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'
Date: 1999-01-14
Institutions: European Committee of the Regions
Subjects: State aid, administrative transparency, competition policy, control of State aid, regional aid

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statistics for comparing and assessing social cohesion in
Europe;

that local and regional authorities, as employers,

6.3.
will be given a place in European social dialogue;

6.5.
that the Commission will develop support pro-
grammes for the innovative pilot projects set up by local
and regional authorities in the fields of employment and
social policy;

6.4.
to take part in the European consultation pro-
cesses on social policy, and in particular, to help prepare
any future European Social Forum, where greater
consideration should be given to the role of local
authorities;

6.6.
that the local and regional authorities of the
Union’s future Member States will be involved in
Community social policy, with regard to employment
in particular, and will be able to take part in the work
of the Committee of the Regions.

Brussels, 14 January 1999.

The President

of the Committee of the Regions

Manfred DAMMEYER

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’

THE COMMITTEE OF THE REGIONS,

(1999/C 93/10)

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) (1);

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) (2);

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) OJ C 116, 16.4.1998, p. 13.
(2) OJ C 51, 22.2.1999, p. 16.

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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 consolidat-
ing 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 trans-
parent.

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.

This renewed impetus requires special attention
1.1.7.
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 Octo-
ber 1997 statistics and will be reviewed in 1999.

Reconciling regional policy and competition
1.1.9.
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 compe-
tition 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.

The Committee of the Regions backs fair
1.2.3.
competition between regions and companies in the
European single market. One essential element in achiev-
ing 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

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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.

The European Commission has put forward
1.2.6.
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 Com-
mission 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 compe-
tition 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.

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 devel-
opment. 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, differ-
ences 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.

2.2.
The globalization of markets, the continued
advancement of the information society and the increas-
ing speed of technological change represent a tremendous
challenge for Europe. The European economic model

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.

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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.

The Committee of the Regions feels that it is
2.8.
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 competi-
tiveness. 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, damag-
ing 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 pro-
posals should maintain an equal balance between
regional policy and competition and, in relation to
they should shorten aid
procedural arrangements,
decision deadlines where possible.

First of all, the Committee of the Regions
3.2.
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 excess-
ive 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.

The two-month deadline proposed by the Com-
3.4.
mission 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,
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

the deadline of

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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.

The COR deems inappropriate the plan to give
3.5.
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.

The powers sought by the Commission might
3.9.
well be in contravention of sensitive basic rights protect-
ed under national constitutions. It would not be accept-
able, 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.

In this respect, the Commission proposal con-
3.10.
tains 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.

The COR considers unacceptable the require-
3.11.
ment 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 econ-
omy 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 unemploy-
ment.

Particularly as the situation stands at present, a
3.14.
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
countries’
tremendous

challenges. On

these

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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
isolation, and demographic
features (orography,
island
features), such as mountainous regions,
regions, border
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.

regions or

— 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 unconnec-
ted 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;

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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 consider-
ation 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 guide-
lines for regional aid to allow Member States them-
selves 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

Brussels, 14 January 1999.

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 ‘tran-
sitional’ 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 circum-
stances 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.

The President

of the Committee of the Regions

Manfred DAMMEYER