Report - State Aid Scoreboard  - Autumn 2004 update
Date: 2004-11-16
Institutions: European Commission
Subjects: Central and Eastern European countries, State aid, accession to the European Union, aid to undertakings, competition law, control of State aid, economic analysis, sectoral aid, transitional period (EU)

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 16.11.2004 
COM(2004)750 final 

REPORT 

State Aid Scoreboard 

- autumn 2004 update – 

(presented by the Commission) 

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TABLE OF CONTENTS 

Executive Summary ................................................................................................................... 4 

Introduction ................................................................................................................................ 9 

1. 

1.1. 

1.2. 

1.3. 

2. 

2.1. 

2.2. 

2.3. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

3.6. 

3.7. 

3.8. 

3.9. 

Part One: State aid in the ten new member states ...................................................... 11 

The economic context prior to accession ................................................................... 11 

Enlargement process .................................................................................................. 13 

Overview of the State aid situation in the ten new Member States ........................... 17 

Part Two: Follow-up to the Council conclusions on State aid................................... 29 

Brief summary of the Council conclusions on State aid ............................................ 29 

Member States response to the Council conclusions ................................................. 30 

Improving the effectiveness of aid............................................................................. 32 

Part Three: Modernising State aid control ................................................................. 36 

Adoption of a pro-active competition policy ............................................................. 36 

Review of the regional aid guidelines........................................................................ 36 

Services of General Economic Interest (SGEI) ......................................................... 37 

Review of the rescue and restructuring guidelines .................................................... 38 

State aid for innovation .............................................................................................. 38 

State aid to cinema ..................................................................................................... 40 

Improving current procedures and working methods ................................................ 40 

State aid to the agricultural sector.............................................................................. 40 

State aid to the fisheries sector................................................................................... 41 

3.10. 

State aid to the transport sector .................................................................................. 41 

3.11.  De minimis aid to the coal sector............................................................................... 42 

4. 

5. 

Online State aid scoreboard and register.................................................................... 43 

Methodological notes ................................................................................................. 44 

Annex I: Transitional arrangements provided for in the Treaty of Accession......................... 45 

Annex II: Country Profiles....................................................................................................... 46 

Cyprus  .................................................................................................................................... 46 

Czech Republic ........................................................................................................................ 49 

Estonia  .................................................................................................................................... 53 

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Hungary .................................................................................................................................... 55 

Latvia 

.................................................................................................................................... 59 

Lithuania................................................................................................................................... 61 

Malta 

.................................................................................................................................... 63 

Poland 

.................................................................................................................................... 66 

Slovenia .................................................................................................................................... 69 

Slovak Republic ....................................................................................................................... 72 

Bulgaria .................................................................................................................................... 74 

Romania ................................................................................................................................... 74 

Annex III: Follow-up to Council conclusions on State aid...................................................... 75 

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EXECUTIVE SUMMARY 

The entry of eight central and eastern European countries together with Cyprus and Malta into 
the European Union has brought an additional 74 million citizens to form a single market of 
some 450 million people. The ten newcomers joined formally on 1 May 2004, the culmination 
of a long process of preparation and negotiation.  

Part One: State aid in the new Member States 

(1) 

Transition  to  market  economies  …  strong  economic  growth  but  still  lagging 
behind 

During  the  1990s,  the  eight  Central  and  Eastern  European  countries  underwent  a  difficult 
transition  from  centrally  planned  to  market  economies.  Despite  the  considerable  progress 
made in restructuring their economies - GDP growth in these countries has been consistently 
higher than for the EU-15 as a whole between 1995 and 2003 - the level of economic wealth 
remains, in general, much lower than in EU-15. In 2003, GDP per capita (PPS) in the eight 
Central  and  Eastern  European  countries1  as  a  whole  was  less  than  55%  of  that  of  EU-15 
although there are significant differences among the new Member States. 

(2) 

EU  competition  policy,  including  State  aid  control,  was  a  key  component  of  the 
enlargement process 

As  State  aid  control  plays  a  key  role  in  creating  a  well-functioning  economy,  effective 
application  and  enforcement  of  such  a  policy  was  therefore  a  crucial  component  of  the 
enlargement  process.  In  practice,  before  joining  the  Union,  each  of  the  new  Member  States 
had to establish a State aid monitoring authority which screened awards of State resources to 
determine whether or not they constituted State aid as defined under Article 87 of the Treaty 
and  whether  they  were  compatible  with  the  common  market.  Where  identified  State  aid 
measures were deemed to be incompatible with the EU acquis, countries had to either adapt 
them to Community standards, or abolish them or gradually phase them out. By mid-2002, the 
Commission was satisfied with the progress achieved in each Member State and consequently 
the accession negotiations were concluded in December 2002. 

(3) 

Screening of measures proposed by the new Member States as “existing aid” 

In  order  to  prevent  incompatible  aid  from  being  “imported”  into  the  EU  on  the  date  of 
accession,  a  system  was  set  up  to  examine  measures  which  were  put  into  effect  in  the 
Acceding  Countries  before  1  May  2004  and  were  still  applicable  after  that  date.  This  was 
known  as  the  “existing  aid”  mechanism.  The  purpose  of  this  mechanism  was  to  provide 
Acceding Countries and economic operators with legal certainty as regards State aid measures 
that are applicable after the date of accession. The system applies to State aid in all sectors, 
except for the transport and agricultural sectors, for which different provisions apply. 

During  the  first  phase  of  the  existing  aid  mechanism  in  2002,  some  222  measures  were 
approved by the Commission and listed in the Treaty of Accession. During the second phase, 
the  so-called  interim  procedure,  by  September  2004  the  Commission  had  approved  278 

1 

In Cyprus and Malta the comparable figures in 2003 were 78% and 69% respectively 

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measures as existing aid. A significant number of measures were submitted right up to the day 
of accession. This is reflected in the 106 measures that the Commission is still assessing. In 
addition  to  existing  aid,  there  are  also  ongoing  payments  after  accession  under  a  series  of 
transitional  arrangements  laid  down  in  the  Treaty  of  Accession.  These  arrangements  which 
aim  to  address  specific  problem  areas  of  the  new  Member  States  are  limited  in  scope  and 
duration.  

(4) 

Different provisions apply to existing aid in the agricultural and transport sectors 

According to the Treaty of Accession, aid measures in the agriculture and transport sectors, 
put into effect in a new Member State before the date of accession and still applicable after 
that  date,  were  regarded  as  ‘existing  aid’  only  if  the  measure  was  communicated  to  the 
Commission as 'existing  aid'  within  four months  of the date of accession, i.e.  by  31 August 
2004.  These  measures  enjoy  the  protection  of  an  ‘existing  aid’  until  the  date  of  a  so-called 
‘sunset clause’. In effect, the new Member States have until the end of April 2007 to ensure 
compatibility of those measures with the requirements of Community State aid rules.  

(5) 

Annual  average  of  €5.7  billion  State  aid  awarded  prior  to  accession  in  the  new 
Member States 

Total  State  aid2  granted  by  the  ten  new  Member  States  during  the  four-year  period  prior  to 
accession was estimated on average at €5.7 billion per year. The comparable figure for EU-15 
in 2002 was €34 billion. In absolute terms, the three biggest countries in terms of population, 
awarded  the  most  aid:  Poland  (an  annual  average  of  €2.4  billion)  the  Czech  Republic  (€1.9 
billion) and Hungary (€0.57 billion). Together they accounted for 86% of total aid in the ten 
new Member States. 

During the period under review, the level of State aid increased each year from €4 billion in 
2000 to €7.8 billion in 2003. The increase was caused by very large awards of aid in 2002 to 
the Czech banking sector (€2.4 billion) and in 2003 to the Polish coal sector (€3.9 billion). 

(6) 

Prior to accession, the majority of new Member States tended to grant more aid 
as a percentage of their GDP than the EU-15 average …  

For  the  ten  new  Member  States  as  a  whole,  State  aid  amounted  to  1.42%  of  GDP  over  the 
period  2000-2003.  This  is  significantly  higher  than  the  EU-15  average  of  0.4%  in  2002. 
However, if certain measures which are in the process of being phased out are excluded, the 
average for the new Member states drops to 0.67% (see next paragraph).  

(7)  … though large disparities exist between the new Member States 

Prior  to  accession,  there  were  large  disparities  between  the  new  Member  States:  Malta 
(3.86%), Cyprus (2.85%) and Czech Republic (2.80%) reported aid levels, as a percentage of 
GDP, well above the average. These relatively high proportions of State aid do not necessarily 
reflect a more lax attitude to State aid control in these countries. Instead, each appears to have 
had  its  own  country-specific  situation.  Faced  with  a  general  banking  crisis,  the  Czech 
Republic paid out €2.4 billion in 2002 in the form of guarantees  in order  to restructure and 
subsequently  privatise  several  banks.  In  Cyprus,  aid  was  mainly  granted  through  tax  relief 
under  the  International  Business  Enterprises  Act  (almost  60%  of  total  aid  over  the  period 

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Total State aid less agriculture, fisheries and transport 

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2000-2003).  In  Malta,  restructuring  aid  to  shipbuilding  and  the  ship  repair  sector  accounted 
for  around  50%  of  total  aid.  All  of  the  above  measures  are  either  being  phased  out  under 
transitional arrangements or limited in time. If the aid amounts given under these types of aid 
measures  are  excluded,  a  different  picture  emerges:  the  overall  level  of  state  aid  drops  to 
0.67% of GDP for the ten new Member States and to 2.08% in Malta, 0.82% in Cyprus and 
0.47% in the Czech Republic. 

In  contrast,  the  three  Baltic  States  had  by  far  the  lowest  shares:  Estonia  (0.11%),  Lithuania 
(0.24%) and Latvia (0.26%). Moreover when aid is expressed in per capita terms, a slightly 
different picture emerges with the Slovak Republic joining the three Baltic states below the 
EU-15  average  of  94  PPS  per  person.  Furthermore,  Slovenia  and  Hungary  lie  only  slightly 
above the EU average. 

(8) 

Support  for  the  Lisbon  objectives  …  though  situations  specific  to  the  new 
Member States may lead to a decrease in aid levels for some and an increase for 
others 

In  the  context  of  reducing  and  redirecting  aid,  it  is  somewhat  premature  to  draw  any 
conclusions due to the structural problems of the economies and the general macro economic 
environment in which the new Member States were operating prior to accession. Moreover, 
for  a  variety  of  reasons,  an  accurate  forecast  of  future  expenditure  levels  is  not  possible. 
Nevertheless, the available data do show that for some new Member States, a large part of the 
aid awarded in 2003 was through measures that did not continue after accession. For others, 
the  data  show  that  a  significant  proportion  of  total  aid  was  awarded  under  a  transitional 
arrangement. This implies that aid levels are likely to remain relatively high up to the end of 
the transitional period but will probably decrease in the long term. On the other hand, there is 
clearly  no  indication  as  to  what  extent  the  new  Member  States  intend  to  introduce  new  aid 
measures  in  the  coming  years.  Furthermore,  given  that  the  European  Structural  funds  are 
subject  to  the  so-called  “additionality”  principle,  some  new  Member  States  have  already 
indicated that overall State aid levels are likely to increase, at least in the short-term. 

(9) 

Share  of  pre-accession  aid  to  horizontal  objectives  was  low  but  95%  of  the 
existing aid measures are earmarked for horizontal objectives 

In  the  context  of  redirecting  aid,  prior  to  accession,  aid  granted  for  horizontal  objectives3 
accounted for around 22% of total aid in the new Member States. This share is rather low in 
comparison to 73% in the EU-15 Member States in 2002. The disparity can be explained in 
part by the relatively strong support of several industries (e.g., financial sector, coal and steel) 
before  accession  in  the  context  of  privatisation  or  to  ensure  viability.  However,  it  is 
encouraging  to  note  that  475  of  the  500  aid  measures  qualifying  as  existing  aid  upon 
accession are earmarked for horizontal objectives although this figure overestimates the share 
of  horizontal  aid  measures  for  a  number  of  reasons.  In  particular,  individual  aids  were  less 
likely than schemes to be “applicable after” accession so they were less likely to come under 
the interim mechanism. In addition, the new Member States could not make use of the block 
exemption regulations, so that all such measures, which by their nature fall under horizontal 
objectives, came under the interim mechanism. 

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Including aid for cohesion objectives (regional aid) 

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(10)  Relatively  high  share  of  sectoral  aid  prior  to  accession  though  considerable 

variation among the new Member States 

In the period 2000-2003, around 78% of State aid in the new Member States was earmarked 
for the potentially more distortive types of aid such as sectoral aid including aid to rescue and 
restructure firms in difficulty. There were large disparities between countries in the share of 
sectoral  objectives  ranging  from  around  50%  or  less  of  total  aid  in  Latvia  and  Slovenia  to 
80% or more in Lithuania, the Czech Republic and Malta. In Estonia, no aid was earmarked 
for sectoral objectives. 

The financial sector received the most support in these years (27%), due almost entirely to the 
legacy  of  a  general  banking  crisis  in  the  1990s  in  the  Czech  Republic.  A  further  26%  was 
directed  towards  the  manufacturing  sector4,  24%  for  coal  (mainly  in  Poland)  and  the 
remainder (1%) split between other non-manufacturing and service sectors. 

(11) 

In contrast to the EU average, several  new Member States  tended to award  aid 
through tax exemptions and guarantees rather than grants 

For the new Member States as a whole, guarantees were the most frequently used form of aid 
instrument  making  up  41%  of  total  aid  over  the  period  2000-2003.  This  average,  which 
dwarfs  the  EU-15  average  of  3%,  may  be  misleading  as  it  is  due  almost  entirely  to  the 
relatively large proportion of guarantees given to banks in the Czech Republic (78% of total 
aid).  Elsewhere,  Cyprus,  the  Slovak  Republic  and  Hungary  made  widespread  use  of  tax 
exemptions  (60%  or  more  of  total  aid)  while  Estonia,  Slovenia  and  Lithuania  tended  to  use 
grants (40% or more).  

Part Two: Follow-up to Council conclusions (Lisbon process) 

(12)  EU-15 Member States responding positively to call for less and better aid 

Starting with the Lisbon agenda in 2000 which launched the process of reducing the general 
level of State aids and shifting the emphasis from supporting individual companies or sectors 
towards  tackling  horizontal  objectives  of  Community  interest,  the  Council  has  adopted  a 
series  of  Council  conclusions  on  State  aid.  As  a  response  to  these  conclusions,  the 
Commission holds an annual meeting with State aid experts from the Member States to take 
stock  of  the  Commission’s  and  Member  States  efforts  to  follow-up  the  conclusions  and  to 
discuss future work in the area of reduction, reorientation, and measuring effectiveness of aid.  

The latest meeting was held in July 2004 on the basis of written contributions received from 
over twenty Member States detailing recent steps taken to follow-up the conclusions. The vast 
majority  of  Member  States  attributed  progress  in  reducing  and  redirecting  aid  to  explicit 
policy  efforts.  For  example,  a  number  of  Member  States  including  Belgium,  Denmark, 
Sweden  and  the  United  Kingdom  reported  that  they  have  placed  greater  emphasis  on 
improving  the  general  business  environment,  streamlining  and  rationalising  their  business 
support  schemes  and  directing  support  away  from  ‘State  aid’  towards  general  measures. 
Others such as France and Germany have opted for budgetary restrictions as a way of meeting 
the commitment to reduce State aid. 

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This figure excludes aid earmarked for the manufacturing sector which also had a horizontal objective 

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Several Member States also referred to steps taken to rationalise and improve the organisation 
of state aid at national level through a variety of institutional changes, legislation, improved 
coordination,  better  targeting  of  aid,  greater  emphasis  on  efficacy  of  aid,  strengthening 
awareness  and  improving  transparency.  While  many  of  these  steps  are  aimed  primarily  at 
facilitating  access  to  government  by  business  and  trying  to  ensure  better  value  for  public 
money, they may also assist in reducing and redirecting aid. 

Part Three: Modernising State aid control 

(13) 

In  the  context  of  a  pro-active  competition  policy,  the  Commission  intends  to 
refocus State aid policy so as to eliminate the most distortive aid while allowing 
Member States more scope to support the Lisbon objectives 

In April 2004, the Commission adopted a Communication entitled “A pro-active Competition 
Policy  for  a  Competitive  Europe”.  In  the  field  of  State  aid,  the  reforms  already  undertaken 
and  those  on-going  aim  at  refocusing  State  aid  policy  towards  a  more  economic-based 
approach with the purpose of eliminating harmful State aid, while leaving the Member States 
with  more  flexibility  to  adopt  horizontal  measures  to  support,  in  particular,  the  Lisbon 
objectives.  More  specifically,  in  2005-2006,  a  large  number  of  the  Commission’s  existing 
regulations,  frameworks  and  guidelines  come  up  for  renewal  including  all  the  state  aid 
exemption  regulations,  the  regional  aid  guidelines,  the  framework  for  research  and 
development aid and the risk capital communication. The environmental aid guidelines expire 
at the end of 2007. These factors, together with the beginning of a new programming period 
for  the  Community’s  structural  funds  in  2007,  provide  an  unprecedented  window  of 
opportunity for a comprehensive review of the horizontal State aid rules to take account of the 
horizontal,  and  particularly  Lisbon,  objectives,  and  the  new  cohesion  policy  set  out  in  the 
forthcoming  Structural  Funds  regulations,  as  well  as  to  consolidate,  and  wherever  possible 
simplify the rules. 

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INTRODUCTION 

This update of the State Aid Scoreboard attempts to present the state aid situation in the new 
Member States  over a four-year period prior to accession. It draws on material provided by 
each  of  the  new  Member  States  in  the  context  of  a  major  inventory  and  data  gathering 
exercise in 2004 as well as the annual reports on State aid transmitted by the then Candidate 
countries in accordance with the Europe Agreements.  

A  similar  but  more  modest  attempt  to  focus  on  the  Candidate  countries  was  made  in  the 
autumn 2002 edition of the Scoreboard. While caution should still be exercised in comparing 
the ten new Member States with one another and the EU-15 average, comparability has been 
greatly enhanced. For example, the Commission has now been monitoring the situation in the 
new  Member  States  for  several  years.  In  the  context  of  the  Treaty  of  Accession  and  the 
interim mechanism procedure for existing aid, it has examined several hundred measures in 
the  ten  new  Member  States.  Furthermore,  the  national  authorities  in  each  country  have 
become  much  more  familiar  with  the  concepts  of  State  aid  control  and  transparency.  By 
looking at the annual average amount of aid over a four year period prior to accession (2000-
2003),  the  Scoreboard  therefore  gives  an  important  and  relatively  accurate  insight  into  the 
overall state aid situation in each of the new Member States upon accession. 

Nevertheless, disparities between countries still exist and may be explained by the timing and 
extent to which each then Candidate country adapted to a competition discipline by adopting 
national  legislation,  based  on  the  Community  acquis,  and  set  up  State  aid  monitoring 
authorities charged with enforcing the rules. Moreover, given that the focus is on the period 
post-2000, it is important to bear in mind that State aid levels tended to fluctuate considerably 
around this time, e.g., a number of countries awarded much larger volumes of aid in 1998 and 
1999, often in the context of restructuring or privatisation of national industries.  

