Communication from the Commission to the Council - Progress report concerning the reduction and reorientation of State aid
Date: 2002-10-16
Institutions: European Commission
Subjects: State aid, activity report, aid policy, competition policy, control of State aid, statistics, transparency in decision-making

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 16.10.2002
COM(2002) 555 final

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL

Progress report concerning the reduction and reorientation of State aid

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL

Progress report concerning the reduction and reorientation of State aid

PART I: INTRODUCTION

1. 

2. 

3. 

In its conclusions of 24 March 2001, the Stockholm European Council indicated that
“the level of state aids in the European Union must be reduced and the system made
more  transparent”….  “To  that  effect,  Member  States  should  demonstrate  a
downward trend in State aid in relation to GDP by 2003, taking into account the need
to redirect aid toward horizontal objectives of  common interest, including  cohesion
objectives.”

At Barcelona, on 16 March 2002, the European Council renewed “its call to Member
States to reduce the overall level of State aid as a percentage of GDP by 2003, and
onwards, and to redirect such aid towards horizontal objectives of common interest,
including  economic  and  social  cohesion,  and  target  it  to  identified  market  failures.
Less and better-targeted State aid is a key part of effective competition.”

On  5  December  2001,  the  Council  adopted  Conclusions  concerning  State  aid.  In
those conclusions, the Council invited the Member States to:

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– 

– 

– 

– 

continue their efforts to reduce aid levels, in terms of percentage of GDP;
reduce,  by  way  of  priority,  with  a  view  to  eliminating,  aid  which  has  the
greatest distortive effects;
reorient  aid  towards  horizontal  objectives,  including  cohesion  and,  where
appropriate, small and medium-sized enterprises (SMEs);
further develop the use of "ex ante" and "ex post" evaluations of aid schemes,
so as to rebalance them in a more effective way; such evaluations should focus
on the quality of aid packages, their effects on competition and their impact;
improve  the  transparency  and  the  quality  of  reporting  to  the  Commission,
particularly  by  national  control  and  follow-up  procedures  as  well  as,  where
possible, by the provision of relevant statistics;

4. 

In addition, the Council invited the Commission to:

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– 

– 

– 

– 

develop,  together  with  the  Member  States,  statistical  tools  enabling  these
Conclusions  to  be  followed  up  and  devise  indicators  of  effectiveness  and
efficiency;  those  indicators  should  thereafter,  where  appropriate,  supplement
the Scoreboard;
intensify  the  assessment  of  the  impact  of  aid  on  competition,  on  the  basis  of
economic criteria;
encourage  exchanges  of  experience  and  concerted  evaluation  exercises,  in
order to benchmark the effectiveness of instruments on a European scale;
continue its efforts to simplify European rules on State aid, to modernise them
and clarify them in order to make them more effective, particularly in terms of
the length of processes;
submit an initial assessment of progress in 2002;

2

5. 

As requested in the final indent above, Part II of this report describes the first steps
which  have  been  undertaken  within  the  Commission  with  a  view  to  following  up
these  conclusions.  In  view  of  the  fact  that  the  European  Council  Conclusions  are
addressed to the Member States, Part III sets out some suggestions for the next stages
of this work.

PART  II  :  IMPLEMENTATION  OF  THE  COUNCIL  CONCLUSIONS  OF  5
DECEMBER 2001

Development of statistical tools enabling the follow-up to the Council recommendations

6. 

This request to the Commission is closely linked to the request made by the Council
to  Member  States  to  improve  the  transparency  and  quality  of  reporting  to  the
Commission,  particularly  by  national  control  and  follow-up  procedures,  and  where
possible,  by  the  provision  of  relevant  statistics.  As  a  first  step  towards  its
implementation the Commission has therefore launched a  comprehensive  review of
the current arrangements for the  provision  by Member States of annual  reports and
statistics, which are set out in the Commission letter to Member States of 2 August
1995  concerning  the  joint  procedure  for  reporting  and  notification  under  the  EC
Treaty  and  under  the  WTO  Agreement.1  Following  the  completion  of  this  internal
review,  the  Commission  services  will  shortly  be  consulting  experts  from  Member
States  on  a  revised  and  simplified  reporting  format  for  the  submission  of  Annual
Reports to the Commission. It is envisaged that the new reporting format would be
adopted in the form of an implementing regulation pursuant to Article 27 of Council
Regulation (EC) n° 659/1999 of 22 March 19992 laying down detailed rules for the
application  of  Article  93  of  the  EC  Treaty,  following  formal  consultation  of  the
Member States through the Advisory Committee on State aid.

