recipient and distorts or threatens
to distort competition. The Commission's role in that respect is limited to
providing clarification as to how it understands and applies the provisions of
the Treaty, as interpreted by the Court of Justice. Within those limits, the
Commission will provide further clarification on the key concepts relating to the
notion of aid with a view to contributing to an easier implementation;

(b)
A modernisation of the State aid Procedural
Regulation with regards to complaint-handling and market information tools,
in order to enable the Commission to better focus its action on cases which are
most relevant for internal market. It requires enabling the Commission to set
priorities for complaints handling, in order to
prioritise allegations of potential aid with a large impact on competition and
trade in internal market. In parallel, in order for the Commission to be able
to effectively investigate cases of aid with significant impact, it should be
endowed with more efficient tools to obtain all the necessary information from
market participants and in good time so as to deliver decisions within
business-relevant timelines. Such modernisation of procedures would also allow
the Commission to undertake more ex officio investigations into significant
distortions of competition hampering internal market. It should also permit a
quick verification of market effects of aid measures which would enable quicker
decision-taking.

3.           the way forward

24.         State aid modernisation as
outlined above should result in a clearer and more coherent architecture of
State aid control. The various potential measures outlined above constitute
integrated building blocks of a single reform package.

25.         The potential measures
outlined above, therefore, work together to achieve the high level objectives –
they are mutually supportive and interdependent. For instance, the possible
procedural measures suggested above would allow faster decision-making and
would allow the Commission to focus its enforcement on what matters most at the
EU level. A similar logic applies to the extension of the scope of the General
Block Exemption Regulation through a modification of the Enabling Regulation.

26.         In view of that interdependence
between objectives and elements of the package, and in order to maximise the results
of the State aid modernisation, it is also desirable that the main elements of
the reform enter into force at the same time. The different processes will
therefore start as from the adoption of the present Communication, and the main
instruments of the package, including the Council acts, should be adopted by the
end of 2013.

27.         To meet this target, Commission
proposals for the Procedural and Enabling Regulations should be adopted in autumn
2012. The Commission will aim at developing the rest of the package over the
next months with a view to progressively achieving the revision
and streamlining of the main Commission acts and guidelines by the end of 2013.
The Commission intends to consult Member States and engage in an open dialogue
with the European Parliament and other stakeholders, with a view to gathering
input for a debate on the State aid modernisation proposals.

[1]               This would also imply the phasing out of subsidies
leading to inefficient use of resources or environmental damage, in line with
the Commission Communication "Roadmap to a Resource Efficient
Europe", COM(2011)571 final, p. 10.

[2]               An overview of the public expenditure from State aid can
be found in the “State Aid Scoreboard - Report on state aid granted by the EU
Member States”, COM(2011) 848 final.

[3]               Commission Communication "Europe 2020 – a
strategy for smart, sustainable and inclusive growth", COM (2010) 2020
final, 3.3.2010, p 20.

[4]               A comparative study carried out by WTO in 2006 suggests
that the level of aid granted by EU Member States is comparable to the levels
granted by the EU's main trading partners (subsidies as a percentage of GDP). See
World Trade Organization Report 2006 "Exploring the links between
subsidies, trade and the WTO." http://www.wto.org/english/res_e/booksp_e/anrep_e/world_trade_report06_e.pdf.
See Section II "Subsidies, Trade and the WTO",
Chapter E "The incidence of Subsidies".