This  autumn  update  of  the  Scoreboard  has  three  main  parts.  Part  One,  which  is  split  into 
several  sections,  focuses  on  the  ten  new  Member  States:  the  first  section  describes  the 
enlargement  process  beginning  with  the  transition  from  state-planned  to  market-oriented 
economies  undertaken  by  the  eight  Central  and  Eastern  European  countries,  through  the 
negotiation process, and ending with the assessment of aid measures carried out initially by 
the national monitoring authorities and then by the Commission in the context of approving 
existing aid measures for the post-accession period. The second section then attempts, with all 
the necessary caveats, to compare the new Member States with one another and also vis-à-vis the 
EU-15 average. It looks at the overall level of aid, the sectors to which aid is directed and the use 
of  various  aid  instruments.  Finally,  Annex  II  includes  a  country-specific  profile  outlining  the 
state aid situation for each new Member State.  

Part Two looks at the steps undertaken by both the Commission and Member States to follow 
up the various Council conclusions on State aid. Finally, part three summarises ongoing work 
to modernise State aid control including efforts to support aid for innovation.  

The spring 2004 update of the Scoreboard5 provided an overview of the State aid situation in 
the Union and examined the underlying trends based on the latest available data (2002). The 

5 

COM(2004) 256 final of 20.04.2004 

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spring 2005 update will cover the year 2003 and include a section on the financing of public 
service broadcasters. 

to 

this 

addition 

In 
Scoreboard 
(http://europa.eu.int/comm/competition/state_aid/scoreboard/)  consisting  of  a  series  of  key 
indicators and a range of statistical information for the EU-15 Member States was launched in 
2002.  

permanent 

edition, 

online 

paper 

a 

Conceptual remarks 

Insofar  as  it  was  possible,  the  data  in  this  Scoreboard  have  been  harmonised  by  applying  the  same 
methodology  as  that  used  for  the  EU-15  Member  States  in  previous  Scoreboards.  In  principle,  this 
Scoreboard  covers  State  aid  as  defined  under  Article  87(1)  EC  Treaty6  that  was  granted  by the  new 
Member  States  prior  to  accession  in  the  period  2000-2003.  All  aid  measures  approved  under  the 
interim mechanism for existing aid were examined by the Commission. However, the data also include 
aid  measures  implemented  prior  to  accession  that  were  assessed  only  by  the  national  State  aid 
monitoring authorities to determine whether or not they constituted State aid as defined under Article 
87(1). For some countries, the data include some measures that were incompatible. Furthermore, some 
categories of aid may not have been reported to the same extent by all countries. For example, certain 
types  of  restructuring  aid  which  consist  of  postponing  and,  in  some  cases,  the  waiving  of  liabilities 
such  as  tax  arrears,  are  particularly  difficult  to  measure.  It  is  also  worth  noting  that  while  some 
countries  include  State  aid  granted  by  local  government,  others  may  include  aid  granted  only  by 
central government. As a result, the scope and quality of the data in this Scoreboard may vary from 
one country to another. 

General  measures and public subsidies  that have no affect on trade and do not distort or threaten to 
distort competition are not included in the Scoreboard. The distinction between State aid measures and 
general economic support measures should be borne in mind when interpreting the data. For example, 
the share of State aid allocated to each horizontal objective such as employment or training may vary 
considerably from one Member State to another. This does not however mean that public expenditures 
on  these  activities  are  so  different.  Instead,  some  Member  States  may  support  these  particular 
objectives  through  general  economic  support  measures.  Also  excluded  from  the  Scoreboard  is 
Community  funding  provided  to  the  new  Member  States  prior  to  accession7  as  well  as  all  aid 
compensating for the provision of services of general economic interest (SGEI)8 and de minimis aid9.  

The new Member States were not required to report aid expenditure for the agricultural and fisheries 
sectors,  which  were  covered  by  other  chapters  in  the  Europe  Agreements.  There  are  no  comparable 
data either for the transport sector for the pre-accession period. These sectors are therefore dealt with 
in separate sections under 1.3.6.  

Additional remarks of a more technical nature are included under methodological notes (Section 5).  

The above text is without prejudice to the jurisprudence of the Court. 

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A measure constitutes state aid if it is granted by a Member State or through State resources, it distorts 
or  threatens  to  distort  competition,  it  favours  certain undertakings or  the  production  of  certain goods, 
and it affects trade between Member States. 
The EU's financial planning for 2000 to 2006, adopted by the Berlin European Council in March 1999, 
included  €22  billion  devoted  to  'pre-accession  assistance'  for  infrastructure  and  institution-building 
(PHARE), environmental and transport infrastructure (ISPA) and rural development (SAPARD) in the 
applicant countries. 
See p8 of State aid Scoreboard spring 2004 update, COM (2004) 256 of 20.04.2004 
Under the de minimis rule, aid to an enterprise that does not exceed the threshold of €100 000 over any 
period of three years is not considered State aid within the meaning of Article 87(1) of the Treaty and is 
therefore not subject to the notification obligation as regards the EU Member States. 

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1. 

PART ONE: STATE AID IN THE TEN NEW MEMBER STATES 

1.1. 

The economic context prior to accession 

Any analysis of the State aid situation in the new Member States prior to accession needs to 
take account of the transition from centrally planned to market economies that took place in 
eight of the countries during the 1990s10. Below is a short description of that process as well 
as a brief overview of the economic situation in the ten new Member States. 

1.1.1.  The role of subsidies in centrally planned economies 

Prior  to  transition,  subsidies  were  widely  used  in  Central  and  Eastern  European  countries 
(CEEC).  In  centrally  planned  economies,  subsidies  were  an  integral  part  of  the  system  and 
were  used  to  connect  state  budget  and  quantitative  plans.  Quantitative  plans  were  made  by 
governmental planning authorities, which determined what kind of goods and services, how 
much,  when  and  where  to  produce.  Planners  also  decided  the  ‘socially  desirable’  prices  of 
goods  and  services.  Thus  prices  did  not  reflect  the  real  cost  of  production  of  goods  and 
services and led many enterprises to experience persistent losses or large profits which in turn 
were systematically corrected with budgetary subsidies or taxes. As the production cost varied 
from one enterprise to another, the subsidies and tax rates also varied and therefore contained 
enterprise-specific elements.  

1.1.2.  Transition from centrally planned to market economies 

During  the  transition  process  from  state-planned  to  market-oriented  economies,  the  CEEC 
countries began to try to reduce their budgetary subsidies and move towards a liberalization of 
prices.  Prices  were  permitted  to  reflect  market-clearing  levels  in  almost  all  manufacturing 
sectors. Only in some sectors, such as transport and housing, did prices remain under control. 
Almost  all  budgetary  subsidies  to  enterprises  in  price-liberalized  sectors  were  abolished.  In 
addition,  taxes  on  profit  were  harmonized,  turnover  taxes  were  rationalized  and  ad  hoc 
exemptions largely eliminated.  

Large-scale changes in the economic environment created disturbances in the economy. Most 
of  the  state-owned  enterprises  were  faced  with  serious  difficulties  such  as  a  decrease  in 
domestic demand due to import liberalization, a decrease in exports due to the collapse of the 
Council  for  Mutual  Economic  Assistance11,  liquidity  problems  due  to  insolvency  of  trading 
partners in the former USSR, and rapidly rising interest rates. These problems caused a chain 
effect among enterprises and created high inter-enterprise debts. Furthermore, there was a risk 
of a significant rise in unemployment.12 

Faced with these circumstances, the governments of transition countries were forced to help 
companies  to  survive.  This  resulted  in  financial  support  being  awarded  to  state-owned 
companies although on a number of occasions this merely postponed a bankruptcy because a 

10 
11 

12 

This applies to the eight Central and Eastern European countries, not to Cyprus and Malta. 
The  Council  for  Mutual  Economic  Assistance  was  organisation  created  in  1949  for  co-ordination  of 
economic planning in socialist states worldwide. 
In  centrally  planned  economies,  many  companies  enjoyed  a  monopoly  or  oligopoly  position  and  any 
bankruptcy  would  create  difficulties  also  for  several  suppliers  which  depended  on  the  monopoly  or 
oligopoly. 

EN 

11 

   EN 

 
                                                 
proper restructuring did not take place. While this inevitably caused some difficulties with the 
overall  transition  process,  it  should  be  noted  that,  before  the  Europe  Agreements,  subsidy 
levels  were  limited  by  the  relatively  low  state  budgets  as  most  transition  countries  tried  to 
rationalize taxes and public finances. In most cases, governments supported enterprises only 
to the extent needed to help them overcome difficulties or until privatization of state-owned 
enterprises.  

With regard to privatisation, countries have tended to use a mix of different methods such as 
auctions or public tenders, management and employee buyouts, restitution to former owners, 
mass or voucher privatizations, etc. The problem in transition economies was that the stock of 
private savings was too small to purchase the industrial assets with fair prices. Thus the state 
also supported entrepreneurs by selling industrial assets with very low prices. In many cases, 
however,  privatizations  of  state-owned  enterprises  were  open  also  to  foreign  investors,  who 
were able to pay higher prices for the industrial assets. Moreover, foreign investors brought 
new  managerial  knowledge  and  competences,  potentially leading to improved  efficiency.  In 
cases where a privatization failed and where restructuring of the enterprise would not ensure 
its  long-term  viability,  governments  often  opted  for  liquidation.  This  involved  declaring  the 
enterprise bankrupt and selling off the assets to new owners during the liquidation.  

1.1.3.  Economic indicators in the new Member States  

Despite  the  fact  that  the  Central  and  Eastern  European  accession  countries  have  made 
considerable progress in restructuring their economies, the level of economic wealth remains, 
in general, much lower than in EU-15. In 2003, the GDP per capita (PPS) in the eight Central 
and Eastern European countries was less than 55% of that of EU-15. This average however 
masks significant differences among the new Member States ranging from 39% in Latvia to 
70% in Slovenia13.  

Even though living standards in the new Member States remain lower, GDP growth in these 
countries has been consistently higher than for the EU-15 as a whole over the last nine years 
(Graph 1). In 2003, GDP growth rates were higher in every new Member State than the EU-
15  average  except  in  Malta.  The  highest  GDP  growth  rates  were  in  Lithuania  (9%),  Latvia 
(7.5%) and Estonia (5.1%) while the lowest rates were in Slovenia (2.5%), Cyprus (2%) and 
Malta (-0.1%). 

13 

The corresponding figures for Cyprus and Malta in 2003 were 78% and 69% respectively. 

EN 

12 

   EN 

 
                                                 
Graph 1: GDP at constant prices, growth rate, new Member States and EU-15 

)

%

(

e
t
a
r

h
t
w
o
r
G

6

5

4

3

2

1

0

EU-15

New MS

1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Source: Eurostat, Statistics in focus, 17/2004 

1.2. 

Enlargement process 

Compared  to  EU-15  Member  States,  the  governments  of  Central  and  Eastern  European 
(CEEC)  transition  countries  previously  had  more  flexibility  and  freedom  to  grant  aid  to 
enterprises  because  they  were  not  bound  up  by  state  aid  rules.  A  new  decade  started  in  the 
mid-1990s14with  the  Europe  Agreements15,  which  provided  a  new  framework  for  trade  and 
related  matters  between  the  Union  and  each  CEEC.  Under  the  Agreements,  the  partner 
countries committed themselves to approximating their legislation to that of the EU, including 
the  main  substantive  competition  rules  which  applied  in  areas  where  trade  between  the  EU 
and a CEEC was affected. 

The Copenhagen European Council in 1993 defined the criteria which applicants had to meet 
before they could join the EU. Among the requirements were the existence of a functioning 
market  economy  and  the  capacity  to  cope  with  competitive  pressures  and  market  forces 
within  the  EU.  As  State  aid  control  plays  a  key  role  in  creating  a  well-functioning  market 
economy,  effective  application  and  enforcement  of  such  a  policy  was  therefore  a  crucial 
component  of  the  enlargement  process.  The  accession  negotiations,  which  opened  in  1998, 
determined  the  conditions  under  which  each  applicant  country  joined  the  EU.  The 
negotiations focused on the terms under which the applicants had adopted, implemented and 
enforced the acquis", i.e. the detailed laws and rules adopted on the basis of the EC Treaty, 
and the granting of transitional arrangements which had to be limited in scope and duration. 
In practice, each of the new Member States had to establish a State aid monitoring authority 
which screened awards of State resources to determine whether or not they constituted State 
aid  as  defined  under  Article  87  of  the  Treaty  and  whether  they  were  compatible  with  the 
common market. Where identified State aid measures were deemed to be incompatible with 
the EU acquis, countries had to either adapt them to Community standards, or abolish them or 
gradually phase them out. 

14 

15 

The Europe Agreement came into force at different times throughout the course of the 1990s: 1994 – 
Hungary  and  Poland;  1995  –  Bulgaria,  Czech  Republic,  Romania,  Slovak  Republic;  1998  –  Estonia, 
Latvia, Lithuania; 1999 – Slovenia. Association Agreements were also in force with the two other new 
Member States, Cyprus and Malta. 
The full text of the Europe Agreements with Central and Eastern European countries can be found on: 
http://www.europa.eu.int/comm/enlargement/pas/europe_agr.htm 

EN 

13 

   EN 

 
 
 
 
                                                 
Progress in the area of State aid tended to be much slower than in the antitrust field, and it 
was  not  until  the  years  2000  and  2001  that  a  real  State  aid  discipline  began  to  emerge. 
Companies  (including  public  undertakings)  needed  to  adjust  to  operating  without  distortive 
forms of State aid and public bodies involved in the granting of aid had to get used to State 
aid discipline, including ex ante notification procedures. The closure of the negotiations was a 
consequence of the satisfactory efforts undertaken to adopt appropriate legislation, to set up 
relevant  authorities  to  ensure  implementation  as  well  as  to  demonstrate  a  credible 
enforcement record of the State aid rules. The negotiations with regard to all countries, except 
Bulgaria and Romania, were concluded at the European Council in Copenhagen in December 
2002  and  the  Treaty  of  Accession  was  signed  in  Athens  in  April  2003.  The  autumn  2002 
update  of  the  State  aid  Scoreboard  provides  a  more  detailed  overview  of  the  enlargement 
process and negotiations. See also country profiles (Annex II). 

1.2.1.  Transitional arrangements 

Requests for transitional periods were approached with the aim of preserving the integrity of 
the internal market after enlargement, while at the same time trying to constructively address 
specific  problem  areas  in  the  new  Member  States.  For  instance,  where  identified  State  aid 
measures  were  deemed  to  be  incompatible  with  the  acquis,  countries  were  at  first  instance 
required  either  to  abolish  these  measures  or  align  them.  In  some  rare  cases,  special  limited 
transitory arrangements were agreed.  

Two types of aid measures proved particularly demanding. The first group consisted of fiscal 
aid  regimes  incompatible  with  Article  87  of  the  EC  Treaty  ranging  from  tax  breaks,  tax 
holidays  and  tax  credits  that  are  used  to  attract  foreign  investments,  to  off-shore 
arrangements.  A  second  important  issue  concerned  aid  used  to  bail  out  ailing  industries, 
consisting of, for example, tax arrears or loan guarantees. 

The  negotiations  on  transitional  arrangements  were  conducted  on  the  basis  of  the  principle 
that  they  must  be  strictly  limited  in  scope  and  duration.  Estonia,  Latvia,  Lithuania  and 
Slovenia  did  not  request  any  transitional  arrangements.  Annex  I  presents  the  other  six 
countries’ transitional arrangements in some detail. 

1.2.2.  The role of the national monitoring authorities pre- and post accession 

As stated under section 1.2, the Europe Agreements obliged the Acceding States to ensure the 
effective  functioning  and  enforcement  of  a  state  aid  monitoring  system  in  their  jurisdiction. 
The  Acceding  States  were  however  free  to  choose  the  appropriate  body  to  carry  out  the 
various tasks associated with such a system. By 200016, each country had set up its own state 
aid monitoring authority, often operating within the Ministry of Finance (see country profiles 
in Annex II for details). It is worth noting that the requirement to set up such an authority has 
no precedent and indeed not all EU-15 Member States have one. 

From  the  date  of  accession,  the  competence  to  monitor  state  aid  was  transferred  from  these 
national  monitoring  authorities  to  the  European  Commission.  New  Member  States  are  thus 
required to notify new aid measures to the Commission. As with the current Member States, 

16 

In some countries, some form of monitoring was carried out as far back as 1997 although the authority 
was not legally established until later. The exact date setting up each national authority varies somewhat 
from  country  to  country  and  indeed  is  not  always  very  significant  as  it  merely  formalised  existing 
powers. 

EN 

14 

   EN 

 
                                                 
the  Commission  will  control  the  granting  of  aid  by  means  of  a  formal  and  transparent 
procedure.17 

In spite of this handing over of their decision-making role, the national monitoring authorities 
continue to exist in some form or other in all new Member States. Although the precise role 
varies,  each  Member  State  has  some  type  of  coordination  function  in  state  aid  matters  and 
also  provide  annual  reports  to  the  Commission.  Thanks  to  the  considerable  knowledge  and 
expertise  acquired  in  State  aid  issues  over  the  years,  these  authorities  are  able  to  advise 
national state aid grantors on Community state aid rules and facilitate the notification process. 
In addition, all now assess and monitor measures under the block exemption regulations for 
SMEs, training and employment aid.  

1.2.3.  Existing aid and the “interim procedure” 

In  order  to  prevent  incompatible  aid  from  being  “imported”  into  the  EU  on  the  date  of 
accession, a new system for Acceding Countries was set up to examine measures which were 
put into effect before 1 May 2004 and are still applicable after that date. This is known as the 
existing aid mechanism. The purpose of this mechanism was to provide Acceding Countries 
and economic operators with legal certainty as regards State aid measures that are applicable 
after  the  date  of  accession.  The  system  applies  to  State  aids  in  all  sectors,  except  for  the 
agricultural and transport sectors, for which different provisions apply (see sections 1.3.6).  

The Treaty of Accession (Annex IV) stipulated that aid schemes and individual aid put into 
effect in a new Member State before the date of accession and still applicable after accession 
should be regarded as existing aid within the meaning of Article 88(1) EC Treaty if one of the 
following conditions was met:  

•  aid  measures  put  into  effect  before  10  December  1994  were  automatically  considered  as 

existing aid from the date of accession; 

•  measures submitted by the Acceding Countries in 2002 were examined by the Commission 
in the light of the state aid acquis. Measures considered to be in line with the state aid rules 
qualified as existing aid and were included in the list annexed to the Treaty of Accession. 
This list was finalised in November 2002; 

•  for  measures  not  accepted  in  the  Treaty  list  and  for  those  submitted  after  its  finalisation 
and up to 30 April 2004, the so-called “interim procedure” for existing aid was introduced. 
Under  this  procedure,  Acceding  Countries  submitted  a  series  of  measures  to  the 
Commission  for  assessment.  The  Commission  approved  all  measures  which  were 
compatible  with  the  state  aid  rules.  When  the  Commission  had  serious  doubts  about  the 
compatibility,  it  took  a  decision  to  initiate  the  formal  investigation  procedure  which 
entered into effect on the date of accession. The notion of “applicable after accession” was 
a  crucial  factor  in  deciding  whether  or  not  the  Commission  should  assess  a  particular 
measure  as  it  did  not  have  the  power  to  oppose measures  that  were  not  “applicable  after 
accession”.  