Devise indicators of effectiveness and efficiency of State aid

7. 

8. 

1 

2  
3 

In the context of state aid control, the Commission’s assessment of State aid focuses
on the effects of aid on competition and its compatibility with the criteria set out in
Article 87, paragraphs 2 and 3 of the EC Treaty. In a broader context, the State aid
Scoreboard3 has made some first attempts to assess whether State aid is  always  the
most appropriate instrument to correct certain market failures. However, the specific
development of indicators for the effectiveness and efficiency of State aid highlights
another aspect of State aid policy for which Member States are primarily responsible.
This  is  also  reflected  in  the  Stockholm  and  Barcelona  conclusions,  which  invite
Member  States  to  further  develop  evaluations  of  aid  schemes,  so  as  to  rebalance
them in a more effective way. For its part, the Commission intends to facilitate such
processes  and  to  provide  a  forum  for  exchanges  of  experience  and  concerted
evaluation exercises.

The Commission has also decided to procure a study from outside  consultants. The
purpose  of  this  study  is  two-fold.  First,  to  devise  a  methodology  for  assessing  the
contribution  of  different  forms  of  State  aid  towards  the  achievement  of  various
clearly defined policy  objectives.  Second, to develop  general indicators  that  can  be

Published on the Commission web site at
http://europa.eu.int/comm/competition/state_aid/legislation/20506_en.html
OJ L 83, 27.3.1999, p. 1
COM(2001)782 final and COM(2002)242 final

3

                                                
9. 

used by Member States to facilitate the assessment of the effectiveness of their State
aid.

In assessing the effectiveness of State aid, the study does not attempt to identify and
measure  market  failures  directly  nor  to  compare  the  level  of  aid  intensity  with
regional gaps, but rather to define policy objectives of State aid and to investigate the
effectiveness of State aid as a policy instrument for achieving these objectives. The
methodology  to  be  developed  should,  amongst  other  things,  help  policymakers  to
assess  the  impact  of  potential  State  aid  cuts  in  terms  of  objectives.  The  empirical
work  so  far,  based  on  an  econometric  approach,  has  focussed  largely  on  aid  for
research and development but will be extended to cover other areas including small
and medium-sized enterprises. In a second step, the study examines the other factors
which  interact  with  State  aid  to  determine  the  degree  of  success  in  achieving  the
policy  objectives.  It  is  hoped  that,  if  satisfactorily  validated,  the  application  of  the
methodology that is being developed will help to draw up a list of criteria that will
make it possible to help identify the circumstances in which aid is likely to be more
or less effective. This work should be seen as complementary to in-depth case studies
which will clearly remain necessary.

10. 

The  Commission  intends  to  make  the  final  results  of  the  study  available  to  the
Member States.

Intensify  the  assessment  of  the  impact  of  aid  on  competition  on  the  basis  of  economic
criteria

11. 

12. 

The Commission is committed to ensuring that its State aid control policy is based on
sound economic criteria. In particular, it takes account of economic considerations in
developing the various frameworks, guidelines and regulations which set out detailed
conditions for the compatibility of aid with the common market. Thus for example,
in preparing the Communication on State aid and risk capital4, the Commission took
account of the available information concerning market failure in risk capital markets
in  order  to  define  the  safe  harbours  and  the  criteria  to  be  used  for  assessing  the
compatibility of aid. It also accepted that there were sound economic arguments for
departing  from  the  usual  requirement  for  a  link  to  eligible  costs,  and  explicitly
provided  for  mechanisms  which  harness  the  interests  and  expertise  of  market
operators.  Because  such  mechanisms  should  ensure  that  investment  decisions  are
driven by market incentives and bear market risks, economic reasoning suggests the
potential  for  distortion  of  competition  is  reduced  by  comparison  with  measures
implemented entirely by public authorities.

