Opinion of the Committee of the Regions on:

- the 'Proposal for a Council Regulation (EC) laying down detailed rules for the application of Article 93 of the EC Treaty`, and - the 'Regional and local room for manoeuvre in economic policymaking and EU state aid control` (1999/C 93/10)

THE COMMITTEE OF THE REGIONS,

having regard to the Proposal for a Council Regulation (EC) laying down detailed rules for the application of Article 93 of the EC Treaty (COM(1998) 73 final - 98/0060 CNS) ();

having regard to the COR Bureau's decision of 13 May 1998, under the fourth paragraph of Article 198c of the Treaty establishing the European Community, to draw up an opinion on the subject and to instruct Commission 6 - Employment, Economic Policy, Single Market, Industry, SMEs, - to prepare the Committee's work on the subject;

having regard to the draft opinion (CdR 284/98 rev. 2) adopted by Commission 6 on 30 November 1998 (rapporteurs: Mr Stoiber and Mr Sanz Alonso);

whereas the Committee of the Regions has drawn attention to the conflict between regional and competition policy in its opinion on the 'Communication from the Commission to the Member States on the links between regional and competition policy: Reinforcing concentration and mutual consistency` (CdR 236/98 fin) ();

whereas regional economic policymaking is a core responsibility of the European Union's regions and local authorities;

whereas competition policy and fair competition offer a level playing field and better opportunities for all;

whereas at the same time, this by its very nature restricts the economic room for manoeuvre for national and devolved tiers of government,

adopted the following opinion at its 27th plenary session of 13 and 14 January 1999 (meeting of 14 January).

1. Introduction

1.1. Background

1.1.1. In 1996 the Commission launched an initiative designed to refocus state aids on the basis of Article 94 of the EC Treaty, which states that:

1.1.2. 'The Council, acting by a qualified majority on a proposal from the Commission and after consulting the European Parliament, may make any appropriate regulations for the application of Articles 92 and 93 and may in particular determine the conditions in which Article 93(3) shall apply and the categories of aid exempted from this procedure.`

1.1.3. The Council welcomed the initiative and urged the Commission to submit proposals designed to simplify control of state aids and make it more effective.

1.1.4. The regulation under examination seeks to enhance transparency and legal certainty, by consolidating and clarifying the procedural rules for state aids. Further, it should be remembered that the Commission's Communications on competition law and state aids, which do not have legal force, have not always helped to make European rules on this matter more intelligible to local players.

1.1.5. Initially the only statutory provisions on state aids were contained in Article 93. A set of rules has gradually developed, however, from working practices and Court of Justice case law, but these rules are fragmented and are not, therefore, sufficiently transparent.

1.1.6. In parallel, the Commission is advocating new rules for establishing categories of aid exempted from its control arrangements, which are fundamentally based on the requirement of prior notification and the standstill principle. The COR cannot therefore simply focus on procedural aspects, but must instead address the substantive issues directly affecting EU regions.

1.1.7. This renewed impetus requires special attention to be paid to directives on regional state aids. These directives will grant new exemptions from the control procedure to state aid earmarked for certain regions for the specific purposes of development.

1.1.8. Furthermore, Structural Fund areas in the new period covered by Agenda 2000, with an estimated population coverage of between 35 % and 40 %, should be consistent with the future regional state aid areas carved out under the new directives. Commissioner Van Miert is expected to approve a 42,7 % ceiling on population coverage. The calculation is based on October 1997 statistics and will be reviewed in 1999.

1.1.9. Reconciling regional policy and competition policy is one of the objectives to be pursued, and the regions need to be alert when they are establishing the rules which will determine the legal and economic framework for domestic action to underpin their own development and industrial fabric.

This is the background to the present opinion.

1.2. Aid control - essential for regions and local authorities

1.2.1. Given the precarious situation on the jobs front, the challenges posed to regional competitiveness by globalization and growing intra-European competition in Euroland, the regions of Europe are now under a greater obligation than ever before to improve their general economic situation. In so doing, their aim will be to create jobs, boost regional competitiveness and promote growth.

1.2.2. Economic policy makers at all levels - the EU, Member States, regions and local authorities - need to promote economic and social cohesion. In contrast to EU structural policy, which looks to secure cohesion at European level, national and regional economic policies seek to even out differences in development within their own territories. People living in disadvantaged areas rightly expect their regional and national governments to meet their responsibilities in terms of intra-national and intra-regional development.