17 

Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application 
of Article 93 of the EC Treaty, Official Journal L 83, 27.03.1999, pages 1-9; 
Commission  Regulation  (EC)  No  794/2004  of  21  April  2004  implementing  Council  Regulation  (EC) 
No  659/1999  laying  down  detailed  rules  for  the  application  of  Article  93  of  the  EC  Treaty,  Official 
Journal L 140, 30.04.2004, pages 1-134; 

EN 

15 

   EN 

 
                                                 
 
Basically, the notion covered the following types: 

–  Aid  schemes  were  considered  to  be  “applicable  after  accession”  if,  from  the  date  of 
accession, aid awards could still be made on the basis of these schemes and without further 
implementing measures being required; 

–  Aid that was not linked to a specific project and that was awarded before accession to one 

or several undertakings for an indefinite period of time and/or an indefinite amount18; 

–  Individual  aid  measures  for  which  the  precise  amount  of  State  aid  was  not  known  at  the 

time the aid was granted.  

All measures still applicable after the date of accession, which constitute state aid but did not 
fulfil  the  conditions  of  existing  aid  set  out  above,  have  been  considered  as  new  aid  upon 
accession.  The  qualification  of  a  measure  as  existing  aid  as  opposed  to  new  aid  has  very 
important  consequences:  the  Commission  can  immediately  initiate  the  formal  investigation 
procedure with regard to new aid not cleared under the interim procedure. If the aid is found 
to be incompatible with the Treaty, the Commission shall by decision order it to be recovered 
from  the  beneficiaries.  In  contrast  to  new  aid,  an  existing  aid  measure  is  “protected”  from 
actions  of  the  Commission  since  it  is  subject  to  a  co-operation  procedure  between  the 
Commission and the Member State. 

1.2.3.1.  Some figures on the existing aid mechanism 

During the first phase of the existing aid mechanism, i.e. establishment of the Treaty list in 
2002,  some  222  measures  were  approved  by  the  Commission  and  listed  in  the  Treaty  of 
Accession.  During  the  second  phase,  the  so-called  interim  procedure,  the  ten  Acceding 
Countries submitted a further 559 measures of which around 175 of them were withdrawn by 
the  countries  themselves.  By  September  2004,  278  measures  had  been  approved  by  the 
Commission as existing aid measures. A significant number of measures were submitted just 
before accession on 1 May 2004. This is reflected in the 106 measures still under assessment. 
The number of measures varies considerably from one new Member State to another. While 
some  opted  to  create  aid  schemes,  such  as  Hungary,  other  countries  such  as  the  Czech 
Republic preferred to notify individual aid awards (Table 1). 
Table 1: State aid measures approved as existing aid upon accession 19 
SI

LT HU MT

SK Total

EE CY

CZ

LV

PL

Approved and listed in 
the Treaty
Approved under the 
interim mechanism
Under assessment as of 
September 2004

120

3

31

6

3

21

96

11

21

19

13

20

43

0

0

1

0

7

Source: DG Competition 

1.2.4.  Candidate countries 

7

1

2

7

15

9

222

18

17

62

278

43

2

8

106  

The European Union is currently engaged in accession negotiations with two other candidate 
countries: Bulgaria and Romania (see country profiles in Annex II). The competition chapter 

18 
19 

These aids are also considered “aid schemes” under the Procedural Regulation No. 659/99. 
The  figures  include  state  aid  measures  to  the  manufacturing,  service  and  coal  sectors  as  well  as  the 
fisheries sector. 

EN 

16 

   EN 

 
                                                 
for  Bulgaria  was  provisionally  closed  in  2004,  while  negotiations  are  still  on-going  with 
Romania.  They  will  join  the  Union  in  2007,  providing  they  meet  the  required  standards  of 
readiness  in  time.  Two  other  candidate  countries,  Turkey  and  Croatia,  are  waiting  to  open 
their membership negotiations.  

1.3. 

Overview of the State aid situation in the ten new Member States 

This section provides a snapshot of State aid granted in the ten new Member States over the 
period prior to accession (2000-2003). 

1.3.1. 

State aid in absolute and relative terms 

The population of the ten new Member States stood at 74 million in the year 2003 compared 
with the EU total of 376 million. The largest countries were Poland (38 million), the Czech 
Republic (10 million) and Hungary (10 million), the smallest Malta (0.4 million) and Cyprus 
(0.7 million).  

Total state aid20 granted annually by the ten new Member States during the four-year period 
2000-2003 was estimated at €5.7 billion. The comparable figure for the EU-15 Member States 
in  2002  was  €34  billion21.  In  absolute  terms,  the  three  biggest  countries  in  terms  of 
population,  awarded  the  most  aid:  Poland  (an  annual  average  of  €2.4  billion)  the  Czech 
Republic (€1.9 billion) and Hungary (€0.57 billion). Together they accounted for 86% of total 
aid in the ten new Member States (Table 2). 

During the period under review, the level of State aid increased each year from €4 billion in 
2000 to €7.8 billion in 2003. The increase was caused by very large awards of aid in 2002 to 
the Czech banking sector (€2.4 billion) and in 2003 to the Polish coal sector (€3.9 billion). 

Table 2: State aid in the new Member States, 2000 – 2003(1) 

New 
MS CZ EE CY LV LT HU MT PL SI

SK

EU 15

Total State aid less agriculture, 
fisheries and transport in million € 34000 5654 1908

7

285

23

34

571 159 2409 139 118

State aid as percentage of GDP (%)

0.39

1.42 2.80 0.11 2.85 0.26 0.24 1.04 3.86 1.29 0.69 0.51

Population (million)

State aid per capita (PPS)

376.5 74.1 10.2 1.4

0.7

2.3

3.4 10.1 0.4 38.2 2.0

5.4

94

150

386

10

497

21

22

114 601 127 100

51  

(1) Unless otherwise stated, the figures refer to the annual average over this period. For Malta, the period 
covered is 2000-2002. State aid data for EU-15 refer to 2002. Source: DG Competition and Eurostat. 

In  relative  terms,  State  aid  may  be  expressed  as  a  percentage  of  GDP  or  as  a  per  capita 
measure. For the  ten  new  Member  States as a whole, State aid amounted to 1.42% of GDP 
over the period 2000 – 2003. This is significantly higher than the EU-15 average of 0.4 % in 
2002. There were large disparities between the new Member States: Malta (3.86%), Cyprus 
(2.85%) and Czech Republic (2.8%) reported aid levels well above the average. In contrast, 
the  three  Baltic  States  had  by  far  the  lowest  shares:  Estonia  (0.1%),  Lithuania  (0.24%)  and 

20 
21 

Total State aid less agriculture, fisheries and transport 
As data for the EU-15 Member States are not yet available for 2003, the year 2002 is taken as the best 
proxy to compare with the annual average for the ten new Member States. 

EN 

17 

   EN 

 
                                                 
Latvia (0.26%). When aid is expressed in per capita terms (PPS)22, a slightly different picture 
emerges with the Slovak Republic joining the three Baltic states below the EU-15 average of 
94  PPS  per  person.  Furthermore,  Slovenia  and  Hungary  lie  only  slightly  above  the  EU 
average (Table 2 and Graph 2). 

Graph 2: State aid as a percentage of GDP in the new Member States, 2000-2003 

%
4,0

3,5

3,0

2,5

2,0

1,5

1,0

0,5

0,0

EU15 New
MS

CZ

EE

CY

LV

LT

HU

MT

PL

SI

SK

Note: Average 2000-2002 in mio € for Malta. EU-15 figures refer to 2002. Source: DG Competition 

Aid given under measures that are being phased out

The  above  data  present  a  very  dispersed  picture  for  the  new  Member  States.  However,  the 
relatively  high  proportion  of  State  aid  in  the  Czech  Republic,  Cyprus  and  Malta  does  not 
necessarily  reflect  a  more  lax  attitude  to  State  aid  control  in  these  countries.  Instead,  each 
appears  to  have  had  its  own  country-specific situation.  Faced  with  a  general  banking  crisis, 
the  Czech  Republic  paid  out  €2.4  billion  in  2002  in  the  form  of  guarantees  in  order  to 
restructure  and  subsequently  privatise  several  banks.  In  Cyprus,  the  aid  was  mainly  granted 
through tax relief under the International Business  Enterprises  Act  (almost  60%  of  total  aid 
over  the  period  2000-2003)  and  exemptions  from  import  duties  for  raw  materials  in 
manufacturing sector (8% of total aid over the period 2000-2003 but 47% in 2003). In Malta, 
restructuring aid to shipbuilding and the ship repair sector accounted for around 50% of total 
aid. All of the above measures are either being phased out under transitional arrangements or 
limited  in  time.  If  the  aid  amounts  given  under  these  types  of  aid  measures  are  excluded,  a 
different picture emerges: the overall level of state aid drops to 0.67% of GDP for the ten new 
Member States and to 2.08% in Malta, 0.82% in Cyprus and 0.47% in the Czech Republic. 

To  what  extent  have  the  new  Member  States  supported  (or  are  likely  to  support  in  future) 
efforts the call to reduce the overall level of State aid, one of the principal objectives of the 

22 

State  aid  per  capita  are  expressed  in  terms  of  Purchasing  Power  Standards  (PPS)  and  therefore  the 
differences  in  price  levels  between  countries  are  taken  into  account.  In  general,  when  PPS  are  used 
instead  of  exchange  rates,  the  gap  between  high-income  and  low-income  countries  narrows  as  price 
levels in low-income countries tend to be low compared to richer countries. 

EN 

18 

   EN 

 
 
                                                 
Lisbon  agenda?  Notwithstanding  the  measurement  difficulties  set  out  below,  the  data 
presented for the year immediately prior to accession, 2003, can be broken down further so as 
to  give  some  sort  of  indication  as  to  likely  future  expenditure  levels.  The  country  profiles 
(Annex  II)  present,  as  a  percentage  of  total  aid  awarded  in  2003,  the  proportion  of  aid 
awarded  under  measures  that  did  not  continue  after  accession,  i.e.  in  the  case  of  a  scheme 
which expired before 1 May 2004 or an ad hoc award of aid for the year 2003. The residual is 
therefore  made  up  of  aid  qualifying  as  ‘existing’23  or  aid  awarded  under  a  transitional 
arrangement for which there are likely to be ongoing payments after accession. 

For some new Member States, this breakdown shows that a large part of the aid awarded in 
2003  was  under  measures  that  did  not  continue  after  accession.  For  others,  it  shows  that  a 
significant proportion of total aid was awarded under a transitional arrangement. This implies 
that aid levels are likely to remain relatively high up to the end of the transitional period but 
will probably decrease in the long term. 

Caution should however be exercised in attempting to use the data presented here, as a gauge 
for what may happen in the coming years. An accurate forecast of future expenditure levels is 
not possible due to a variety of reasons: first, there is clearly no indication as to what extent 
the  new  Member  States  intend  to  notify  new  aid  measures  in  the  coming  years.  Second,  a 
significant number of new measures have been submitted under the interim mechanism during 
the first few months of 2004 and consequently are not covered in this exercise as there were 
no payments in 2003. Finally, given that the European Structural funds are subject to the so-
called  “additionality”  principle24,  some  new  Member  States  have  already  indicated  that 
overall State aid levels are likely to increase, at least in the short-term.  

1.3.2. 

State aid by objective 

State  aid  for  horizontal  objectives  is  usually  considered  as  being  targeted  to  recognised 
market failures and as being less distortive than sectoral and ad hoc aid. R&D, safeguarding 
the  environment,  energy  saving,  regional  development  and  support  to  SMEs  are  the  most 
prominent  horizontal  objectives  pursued  with  State  aid.  In  contrast,  aid  to  support  specific 
sectors is likely to distort competition more than aid for horizontal objectives and also tends 
to favour other objectives than identified market failures. Moreover, a significant part of such 
aid  is  granted  to  rescue  or  restructure  companies  in  difficulty,  one  of  the  most  potentially 
distortive types of State aid.  

1.3.3. 

State aid for horizontal objectives 

To  what  extent  have  the  new  Member  States  supported  another  key  Lisbon  objective,  to 
redirect  state  aid  towards  horizontal  objectives25?  Between  2000  and  2003,  aid  granted  for 
horizontal objectives accounted for around 22% of total aid in the new Member States. This 
share is rather low in comparison to 73% in the EU-15 Member States in 2002. The disparity 

23 

24 

25 

The precise figures should be treated with caution due to the fact that some aid measures for which aid 
was granted during the period under review were subsequently modified and approved as existing aid. 
The additionality principle states that Structural Funds spending should not replace, but be additional to 
the spending of national and other public authorities. It implies that the intervention of EU funding does 
not  lead  to  the  national  planning  authorities  diverting  resources  from  other  schemes  that  they  would 
have carried out normally, in the absence of Community funding, in order to co-finance the Structural 
Funds’ programme. 
Including aid for cohesion objectives (regional aid) 

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19 

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can be explained in part by the relatively strong support of several industries (e.g., financial 
sector, coal and steel) before accession in order to complete privatisation and reach viability 
(see also section 1.3.4). 

As  to  likely  future  trends,  given  the  structural  problems  of  their  economies  and  the  general 
macro economic environment in which they were operating prior to accession (as outlined in 
section 1.1), it is somewhat premature to draw any conclusions. Nevertheless, in the context 
of  redirecting  aid,  it  is  encouraging  to  note  that  475  of  the  500  aid  measures  qualifying  as 
existing  aid  upon  accession  are  earmarked  for  horizontal  objectives  although  this  figure 
overestimates  the  share  of  horizontal  aid  measures  for  a  number  of  reasons.  In  particular, 
individual aids were less likely than schemes to be “applicable after” accession so they were 
less likely to come under the interim mechanism. In addition, the new Member States could 
not  make  use  of  the  block  exemption  regulations,  so  that  all  such  measures,  which  by  their 
nature  fall  under  horizontal  objectives,  came  under  the  interim  mechanism.  In  terms  of 
expenditure, the share of horizontal objectives in total aid is likely to be much lower due to 
the  large  amounts  of  aid  awarded  for  non-horizontal  objectives,  i.e.  sectoral  aid  or  ad  hoc 
awards.26 

During  the  period  prior  to  accession,  there  were  large  disparities  between  the  new  Member 
States  in  the  share  of  horizontal  objectives  ranging  from  around  10%  or  less  of  total  aid  in 
Malta, Lithuania and the Czech Republic to 50% or more in Slovenia and Latvia (Table 3). In 
Estonia, virtually all the aid awarded was earmarked for horizontal objectives.  

In spite of some measurement difficulties (see methodological notes), the data do give a broad 
indication  as  to  which  horizontal  objectives  are  favoured  by  each  country.  Over  the  period 
2000-2003,  around  20%  of  all  aid  in  Slovenia  was  specifically  granted  for  employment 
objectives.  Estonia  and  Slovenia  directed  around  15%  of  its  aid  to  environment  compared 
with  a  new  Member  State  average  of  just  over  2%.  The  same  two  countries  also  granted 
around 15% of their total aid to research and development. Aid to conserve national heritage 
and  support  culture  made  up  a  prominent  part  (20%)  of  Estonia’s  total  aid,  while  another 
Baltic state, Latvia, seems to have specifically favoured its SMEs (32% of total aid compared 
to 3% in the ten countries overall). Finally, Cyprus granted almost 10% for cultural purposes, 
theatrical and film productions and national broadcasting. 

26 

A precise figure can not be given due to the fact that a significant number of these schemes were put 
into effect in 2004 and therefore expenditure data are not available for them. 

EN 

20 

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Table  3:  State  aid  for  horizontal  objectives  and  particular  sectors  in  the  new  Member 
States, 2000-2003 

EU-15

New MS

CZ EE CY LV LT HU MT PL

Annual averages
SI SK
mio € % mio € % % % % % % % % % % %
24
24,711
4
5,179
1
5,283
1
4,857
1
318
-
838
-
562

73 1,229
15
102
16
133
14
127
1
13
2
218
2
73

10 100
13
2
15
2
10
2
8
-
-
1
-
0

55
-
0
2
2
-
-

42
3
3
7
-
4
1

73
16
17
9
-
21
2

24
1
2
1
-
7
2

23
0
1
4
2
-
2

22
2
2
2
0
4
1

5
-
-
1
4
-
0

4
1
-
-
2
-
-

510
33
18
7,115

9,294
1,138
485
9
18
5,432
773
1,836
115

1
0
0
23

39
3
1
520

27 4,425
3 1,470
1
87
0
246
0
58
16 1,373
2
32
5 1,534
0
15

1
0
0
9

78
26
2
4
1
24
1
27
0

0
-
-
3

90
10
-
4
1
0
1
80
-

20
-
-
33

-
-
-
-
-
-
-
-
-

11
0
-
4

77
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

-
-
-
50

-
-
-
1

45 96
45 94
0
-
-
-
2
-
-

-
-
-
-
-
-
-

1
-
0
23

58
53
-
-
-
4
-
0
0

0
-
-
-

95
89
51
-
-
-
1
-
5

-
-
-
11

76
20
0
5
0
56
0
-
-

1
2
-
7

27
19
-
6
-
7
-
-
0

1
-
-
17

76
59
0
35
24
3
8
6
0

34,005

100 5,654

100 1,908

7

285

23 34 571 159 2,409 139 118

Horizontal Objectives
     R&D
     Environment
     SME
     Commerce
     Employment aid
     Training aid
     Heritage conservation, 
cultural aid
     Natural disasters
     Risk capital
     Regional aid

Sectoral aid (1) (2)
     Manufacturing
        of which shipbuilding
        of which steel
        of which motor vehicles
     Coal
     Other Non-manufacturing
     Financial Services
     Other services

Total aid less agriculture, 
fisheries and transport in 
million €

Note: Average 2000-2002 in mio € for Malta. EU-15 figures refer to 2002. For Cyprus, a breakdown of sectoral 
aid is not available (see country profile). The new MS figures for the sub-categories of sectoral aid are therefore 
slightly underestimated. (1) Aid for specific sectors awarded under measures for which there was no horizontal 
objective as well as aid for rescue and restructuring. Source: DG Competition. 

1.3.3.1.  State aid supporting regional development and cohesion 

In  terms  of  aid  amounts,  the  largest  horizontal  objective  was  general  regional  economic 
development.  Under  Article  87(3)  of  the  Treaty,  certain  areas  (regions)  may  be  given 
derogation  from  the  incompatibility  principle  established  by  Article  87(1).  Article  87(3)(a) 
provides that aid “to promote the economic development of areas where the standard of living 
is abnormally low or where there is serious underemployment” may be considered compatible 
with the common market. In practice, a region qualifies for ‘a’ status if, being a NUTS27 level 
II geographical unit, it has a per capita GDP of less than 75% of the EU average.  

