Opinion of the Committee of the Regions on the 'Communication from the Commission to the Member States on the links between regional and competition policy: Reinforcing concentration and mutual consistency'
Date: 1998-11-19
Institutions: European Committee of the Regions
Subjects: Cohesion Fund, State aid, competition policy, regional development, regional policy

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Regulation, the Committee of the Regions would wel-
come the ability to include such assessment, monitoring
and evaluation as eligible expenditure for co-financing
by the Cohesion Fund.

4.11.
The Committee of the Regions would urge the
Commission to ensure that local and regional authorities
are engaged at all phases of the Fund from priority
setting to monitoring and evaluation.

4.12.
Finally, given the procedures outlined in the
regulation for amending both the Regulation and its

Annexes, the COR would like an assurance that amend-
ments to the Annexes would not undermine the philos-
ophy of the Cohesion Fund by introducing changes
which will not be subject to a unanimous vote in the
Council.

4.13.
The Committee of the Regions calls on the
Commission to revise the proposal for Council Regu-
lation amending the Regulation establishing a Cohesion
Fund together with the proposal for a Council Regulation
to amend Annex II to this Regulation and, in so doing,
to take account of the Committee of the Region’s
suggestions.

Brussels, 19 November 1998.

The President

of the Committee of the Regions

Manfred DAMMEYER

Opinion of the Committee of the Regions on the ‘Communication from the Commission to
the Member States on the links between regional and competition policy: Reinforcing
concentration and mutual consistency’

(1999/C 51/04)

THE COMMITTEE OF THE REGIONS,

having regard to the Communication from the Commission to the Member States on the links
between regional and competition policy: Reinforcing concentration and mutual consistency (1);

having regard to the decision of the Bureau of 15 July 1998 to draw up, in accordance with
the fourth paragraph of Article 198c of the Treaty establishing the European Community, an
opinion on the subject, and to instruct Commission 1 for Regional Policy, Structural Funds,
Economic and Social Cohesion, Cross-Border and Inter-Regional Cooperation to prepare the
Committee’s work on the subject;

having regard to the draft opinion (CdR 236/98 rev.) adopted by Commission 1 on 30 September
1998 (rapporteurs: Mr Henry and Mr Mun˜oa),

at its 26th plenary session of 18 and 19 November 1998 (meeting of 19 November) adopted
the following opinion.

PART A: GENERAL FRAMEWORK OF THE COM-
MUNICATION

1. Problem and possible solutions

1.1. Current situation
1.1.1.
According to the Commission data, in 1994 to
1999 a total of 50,6 % of the population of the Union

(1) OJ C 90, 26.3.1998.

lived in regions eligible for Community structural aid,
while 46,7 % lived in areas covered by regional incentives
under Article 92(3)(a) and (c). It also appears from
the Commission’s regional data that 6,6 % of the
Community population lived in regions eligible under
the Structural Funds where competition policy precluded
the granting of regional aid, whilst 2,7 % of
the
Community population lived in regions which were
covered by a national regional-aid scheme but were not
eligible under the Structural Funds.

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The aim of the Commission proposal is to grant EU aid
only where national aid is also granted. That 6,6 % of
the population which currently lives in regions which
are eligible for Structural Fund aid but not for national
aid would no longer be assisted. The Commission wants
to allow a margin of only 2 % of the population. The
extent to which regions overlap varies considerably
between Member States and regions (e.g. Finland 12,6 %,
Netherlands 10,4 %, France 9,6 %, United Kingdom
9 %, Spain 8,9 %, Sweden 8,7 %, Italy 7,5 %).

The COR recognizes the need for a detailed
1.1.2.
analysis of the situation, with a view to achieving
the objectives of regional and competition policy as
efficiently as possible in the coming period.