1.2.3. The Committee of the Regions backs fair competition between regions and companies in the European single market. One essential element in achieving this is efficient control of state aids. Consequently there is a ban on state subsidies which threaten to distort competition or damage trade between the Member States. The European Commission does, however, have the right to permit exemptions in accordance with the control-of-state-aid provisions of the EC Treaty. Therefore, without appropriate authorization, regional and local authorities are basically unable to provide companies with any kind of aid from their budget resources. Regional and local authorities often lack information concerning the compatibility of financial aid with Community law. Adequate legal certainty is not always provided by the checks carried out by the national or regional authorities responsible for deciding whether or not aid is legal under EU rules for local and regional authorities.

1.2.4. Those who hold political responsibility in regions and municipalities often find themselves in a difficult position here. On the one hand, they are keen to exercise their responsibility to meet grassroots expectations and support economic development with public funds. On the other, they have to take into account EU legislation and the way it is implemented.

1.2.5. European Commission decisions on the legality of aid have far-reaching implications for the enterprises and their employees. Sometimes they even determine the economic well-being of entire regions, areas, cities and municipalities. It is therefore only natural that the Committee of the Regions, as a representative of local and regional authorities, should attach particular importance to aid policy.

1.2.6. The European Commission has put forward proposals to reform the legislation on aid in three areas:

- aid authorization procedure (Proposal for a Council Regulation (EC) laying down detailed rules for the application of Article 93 of the EC Treaty, 18 February 1998),

- new regional aid arrangements (Guidelines on national regional aid, 16 December 1997),

- congruence between EU areas and national areas eligible for support (Communication from the Commission to the Member States on the links between regional and competition policy, 16 December 1997).

This revamp restructures central elements of Community legislation governing regional economic policymaking. In particular, it tightens up procedural provisions, cuts back the range of regions eligible for aid and extends aid control to EU structural policy.

2. Substantial scope for regional and local economic policymaking necessary

2.1. The Committee of the Regions backs fair competition between regions and companies in the European single market. Efficient control of state aid is necessary in order to prevent jostling for subsidies within the European Union. But at the same time, the COR underlines that there must also be adequate scope for regional economic policymaking.

2.2. The globalization of markets, the continued advancement of the information society and the increasing speed of technological change represent a tremendous challenge for Europe. The European economic model must be able to hold its own in global competition. An essential element here is not only the social and ecological dimension, but also regionally balanced economic development. Ordinary EU citizens are demanding from political movers in their local areas, regions, Member States and the European Union an equal share in economic prosperity.

2.3. The European single market may be border-free, but it is not a uniform economic area. Differences in prosperity and employment are immense. In 1995, per capita gross domestic product (in purchasing power standards) in the five strongest regions lay at between 165 % and 190 % of the Community average, and at between 43 % and 50 % in the weakest regions. In 1995, the unemployment rate in the ten weakest regions was running at around 30 %, and at 4 % in the strongest regions. Even within Member States and within regions, the disparities were great. For example, in 1995, differences in regional per capita gross domestic product in the large Member States ran at 100 % in France, Italy and the United Kingdom, almost 75 % in Spain and, even as much as some 200 % in Germany.

2.4. One of the central tasks of the regions and Member States therefore remains that of channelling state resources into economic and social cohesion within the regions and Member States. To this end, adequate room for manoeuvre must be allowed under European aid control arrangements. The ultimate aim is, after all, to achieve a fair balance between competition and regional policies.

2.5. In order to boost the competitiveness of the European economy as a whole, we must improve the environment for economic success in all regions. It is necessary not only to give priority to strengthening the most disadvantaged regions, but also to strengthen all regions even if they are more highly developed than others. For this reason, an appropriate economic policy must be pursued at regional and local level which is tailored to development conditions in the eligible areas; such a policy must be in keeping with the desired objectives and at the same time take account of where the various parties are coming from. In the economically strong EU regions, regional and local policy must seek to preserve the conditions of competitiveness; in disadvantaged regions, on the other hand, the main aim is to eliminate infrastructure and structural obstacles to development; moreover, favourable conditions must be put in place for local companies in disadvantaged regions to enable them to overcome the generally poor economic environment.

2.6. European aid policy must not seek solely to bring economic levels closer to the Community average, but must strive to raise standards overall. Otherwise, competitiveness on global markets will drop.