The Europe Agreements laid down that each country was to be regarded for five years from 
the  entry  into  force  of  the  Agreement  as  an  area  identical  to  those  areas  of  the  Community 

27 

NUTS is the Nomenclature of territorial units for statistics. 
http://europa.eu.int/comm/eurostat/ramon/nuts/home_regions_en.html 

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21 

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qualifying for regional aid under Article 87(3)a. Regional aid maps28 were adopted for each 
country and have since been extended up to 31 December 200629. In effect, virtually the entire 
territory  of  each  new  Member  State  is  eligible  for  'a'  status,  the  only  exceptions  being  the 
territory of Cyprus and the capital cities Prague and Bratislava.30 This has implications for the 
classification of aid for regional objectives in that almost all the aid in the new Member States 
could  be  considered  as  regional  aid  in  that  it  is  directed  towards  assisted  regions.  For  the 
purposes of comparability between Member States, however, all aid measures have as far as 
possible being classified under other horizontal objectives. Nevertheless, in the period under 
review,  an  annual  average  of  €520  million  (9%  of  total  aid)  was  granted  for  regional  and 
cohesion  purposes,  usually  in  the  form  of  general  economic  development  schemes.  There 
were differences between countries in the share of regional aid to total aid ranging from less 
than 5% in Lithuania, the Czech Republic, Malta and Cyprus to more than 30% in Estonia and 
Latvia. 

1.3.4. 

State aid for sectoral objectives 

Aid to support specific sectors, including aid awarded to rescue or restructure companies, is 
likely to distort competition more than aid for horizontal objectives. In the period 2000-2003, 
around 78% of State aid in the new Member States was earmarked for these potentially more 
distortive types of aid. There were large disparities between countries in the share of sectoral 
objectives  ranging  from  around  50%  or  less  of  total  aid  in  Latvia  and  Slovenia  to  90%  or 
more in Lithuania, the Czech Republic and Malta (Table 3). In Estonia, no aid was earmarked 
for sectoral objectives. 

The financial sector received the most support in these years (27%), due almost entirely to the 
legacy  of  a  general  banking  crisis  in  the  1990s  in  the  Czech  Republic.  A  further  26%  was 
directed  towards  the  manufacturing  sector31,  24%  for  coal  (mainly  in  Poland)  and  the 
remainder (1%) split between non-manufacturing not elsewhere classified and services other 
than financial. 

There are significant differences between Member States in the sectors to which they directed 
aid (Table 3). Aid to the manufacturing sector accounted for less than 20% in Slovenia, the 
Czech  Republic  and  Poland  while  in  Malta  and  Lithuania  the  share  was  around  90%.  The 
figure for Malta can be explained largely by the vast amount of aid given for restructuring the 
island’s  shipbuilding  and  ship  repair  sector.  The  high  percentage  in  Lithuania  can  be 
explained  by  the  relatively  high  amounts  of  rescue  and  restructuring  aid  to  various 
manufacturing companies. Aid to coal mining accounted for a prominent part of total aid in 
Poland  (56%)  while  aid  to  the  financial  sector  made  up  80%  of  total  aid  in  the  Czech 
Republic during the period under review. 

1.3.4.1.  State aid to the financial sector 

From  1994  to  1998,  the  Czech  Republic,  Hungary  and the Slovak Republic faced a general 
banking  crisis  that  affected  the  whole  banking  sector,  as  a  result  of  which  governments 

28 

29 
30 
31 

The  regional  aid  maps  identify  the  eligibility  of  regions  for  regional  aid  as  well  as  the  maximum  aid 
intensities  allowed  in  each  of  these  regions,  taking  account  of  regional  disparities  as  reflected  in  per 
capita income. It sets eligible territories and allowable ceilings until a definite period. 
The Czech regional aid map is still being assessed. 
See more detailed information in the country profiles (Annex II). 
This figure excludes aid earmarked for the manufacturing sector which also had a horizontal objective 

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22 

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intervened  in  order  to  restructure  and  subsequently  privatise  several  banks.  These  measures 
included  capital  injections,  transfers  of  assets,  public  guarantees,  ring-fence  agreements  and 
litigation indemnities. The cost of these bailouts reached an annual average of €1.53 billion, 
accounting  for  27%  of  the  total  aid  over  the  period  2000-2003.  The  highest  share  was 
observed in the Czech Republic which paid out more than €2.4 billion in 2002 in the form of 
guarantees.  Relatively  smaller  amounts  were  given  in  Hungary  and  the  Slovak  Republic 
where the restructuring mainly took place prior to 2000. 

The countries in question notified a series of cases under the interim mechanism concerning 
aid to banks. To date, the Commission has adopted 18 decisions essentially declaring that the 
measures  were  (in  technical  terms)  “not  applicable  after  accession”.  In  two  cases  the 
Commission has opened proceedings because it found that the measures were applicable after 
accession and had doubts as to its compatibility with the common market.  

A “not applicable after accession” decision means that a measure was granted in its entirety 
before 1 May 2004, and thus the Commission was neither required nor empowered to assess 
such measures. An individual aid is considered as “applicable after accession” if it is likely to 
increase the liability of the state after the date of accession. This may be the case for example 
with a state guarantee, if the liability of the state is not clearly known. Nevertheless, a “not 
applicable after accession” decision does not mean that there would be no longer any further 
payments, within the predefined limits, for those aid measures after accession. 

1.3.4.2.  State aid to the coal sector 

An annual average of €1.4 billion was granted to the coal sector between 2000 and 2003. In 
absolute  terms,  this  amount  is  relatively  low  in  comparison  to  the  EU-15  average  of  €5.4 
billion in 2002. In relative terms, while aid to the coal sector amounted to 16% of total aid in 
the EU-15 as a whole, in Poland it accounted for 56%. In the case of Poland, however, the 
annual average of €1.3 billion is rather misleading as €3.9 billion was awarded in 2003 alone. 

Four other new Member States granted aid to this sector: Hungary (an annual average of €22 
million),  Slovenia  (€10  million),  the  Slovak  Republic  (€3  million)  and  the  Czech  Republic 
(€1 million). In most cases, support to the coal industry took the form of closure aid, with the 
costs  mainly  related  to  exceptional  expenditure  on  workers  who  lost  their  jobs  and  to  the 
rehabilitation  of  former  mining  sites.  In  Poland,  however,  a  large  share  of  the  aid  (around 
40%) awarded in 2003 was for earmarked for current production. 

1.3.4.3.  State aid to the steel sector 

Steel  is  an  important  industrial  sector  in  a  number  of  new  Member  States,  especially  in  the 
Czech Republic and Poland, a fact reflected by the level of employment in the sector and the 
value added generated by steel producers in both countries. Over the last decade, significant 
restructuring  of 
the 
industry  has  been  achieved, 
competitiveness of the sector. A large number of non-viable facilities have been permanently 
closed  and  existing  plants  modernised.  Changes  in  management  structures  have  also  taken 
place in parallel with the ongoing privatisation and concentration process.  

thereby  strengthening 

the  steel 

For  many  companies  in  these  countries,  viability  could  not  have  been  achieved  up  to  now 
without  financial  support  of  the  governments.  For  this  reason,  transitional  periods  were 
negotiated with the Czech Republic and Poland to allow the granting of state aid to specific 
companies.  The  maximum  amount  of  aid  permitted  corresponds  to  the  financial  projections 

EN 

23 

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made  in  the  National  Restructuring  Programmes  and  the  Individual  Business  Plans  of  the 
companies,  which  were  adopted  by  the  Czech  and  Polish  governments  and  agreed  by  the 
Commission.  For  the  Czech  Republic,  the  maximum  permissible  amount  of  state  aid  was 
€413  million  for  the  period  1997-2003  while  for  Poland  it  was  €769  million.  These 
exemptions  from  the  EU  rules  on  state  aid  are  conditional  on  the  fulfilment  of  certain 
obligations that are monitored and reported regularly. Over the period 2000-2003, an annual 
average of €246 million of aid to the steel sector was awarded in four new Member States: the 
highest amount in the Poland (€122 million), followed by the Czech Republic (€75 million). 
Smaller  amounts  were  granted  by  the  Slovak  Republic  (€41  million)  and  Slovenia  (€9 
million). 

1.3.4.4.  State aid to the shipbuilding sector 

Of  the  new  Member  States,  Poland,  Malta  and  the  three  Baltic  states  have  a  shipbuilding 
industry,  with  regard  to  which  State  aid  issues  have  arisen  or  may  arise  in  future.  The 
operations  in  the  shipyards  in  these  countries  are  to  a  large  extent  determined  by  the 
international context, and can be compared to the situation of any other European yard. The 
record  world-wide  order  volumes  in  the  past  years  have  mainly  benefited  two  countries  - 
South  Korea  and  China.  The  European  shipbuilding  industry  is  now  searching  for 
consolidation  and  reestablishment  on  the  international  market  through  specialisation  and 
innovation. In this respect, the needs of shipyards in new Member States are similar to those 
of  the  EU-15  Member  States.  In  the  period  under  review,  €87  million  on  average  was 
allocated each year to the shipbuilding sector in the new Member States. 

Unlike  Malta,  Poland,  with  its  relatively  large  shipbuilding  industry,  did  not  negotiate  any 
transitional arrangements for the application of State aid rules to this sector. Poland’s major 
shipbuilders in Gdynia and Szczecin are due to finalise in 2006 and 2004 their financial and 
material  restructuring.  A  total  of  €24  million  was  paid  out  to  these  companies  in  the  years 
2000  and  2002.  The  sector,  historically  important  in  Poland,  has  been  characterised  by 
overcapacity, 
insufficient 
productivity  levels.  Maltese  shipbuilding  faces  similar  difficulties,  but  from  the  State  aid 
perspective, a special transitional scheme closely monitored  by the Commission was  agreed 
upon  in  the  Treaty  of  Accession.  Under  this  scheme,  an  annual  average  of  €81  million, 
representing around half the total aid in Malta, was allotted to the Maltese shipbuilding and 
ship repair companies. 

insufficient  financing  facilities, 

labour-costs  and 

increased 

1.3.4.5.  State aid to the motor vehicle sector 

The  motor  vehicle  industry  is  another  significant  industrial  sector  in  several  of  the  new 
Member  States.  Over  the  period  2000-2003,  an  annual  average  of  €58  million  of  aid  was 
awarded  to  this  sector  in  four  countries.  The  highest  amounts  were  awarded  in  the  Czech 
Republic (€29 million per year) and the Slovak Republic (€28 million). Under its budgetary 
law, Poland granted almost €3 million state aid in 2002 while Cyprus exempted the import of 
raw  materials  used  by  the  industry  to  the  tune  of  almost  €3  million  in  total  over  the  period 
under  review.  These  aids  were  used  to  bail  out  companies  in  difficulty  and  to  exempt  the 
sector from tax obligations.  

In  addition,  smaller  amounts  were  given  in  the  Czech  Republic  and  the  Slovak  Republic  to 
support  employment  and  training  in  the  sector  (€3  million  per  year),  as  well  as  to  attract 
investments in underdeveloped regions (€5 million per year).  

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24 

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1.3.5. 

State aid instruments 

All State aid represents a cost or a loss of revenue to the public authorities and a benefit to 
recipients.  However,  the  aid  element,  i.e.  the  ultimate  financial  benefit  contained  in  the 
nominal  amount  transferred  depends  to  a  large  extent  on  the  form  in  which  the  aid  is 
provided.  

For the new Member States as a whole, guarantees were the most frequently used form of aid 
instrument  making  up  41%  of  total  aid  over  the  period  2000-2003.  This  high  percentage, 
compared to the EU-15 average of 3%, can be explained by the large proportion of guarantees 
in the Czech Republic (78% of total aid)32. Tax exemptions (29%) and grants (22%) were the 
two other instruments used predominantly in the new Member States (Table 4). The tendency 
of  the  new  Member  States  to  use  instruments  with  a  deferred  impact  on  the  budget,  i.e. 
instruments other than grants, may be explained, in part, by budgetary constraints. 

These  averages  conceal  considerable  differences  between  the  new  countries:  while  Cyprus, 
the Slovak Republic and Hungary made widespread use of tax exemptions (more than 60% of 
total aid) in the years 2000-2003, Estonia, Slovenia and Lithuania tended to use more grants 
(41% or more of total aid). Soft loans accounted for a significant share of total aid in Malta 
(33%) compared with a new Member State average of only 3%. Around 26% of aid in Latvia 
was awarded for the capitalisation of tax debts accrued before privatisation.  

Table 4: State aid for manufacturing and services by type of aid instrument, 2000 – 2003 

Tax 
exemptions

FORM OF AID
Equity 
participations

Grants

Soft loans

6.0
24.0
EU-15*
2.9
28.5
New MS
0.0
80.9
CY
1.3
3.4
CZ
0.2
14.4
EE
0.6
61.5
HU
5.2
15.6
LT
8.7
57.1
LV
33.4
36.6
MA
3.9
34.5
PL*
5.8
33.2
SI
0.0
72.4
SK
Note: * EU-15 and Poland data only for 2000 – 2002. Source: DG Competition  

58.6
22.4
17.9
11.7
68.6
36.8
41.1
4.0
19.1
32.1
46.4
10.0

5.6
3.1
0.0
5.6
0.0
0.1
9.6
26.4
0.0
0.5
10.8
0.0

in %

Tax deferrals Guarantees
3.2
2.6
41.1
1.9
1.2
0.0
77.7
0.4
16.7
0.0
1.0
0.0
27.8
0.7
2.7
1.1
9.6
1.4
22.8
6.3
3.7
0.0
17.6  
0.0

1.3.6. 

State aid to other sectors 

1.3.6.1.  State aid to agriculture 

State aid to agriculture was not covered by the pre-accession mechanism provided for under 
the Europe Agreements with the new Member States. Point 3 of Annex IV to the Treaty of 

32 

If the Czech Republic’s guarantees for the banking sector are excluded, guarantees make up only 12% 
of total aid in the ten new Member States. 

EN 

25 

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Accession  on  the  interim  mechanism  procedure  excluded  expressis  verbis  its  application  to 
activities  linked  to  the  production,  processing  and  marketing  of  agricultural  products  in 
Annex  I  of  the  EC  Treaty.  State  aid  granted  in  the  agriculture  sector  is  subject  to  a  special 
regime under the Treaty of Accession as set out in Point 4 of Annex IV. The regime provides 
for  the  general  rules  applicable  to  all  new  Member  States.  In  addition,  several  of  the  new 
Member States have obtained special temporary derogations from the State aid rules.  

According  to  these  provisions,  aid  schemes  and  individual  aid  granted  in  the  agriculture 
sector,  with  the  exception  of  fisheries  products  and  products  derived  there  from,  put  into 
effect in a new Member State before the date of accession and still applicable after that date, 
shall be regarded as existing aid within the meaning of Article 88(1) EC only if the measure is 
communicated to the Commission as existing aid within four months of the date of accession, 
i.e. by 31 August 2004. 

These  measures  enjoy  the  protection  of  an  existing  aid  until  the  date  of  a  so-called  ‘sunset 
clause’.  By  1  September  2004,  all  new  Member  State  had  submitted  their  existing  aid 
measures  which  the  Commission  will  publish  in  due  course.  The  new  Member  States  have 
until  the  end  of  the  third  year  after  the  date  of  accession,  i.e.  end  of  April  2007,  to  ensure 
compatibility of those measures with the requirements of Community State aid rules. The new 
Member States shall, where necessary, amend these aid measures by the end of this three-year 
period. Ultimately, after 31 December 2007, any existing State aid that is incompatible with 
the acquis either has to be abolished or modified.  

This  provision  concerning  existing  aid  is  without  prejudice  to  the  procedures  concerning 
existing aid provided for in Article 88 EC. Therefore the Commission may, even before the 
end  of  the  three  years  following  accession,  propose  appropriate  measures  with  regard  to 
incompatible existing aid schemes. On this basis, it may recommend to a new Member State 
either to introduce amendments to such a scheme or abolish it. For such actions, the procedure 
set out in Articles 17 to 19 of Regulation (EC) No 659/1999 applies. Between April and the 
end of August 2004, all new Member States have submitted their 'existing aid' measures. The 
Commission will now proceed to their publication. Of course, the possibility to maintain an 
aid  as  existing  aid  does  not  authorise  a  new  Member  State  to  uphold  measures  that  are  in 
conflict with other parts of Community law, such as the rules on the free movement of goods 
or the common organisations for the markets for agricultural products. 

1.3.6.2.  State aid to fisheries 

State  aid  to  fisheries  and  aquaculture  was  not  covered  by  the  pre-accession  mechanism 
provided for under the Europe Agreements with the new Member States. During the accession 
negotiations, the Commission stressed to the Acceding countries the importance of bringing 
their State aid measures into compliance with Community rules. 

From April 2003, State aid in the fisheries sector was covered by the interim mechanism for 
existing  aid  provided  for  in  the  Treaty  of  Accession  under  which  measures  put  into  effect 
before  1  May  2004  and  applicable  after  this  date,  could  be  notified.  In  respect  to  that 
procedure, the Commission services addressed a letter to all new Member States, encouraging 
their  authorities  to  notify  the  existing  measures  to  the  Commission  before  1  May  2004. 
During this period, the Commission services had on-going contacts with the authorities of the 
new  Member  States  and  participated  in  training  meetings  with  them.  In  total,  13  measures 
were notified under this procedure (see table below). 

EN 

26 

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Table 5: Existing aid measures for fisheries and aquaculture submitted under the 
interim mechanism procedure 

Member State

Number of 
schemes

Duration

Cyprus

Czech Republic

Hungary
Latvia

Lithuania
Poland
Slovenia

1

6

2
1

In State Budget since 
1995
Unlimited except for 
one scheme expiring in 
2006 (1)
2006
2021

2002-2010

1
1 (individual aid) 1996-unlimited
1

2006

Annual budget (mio 
€/year)

€0.008

€23.2 of which €20.7 
for scheme expiring in 
2006
€1.5 in 2004
€2.24 for overall 
programme of which 
fisheries is a part
€0.8
€0.5
€0.058

(1)Aid scheme for renewal, dredging and reconstruction of fishponds and reservoirs. Source: DG Fisheries. 

Based on the information available at present, State aid to fisheries and aquaculture in the new 
Member States does not appear to involve heavy funding. It is therefore likely that some of 
the  measures  which  must  now  be  notified  under  Article  88(3)  EC  Treaty  will  be  excluded 
from this obligation after 1 November 2004, when the block exemption Regulation came into 
force  (see  section  3.8  for  references  and  information  on  the  recently  adopted  de  minimis 
regulation  for  the  fisheries  sector).  As  of  1  September  2004,  the  Commission  had  received 
two notifications concerning State aid for fisheries and/or aquaculture, submitted since 1 May 
2004.  

1.3.6.3.  State aid to transport 

State  aid  to  the  transport  sector  was  covered  by  the  State  aid  provisions  in  the  Europe 
Agreements.  

Chapter 3, Article 4 of Annex IV to the Treaty of Accession provides for a particular interim 
mechanism  with  regard  to  State  aid  in  the  transport  sector:  “As  regards  aid  to  the  transport 
sector aid schemes and individual aid to the transport sector put into effect in a new Member 
State  before  the  date  of  accession,  and  still  applicable  after  that  date,  shall  be  regarded  as 
existing  aid  within  the  meaning  of  Article  88(1)  of  the  EC  Treaty  until  the  end  of  the  third 
year after the date of accession, provided they are communicated to the Commission within 
four months of the date of accession”. 