The  Commission  has  recently  completed  a  review  of  the  multi-sectoral  framework
for  large  investment  projects  which  has  led  to  the  adoption  of  a  new  Commission
communication  on  19  March  2002.5  In  that  communication  the  Commission
considers 
to  regional
development,  are  less  affected  by  region-specific  problems.  As  a  result,  large
investments can be successfully attracted into disadvantaged regions with relatively
smaller aid amounts than smaller  projects. Furthermore the Commission recognises
that certain types of investment projects are more likely to give rise to distortions of

investments,  while  effectively  contributing 

large 

that 

4 
5 

OJ C 235, 21.8.2001, p. 3
OJ C 70, 19.3.2002, p. 8

4

                                                
13. 

14. 

competition. This is the case in particular for investments in a sector where a single
company has a high market share and in cases where the sectoral production capacity
is  increased  significantly  without  a  corresponding  increase  in  demand.  More
generally,  distortion  of  competition  is  likely  in  sectors  suffering  from  structural
problems where demand is persistently declining. Accordingly the Commission has
decided to undertake in 2003 a systematic analysis of the situation in the Community
with a view to identifying the sectors concerned, which will thereafter be subject to
more restrictive rules on aid for large-scale regional investment projects.

The Commission has also recently undertaken a review of the Community guidelines
for  State  aid  for  research  and  development.  In  order  to  do  this,  the  Commission
published an open invitation to Member States and interested parties to submit their
observations  on  the  experience  of  the  current  framework  and  the  need  for  change.
After considering these comments, the Commission concluded that the current State
aid rules were not an obstacle to the achievement of the target set by the Barcelona
European  Council  that  overall  spending  on  R&D  in  the  Union  should  be  increased
with the aim of approaching 3% of GDP by 2010, with two-thirds of this investment
coming  from  the  private  sector.  The  Commission  therefore  decided  to  extend  the
current  guidelines  until  the  end  of  20056,  and  will  review  them  at  that  time  in  the
light of the progress achieved towards the Barcelona target, including progress made
on reorientation of state aid measures towards R&D as indicated in the Commission
communication "More research for Europe: Towards 3% of GDP"7.

As  regards  State  aid  measures  which  are  not  covered  by  the  existing  frameworks,
guidelines  and  regulations,  the  Commission  will  consider  whether  it  is  possible  to
define  better  the  economic  criteria  used  in  determining  whether  the  distortions  of
competition to which they give rise should be considered to affect trading conditions
to  an  extent  contrary  to  the  common  interest,  having  regard  to  the  need  to  ensure
legal certainty  and predictability  in  its  State  aid decisions.  One  of  the  factors  to  be
taken into consideration in this respect would appear to be whether a measure is open
to  a  large  number  of  beneficiaries  on  the  basis  of  objectively  defined  criteria  or
whether it is limited to a single beneficiary or a small number of beneficiaries.

15. 

The Commission is also considering to what extent economic criteria should be taken
into  consideration  in  the  design  of  State  aid  procedures  so  that  it  can  simplify
procedures for the approval of straightforward cases which do not present significant
competition concerns and focus its scarce resources on the more problematic cases.

Encourage exchanges of experience and concerted evaluation exercises

16. 

In  order  to  encourage  the  peer  review  process  by  way  of  the  Scoreboard,  the
Commission has established a Member State Forum in order to encourage exchanges
of  experience  on  various  aspects  of  their  State  aid  policies,  including  experiences
about  national  evaluation  exercises.  To  date,  this  resource  remains  substantially
under-utilised and the Forum currently consists of a series of internet links to the web
sites of the authorities of some, but not all, of the Member States. The Commission
intends  to  further  develop  such  a  Forum  in  close  collaboration  with  the  Member
States.