2.7. At the same time - and not least in order to bolster Europe's global competitiveness on the world markets - European aid policy must seek to bring economic conditions in the most disadvantaged and peripheral regions closer to the Community average and to underpin the self-sustaining economic clout of the economically stronger regions. Europe's regions and local authorities - and with them the Committee of the Regions - are aware that effective competitiveness cannot be achieved on the world markets and that the Community institutions cannot secure a solid footing if the policies pursued by the EU, the Member States and the regions as part of Europe's economic and social dimension create an even wider gulf between developed and disadvantaged regions.

2.8. The Committee of the Regions feels that it is important to make the point that regional aid is not designed to subsidize ailing industries or to keep unprofitable firms going. Regional aid is designed to exploit the economic potential of the regions. It is geared to sectors of the future, promoting innovation, advancing structural change and boosting international competitiveness. Company-related aid is also all about investing in the future.

2.9. European structural policy naturally takes into account differences in development within the context of the European single market. National and regional support, on the other hand, is channelled towards offsetting inequalities of opportunities within Member States and regions. The Committee considers that the assisted areas should be redefined on the basis of regional inequalities within the European Union. The Commission should allow the Member States to select areas eligible for aid up to a prescribed ceiling within this reference framework. EU state aid control should recognize that national and regional aid is designed first and foremost to promote national and regional cohesion and not European cohesion, without, however, damaging European cohesion.

2.10. On-site political experience shows that people living in disadvantaged areas compare themselves in the first instance with other areas in their own region or country and not with other parts of Europe. As a political body representing regional and local responsibilities, the Committee of the Regions must take steps to ensure that the situations arising as a result of aid control can be clearly explained to companies and ordinary citizens. We should therefore not lose sight of this perspective when laying down criteria for assessing national and regional aid. Overall the establishment of the single market and fair competition have led to a general increase of prosperity in the European Union. The benefits are not always visible to the citizens, and not all citizens benefit equally from the opportunities the single market offers. However, when laying down criteria for assessing national and regional aid, the overall benefit of a policy must be taken into account.

2.11. Giving regions the chance to use their own funds to exploit development potential is not just an economic necessity. It is also essential for a region's own image of itself, for its sense of responsibility and - depending on national circumstances - for its autonomy.

2.12. The Committee of the Regions would stress the importance of aid authorization procedures for economic measures in the regions and local areas. The aid procedure must therefore be efficient, non-bureaucratic and structured in such a way that it can be completed in a very short time.

3. Regional and local authorities' room for manoeuvre restricted by reform proposals

3.1. The Committee of the Regions notes that the European Commission's reform proposals may shift the balance away from regional policy and towards competition. The Committee considers that these proposals should maintain an equal balance between regional policy and competition and, in relation to procedural arrangements, they should shorten aid decision deadlines where possible.

3.2. First of all, the Committee of the Regions welcomes the Commission's plans to bring greater transparency and legal certainty into the procedure for applying Article 93 of the EC Treaty by framing an EC regulation as a legal base. The procedural regulation means greater clarity for all those involved in the aid process.

3.3. However, in the interests both of curbing excessive standardization and of securing deregulation, the regulation should be restricted to the key issues involved. The Committee of the Regions feels that the regulation goes too far in terms of scope and detail. Enforcement should continue to come under Member States' national law; Member States do not need EU legislation to handle administrative procedures and administrative procedural law.

3.4. The two-month deadline proposed by the Commission for aid authorization decisions may lead to unjustifiable delay in certain cases where a shorter time frame has applied hitherto. The 'tacit approval` procedure previously in place has also been made more cumbersome. For a Commission decision based on preliminary investigations, the deadline of twenty working days used for the accelerated procedure should continue to apply, instead of the two-month deadline proposed by the Commission. In order to guarantee that regional economic structures are maintained through public funding in specific circumstances, and especially individual aid measures to be notified on a case by case basis, the decision must be taken and implemented speedily. If not, there is a risk of damaging the local economy or leaving investment or innovation schemes in a state of uncertainty.

3.5. The COR deems inappropriate the plan to give the Commission powers to demand the provisional recovery of aid granted without formal authorization until its legality is conclusively clarified. The recipient can only be forced to repay the aid in cases where this aid is in fact illegal but not on the grounds of procedural irregularities.

3.6. The Committee of the Regions opposes the proposal whereby appeals against the withdrawal of aid lodged under national law no longer have a suspensive effect. This is an area covered by national administrative procedures which should not be harmonized at European level. Removing the suspensive effect of national appeals is an intrusion into traditional Member States' systems of legal protection and, in some Member States, is incompatible with the machinery of law. Such an arrangement is also inherently unnecessary since the mandatory interest charged on sums recovered removes any financial advantage.