It follows from the interim mechanism that aid measures in force in the new Member States 
prior to 1 May 2004 that were communicated to the Commission before 1 September 2004, 
enjoy,  until  end  April  2007,  the  protection  of  an  ‘existing  aid’.  As  a  consequence,  the 
Commission, in co-operation with the new Member States, will review the existing measures 
during  the  transitional  period  in  order  to  ensure  compatibility  with  the  common  market  in 
accordance with Article 88 (1) of the Treaty.  

The new Member States have communicated to the Commission aid measures in force prior 
to  accession  and  provided  summary  information  with  regard  to  those  measures.  The 
Commission  services  will  now  proceed  with  the  examination  of  the  measures  and,  where 

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necessary,  propose  appropriate  measures  to  ensure  their  compatibility  with  the  common 
market. 

Overall, approximately 150 measures relating to the transport sector have been submitted to 
the Commission by the new Member States under the interim mechanism. The number of aid 
measures  in  force  varies  considerably  from  one  Member  State  to  another,  with  two  of  the 
three largest countries, Poland and Hungary accounting for more than half the total number of 
measures submitted.  

With regard to the different transport sectors, the information received shows clearly that the 
rail  sector  benefits  from  most  measures  while  the  remaining  aid  measures  are  rather  evenly 
spread among the other transport sectors.  

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2. 

PART TWO: FOLLOW-UP TO THE COUNCIL CONCLUSIONS ON STATE AID 

In  the  context  of  reducing  overall  levels  of  State  aid,  the  conclusions  of  various  European 
Councils have called for a shift in emphasis from supporting individual companies or sectors 
towards  tackling  horizontal  objectives  of  common  interest,  including  cohesion  objectives. 
Furthermore,  the  Council  invited  Member  States  to  “consider  before  granting  State  aid 
whether it is targeted on clearly identified market failures or directed at horizontal objectives 
… and whether an intervention in the form of State aid is the most appropriate and effective 
way to address these issues.”33 

2.1. 

Brief summary of the Council conclusions on State aid 

The following is a summary of the key points emerging from the various Council conclusions 
on State aid since the Lisbon agenda was launched in 2000:34 

•  The Lisbon European Council of March 2000 set out to make the EU the most competitive 
and dynamic knowledge-based economy in the world, calling on the Council, Commission 
and Member States “to further their efforts to promote competition and reduce the general 
level of State aids, shifting the emphasis from supporting individual companies or sectors 
towards  tackling  horizontal  objectives  of  Community  interest,  such  as  employment, 
regional development, environment and training or research.” 

•  In  March  2001  at  the  Stockholm  European  Council,  Member  States  pledged  to 
“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.” 

•  Further  impetus  was  provided  at  the  Barcelona  and  Brussels  European  Councils  in  2002 

and 2003 respectively. 

•  Outside  of  the  European  Council  summits,  more  specific  conclusions  on  State  aid  have 
also been adopted. In December 2001, under the Belgian Presidency, the Industry Council 
adopted a set of conclusions in which it invited Member States to continue their efforts to 
reduce  aid  levels,  reorient  aid  towards  horizontal  objectives,  further  develop  the  use  of 
"ex ante" and "ex post" evaluations of aid schemes, and improve the transparency and the 
quality of reporting to the Commission. 

•  In  November  2002,  under  the  Danish  Presidency,  the  Competitiveness  Council  adopted 
conclusions on “an economic approach towards less and better State aid”35. The main aim 
of the conclusions was to develop a broader economic analysis of the effects of State aid 
by encouraging greater dialogue and exchange of information between the Member States. 
It reaffirmed the need to “closely evaluate State aid in order to identify and reduce the most 
distortive  types  of  State  aid,  underlining  that  monitoring  and  follow-up  of  State  aid 

33 

34 

35 

cf. Council conclusions adopted in November 2002 on “an economic approach towards less and better 
State aid”. See Council document number 13799/02 
http://register.consilium.eu.int/pdf/en/02/st13/13799en2.pdf 
A full set of the conclusions was included in the autumn 2003 update of the State aid Scoreboard, COM 
(2003) 636 of 29.10.2003 
Council document number 13799/02: http://register.consilium.eu.int/pdf/en/02/st13/13799en2.pdf 

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29 

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expenditures  are  essential  components  of  State  aid  policies  in  Member  States  and 
Community State aid policy;” In this context, it invited Member States to “consider before 
granting State aid whether it is targeted on clearly identified market failures or directed at 
horizontal  objectives  of  common  interest,  including  economic  and  social  cohesion 
objectives, and whether an intervention in the form of State aid is the most appropriate and 
effective way to address these issues” and to continue to “develop the use of “ex-ante” and 
“ex-post”  evaluations  of  individual  State  aid  and  State  aid  schemes  in  order  to  monitor 
impact on competition and effectiveness of the aid”. 

2.2.  Member States response to the Council conclusions 

As a response to the Council conclusions, the Commission held a first meeting with State aid 
experts from the Member States in July 2003 to take stock of the Commission’s and Member 
States efforts to follow-up the various Council conclusions on State aid and to discuss future 
work  in  the  area  of  reduction,  reorientation,  and  measuring  the  effectiveness  of  aid.  The 
results of this meeting were reported in the autumn 2003 update of the Scoreboard. 

On  the  basis  of  written  contributions  received  from  over  twenty  Member  States  on  recent 
steps  taken  to  follow  up  the  various  Council  conclusions,  a  second  meeting  with  Member 
States experts was held in July 2004. The following is a summary of the key points addressed 
at the meeting and/or in Member States contributions. 

2.2.1. 

Specific efforts to reduce and redirect aid 

As reported in the spring 2004 update of the Scoreboard, the latest underlying figures indicate 
that the majority of Member States appear to be responding positively to the call for less and 
better targeted state aid36. Although aid levels are falling less sharply than in the late 1990s, 
the smaller reduction is still in line with the Stockholm commitment. Moreover, virtually all 
the aid in several Member States (Belgium, Denmark, Greece, Italy, Netherlands, Austria and 
Finland) was earmarked for horizontal (including cohesion) objectives in 2002. It was agreed, 
however, that caution should be exercised in reading too much into aggregate indicators. For 
example, not all horizontal schemes are necessarily effective. 

The  vast  majority  of  Member  States  attributed  progress  in  reducing  and  redirecting  aid  to 
explicit policy efforts (see additional examples in Annex III):  

A number of Member States have placed greater emphasis on improving the general business 
environment,  streamlining  and  rationalising  their  business  support  schemes  and  directing 
support away from ‘State aid’ towards general measures. These include Belgium, Denmark, 
Sweden and the United Kingdom who reported that they have consistently taken a restrained 
line  regarding  the  awarding  of  State  aid.  Denmark  and  Sweden  contend  that  their  industrial 
strategy concentrates on improving the general environment and growth conditions of firms, 
rather  than  on  helping  individual  firms  directly.  Belgium  refers  to  its  strategy  of  devising 
alternatives to state aid as part of an overall business policy. The United Kingdom, too, claims 
that wherever possible, it “moves whatever support is necessary to provide to industry away 
from  routes  which  constitute  State  aid.”  Similarly,  Sweden  has  established  an  explicit 
principle of restraint whereby subsidies to companies should never be a first-hand solution for 

36 

2002 figures reported in the State aid Scoreboard spring 2004 update, COM (2004) 256 of 20.04.2004  

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30 

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achieving different aims. Instead, alternative policy instruments should first be analysed and 
tested regularly.  

Sweden argues that if subsidies are chosen, neutral solutions as regards competition should be 
developed  as  far  as  possible;  aid  should  be  aimed  inter  alia  at  deficiencies  in  the  market’s 
operation (e.g., soft loans for SMEs or for facilitating innovation) or other efforts which may 
hasten  development  in  socially  desirable  directions  (e.g.,  improvement  of  the  environment 
and  more  efficient  use  of  energy  in  the  economy).  The  current  Finnish  government 
programme states that “aid should be granted only where specially warranted and it should be 
temporary and transparent.” Portugal also draws a distinction between different types of State 
aid,  arguing  for  example,  that  operating  aid,  which  by  its  nature  is  likely  to  cause  greater 
distortion  to  competition,  ceased  many  years  ago  to  form  part  of  panoply  of  new  state  aid 
measures in Portugal.  

transparency, 

through  “greater 

France  has  opted  for  budgetary  restrictions  as  a  way  of  meeting  the  commitment  to  reduce 
State aid. With the exception of aid for R&D and SMEs, a good many budget appropriations 
for  operations  have  been  either  frozen  or revised  downwards.  Germany  continues  to  reduce 
subsidies 
improved  control 
arrangements”. In future, financial aid will be granted only for a limited period laid down by 
law  and  will,  as  a  matter  of  principle,  be  degressive.  Aid  levels  for  investment  and  job 
creation  are  being  reduced  in  line  with  the  Regional  Aid  Map  2000-2006  for  Ireland.  The 
proportion of aid going to investment and job creation projects is also declining, as there is an 
increased  refocusing  of  aid  to,  e.g.,  the  funding  of  R&D  and  training  projects.  The 
Netherlands contend that as they are managing with shrinking budgets, their commitment to 
reducing state aid is being met almost automatically.  

tighter  assessment  and 

2.2.1.1.  Special situation in the new Member States 

While the new Member States have also pledged their support for a reduction and redirection 
of  State  aid,  it  was  accepted  that  their  situation  is  not  directly  comparable  with  existing 
Member  States.  Given  that  the  European  Structural  funds  are  subject  to  the  so-called 
“additionality”  principle24,  some  of  the  new  Member  States  indicated  that  overall  State  aid 
levels are likely to increase, at least in the short-term. 

Section 1.3 describes in some detail the State aid situation in these Member States, including 
the  underlying  trends  and  the  extent  to  which  aid  has  been  directed  towards  horizontal 
objectives prior to accession. 

2.2.2. 

Improvements to national State aid set-up 

Several Member States also referred to steps taken to rationalise and improve the organisation 
of  state  aid  through  a  variety  of  institutional  changes,  legislation,  better  targeting  of  aid, 
greater  emphasis  on  efficacy  of  aid,  strengthening  awareness  and  improving  transparency. 
While  many  of  these  steps  are  aimed  primarily  at  facilitating  access  to  government  by 
business and trying to ensure better value for public money, they may also assist in reducing 
and redirecting aid. See examples in Annex III. 

2.2.3. 

Improving transparency and raising awareness of State aid 

Denmark  and  Spain  each  reported  on  ongoing  work  aimed  at  making  state  aid  more 
transparent. One of the tools currently being developed by Denmark, in cooperation with the 

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Norwegian  authorities,  is  a  database  providing  detailed  information  on  all  aid  schemes, 
including budgets, aid actually paid out, objectives, etc. The database should provide policy-
makers  with  a  better  basis  for  decision-making  when  aid  schemes  have  to  be  reviewed  or 
introduced. Greece, Italy and Slovenia also indicated that similar efforts were underway.  

The  United  Kingdom  described  its  proactive  approach  to  raising  awareness  of  and  local 
expertise  in  State  aid  which,  it  argues,  will  assist  in  the  reorientation/reduction  in  several 
ways:  a  greater  awareness  of  the  need  to  comply  with  the  State  aid  rules  should  assist  in 
reducing the number of cases where aid is granted without notification. This approach should 
also,  particularly  in  combination  with  advice  provided  by  the  Department  for  Trade  and 
Industry (DTI), result in more schemes being designed so that aid is avoided or, where it is 
necessary to include aid, targeted towards horizontal measures. See additional information in 
Annex III. 

2.3. 

Improving the effectiveness of aid 

2.3.1.  Ongoing work in the Member States 

Faced  with  constraints  on  national  public  finances,  questions  have  been  raised  generally  in 
most Member States about the direction of their national State aid policy and its effectiveness. 
Furthermore, in the context of a streamlining of aid policy ongoing in several Member States, 
there has been a need to build up a sufficiently firm knowledge base. There has therefore been 
a greater demand for monitoring and evaluation of existing aid. 

2.3.1.1.  Monitoring and evaluation 

While  all  Member  States  carry  out  some  form  of  monitoring  and  evaluation  of  their  aid 
programmes, there is no common benchmark with which to assess a particular aid measure. 
Nevertheless  some  Member  States  appear  to  have  adopted  broadly  similar  approaches. 
Monitoring and evaluation of national State aid policy is carried out in different forms and by 
different  actors  in  the  public  administrations.  As  Sweden  points  out,  the  authorities 
responsible for the aid measure are themselves naturally responsible for showing the results 
achieved. As well as this decentralised approach, the Swedish Government has also set up a 
special authority37 at central level to evaluate Swedish growth policy from all angles. In the 
work on evaluating existing measures in growth policy, there have been inter alia reductions 
of certain state aid for companies.  

In  the  United  Kingdom,  the  appraisal  of  all  Government  spending  (whether  this  constitutes 
State aid or not) is a fundamental part of the policy development process. Similarly, the Dutch 
authorities  have  been  applying  since  2001  a  system  covering  the  whole  gamut  from  policy 
preparation to policy accountability whereby, if aid is to be granted, an opinion is given on the 
resources  to  be  used  and  a  statement  of  accountability  is  presented  at  the  end.  The 
accountability  exercise  takes  place  each  year  in  parliament.  See  also  Annex  III  for  further 
examples. 

37 

The  Institute  for  Growth  Policy  Studies  exercises  responsibility  for  carrying  out  analyses  and 
evaluations and disseminating knowledge. ITPS has developed a proposal for indicators which can be 
used both in an analysis of the conditions for growth policy efforts and for following the development 
of the effects of those efforts at first hand. 

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As the State Aid rules have been in force in the new Member States for a limited period of 
time, some countries such as Cyprus and Malta pointed out that the effects of many measures 
are not yet visible and it is therefore difficult to evaluate either the effectiveness of the State 
Aid  measures  introduced  or  their  impact  on  competition.  Most  of  the  new  Member  States 
have  however  begun  (or  intend  to  shortly  begin)  to  carry  out  evaluation  exercises,  some  of 
which are outlined in Annex III. 

2.3.1.2.  Apparent trend towards ‘repayable’ State aid instruments 

Partly as a consequence of the growing emphasis on evaluation of aid measures, there appears 
to  be  a  trend  in  several  Member  States  towards  providing  funding  to  firms  on  a  repayable 
basis rather than in the form of non-repayable grants. Portugal and Ireland each reported that 
an increasing proportion of funding is being provided to indigenous firms in this way. As part 
of an overhaul of  Swedish  regional  aid policy38, there is an explicit intention to  move  from 
grants  to  loans.  In  Finland,  the  current  government  programme39  is  rather  explicit  in  its 
support  for  loans  and  guarantees.  In  Estonia,  research  into  the  impact  of  four  different  aid 
measures  on  job  creation  revealed  that  the  most  successful  was  a  loan  guarantee  scheme 
targeted  at  SMEs.  In  response  to  a  request  for  examples  of  particularly  successful  aid 
measures,  the  Netherlands  cited  a  long-standing  scheme  that,  “at  minimum  cost,  effectively 
promotes entrepreneurial activities” by providing state guarantees for loans to a large number 
of SMEs. Latvia also quoted a measure in which the Latvian Bank issues a large number of 
credits to SME’s leading to significant job creation. 

In  contrast,  Germany  appears  to  take  the  opposite  stance  arguing  that  in  order  to  prevent 
subsidies from becoming permanent, the general rule is that only financial aid, i.e. aid granted 
directly from the Federal budget; and, solely in justified exceptional cases, tax subsidies, will 
be granted. Steps are also to be taken to examine to what extent tax relief can be converted 
into direct grants. 

2.3.2.  Ongoing work by the Commission 

The Industry Council of December 2001 invited the Commission to “develop, together with 
the Member States, statistical tools enabling these Conclusions to be followed up and devise 
indicators  of  effectiveness  and  efficiency”.  In  response,  the  Commission  has  launched  a 
number of studies in this field. 

2.3.2.1.  Improving understanding of the competition effects of state aid 

In  virtually  all  the  examples  of  successful  aid  measures  provided  by  Member  States  (see 
above), success was measured solely in terms of the effectiveness of the aid as opposed to its 
impact on competition. A full evaluation of the welfare effects of a State aid, however, needs 
to take account of the impact on competition in the affected markets, which may include not 
only  the  economic  activity  directly  targeted  by  the  aid  but  also  neighbouring  markets.  The 
analysis  of  the  competition  effects  of  state  aids  is  therefore  important  both  for  the 
Commission,  in  controlling  state  aid,  and  for  policy-makers  in  the  aid-giving  bodies  in  the 
Member States. 

38 
39 

A Policy for Growth and Vitality throughout the Country 2001/02:4 
"Business  support  policy  shall  continue  to  give  priority  to  repayable  aid.  Aid  should  be  granted 
primarily in the form of loans or guarantees and should require the company’s owners and other finance 
providers to contribute with financial inputs that ensure adequate commitment." 24 June 2003 

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Recognising the need to improve the knowledge base and better understand the competition 
effects of state aid, the Commission intends to launch a study in the coming months. The main 
aim  of  the  study  will  be  to  improve  the  economic  basis  for  analysing  the  impact  on 
competition  of  state  aid.  The  study  will  construct  an  analytical  framework  for  evaluating 
competition  effects  in  terms  of  the  impact  on  rivals  (rent-stealing,  foreclosure)  and  on 
consumer welfare, distinguishing between domestic effects and cross-border spillovers.  

On this basis, it will define a set of criteria and indicators that can be used (a) to assess the 
importance of the impact of individual aid awards on competition, (b) as a starting point for 
developing some general rules that can be applied to aid schemes, where the identity of the 
beneficiaries is not known in advance, in order to limit the potential harm to competition and 
(c) to contribute to the development of a method for identifying state aids that are unlikely to 
have a significant impact.  

Results of the study are expected by the end of 2005. 

2.3.2.2.  Assessing the impact of R&D state aid 

The  Spring  European  Council40  in  2004  raised  concerns  over  the  relative  weakness  of 
European private sector investment in R&D and stressed the importance of increasing R&D 
within  the  Union.  The  Commission  recognises  that  in  this  area  market  failures  may  exist 
which  inhibit  private  investment  in  R&D  and  innovation  giving  rise  to  slowdown  in 
productivity  and  competitiveness.  The  Commission  has  launched  a  study  to  prepare  the 
review of the R&D aid guidelines41 which has been in force since 1996 and will expire at the 
end of 2005.  

In  essence,  this  study  is  focussing  on  the  role  of  State  aid  as  an  instrument  to  facilitate  the 
achievement  of  the  Barcelona  objective  to  devote  3%  of  the  EU’s  GDP  to  R&D  spending. 
More specifically, it  will focus on what types of activities should be considered eligible  for 
support, and on appropriate levels of State aid.  

The study has the following five main objectives:  

-  to  ascertain  the  role  R&D  aid  plays  in  the  overall  public  R&D  support  context  such  as 
universities and public research institutes in the last decade 

- to describe and analyse functional changes of public research establishments 

- to describe and analyse public support for R&D activities used by the Community's major 
trading partners 

- to describe and analyse the categorisation of research activities 

-  to  analyse  the  leverage  effect  of  R&D  aid,  i.e.  the  potential  of  aid  to  stimulate  additional 
private R&D investment 

Results of the study are expected in the spring 2005. 