6 
7 

OJ C 111, 8.5.2002, p 3
COM (2002) 499 final

5

                                                
17. 

For  its part,  the  Commission  considers  that  evaluation  exercises  and  benchmarking
exercises  undertaken  outside  the  framework  of  competition  policy  per  se  may  also
provide useful experience to be taken into consideration in the State aid context. For
example the exercises of benchmarking national RTD policies and on improving the
effectiveness of public support mechanisms for RTD, which are being undertaken in
order  to  facilitate  the  achievement  of  the  Barcelona  objective  of  increasing  R&D
expenditures  may  provide  useful  information  for  considering  the  efficiency  and
effectiveness  of  different  types  of  State  aid  measures  when  compared  with  other
available  policy  instruments.8  Similarly  the  work  of  the  Business  Environment
Simplification  Task-Force  (BEST)9  may  provide  valuable  indicators  of  the
effectiveness of different forms of support for SMEs.

Continue its efforts to simplify, modernise and clarify State aid rules

18. 

19. 

20. 

21. 

The Commission has continued its efforts to modernise, simplify and clarify State aid
rules. The adoption of the new multi-sectoral framework referred to in paragraph 12
above constitutes a major step in that direction. The new framework sets out a much
clearer  set  of  rules  for  the  evaluation  of  State  aid  for  large  regional  investment
projects and at the same time eliminates the need for prior notification of many aid
projects,  provided  the  aid  is  granted  in  the  framework  of  an  approved  regional  aid
scheme. At the same time, the new framework brings together and consolidates in a
single text the different sectoral texts which previously applied in the steel, synthetic
fibres and automobile sectors.

As regards the coal and steel sectors, the Commission has adopted a Communication
clarifying  certain  aspects  of  the  treatment  of  competition  cases  resulting  from  the
expiry  of  the  ECSC  Treaty,  which  also  explains  the  application  of  State  aid
procedures  following  the  expiry  of  the  ECSC  Treaty.10  The  Commission  also
adopted a Regulation which lays down rules for the granting of State aid to the coal
industry with the aim of contributing to the restructuring of the coal industry11.

Following  the  completion of the procedures for  consultation  of  Member  States  and
third parties laid down in Regulation (EC) 994/98, the Commission is in the process
of adopting  a  block  exemption regulation  for State aid  for employment, which will
eliminate  the  need  for  prior  notification  of  many  State  aids  for  the  purposes  of
creating employment or aiding disadvantaged or disabled workers.

The  Commission  is  currently  completing  a  review  of  the  Community  definition  of
‘Small  and  Medium-sized  enterprises’,  which  is  used  by  the  Commission  for  a
variety  of  purposes,  including  State  aid  control.  As  soon  as  possible  after  a  new
definition  is  agreed,  the  Commission  will  bring  forward  for  consultation  draft
amendments to the block exemptions for aid for SMEs and for training aid in order to
incorporate the new definition. At the same time, the Commission will consider the
extension  of  the  scope  of  the  block  exemption  for  aid  for  SMEs  to  include  aid  for
research and development.

8 
9 
10 
11 

See for example, Benchmarking National RTD Policies, First Results, SEC (2002) 129, 31.1.2002
http://europa.eu.int/comm/enterprise/enterprise_policy/best/best_procedure.htm
OJ C 152, 26.06.2002, p.5
Council Regulation (EC) No 1407/2002 of 23 July 2002 on State aid to the coal industry

6

                                                
22. 

23. 

24. 

25. 

26. 

Within  the  framework  of  the  Commission  Communication  to  the  European
Parliament  and  the  Council  on  the  Mid  Term  Review  of  the  Common  Agricultural
Policy12,  the  Commission  is  actually  examining  the  possibilities  of  adopting
exemption regulations such as a block exemption for various types of State aid. This
would accelerate the implementation of the new State aid regimes and avoid ex-ante
notification of various types of agricultural State aid.

The Commission has also published communications on the application of State aid
rules  to  public  service  broadcasting13  and  on  certain  legal  aspects  relating  to
cinematographic and other audio-visual works14.