3.7. In the proposal, the Commission claims the right to enter company land and buildings to ask for on-the-spot statements and to examine business records in order to check the enforcement of aid decisions on site. National authorities may only be present at the Commission's investigation on application but must, however, provide administrative assistance.

3.8. The Committee of the Regions believes that it is necessary to maintain a clear distinction between the powers of the Commission, the Member State in question and the regions in respect of the European Commission's aid control activities, and considers that the principle of subsidiarity should be upheld.

3.9. The powers sought by the Commission might well be in contravention of sensitive basic rights protected under national constitutions. It would not be acceptable, for example, for the Commission to have an independent right of visit and search when this was permitted to national authorities only on the ruling of a judge. This would be wholly incomprehensible to the ordinary individual involved.

3.10. In this respect, the Commission proposal contains implicit powers for the Commission, when it could equally well rest upon the hallowed principle of cooperation with Member States. There is a need to comply with national legislation and procedures established in each Member State in relation to the inviolability of the home, a right enjoyed by legal persons.

3.11. The COR considers unacceptable the requirement that reports must also be drawn up on aid which does not have to be approved and calls for greater room for manoeuvre with regard both to (a) aid which, under the 'de minimis` rule does not require notification, and (b) to restructuring aid for companies.

3.12. The Committee welcomes the Commission's plan in its guidelines for regional aid to in future allow Member States to select eligible aid areas in accordance with a prescribed ceiling. This is in line with the subsidiarity principle. The Member States and the regions and local authorities themselves are best placed to judge which areas of a Member State should be granted national funds. Hence local and regional authorities granting permissible financial aid must be closely involved in the compilation of the regional aid map.

3.13. On the other hand, the Committee of the Regions feels that it is inappropriate to reduce the geographical coverage still further. The 'adjustment steps` applied by the European Commission for determining regional assistance areas are not transparent and in individual cases yield results which contradict the objective data. Moreover, the Committee sees no compelling reason for a further curb on regional aid. On the contrary, the EU's high levels of unemployment and the flagging competitiveness of the European economy continue to demand a strong commitment from the Member States and regions to remedy structural deficiencies. Lastly, a cutback in regional aid conflicts with the Europe-wide objective of combating unemployment.

3.14. Particularly as the situation stands at present, a further restriction on regional room for economic manoeuvre would send out the wrong signal to the disadvantaged regions and local authorities which are sparing no effort to develop the regions' economic potential. The Committee of the Regions considers that in future the regions must continue to be able to determine key economic priorities.

3.15. Successive aid reductions by the European Commission do not take into account developments which will have a decisive effect on regional aid:

- Cutting the geographical scope of EU support substantially diminishes support possibilities. The effort to achieve as much consistency as possible between competition policy and structural policy is welcomed. However, given the different objectives, the desired consistency may not - and cannot - be absolute. The existing differences within the EU and within the Member States require the necessary degree of flexibility.

- Structural changes within the European Union have, moreover, generated new challenges for certain regions. Regions bordering future EU Member States in central and eastern Europe, for example, face tremendous challenges. On these countries' accession, the regions concerned might be in locational competition with areas whose wage levels are just a fraction of the European Union average, and whose environmental and social standards also lag behind those of the EU. Per capita gross domestic product in the candidate countries is only around one third of the Community average. Support differentials are an additional problem since the acceding regions will without exception be Objective 1 areas. Here, but also in many other regions of the EU, there is a need for structural change supported by national and regional aid.

- This also applies to national and regional aid for specific areas highly influenced by their geographical features (orography, isolation, and demographic features), such as mountainous regions, island regions, border regions or sparsely populated regions. Such areas require particular attention which can be provided most effectively first and foremost by the authorities directly responsible, and only to a lesser degree by harmonized systems.

- Finally, the increase in eligible regions following the accession of the countries of central and eastern Europe will not require a cut in the number of areas receiving national aid. Improving national and regional economic and social cohesion is unconnected with the need to promote such cohesion in the candidate countries also.

3.16. For these reasons, the Committee of the Regions is opposed to reducing the geographical coverage of national aids and underlines that recent developments also indicate increasing disparities between the regions. At the same time, the Committee recognises the need for limits on national aid agreed at Community level and supports a balanced EU-level approach to the matter.