Also  in  the  context  of  R&D  State  aid,  the  Scientific  and  Technical  Research  Committee 
(CREST)  has  recommended  to  the  Council  and  Commission  to  draw  up  a  track  record  of 

40 
41 

Presidency Conclusions of the European Council 25-26 March 2004.  
OJ C 45, 17.02.1996 

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success  on  how  State  Aid  has  been  redirected  towards  R&D  programmes  in  some  Member 
States, with a view to preparing a guide for other Member States. 

2.3.2.3.  Measuring the effectiveness of State aid to SMEs 

Successive  European  Councils  have  recognised  the  role  played  by  SMEs  in  stimulating 
growth and creating employment in the Union. Aid to SMEs clearly falls within the category 
of  horizontal  objectives,  and  is  justified  by  well-recognised  market  failures,  typically 
occurring  in  capital  markets  (difficult  access  to  finance  especially  in  the  creation/start  up 
phase,  asymmetric  information,  etc).  There  is  therefore  a  need  to  improve  understanding  of 
the effectiveness of various types of state aid measures which Member States use to support 
SMEs.  

In theory, one way of looking at the effectiveness of state aid would be to measure the extent 
to  which  it  redresses  the  identified  market  failure.  In  practice,  this  approach  has  proved 
problematic due to the difficulties associated with quantifying market failures. An alternative 
method  is  to  measure  the  extent  to  which  the  aid  in  question  has  met  its  specific  policy 
objective.  For  SMEs,  this  could  include  enterprise  creation,  SME  growth,  SME  innovation, 
SME turnover, SME employment, etc. This second approach would seem to be more useful 
for policy-makers and more feasible to implement. However, in order to make it operational, 
Member  States  could  find  it  useful  to  know  more  about  the  pros  and  cons  of  possible 
methodologies and about the data requirements. 

The  Commission  therefore  recently  launched  a  study  with  a  view  to  identifying  if  and  how 
Member States evaluate the effectiveness of state aid to SMEs, and to make recommendations 
as to the best methodology (or methodologies). Results of the study should be available by the 
end of 2004. 

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3. 

PART THREE: MODERNISING STATE AID CONTROL 

3.1. 

Adoption of a pro-active competition policy 

In April 2004, the Commission adopted a Communication entitled “A pro-active Competition 
Policy for a Competitive Europe”42. This document sets out why and how competition policy 
brings about productivity gains and innovation, therefore increasing Europe's competitiveness 
on the world stage to the benefit of long term economic growth in the Union's single market. 

The document also describes how the instruments of EU Competition policy have undergone 
a review in recent years and sets out the challenges that lie ahead. In the field of State aid, the 
reforms already undertaken and those on-going aim at refocusing State aid policy towards a 
more economic approach with the purpose of eliminating harmful State aid, while leaving the 
Member States with more flexibility to adopt horizontal measures to support, in particular, the 
Lisbon objectives.  

In  2005-2006,  a  large  number  of  the  Commission’s  existing  regulations,  frameworks  and 
guidelines come up for renewal including all the state aid exemption regulations, the regional 
aid  guidelines,  the  framework  for  research  and  development  aid  and  the  risk  capital 
communication.  The  environmental  aid  guidelines  expire  at  the  end  of  2007.  These  factors, 
together  with  the  beginning  of  a  new  programming  period  for  the  Community’s  structural 
funds in 2007, provide an unprecedented window of opportunity for a comprehensive review 
of  the  horizontal  State  aid  rules  to  take  account  of  the  horizontal,  and  particularly  Lisbon, 
objectives,  and  the  new  cohesion  policy  set  out  in  the  forthcoming  Structural  Funds 
regulations, as well as to consolidate, and wherever possible simplify the rules. 

3.2. 

Review of the regional aid guidelines 

One of the biggest challenges in the ongoing reform is to redefine regional aid policy in an 
enlarged  Union,  reconciling  the  overall  reduction  of  state  aid  volumes  with  the  Community 
objective of economic and social cohesion within the framework of enlargement. 

A  first  Working  Paper  which  outlines  the  approach  that  the  Commission  services  are 
proposing to follow for the review of the regional aid guidelines was sent to Member States 
on  30  April  2004.  The  main  policy  objectives  of  the  review,  which  fits  within  the  general 
move  towards  a  more  economic  approach  to  State  aid  policy  and  takes  full  account  of  the 
conclusions of the Third Cohesion Report, are threefold: achieving concentration of regional 
aid to investment in the least favoured regions, ensuring an adequate margin of flexibility for 
Member  States  and  regions  to  pursue  local  regional  policy,  and  enhancing  the  long-term 
competitiveness and growth potential of all European regions.  

This  first  Working  Paper  proposes  that  the  assisted  areas,  laid  down  in  regional  aid  maps, 
would consist, as at present, of regions eligible to Article 87(3)(a) and Article 87(3)(c). On the 
one hand, the criteria for the designation of Article 87(3)(a) regions would basically remain 
unchanged,  meaning  that  all  NUTS  II  regions  that  have  a  per  capita  GDP  (measured  in 
purchasing power standards) of less than 75% of the Union average would qualify. On the other 
hand, with regard to the derogation under Article 87(3)(c), it is proposed to limit its use to a 

42 

COM(2004) 293 final of 20.04.2004 

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36 

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number  of  predefined  (‘earmarked’)  regions.  Article  87(3)(c)  regions  might  therefore  only 
include  former  87(3)(a)  regions  (although  a  different  treatment  would  apply  according  to 
whether  those  regions  lose  their  previous  status  due  to  the  statistical  effects  entailed  by 
enlargement, or as a result of an increase in regional wealth), as well as outermost regions and 
low population density areas, regardless of their current levels of GDP. 

Outside  the  assisted  areas,  only  SMEs  would  be  able  to  benefit  from  State  aid  to  general 
investment.  As  far  as  large  companies  are  concerned,  the  present  horizontal  rules  (many  of 
which will be reviewed before 1.1.2007) should provide Member States with sufficient room 
for manoeuvre to tackle any relevant problems and, incidentally, also to differentiate between 
regions where this is considered necessary. Reliance on such a thematic approach in State aid 
should also contribute to “less and better-targeted State aid” by playing a role in shifting from 
subsidies  that  temporarily  compensate  for  regional  disadvantages  to  the  provision  of  public 
goods and incentives permanently increasing the potential of all regions to growth. 

Although  the  Commission  services  requested  comments  on  the  proposals  laid  down  in  the 
working paper by 30 June 2004, very few Member States were able to meet the deadline, and 
most  comments  were  received  in  July  and  August  (including  from  regions  and  regional 
organisations).  With  a  view  to  continuing  consultation  with  Member  States  and  the  EFTA 
Surveillance Authority on all major steps of the review, a first draft of the new regional aid 
guidelines may be discussed at one or two multilateral meetings of national State aid experts 
in early 2005. A final version of the guidelines should in principle be adopted by the end of 
2005, in order to leave ample time for Member States and the Commission to ensure a smooth 
transition by the end of 2006. 

3.3. 

Services of General Economic Interest (SGEI) 

On 18 February 2004, the Commission adopted draft instruments designed to increase legal 
certainty as regards the financing of services of general economic interest. The first is a draft 
Commission Decision on the application of Article 86 of the Treaty to state aid in the form of 
public service compensation. The purpose of the Decision is to set out the conditions under 
which state aid granted to small-scale services of general economic interest is compatible with 
the  Treaty  and  to  exempt  such  aid  from  the  prior  notification  requirement.  The  second 
instrument  is  a  draft  Directive  on  the  transparency  of  financial  relations  between  Member 
States  and  public  undertakings.  The  Commission  services  have  also  drawn  up  a  draft 
"Community framework for state aid in the form of public service compensation" which sets 
out  the  conditions  under  which  compensation  granted  to  large-scale  services  of  general 
economic  interest  (i.e.  those  not  covered  by  the  above-mentioned  Decision)  constitutes 
compatible aid. See spring 2004 update of the Scoreboard for further details. 

The  draft  instruments  have  been  presented  to  the  Member  States,  the  European  Parliament, 
the  Economic  and  Social  Committee  and  the  Committee  of  the  Regions  for  their  opinions. 
Not all of these institutions have yet taken a final position43. The drafts are available on the 
Competition DG's website44, and all interested third parties can make known their views on 
them. The drafts will be finalised by the Commission in the light of the comments received. 

43 

44 

The Committee of the Regions adopted its opinion on 29 September 2004. The Economic and Social 
Committee is at an advanced stage of preparing its opinion. The European Parliament has appointed a 
‘rapporteur’ and a first exchange of views took place in early October. 
http://europa.eu.int/comm/competition/state_aid/others/ 

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37 

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3.4. 

Review of the rescue and restructuring guidelines 

New guidelines on rescue and restructuring aid for companies in difficulty entered into force 
on 10 October 2004. The guidelines clarify the approach the Commission intends to take in 
individual cases where the  State  financially supports a rescue  and restructuring operation in 
favor of individual enterprises. In so doing, Commission decisions in individual cases should 
become more predictable for companies and the public at large.  

The  rules  clarify  the  eligibility  of  the  firm:  a  firm  is  regarded  as  newly  created  (and  thus 
ineligible for rescue or restructuring aid) during 3 years from start of operation. The so-called 
“one time, last time” has been reinforced to exclude all kinds of repeated interventions with 
the  exception  of  restructuring  aid  following  rescue  aid  within  the  same  operation.  The  new 
rules also strengthen the Commission’s recovery policy through a prohibition of new rescue 
or restructuring aid for firms which do not reimburse aid previously declared incompatible.  

Unlike  the  current  rules,  the  new  Guidelines  allow  for  the  undertaking  of  the  first  urgent 
structural measures during the rescue period. However, rescue aid can still only be granted in 
the  form  of  reimbursable liquidity  while  other  interventions,  such  as  capital  injections  from 
public  authorities  which  cannot  be  undone,  remain  prohibited  as  rescue  aid.  Moreover,  the 
rescue period is clearly limited to 6 months including the reimbursement of the rescue aid.  

In  order  to  speed  up  procedures,  Member  States  have  the  possibility  to  opt  for  a  lighter 
procedure  to  approve  rescue  aids  if  the  amount  of  the  aid  does  not  exceed  the  result  of  a 
standard formula and, in any event, €10 million. Furthermore, with the aim of concentrating 
resources  on  those  cases  that  really  pose  a  threat  to  competition,  the  Commission  will  no 
longer assess the viability of restructuring plans for SMEs.  

To avoid undue distortions of competition, a principle has been introduced that compensatory 
measures are necessary except for small undertakings. Compensatory measures can take the 
form  of  divestment  of  assets,  reduction  in  capacity  or  market  presence,  reduction  of  entry 
barriers, etc. It is also explicitly confirmed that activities which would have been abandoned 
anyway are not included in the assessment of compensatory measures.  

The new Guidelines clarify that the contribution by the beneficiary should be real and free of 
aid. For small enterprises, it should in principle be at least 25% of the restructuring costs, for 
medium-sized enterprises at least 40%, and for large undertakings at least 50%. In exceptional 
circumstances and in case of particular hardship the thresholds can be reduced. 

For agriculture, the rules have been considerably simplified. For processing and marketing of 
agricultural annex-I products, the normal rules will apply.  

3.5. 

State aid for innovation 

At the Lisbon European Council in 2000, the Union set itself a new strategic goal for the next 
decade:  “to  become  the  most  competitive  and  dynamic  knowledge-based  economy  in  the 
world.” The Council has subsequently emphasised the importance of innovation as the main 
source  of  competitiveness  and  economic  growth,  and  its  key  role  in  the  European  Research 
Area.  

While  fostering  competition  and  market  opening  is  considered  as  the  most  efficient 
instrument  to  stimulate  innovation,  situations  exist  in  which  the  market  fails  to  deliver  the 

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38 

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incentives  necessary  to  reach  the  desirable  amount  of  innovation  activities  in  view  of  the 
social  returns  it  generates.  In  such  cases  government  interventions  may  be  appropriate  to 
correct existing market failures, but the benefits of State intervention must always be assessed 
against its costs, particularly in terms of distortion of competition.  

In its Communication on “A pro-active competition policy for a competitive Europe” of April 
2004” (see section 3.1), the Commission announced that it would draw up a vade-mecum or 
‘Practitioner’s guide’ to provide guidance on measures in support of innovation which can be 
adopted within the existing State aid regulations and frameworks to State aid for innovation. 
The Commission also committed itself to producing in 2005 a Communication in which the 
need and potential to expand the possibilities to aid innovation will be explored.  

the  Commission  services  are  currently  preparing  a  vade-mecum  on 
Consequently, 
Community  rules  on  State  aid  for  innovation.  The  document  is  based  on  an  economic 
approach,  identifying  four  key  market  failures45  which  impede  innovation  in  the  European 
economy.  The  vade-mecum  then  describes  the  different  types  of  State  aid  measures  which 
might  be  used  to  try  to  address  those  market  failures,  using  key  Commission  decisions  as 
illustrations.  

On the basis of a questionnaire46 that was sent by the Commission to Member States in April 
2004, State aid for innovation was also discussed at the above-mentioned meeting with State 
aid experts from the Member States held in July 2004.  

The Commission summarized the issues raised in Member States replies to the questionnaire 
after which there was a useful exchange of views. The Commission took note of a range of 
market failures cited by Member States, which largely confirmed the Commission’s internal 
analysis (see vade-mecum). A number of Member States expressed the view that it might be 
difficult to reach a commonly-accepted definition of innovation generally applicable for State 
aid  purposes.  An  alternative  option  could  be  to  define  innovation  activities  relating  to 
identified market failures. It also emerged that market failures tend to be larger the smaller the 
company is. Some Member States floated the idea of allowing special treatment for small and 
micro-enterprises, whereas others warned that this could distort the incentive for enterprises 
to grow. 

Although  innovation  does  not  generally  develop  according  to  a  ‘linear’  model  from  basic 
research  to  commercial  implementation,  it  remains  true  that,  on  the  one  hand,  market 
mechanisms  are  less  capable  of  correctly  assessing  and  adequately  funding  fundamental 
research, while, on the other hand, public support bears greater risks of distorting competition 
the closer the activity is to its commercialisation phase.  

45 

46 

(1) the existence of public goods and externalities as a result of which the innovating firm cannot fully 
appropriate  the  returns  on  its  investment  and  therefore  may  give  up  promising  projects;  (2)  the 
inefficient dissemination of information leading to low take-up rates for innovation; (3) failures in the 
capital  markets  leading  to  insufficient  funding  for  innovation;  (4)  labour  market  mis-matches,  due  to 
lack of skills or mobility of the workforce.  
Member States were asked: (1) to describe the market failures giving rise to the need for innovation aid; 
(2)  to  explain  how  the  existing  rules  prevent  them  from  granting  aid  for  innovation;  (3)  to  provide  a 
definition  of  what  they  consider  to  be  innovation/innovatory  activities/enterprises;  (4)  if  higher  aid 
intensities were to be introduced for innovation aid, to indicate how they could ensure that aid would be 
restricted to ‘innovative’ activities only. 

EN 

39 

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Against this background, Member States broadly agreed about the need on one hand to adapt 
existing aid instruments to better cover innovative activities and, on the other hand, to develop 
instruments that address gaps in the current system. As indicated above, the Commission has 
announced that it will address these issues in a Communication on State aid and innovation to 
be  presented  in  2005.  In  addition,  the  majority  of  the  instruments  mentioned  in  the  vade-
mecum  (e.g.,  R&D  Framework,  Regional  aid  guidelines,  Risk  capital  communication)  will 
undergo a detailed review in 2005-2006.  

3.6. 

State aid to cinema 

In accordance with Article 87(3)(d) of the EC Treaty, the Commission may authorise aid to 
promote  culture,  where  such  aid  does  not  affect  competition  and  trading  conditions  to  an 
extent contrary  to  the  common interest.  A Communication from the  Commission  on certain 
legal  aspects 
(Cinema 
Communication  I),  adopted  in  2001,  clarified  the  criteria  used  by  the  Commission  when 
applying the exception of this Article to State aid to cinema.  

to  cinematographic  and  other  audiovisual  works 

relating 

The  Cinema  Communication  II,  adopted  on  16.3.2004,  extends  the  validity  of  these  criteria 
until the end of 2007.47 In addition, it announces an extensive economic study on the effects 
of the existing State aid systems. The study should examine in particular the economic effects 
of territorialization requirements imposed by certain Member States. 

3.7. 

Improving current procedures and working methods 

In  March  2004,  the  Commission  adopted  implementing  provisions48  under  Article  27  of 
Regulation (EC) n° 659/199949. The overall objective is to accelerate, simplify and modernise 
procedures, in particular with a view to reducing the resources expended on routine cases and 
to  enable  the  Commission  to  concentrate  resources  on  more  important  cases  which  present 
real competition concerns at the Community level. 

The  new  provisions  concern  the  form,  content  and  other  details  of  notifications  and  annual 
reports to be submitted by Member States to the Commission. The aim is to streamline and 
simplify  procedures  as  well  as  enhancing  transparency  and  legal  certainty.  The  provisions 
also include details of time-limits, the interest rate for the recovery of unlawful aid, as well as 
other suggestions to improve current procedures and working methods. For further details, see 
article in the summer edition of the Competition Newsletter.50 

3.8. 

State aid to the agricultural sector 

On 6 October 2004, the Commission adopted a new Regulation on the application of Articles 
87 and 88 of the EC Treaty for “de minimis” aid in the agricultural and fisheries sectors.51 It 
foresees that aid up to €3000 per farmer/fisherman can be granted over a period of three years 
without being notified to the Commission, provided that the global amount of such aid does 

47 
48 
49 
50 

51 

COM(2004) 171 final. OJ C 43 on 16.2.2002 
Reg. EC 794/2004, OJ L 140 of 30.4.2004, p. 1 
Council Reg. (EC) No. 659/99 of 22 March 1999, OJ L 83 of 27.3.1999, p. 1 
“Reform of procedural rules for state aid cases”, Competition Policy Newsletter 2004 Nr 2 summer 
http://europa.eu.int/comm/competition/publications/cpn/cpn2004_2.pdf 
Commission Regulation (EC) No 1860/2004 of 6 October 2004 on the application of Articles 87 and 88 
of the EC Treaty to de minimis aid in the agriculture and fisheries sectors (OJ L 325 of 28.10.2004 p.4)- 
http://europa.eu.int/comm/agriculture/stateaid/leg_fr.htm 

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40 

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not  exceed  0.3%  of  production  in  the  agricultural  or  fisheries  sector  of  the  Member  State 
concerned. From 1 January 2005, Member States will be able to grant aid that is in line with 
the Regulation without the Commission having to approve the aid in advance, but they will 
also have to provide information certifying that the two ceilings have been complied with.  

3.9. 

State aid to the fisheries sector 

On  30  June  2004,  the  Commission  adopted  a  new  set  of  rules  on  state  aid  to  the  fisheries 
sector.  These  rules  bring  state  aid  policy  into  line  with  the  reformed  Common  Fisheries 
Policy,  adopted  in  December  2002.  The  new  rules  provide  for  a  ‘block  exemption’52  for 
certain  types  of  aid  which  will  no  longer  have  to  be  notified  to  and  approved  by  the 
Commission before Member States can implement them. Aid not covered by this exemption 
will still have to be notified and assessed by the Commission under guidelines53 also adopted 
on 30 June 2004. They will become applicable from 1 November 2004. 