The Commission has published a communication to clarify that unlawful aid which
has  been  granted  without  prior  notification  to  the  Commission  will  be  assessed  in
accordance with the relevant frameworks in force at the time the aid is granted.15

In addition, the Commission is continuing its work to clarify the relationship between
the State aid rules and the provision by Member States of compensation for the cost
of providing services of general economic interest. In accordance with the request of
the Seville European Council, this work will be the subject of a separate report to the
Copenhagen European Council.

So  far  as  State  aid  procedures  are  concerned,  the  Commission  has  recently
undertaken a detailed internal review with a view to identifying the possibilities for
simplifying  procedures  and  reducing  their  duration.  As  a  result  of  this  review,  the
Commission services have identified a number of possible changes which will be the
subject  of  detailed  consultation  with  experts  from  Member  States.  This  work  may
lead  to  the  preparation  of  implementing  provisions  under  Article  27  of  Regulation
(EC) n° 659/1999 concerning the form, content and other details of notifications, the
form,  content  and  other  details  of  annual  reports,  details  of  time-limits  and  the
calculation  of  time-limits,  and  the  interest  rate  for  the  recovery  of  unlawful  aid,  as
well as other suggestions to improve current procedures and working methods.

27. 

More  specifically,  with  regard  to  State  aid  procedures  in  the  fisheries  sector,  the
Commission  has  proposed  to  eliminate  the  separate  state  aid  scrutiny  of  Member
States’  obligatory  financial  contributions  to  projects  co-financed  as  part  of  the
Community structural assistance in this sector.16

PART III: NEXT STEPS

28. 

12 
13 
14 
15 
16 

As noted at the  beginning  of  this  report,  the  Stockholm  and  Barcelona  conclusions
calling for a reduction in overall aid  levels and  for the reorientation  of  aid  towards
horizontal  objectives  of  common  interest,  including  economic  and  social  cohesion
objectives, are addressed to the Member States. The Council has, however, asked the
Commission  to  take  an  active  role  in  following-up  the  implementation  of  those

COM (2002) 394 final of 10.7.2002
OJ C 320, 15.11.2001
COM (2001) 534 final, 26.09.2001
OJ C 119, 22.05.2002, p. 05
Proposal for a Council Regulation amending Regulation (EC) No 2792/1999 laying down the detailed
rules  and  arrangements  regarding  Community  structural  assistance  in  the  fisheries  sector,  Art.  19  on
“Obligatory financial contributions and state aid”, COM(2002) 187 final of 28.5.2002, p. 11.

7

                                                
29. 

30. 

31. 

conclusions  and  in  providing  a  forum  for  the  exchange  of  information  and  best
practices.  The  Commission  intends  to  further  develop  the  existing  forum  for  this
purpose.

Accordingly,  the  Commission  invites  all  Member  States  to  forward,  if  possible
before  31  December  2002,  a  contribution  on  the  actions  they  have  undertaken  to
follow-up  the  Conclusions  of  the  Stockholm  and  Barcelona  European  Councils  on
State  aid  as  well  as  the  Council  conclusions  of  5  December  2001.  For  its  part,  the
Commission  would  forward  the  contributions  received  to  the  other  Member  States
together with the results of the study on criteria for the efficiency and effectiveness
of  aid  referred  to  above.  The  Commission  services  would  then  organise  a  multi-
lateral  meeting  with  experts  from  the  Member  States  at  which  the  different
contributions could be discussed in depth, and would include a synthesis in the 2003
State  aid  scoreboard.  A  short  report  to  the  Athens  European  Council  could  also  be
envisaged.

Depending on the outcome of this first exercise, consideration could then be given to
the usefulness of repeating it on an annual basis.

Apart from this, the Commission will continue its efforts to simplify, modernise and
clarify the State aid rules, with particular emphasis on trying to simplify and shorten
State aid procedures. In view of the expiry in 2004 of the Community guidelines for
rescue and restructuring of firms in difficulty, a type of aid which is widely regarded
as potentially among the most distortive of competition, the Commission intends to
launch in 2003 a detailed assessment of the operation of the current guidelines.

8