1.2. Objectives of the Commission proposal: concen-

tration and consistency

1.2.1. With regard to concentration, the COR agrees
with the Commission that despite progress since the
Community started to operate a regional policy, there
are still
important structural disparities within the
Union. The COR therefore also agrees that, in line with
the requirement of Article 130a of the EC Treaty for the
strengthening of economic and social cohesion in the
EU, we need to increase the concentration of Community
part-financing if we are to reach critical mass and have
a significant impact, and that among other things this
involves identifying the regions in the Union which are
most affected.

schemes to assist small businesses and schemes dealing
with the environment or research, at lower rates than
allowed in areas eligible under Article 92(3)(a) and (c).

1.2.6.
In such areas, the Structural Funds are not able
to attract investment by major companies, even though
this would be highly desirable in regional development
terms because of the knock-on effects and access to
world markets it would bring.

1.2.7.
The Committee of the Regions considers that
the reasons for seeking consistency are to be found in
problems arising from the relocation of businesses and
the distortions of competition which can be caused in
certain circumstances by the granting of environmental
or research aid.

1.2.8.
The Committee considers that serious dysfunc-
tions arise when sectors suffering from the same prob-
lems within a Member State, as in the case of the
fisheries sector, receive discriminatory treatment with
regard to state aid, in turn causing businesses to migrate
to areas where a higher level of assistance is available.

PART B: DISCUSSION OF THE TWO POLICIES

2. Competition policy: state aid

2.1.
The Committee of the Regions considers that
maintaining competitive markets in Europe, apart from
being an important objective, is also consistent with
the predominant economic ideology, with the internal
market programme, now complete, and with the single
currency.

1.2.2. With regard to competition, concentration
would help to limit the distortions brought about by
national regional-aid schemes, in terms of the extent of
the geographical area involved.

At the same time, the Committee of the Regions
2.2.
believes that competition policy is one of the very
cornerstones of European industrial policy.

1.2.3. With regard to consistency, the regional and
local authorities are aware that the current decision-
making system is unsuitable. Various actors are involved
in regional policy, sharing the various institutional
responsibilities, with differing objectives and timetables,
making it difficult to coordinate these two policies.

1.2.4. Moreover, bearing in mind that Structural
Fund co-financing backs up the funds used by the
Member States and the regional and local authorities
for their own development policies, it would seem logical
that the Structural Funds, particularly the ERDF should
be able to intervene in all areas to which aid is granted
by the Member States and regional and local authorities.

1.2.5.
The problem arises in areas which benefit from
Structural Fund assistance but not from state regional
funding. In these areas it is possible to part-finance

Thus the Committee of the Regions accepts the
2.3.
dual purpose of competition policy: to maintain rules
consistent with the economic system chosen by the EU
and to make minimum provision for intervention where
essential, particularly when the Community economy is
in recession.

2.4.
Apart from maintaining these rules, the Com-
mittee of the Regions believes that another function of
competition policy is to lay down a framework for
the activities of economic operators and to provide
incentives to those taking decisions on investment and
strategy, in other words that it should be concerned
more with ‘allocation’ than with ‘distribution’.

2.5.
State aid is justified by its contribution to the
achievement of balanced and sustainable development,
and to the strengthening of the Community’s economic
and social cohesion, either because these objectives
cannot be achieved through the free play of the market,

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because the cost would otherwise be intolerable, or
because competition would otherwise intensify to a
point where it would threaten to become self-destructive.

2.6.
Article 92 of the Treaty allows state aid when
aimed at serious regional imbalances, facilitating or
accelerating necessary sectoral adjustment or to cushion
the withdrawal from certain activities to neutralize, at
least temporarily, certain distortions of competition
caused by external action.

2.7.
The Committee considers that state aid permits
the equality of opportunity needed if the single market
is to perform its resource allocation function. Once
equality of opportunity is assured, market forces will
come into play and only then can a judgement be made
on the basis of results. It is in this field of judgement
and analysis that structural policy operates.

3. Regional policy

3.1.
The aim of regional policy is to help remove
disparities between incomes which diverge from the
Community average. Regional problems imply the
existence of persistent, large-scale disparities between
regions sharing the same economic system, in terms of
variables such as per capita income, level of employment
and productivity.