3.17. In the opinion on the 'Communication from the Commission to the Member States on the links between regional and competition policy: Reinforcing concentration and mutual consistency`, the Committee of the Regions points out that EU support instruments sometimes have different objectives from activities pursued at national and regional level. It is therefore appropriate in some cases to put different instruments to use in different areas.

3.18. The consistency requirement also indirectly means that national support must go to those areas which meet EU support criteria. If a Member State does not wish to forego EU funding, it is obliged to locate its national eligible areas in regions which also meet EU criteria, since the EU only provides support in areas where national aid is also granted. Thus, the EU support criteria also determine how national eligible areas are established. This is in blatant conflict with the principle of subsidiarity and the new guidelines' commendable objective of letting Member States themselves select the eligible areas.

3.19. At first glance, if only the figures for the EU as a whole are compared, the consistency requirement may look easy enough to meet. National aid is to be authorized in 46,7 % of areas, with Structural Fund investments in 35-40 %. From a regional perspective, however, the differences are considerable. Thus, in a whole range of regions, particularly those with large rural components, EU eligible areas are more than twice those of national eligible areas. As a result of the consistency requirement, these areas would have to be completely eliminated from EU support without a single eligibility criterion being examined.

3.20. The Committee of the Regions therefore takes the view that a sufficiently large national eligible area is essential to achieving the consistency desired by the Commission. The 2 % margin for areas which do not meet the consistency precept must also be considerably raised.

4. Conclusions

The Committee of the Regions underlines the need for an efficient state aid control regime in the single market and welcomes the Commission's plans to bring greater transparency and legal certainty to the procedure for applying Article 93 of the EC Treaty by framing an EC regulation as a legal base. However, the Committee:

1) feels that the reform proposals for aid control may endanger the balance between regional policy and competition; the Committee believes such a balance is necessary in order to increase levels of employment and boost competitiveness; procedural arrangements need to be delivered in a straightforward, transparent and efficient manner if these goals are to be achieved.

2) feels that the proposed regulation goes too far in terms of scope and detail. In the interests of greater legal certainty, the Commission can go no further than the powers expressly conferred;

3) since sensitive basic rights are involved, opposes the Commission having a right of inspection and search which goes beyond national authorities' powers in this regard;

4) considers, that the two-month deadline proposed by the Commission for aid authorization decisions may lead to unjustifiable delay in certain cases where a shorter time frame has applied hitherto;

5) deems inappropriate the plan to give the Commission powers to demand the provisional recovery of aid granted without formal authorization until its legality is conclusively clarified;

6) opposes the proposal whereby appeals against the withdrawal of aid lodged under national law no longer have a suspensive effect. This is an area covered by national administrative procedures which should not be harmonized at European level;

7) feels it is necessary:

- to abolish the obligation to take into consideration de minimus aid granted hitherto within the three-year period and raise support rates not requiring notification in line with the de minimis rule, and

- to open up greater scope for securities, and rescue and restructuring aid;

8) welcomes the Commission's intention, in its guidelines for regional aid to allow Member States themselves in future to select eligible aid areas up to a prescribed ceiling, but questions the need for a further cut in geographical coverage, given that, over the past few years, economic disparities in the Member States and regions have got worse rather than better; the Committee backs the possibility of using national or regional resources to support the statistically weaker 50 % of EU regions;

9) reaffirms the need for continued scope for EU support in regions not covered by individual countries' national aid schemes, and repeats its support for the proposal that areas currently covered by Articles 92(3)(a) and 92(3)(c) which lose their status for National Aid coverage, will be able to access 'transitional` State Aid support; in accordance with the European Commission's desire for cohesion, the transitional arrangements relating to the Structural Funds should match those applicable to aid. Regions which lose their status for National Aid coverage under Article 92IIIa should be added to the national population ceiling. They must under no circumstances constitute a further burden on the ceiling for the respective Member State, which - under the European Commission's proposals - is already to be reduced.

10) supports the Commission proposal, in keeping with subsidiarity, to avoid the contradiction whereby areas which fulfil the Structural Funds eligibility criteria are automatically excluded from national regional aid schemes;

11) stresses that, in terms of population ceiling, the 2 % margin put forward by the Commission for overlaps between EU and national eligible areas must be raised considerably.

Brussels, 14 January 1999.

The President of the Committee of the Regions

Manfred DAMMEYER

() OJ C 116, 16.4.1998, p. 13.

() OJ C 51, 22.2.1999, p. 16.