The measures covered by the block exemption relate to aid unlikely to threaten conservation 
or distort competition in a manner not in line with EU interest and which therefore has never 
given rise to investigation procedures by the Commission. The aid concerned has to comply 
strictly with the criteria set out in the block exemption regulation, which are identical to those 
governing the allocation of EU funds under the Financial Instrument for Fisheries Guidance 
(FIFG). 

The block exemption will apply to aid granted to SMEs for amounts below €1 million or to 
aid designed to finance measures with a maximum eligible amount of €2 million. To ensure 
the proper allocation of such aid, monitoring will take place through a simplified procedure 
comprising ex-ante information of the Commission on the aid to be granted, published on the 
internet and the Official Journal, and ex post reporting obligations. Both the block exemption 
and de minimis aid regulations have a retroactive effect explicitly built in. 

See also section 3.8 re de minimis aid in the agricultural and fisheries sectors. 

3.10. 

State aid to the transport sector 

State aid to the aviation sector 

In  the  autumn  of  2004  the  Commission  will  be  studying  draft  guidelines  aimed  at 
supplementing  the  guidelines  on  state  aid  in  the  aviation  sector  adopted  in  1994;  they  will 
take account of the major developments that have occurred in recent years in the European air 
transport  market.  One  such  change  is  the  emergence  of  several  new  Community-scale 
companies  with  promotional  rates  supported  by  a  low-cost  structure.  Another  concerns 
airports which in the last few years have been particularly active in seeking to attract new air 
routes  and  have  created  a  real  airport  market  with  its  own  case  law  (Aéroports  de  Paris 
judgment in 2000). The guidelines cover both aspects. 

As regards start-up aid, the draft guidelines suggest extending the Commission Decision of 12 
February  2004  on  the  aid  granted  to  Ryanair  at  Charleroi  by  codifying  the  practice  thus 

52 

53 

EN 

Commission Regulation (EC) No 1595/2004 of 8 September 2004 on the application of Articles 87 and 
88  of  the  EC  Treaty  to  State  aid  to  small  and  medium-sized  enterprises  active  in  the  production, 
14.9.2004). 
of 
processing 
http://europa.eu.int/comm/fisheries/doc_et_publ/factsheets/legal_texts/stateaids_en.htm 
Guidelines for the examination of State aid to fisheries and aquaculture (OJ C229 of 14.09.2004) 

and  marketing 

products 

fisheries 

L291/3 

(OJ 

of 

41 

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established  and  allowing  airports,  especially  regional  airports,  provided  they  comply 
scrupulously with the rules on transparency and proportionality, to contribute to the creation 
of new routes. The maximum period envisaged is 5 years and the maximum aid intensity 50% 
of the costs of starting up the routes. 

As regards the financing of airports, the draft guidelines envisage to retain the principle that 
the building of airport infrastructure that is open to all users may come under the heading of 
the  power  of  public  authorities  to  provide  public  infrastructure  and  facilities.  On  the  other 
hand,  the  financing  must  be  limited  to  the  installations  that  are  specifically  required  for  air 
transport itself and not its commercial adjuncts such as shops, hotels or car parks. Nor must it 
allow  airport  managers  to  gain  an  unfair  advantage  by  imposing  excessive  charges  which 
could place them in a predatory position in relation to other airports. 

State aid to combined transport  

The  Commission  is  currently  preparing  a  working  document  in  relation  to  state  aid  for  the 
combined transport sector. The absence of specific guidelines for this sector implies a lack of 
transparency  and  understanding  by  third  parties  of  the  rules  and  criteria  applied  by  the 
Commission  when  assessing  public  financing  in  this  sector.  Nevertheless,  the  Commission 
has  through  a  substantial  number  of  decisions  established  a  constant  legal  practice  which 
could  be  converted  into  specific  guidelines,  therefore  providing  the  necessary  transparency 
and legal certainty that is required by interested parties. 

3.11.  De minimis aid to the coal sector 

In  March  2004,  the  Commission  adopted  a  draft  regulation  which  would  explicitly  exclude 
the coal sector from the scope of the de minimis regulation of January 2001. The coal sector 
has been covered by the EC Treaty only since 24 July 2002, following the expiry of the ECSC 
Treaty. Since then, the sector has been subject to specific rules which prevent the application 
of other exemption regimes. 

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4. 

ONLINE STATE AID SCOREBOARD AND REGISTER 

The online Scoreboard contains electronic versions of this and previous Scoreboards as well 
as a set of key indicators, a wide array of statistical tables and internet-links to information on 
State aid policy issues of the Member States and the European Parliament. 

http://europa.eu.int/comm/competition/state_aid/scoreboard/ 

Any  queries  or  requests  for  data  should  be  sent 
Stateaid-Scoreboard@cec.eu.int 

to 

the  scoreboard  mailbox  at 

State aid Register – a second transparency tool 

The  Commission’s  State  aid  Register  has  been  online  since  2001.  The  Register  provides 
detailed information on all State aid cases which have been the object of a final Commission 
decision  since  1st  January  2000  as  well  as  block  exemption  cases  published  in  the  Official 
Journal.  It  is  updated  daily  and  thus  ensures  that  the  public  has  timely  access  to  the  most 
recent  State  aid  decisions.  It  is  available  on  the  homepage  of  the  Competition  Directorate 
General’s Internet site: 

http://europa.eu.int/comm/competition/state_aid/register/ 

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5. 

METHODOLOGICAL NOTES 

The data used in this Scoreboard were provided by the national administrations of each new Member 
State. Additional data on population, GDP and exchange rates were obtained from Eurostat. Data for 
2004 are provisional. Annual average exchange rates were provided by Eurostat and may differ from 
those  used  by  the  national  authorities.  Furthermore,  exchange  rates  for  some  of  the  currencies  in 
question have been subject to considerable fluctuations, which clearly have an impact on the data. 

Total aid excludes agriculture, fisheries and transport for which comparable data prior to accession are 
not available. See section 1.3.6 for details of the provisions that apply in these sectors for the existing 
aid mechanism. 

State aid expenditure is attributed to the year it was made. In cases that result in expenditure over a 
number of years, the total amount is attributed to each of the years in which expenditure took place. 
All data are provided in million (or billion where appropriate) euro at constant 2000 prices so that the 
effects of inflation are removed. Some data for the year 2003 in Cyprus, Hungary, Latvia, Lithuania 
and Poland are provisional. 

In relation to the autumn 2002 update of the Scoreboard54, many of the figures have been subject to 
significant revisions. 

State aid data collected for the Scoreboard are grouped according to primary objectives which may be 
either horizontal or sector-specific. Information on the objective of the aid, or, the sector to which the 
aid is directed, refers to the time the aid was approved and not to the final recipients of the aid. For 
example, the primary objective of a scheme which, at the time the aid was approved, was exclusively 
earmarked  for  small  and  medium-sized  enterprises  is  classified  as  aid  for  ‘small  and  medium-sized 
enterprises’.  In  contrast,  aid  granted  under,  say,  a  regional  development  scheme  may  ultimately  be 
awarded to small and medium-sized enterprises, but is not regarded as such if, at the time the aid was 
approved, the scheme was open to all enterprises.  

The following symbols have been used in the Scoreboard: 

n.a. 
- 
0 
NGE 
New MS 
R&D 
SMEs 
GDP 

not available 
real zero 
less than half the unit used 
net grant equivalent 
new Member States 
research and development 
small and medium-sized enterprises 
Gross Domestic Product 

See also Conceptual remarks (after Introduction). Further information on methodological issues may 
be found on the online Scoreboard: 

http://europa.eu.int/comm/competition/state_aid/scoreboard/conceptual_remarks.html 

54 

COM(2002)638 of 27.11.2002 

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ANNEX I: TRANSITIONAL ARRANGEMENTS PROVIDED FOR IN THE TREATY OF ACCESSION 

Cyprus 

- Phase-out incompatible fiscal aid by the end of 2005 

Czech Republic 

- Restructuring of the steel industry to be completed by 31 December 2006. 

Hungary 

- Phase-out incompatible fiscal aid for SMEs by the end of 2011 

- Conversion of incompatible fiscal aid for large companies into regional investment aid; the aid will be limited 
to a maximum of 75% or 50% of the eligible investment costs depending on the start date of the investment; in 
the motor vehicle industry the aid is further limited, and set at a level  that corresponds to 30% or 20% of the 
eligible investment costs respectively.  

- Phase-out incompatible fiscal aid for off-shore companies by the end of 2005 

- Phase-out incompatible fiscal aid granted by local authorities by the end of 2007 

Malta 

- Phase-out incompatible fiscal aid for SMEs by the end of 2011 

- Conversion of incompatible fiscal aid for large companies into regional investment aid; the aid will be limited 
to a maximum of 75% or 50% depending on the date of the attainment of tax exemption  

- Aid for restructuring of the shipbuilding sector during a restructuring period lasting until the end of 2008 

- Phase-out of operating aid under the Business Promotion Act by the end of 2008 

Poland 

- Phase-out of incompatible fiscal aid for small enterprises by the end of 2011 

- Phase-out of incompatible fiscal aid for medium-sized enterprises by the end of 2010 

- Conversion of incompatible fiscal aid for large companies into regional investment aid; the aid will be limited 
to a maximum of 75% or 50% of the eligible investment  costs depending on the date of the attainment of the 
permit; in the motor vehicle industry the aid is further limited, and set at a level that corresponds to 30% of the 
eligible costs. 

- With regard to state aid to environmental protection, transitional arrangement agreed for investments that relate 
to standards for which a transitional period has been granted under the Chapter Environment and for the duration 
of that transitional period, whereby the aid intensity is limited to the regional aid ceiling 

- Restructuring of the steel industry to be completed by 31 December 2006. 

Slovak Republic 

-  Conversion  of  incompatible  fiscal  aid  to  one  beneficiary  in  the  motor  vehicle  manufacturing  sector  into 
regional investment aid; the aid will be limited to a maximum of 30% of the eligible investment costs. 

- Incompatible fiscal aid to one beneficiary in the steel sector to be discontinued at the end of 2009 or when aid 
reaches a pre-determined amount, whichever comes first. 

EN 

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ANNEX II: COUNTRY PROFILES 

Cyprus 

Year 2004 
Population: 0.73 million 

GDP: € 12.0 billion 
GDP per capita: €16 459 or 18 152 PPS 
Exchange rate: 1€ = 0.582 CYP 

Annual average years 2000-2003 

less  agriculture,  fisheries  and 

Total  State  aid 
transport (national currency): 165 million CYP 
Total State aid (euro): € 285 million 
State aid as a percentage of GDP: 2.85 % 
State aid per capita: € 405 or 497 PPS 

State aid legislative, 
administrative and 
enforcement 
framework 

State aid in the 
years 2000-2003 

International 
Business 
Enterprises Act 

Following  the  entry  into  force  of  the  Public  Aid  Control  Law  on  30th  April 
2001,  the  Office  of  the  Commissioner  for  Public  Aid,  headed  by  an 
independent  official, 
the  Commissioner  for  State  Aid  Control,  was 
established in order to create a proper framework for the effective control of 
State  Aid  (www.mof.gov.cy).  The  Commissioner  took  office  on  1st  June 
2001. According to the Law and the secondary legislation, no state aid could 
be  advanced  without  the  prior  approval  of  the  Commissioner.  Upon 
accession,  Community  state  aid  rules  became  directly  applicable  with  the 
substantive  control  of  State  aid  being  shifted  from  the  Commissioner  to  the 
European Commission. The legislative framework was amended accordingly. 
According  to  the  State  Aid  Control  Laws  of  2001  to  2004,  all  competent 
authorities intending to grant any type of aid are obliged to notify all draft aid 
measures to the Commissioner before their implementation. If any draft aid 
measure  is  implemented  without  the  prior  approval  or  opinion  of  the 
Commissioner,  the  latter  may  take  a  decision  requiring  the  recovery  of  the 
aid  from 
the  beneficiary.  The  Commissioner  possesses  powers  and 
responsibilities  in  respect  of  issuing  non-binding  recommendations  on  all 
draft  aid  measures,  notification  of  State  aid  measures  to  the  Commission, 
assessment  and  monitoring  of  all  measures  under  the  block  exemption 
regulations, the effective control of de minimis aid and the collection of data. 
Therefore, the Office of the Commissioner for State Αid Control now acts as 
the national focal point and coordinator for state aid matters in Cyprus. 

Cyprus granted annually €285 million of state aid in the years 2000 – 2003. 
This  represented  2.85%  of  GDP  or  the  equivalent  of  €405  per  capita.  The 
relatively  high  level  of  state  aid  can  be  attributed  to  two  peculiarities  in 
Cyprus, the impact of which will diminish in the coming years leading to an 
expected  reduction  in  the  overall  level  of  State  aid.  A  fall  in  the  absolute 
amount  of  state  aid  can  be  observed  in  2003  due  to  the  beginning  of  the 
phasing  out  process  of  Cyprus’s  largest  scheme  that  gives  tax  reductions  to 
International Business Enterprises (see below).  

On average 88% of total aid was given under schemes, while €36 million was 
awarded through ad hoc measures.  

In  the  medium  term,  Cyprus’s  transitional  arrangement  for  its  International 
Business Enterprises Act foresees the phasing out of a significant amount of 
tax relief by the end of 2005. This aid is made up largely of tax relief through 
a  reduced  tax  rate  of  4.25%,  as  opposed  to  the  standard  rate  of  20-25%. 
Already  in  2003,  expenditure  under  this  scheme  dropped  to  around  €68 
million from €219 million in 2002 due to the new tax code that entered into 
force  on  1  January  2003.  It  eliminated  all  incompatible  fiscal  aid  with 
immediate  effect  and  abolished  the  distinction  between  the  onshore  and 

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46 

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Exemptions from 
import duty before 
accession 

State aid to 
horizontal 
objectives 

Regional aid in 
Cyprus 

offshore sector. For one provision of the tax code, a transitional period was 
requested  by  Cyprus  until  the  end  of  2005  for  existing  beneficiaries  in  the 
offshore  sector.  This  arrangement  accounted  for  almost  60%  of  total  aid  in 
the years 2000 to 2003. 

The  other  cause  for  the  relatively  high  aid  levels  prior  to  accession  should 
disappear  in  the  short-term,  leading  to  significant  reductions  in  aid 
expenditure  already  in  2004.  Prior  to  accession,  a  system  of  sectoral 
exemptions  was  in  force  exempting  most  manufacturing  enterprises  from 
payment  of  import  duties  for  certain  raw  materials  or  inputs,  provided  that 
these raw materials were used for the manufacture of final products either for 
domestic  consumption  or  for  export.  All  these  measures  were  abolished  on 
the  date  of  accession.  In  2003,  the  imports  of  raw  materials  increased 
substantially (from €9 million in 2002 to €114 million, or 47% of total aid, in 
2003) as a result of manufacturing companies stocking-up by importing large 
quantities of raw materials before the abolition of these measures. 

Given the clear commitment of phasing-out both the above-mentioned cases, 
it is interesting to look at the figures excluding these two schemes: total state 
aid would have amounted to only €60 million in 2003, representing 0.6% of 
GDP. 

Aid for horizontal objectives averaged €66 million per year or 23% of total 
aid  in  the  observed  period.  Annually,  €31  million  (11%  of  total  aid)  was 
devoted to the preservation of heritage and national culture, mainly through 
the  financing  of  national  and  multinational  film  and  theatrical  productions, 
including national broadcasting. Cypriot state aid policy aims also to enhance 
human  resources  development  (2%)  and  to  protect  the  environment  (1%). 
Around 4% of total state aid was specifically earmarked to SMEs. 

The smooth integration of Cyprus into the Union is constrained by a number 
of  special  characteristics,  namely  the  large  distance  of  Cyprus  from  EU 
markets, the scarcity of water and own energy resources, the small size of its 
domestic market and some weaknesses in the structure of production. These 
disparities are addressed by a few horizontal, regional aid measures totalling 
€11 million yearly (4% of total aid). According to the Guidelines on national 
regional  aid,  the  total  territory  of  Cyprus  is  regarded  as  an  Article  87(3)(c) 
region providing for a uniform aid ceiling of 20% NGE and 10% for SMEs 
and  covering  100%  of  the  population.  Cyprus  is  regarded  as  one  region  at 
each NUTS level. It should be noted that this applies only to the area of the 
Republic of Cyprus under the control of the Government of Cyprus. 

Sectoral and Rescue 
& Restructuring aid 

Sectoral  aid  constituted  a  substantial  part  of  total  state  aid  in  Cyprus 
amounting to an average €219 million between 2000 and 2003 (77 % of total 
aid).  This  relatively  high  percentage  can  be  attributed  almost  exclusively  to 
the two measures detailed above. No rescue and restructuring was granted in 
the period under review. There are no so-called sensitive sectors in Cyprus. 

Aid instruments 

State  aid  took  mostly  the  form  of  fiscal  instruments.  Tax  exemptions, 
subsidized rent and other duty relief made up 81% of total aid in the period 
2000-2003,  followed  by  grants  (18%).  Guarantees  and  soft  loans  were 
scarcely used. 

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47 

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Existing aid in 
Cyprus 

Cyprus has 51 existing state aid measures through which it can award aid in 
future  without  prior  notification  to  the  Commission.  31  of  these  measures 
were annexed to the Treaty of Accession while a further 20 were approved by 
the Commission as existing aid under the interim mechanism. These schemes 
are devoted to various horizontal objectives, especially to the support of the 
film industry and major cultural events. 

Transitional 
arrangements with 
Cyprus 

In course of the negotiations, Cyprus requested a transitional arrangement to 
allow  the  granting  of  a  grandfather  clause  to  International  Business 
Enterprises. Thus the undertakings which were active on 31st December 2001 
and had, by that date, acquired the benefit of section 28A of the Income Tax 
Law are allowed to maintain the benefit until 31st December 2005.  

Looking to the 
future ... 

Due to a number of measurement difficulties set out in section 1.3.1, it is not 
possible  to  provide  an  accurate  forecast  of  future  aid  expenditure  levels. 
However, by looking at the situation in the last year before accession, 2003, it 
can  be  observed  that  around  €154  million  (64%  of  total  aid)  was  awarded 
under  measures  that  will  not  continue  beyond  accession.  Aid  given  under 
existing schemes (32 out of a total of 158 in 2003), i.e. that are scheduled to 
continue  after  1  May  2004,  amounted  to  €20  million  (8%  of  total  aid)  in 
2003. Finally, a considerable amount of aid (€68 million or 28% of the total) 
was  awarded  under  transitional  arrangements  foreseen  in  the  Treaty  of 
Accession. 