3.2.
The Committee of the Regions is aware that
Europe has a centre and a periphery, a combination
of political decentralization and great diversity and
considerable disparities between Member States and
regions. This implies that private-sector economic oper-
ators enter into intra-European competition with very
different handicaps.

3.3.
The Committee of the Regions recognizes that
the European system which is emerging, particularly
with the single currency, will be characterized by great
mobility of goods, services and certain factors of
production mainly financial capital and a high degree
of decentralization of political power; this will not
however prevent the large-scale transfer of economic
power from state to transnational level, which has been
reinforced by the adoption of common rules for action.
It appears however that the mobility of labour will not
be complete.

3.4. On the other hand, it is undeniable that economic
integration has had a considerable influence on the
state-market interaction, with a major shift towards the
latter as the mechanism for allocation. There is, the
Committee feels, therefore a danger of the European
model becoming more dynamic but more unequal.

3.5.
The Committee feels that the basic aim of EU
structural measures should be to guarantee long-term
support to the regions with the greatest structural
difficulties. For the least favoured regions, either in
terms of GDP or unemployment, catching up is often a
slow process requiring commitments over a long period.

3.6.
The Committee of the Regions considers it
necessary for the Member States, the Union and public
entities at sub-national level to work together to combat
inequality in accordance with the principle of partner-
ship. Only in this way will it be possible to facilitate
adaptation to new circumstances, including the single
currency, and to exploit new opportunities to the benefit
of all regions and citizens.

4. Final observations of the comparative analysis

4.1.
The Committee of the Regions notes that neither
the philosophy nor the principles of competition policy
coincide with those of regional policy. It will therefore
not always be possible to expect complete and absolute
consistency between the intervention mechanisms of the
two policies.

In seeking coherence between the two policies,
4.2.
account should be taken of the type of players involved
in the two processes and of the public and private
operators involved in managing them.

4.3.
In designing regional policy, it should be borne
in mind that the part of competition policy dealing with
the monitoring of state aid has a direct impact on the
active industrial policy instruments available to national
and regional government. On the other hand, balanced
economic development in the regions and economic and
social cohesion are basic components of the European
economic model. The right balance must therefore be
found between competition and regional policy.

5. Conclusions

5.1.
The Committee of the Regions endorses the
proposal that the percentage of the population of the
European Union eligible for structural assistance under
the future Objectives 1 and 2 should be reduced from
the figure of 51 % today to an overall figure which
is smaller than the population coverage of regions
qualifying under Article 92(3)(a) and (c). In this way
consistency between Community regional policy and
national, regional and local regional policy measures
can be reinforced and the spending problems currently
experienced by areas benefiting from Structural Fund
assistance but excluded from national regional aid can
be eliminated.

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5.2.
The Committee of the Regions wishes to avoid
a situation arising whereby coverage for national aid
automatically determines Structural Fund eligibility and
coverage. This would represent a clear breach of the
subsidiarity principle and compromise the ability of the
Council of Ministers and European Parliament to take
a broad view on the reform of the Structural Funds and
eligible areas. As the COR indicated in the opinion
drawn up by Mr Behrendt and Mr Fraga, the Member
States must involve the local and regional authorities in
the definition of areas eligible for regional aid.

5.3.
The effort to achieve as much consistency as
possible between competition policy and structural
policy is welcomed. However, given the different objec-
tives, the desired consistency may not — and cannot —
be absolute. The existing regional differences within the
EU and within the Member States require the necessary
degree of flexibility.

5.4.
The COR also endorses as consistent with their
effort to achieve concentration, the proposal to reduce
the ceiling for coverage of total Community population
in the regions of the Union, in the period 2000 to 2006.

5.5.
The reduction of the ceiling will mean some
areas losing their eligibility for regional aid, once the
reform enters into force. The Committee calls for a
selective and rigorous approach to ensure that the
objective of concentrating aid on the areas where it
is most needed is actually achieved, avoiding any
proportional reduction which would meet neither quali-
tative nor quantitative criteria. It must be ensured that
the procedures for defining the regional aid areas
proposed to the Commission by the Member States are
transparent and objective.

The Committee of the Regions is in favour of
5.6.
greater concentration of aid and of progress towards
greater consistency between structural and competition
policy.

5.7. However,
the Committee stresses that such
consistency should be compatible with the maintenance
of a certain flexibility, particularly in view of the fact
that the two policies do not fully coincide.

5.8.
The Committee considers that as 6,6 % of the
EU population currently lives in regions eligible for
Structural Funds but not for state aid, the margin of 2 %
proposed by the European Commission would make it
difficult to apply the flexibility principle mentioned
previously.

5.9.
The Committee supports the idea of two concen-
tric circles representing the relationship between the
regional distribution systems of regional and compe-
tition policy, as this will guarantee the Member States
and regions a degree of flexibility in pursuing their
regional policy objectives.

5.10.
The Committee of the Regions believes that
there are — by definition — differences in the two
approaches to demarcating aid areas, thus making it
difficult to have a perfect match between national and
European assistance areas. The Commission will thus
have to accept the fact that there are some exceptions.

5.11.
The Committee recognizes that there may be
conditions in which maintaining homogeneity in the
areas for support, preserving the cultural and regional
identity and maintaining the dynamism of areas produc-
ing economies of scale sufficient to ensure the progress
and growth of the region may indicate a degree of
flexibility or differentiated actions.

5.12.
The Committee endorses the Commission’s
proposal that the areas covered by Article 92(3)(a)
should be defined by applying the criterion of per capita
GDP of less than 75 % of the Community average, and
proposes a most remote area criterion and a low
population density criterion, i.e. Objective 1 areas. As
regards the new Objective 2, the Committee agrees that
consistency needs to be established with Article 92(3)(c).

5.13.
The Committee proposes that the most remote
regions and current Objective 6 areas should be allowed
easier access to aid, in accordance with Article 92(3)(a). In
this way they would also be considered as Article 92(3)(a)
regions, independently of their level of income, thus
maintaining the objective of coordination proposed by
the Commission in relation to the criteria for defining
areas eligible for regional aid.

5.14.
The Committee would refer to its opinion of
17 September 1998 on the draft general Structural Funds
Regulation (1) and point out that it welcomes the special
attention paid to unemployment indicators and GDP in
determining the ceilings for aid areas covered by Article
92(3)(c) in each Member State. It would, however,
highlight the need, within these national ceilings, to
make provision for sufficient flexibility to enable other
indicators to be applied and thereby make it possible to
take adequate account of country and region-specific
conditions. Local and regional authorities should, at all
events, play a part in the selection of these aid areas.

(1) CdR 167/98 fin — OJ C 373, 2.12.1998, p. 1.

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5.15.
The Committee of the Regions welcomes the
proposal that areas currently covered by Article 92(3)(a)
which lose their status for National Aid coverage, will
be able to access ‘transitional’ State Aid support.

5.16.
The COR also proposes that, in line with the
principle of subsidiarity, the regions be assigned a
greater role in the granting of Structural Fund aid
and national regional aid. The regions can and must
participate in the definition, management, evaluation
and supervision of these measures, in partnership with
all the players involved.

5.17. However, the Committee considers it essential
that, in order to prevent excessive disparities or compara-
tive injustices arising within a region, almost all of
which is eligible for Structural Fund assistance, the
regional government should be able to make the whole

of its territory eligible for support, making it possible
to design and apply integrated regional development
strategies for the whole region.

5.18.
The Committee agrees with the Commission’s
proposal that regions losing their current status after
2000 as a result of the concentration effort will be subject
to the provisions of each of the policies, with the
guarantee that regions which continuing to benefit from
transitional (phasing out) support from the Structural
Funds will have to comply with the competition rules
on state aid.

5.19.
Provided that the process retains a certain
flexibility and consistency, the Committee of the Regions
endorses the Commission’s wish that designations under
both national regional-aid schemes and the Structural
Funds should be adopted in time for them to enter into
force on 1 January 2000.

Brussels, 19 November 1998.

The President

of the Committee of the Regions

Manfred DAMMEYER