State aid for horizontal objectives and particular sectors in Cyprus, 2000-2003 

Horizontal Objectives
     Research and Development
     Environment
     SME
     Commerce
     Training aid
     Heritage conservation, cultural aid
     Natural disasters
     Regional aid n.e.c. (1)

2000
Average 2000-2003
mio € % of total mio €

2001
mio €

2002
mio €

2003
mio €

66.3
1.1
1.7
11.9
4.6
5.3
30.6
0.4
10.7

23%
0%
1%
4%
2%
2%
11%
0%
4%

56.7
0.9
1.6
14.0
4.5
5.6
21.6
-
8.7

65.8
1.2
1.1
13.1
5.5
5.0
30.6
-
9.3

89.3
1.5
2.2
18.4
5.3
5.5
33.3
-
23.2

53.3
0.7
2.1
2.2
3.2
5.2
36.7
1.5
1.5

Sectoral aid (2) (3)

Total aid less agriculture, fisheries 
and transport in million €

219.0

285.3

77%

100%

198.5

255.2

242.1

307.8

247.0

336.5

188.5

241.8

Note: All figures are expressed in euros at 2000 constant prices so that the effects of inflation are removed. (1) 
Aid  for  general  regional  development  not  elsewhere  classified  (2)  Aid  for  specific  sectors  awarded  under 
measures  for  which  there  was  no  horizontal  objective  as  well  as  aid  for  rescue  and  restructuring.  (3)  The 
International Business Enterprises scheme benefits various sectors but the exact amounts are unknown for each 
sector. However, a breakdown of the main sectors in which the benefiting enterprises operate provides a useful 
indication:  53%  services  other  than  transport  and  communication,  25%  transport,  communication,  21% 
construction. 

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Czech Republic 

Year 2004 
Population: 10.2 million 

Annual average years 2000-2003 
Total State aid less agriculture, fisheries and transport 
(national currency): 62,137 million CZK 
Total State aid (euro): € 1 908 million 

GDP: € 79.8 billion 
GDP per capita: € 7,810 or 15,406 PPS  State aid as a percentage of GDP: 2.8 % 
Exchange rate: 1€ = 32.059 CZK 

State aid per capita: € 187 or 386 PPS 

State aid legislative, 
administrative and 
enforcement 
framework 

State aid in the 
years 2000-2003 

Czech banking 
crisis 

for 

the  Office 

the  Protection 

The  Czech  Act  on  State  Aid  that  entered  into  force  in  May  2000  contained 
the main principles of Community State aid rules. The State Aid Department 
of 
of  Economic  Competition 
(http://www.compet.cz/) exercised ex ante control over all aid (also regional 
and  municipal)  granted  in  the  Czech  Republic  from  May  2000  up  to 
accession.  Before  accession  a  new  Act  on  the  “modification  of  certain 
relations in the area of state aid” replaced the previous legal regulation. The 
decision-making functions of the State aid Section of the Office were wound 
up  on  1  May  2004.  The  new  functions  of  the  Office  as  the  national  central 
coordination,  advisory  and  monitoring  unit  are  to  facilitate  and  accelerate 
notification contents and procedures; advise Czech State aid providers on the 
EU State aid rules in individual cases; manage national obligations under the 
block  exemption  regulations;  collect  necessary  data  and  draft  regular  or  ad-
hoc reports on State aid and to assume the role of a regular national contact 
point in working relations with the Commission. 

The Czech Republic granted annually €1 908 million of state aid in the years 
2000 to 2003. This represented 2.8 % of GDP or the equivalent of €187 per 
capita. The relatively high amount of state aid in the Czech Republic can be 
attributed to the measures taken by the Czech government, mainly in the form 
of  guarantees,  to  resolve  the  legacy  of  the  banking  crisis  of  the  1990s.  The 
overall  state  aid  level  was  highest  in  2002  and  2003  due  to  the  increased 
recourse of these state guarantees. 

As a consequence of the rules of the Czech Act on Investment Incentives that 
foresaw an individual assessment of all fiscal aid awards, the Czech state aid 
system is based on a considerably large number of ad hoc cases, which made 
up around 90% of all aid measures prior to accession.  

Between 1994 and 1998, the Czech Republic faced a general banking crisis. 
The Government adopted a series of  measures during and after the crisis to 
enable the creation of a viable, privatised banking sector, and in particular to 
ensure  the  rescue  and  restructuring  of  several  banks  and  their  successful 
privatisation. These measures included capital injections, transfers of assets, 
public  guarantees,  ring-fence  agreements  and  litigation  indemnities.  The 
Czech Republic notified some cases under the interim mechanism procedure. 
To date, the Commission has adopted 15 decisions essentially declaring that 
the measures were (in technical terms) “not applicable after accession”. This 
means that those measures were granted in their entirety before the accession 
date, and thus the Commission was neither required nor empowered to assess 
such measures. These aids cannot be challenged upon the Czech Republic’s 
entry  to  the  EU.  Nevertheless,  a  “not  applicable  after  accession”  decision 
does  not  necessarily  mean  that  there  are  no  longer  any  further  payments, 
within the predefined limits, for these aid measures after accession. 

As a condition for the provisional closure of the Competition chapter during 

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49 

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the  accession  negotiations,  the  Czech  Republic  undertook  a  commitment  to 
create  full  transparency  with  regard  to  all  State  aid  measures  for  the  Czech 
banking sector taken in the process of its restructuring. It is worth noting that 
prior  to  accession  around  15  banks  that  were  granted  restructuring  aid  now 
cease  to  exist.  Payments  from  guarantees  accumulated  to  €1  459  million 
yearly in the period 2000-2003, with the highest amount (nearly €2.4 billion) 
paid  out  in  2002.  A  further  €185  million  of  aid  was  granted  in  2000  in  the 
form  of  grants  and  soft  loans.  Given  the  exceptional  circumstances  of  the 
banking crisis inferring the necessary intervention of the state, it is interesting 
to  look  at  the  situation  without  these  payments:  state  aid  would  have 
amounted  to  €388  million,  representing  only  0.55%  of  the  GDP  during  the 
period under review. 

Aid for horizontal 
objectives 

Aid directed towards horizontal objectives amounted to €185 million or 10% 
of total aid in the observed period. Annually €40 million (2.1 %) was devoted 
specifically to Czech SMEs. State aid policy also aimed to strengthen R&D 
activities (2%) and support environmental protection and energy saving (2%). 

Regional aid in the 
Czech Republic 

Sectoral, rescue and 
restructuring aid 

A  somewhat  higher  proportion  of  horizontal  aid  was  granted  under  the 
Guidelines for national regional aid. The figures show €63 million of regional 
aid corresponding to 3% of total aid over the period under review. The Czech 
Republic  consists  of  eight  NUTS  II  regions  that have  a  per  capita  GDP  not 
exceeding 60% of the Community average except for Prague (almost 120%). 
According to the Community guidelines on national regional aid, the territory 
of the Czech Republic with the exception of Prague shall be regarded as an 
area identical to those areas of the Community described in Article 87(3)(a). 
Therefore the intensity of regional aid must in general not exceed the rate of 
50% NGE. The maximum aid intensities vary slightly in the different regions 
of the country (between 46% in Southwest and 50% in Central Bohemia and 
Silesia). Prague is an area eligible for Art. 87(3)(c) status and the intensity of 
regional aid must not exceed the rate of 20% NGE. All ceilings may be raised 
by  15  percentage  points  in  87(3)(a)  regions  and  by  10  points  in  87(3)(c) 
regions in the case of aid granted to SMEs. 

Due to the reasons outlined above, rescue, restructuring and other sectoral aid 
outweighed  all  other  types  of  aid.  The  aid  given  to  these  potentially  more 
distortive objectives amounted to an average €1 723 million (almost 90% of 
total  aid)  over  the  period  under  review.  The  majority  of  the  rescue  and 
restructuring aid benefited the financial sector: an annual average of €1 520 
million  or  80%  of  total  aid.  Between  2000  and  2003,  the  steel  sector  also 
benefited  from  an  annual average  of  €75  million  of  aid  as  part  of  a  general 
restructuring plan (see below). Around 2% of total aid (€29 million per year) 
was granted to the motor vehicle industry while a relatively small amount of 
closure aid was given to its coal industry in 2002 and 2003. 

Aid instruments 

State  aid  in  the  Czech  Republic  took  mostly  the  form  of  guarantees  which 
made up 78% of total aid in the period 2000-2003, followed by grants (12%). 
Equity participation (6%), tax exemptions (3%) and soft loans (1%) given by 
the State were used much less frequently. 

Existing aid in the 
Czech Republic 

The Czech Republic has 214 existing state aid measures through which it can 
award aid in future without prior notification to the Commission. 120 of these 
measures  were  annexed  to  the  Treaty  of  Accession  while  a  further  94  were 
approved  by  the  Commission  as  existing  aid  under  the  interim  mechanism. 
These  measures  involve  mostly  regional  investment  aid  in  the  form  of  tax 

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50 

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Transitional 
arrangements with 
the Czech Republic 

Looking to the 
future… 

exemptions  to  individual  companies  and  schemes  for  co-financing  the 
Structural  Funds.  Some  of  the  measures  accepted  as  existing  aid  under  the 
interim mechanism were mere modifications to the already listed measures in 
the Treaty. Some 40 measures are still under assessment. 

Protocol  2  of  the  Treaty  of  Accession  sets  out  detailed  transitional 
arrangements for the restructuring of the Czech steel industry, with the aim of 
leading  to  its  viability  under  normal  market  conditions  by  the  end  of  2006. 
Steel  is  an  important  industrial  sector  in  the  Czech  Republic.  Over  the  last 
the 
decade,  significant  restructuring  has  been  achieved,  reinforcing 
competitiveness of the sector. Despite these efforts, the restructuring process 
is  not  yet  complete.  For  this  reason,  transitional  arrangements  were 
negotiated  to  allow  the  granting  of  state  aid  to  specific  companies.  The 
maximum amount of state aid under these arrangements is €413 million for 
the period 1997-2003. An overall productivity comparable to that of other EU 
countries shall be achieved gradually by 2006 under close monitoring of the 
Commission.  The  amount  of  state  aid  granted  up  to  the  end  of  2003  was 
lower than the maximum agreed ceiling. In the period 1997-2003, the Czech 
Republic  granted  a  total  amount  of  CZK  12  000  million  (€371  million), 
which is approximately 85% of the Protocol ceiling. 

Due to a number of measurement difficulties set out in section 1.3.1, it is not 
possible  to  provide  an  accurate  forecast  of  future  aid  expenditure  levels. 
However,  aid  given  under  existing  measures  (54  out  of  a  total  of  100 
measures  in  2003),  i.e.,  that  are  scheduled  to  continue  after  1  May  2004, 
amounted to €147 million (7% of total aid) in 2003. Of the remaining 93%, 
7% was awarded under measures that will not continue beyond accession and 
8%  was  awarded  to  the  steel  sector  under  a  transitional  arrangement  which 
was  phased  out  in  2003.  The  future  trend  in  the  overall  level  of  aid  will 
depend  greatly  on  the  extent  to  which  payments  are  made  from  existing 
guarantee and indemnity measures to the banking sector which accounted for 
78%  of  total  aid  in  2003.  In  this  context,  the  Commission  would  have  the 
authority  to  assess  such  aid  only  if  the  Czech  Republic  were  to  exceed  the 
limits of the already cleared measures under the interim mechanism or if they 
were to introduce new aid measures. 

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51 

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State aid for horizontal objectives and particular sectors in the Czech Republic, 2000-2003 

Horizontal Objectives
     Research and Development
     Environment
     SME
     Employment aid
     Training aid
     Heritage conservation, cultural aid
     Regional aid n.e.c. (1)

Sectoral aid (2)
     Manufacturing
        of which steel
        of which motor vehicles
     Coal
     Other Non-manufacturing Sectors
     Financial Services

Total aid less agriculture, fisheries 
and transport in million €

2000
Average 2000-2003
mio € % of total mio €

2001
mio €

2002
mio €

2003
mio €

185,0
33,4
31,6
40,4
9,8
7,0
0,1
62,6

1722,8
190,9
74,6
28,6
0,8
10,9
1520,1

10%
2%
2%
2%
1%
0%
0%
3%

120,1
24,0
39,5
31,6
5,8
2,8
0,6
15,9

90% 1448,6
217,9
10%
117,6
4%
-
1%
-
0%
-
1%
1230,7
80%

153,3
26,7
25,1
34,3
10,5
3,7
-
53,1

1030,1
189,7
-
114,4
-
-
840,3

228,1
42,9
23,3
56,8
15,9
17,6
-
71,5

2632,0
188,6
16,7
-
3,2
3,2
2437,0

238,4
40,1
38,6
39,0
7,0
3,8
-
109,9

1780,3
167,2
164,1
-
0,2
40,6
1572,4

1907,7

100% 1568,7

1183,3

2860,1

2018,7

Note: All figures are expressed in euros at 2000 constant prices so that the effects of inflation are removed. (1) 
Aid  for  general  regional  development  not  elsewhere  classified  (2)  Aid  for  specific  sectors  awarded  under 
measures for which there was no horizontal objective as well as aid for rescue and restructuring. 

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Estonia 

Year 2004 
Population: 1.4 million 

GDP: €8.8 billion 
GDP  per  capita:  €6495  or  10798 
PPS 
Exchange rate: 1€ = 15.6466 EEK 

Annual average years 2000-2003 
Total  State  aid  less  agriculture,  fisheries  and  transport 
(national currency): 113 million EEK 
Total State aid (euro): €7.2 million 
State aid as a percentage of GDP: 0.11% 

State aid per capita: €5 or 10 PPS

State aid legislative, 
administrative and 
enforcement 
framework 

In  Estonia,  State  aid  prior  to  accession  was  monitored  by  the  State  aid  and 
Public Procurement Division within the Ministry of Finance (www.fin.ee). It 
was  regulated  by  a  Competition  Act  and  ten  Regulations  on  special 
conditions for granting State aid. From 1 May 2004, the State aid chapter of 
the Competition Act was amended and the ten Government Regulations were 
repealed. The new provisions in the Competition Act determine the national 
procedures  for  co-ordination,  preparation  and  submission  of  State  aid 
notifications  and  State  aid  reports  (including  summary  information  on  State 
aid  granted  under  the  block  exemption  regulations)  to  the  European 
Commission.  Since  1  May  2004,  the  State  aid  and  Public  Procurement 
Division has a co-ordination and advisory  role in the field of State aid. Co-
ordination of State aid issues in the field of agriculture and fisheries is carried 
out  by  the  Ministry  of  Agriculture  and  in  the  field  of  transport  by  the 
Ministry of Economic Affairs and Communications. 

State aid in the 
years 2000-2003 

Estonia granted annually around €7.2 million of aid in the years 2000 - 2003. 
This  represented  0.11%  of  GDP  or  the  equivalent  of  €5  per  capita.  The  aid 
was granted through 15 State aid measures, of which 11 were schemes and 4 
ad hoc measures.  

Aid given to 
horizontal 
objectives 

Regional aid in 
Estonia 

In  2000-2003  all  aid  in  Estonia  was  granted  exclusively  for  horizontal 
objectives. The largest amounts were granted for regional objectives (33% of 
total aid), heritage conservation and cultural objectives (20%), environmental 
objectives  (15%)  and  R&D  purposes  (13%).  Aid  for  heritage  conservation 
and  culture  totalled  annually  €1.5  million  (20%  of  total  aid)  and  consisted 
largely  of  grants  to  support  the  Estonian  film  industry  and  for  publishing 
cultural  magazines.  Environmental  aid  decreased  during  the  period  under 
review,  because  the  aid  was  mainly  granted  through  Article  10  of  the 
Pollution Charge Act, which expired on 1 January 2002. In contrast, the aid 
for R&D objectives increased year by year. 

Aid  for  regional  objectives  amounted  annually  to  €2.4  million  of  aid  in  the 
years  2000-2003.  Regional  aid  was  mainly  granted  via  two  schemes:  a 
Pollution Charge Substitution Scheme and an Investment support scheme for 
development  and  diversification  of  alternative  economic  activities  in  rural 
areas.  Estonia  has  a  per  capita  GDP  that  does  not  exceed  60%  of  the 
Community  average.  All  regions  are  therefore  totally  eligible  for  Art. 
87(3)(a)  status.  There  are  five  groups  of  regions  at  NUTS  III  level.  For  the 
purposes  of  drawing  up  the  regional  map,  the  territory  is  divided  into  two 
parts: the NUTS III region of Northern-Estonia and the four remaining NUTS 
III  regions,  because  the  GDP  figures  in  Northern-Estonia  are  considerably 
higher  than  in  the  other  regions.  The  maximum  aid  intensity  of  the  eligible 
costs is 40% in Northern Estonia and 50% in the other regions of Estonia. 

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Aid instruments 

Grants were the most frequently used form of aid instrument making up 69% 
of total aid, followed by guarantees (17%) and tax exemptions (14%).  

Existing aid in 
Estonia 

Looking to the 
future… 

Estonia has 13 existing state aid measures through which it can award aid in 
future without prior notification to the Commission. 3 of these measures were 
annexed to the Treaty of Accession while a further 10 were approved by the 
Commission as existing aid under the interim mechanism. These aid schemes 
are earmarked for horizontal objectives such as regional development, R&D, 
commerce and internationalisation and aid for SMEs.  

Due to a number of measurement difficulties set out in section 1.3.1, it is not 
possible  to  provide  an  accurate  forecast  of  future  aid  expenditure  levels. 
However, by looking at the situation in the last year before accession, 2003, it 
can observed that 0.7 million (8%) of total aid was awarded under measures 
that  will  not  continue  beyond  accession.  Aid  given  under  existing  schemes, 
i.e.,  that  are  scheduled  to  continue  after  1  May  2004,  amounted  to  €7.7 
million (92% of total aid) in 2003. 

State aid for horizontal objectives and particular sectors in Estonia, 2000-2003 

Average 2000-2003

2000

2001

2002

2003

Horizontal Objectives
     Research and Development
     Environment
     SME
     Commerce
     Heritage conservation, cultural aid
     Regional aid n.e.c. (1)

mio € % of total mio €

mio €

mio €

mio €

7.2
1.0
1.1
0.7
0.6
1.5
2.4

100%
13%
15%
10%
8%
20%
33%

4.1
0.3
1.8
0.0
0.4
1.3
0.3

7.5
0.5
2.4
0.6
0.5
1.1
2.4

8.7
1.2
0.0
1.4
0.3
1.6
4.2

8.4
1.8
0.1
0.8
1.1
1.8
2.8

Sectoral aid (2)

-

-

-

-

-

-

Total aid less agriculture, fisheries 
and transport in million €

7.2

100%

4.1

7.5

8.7

8.4

Note: All figures are expressed in euros at 2000 constant prices so that the effects of inflation are removed. (1) 
Aid  for  general  regional  development  not  elsewhere  classified.  (2)  Aid  for  specific  sectors  awarded  under 
measures for which there was no horizontal objective as well as aid for rescue and restructuring. 

EN 

54 

   EN 

 
Hungary 

Year 2004 
Population: 10.12 million 

Annual average years 2000-2003 
Total  State  aid  less  agriculture,  fisheries  and  transport 
(national currency): 144 561 million HUF 
Total State aid (euro): € 571 million 

GDP: € 80.5 billion 
GDP per capita: € 7 961 or 13 654 PPS  State aid as a percentage of GDP: 1.04 % 
Exchange rate: 1€ = 253 HUF 

State aid per capita: € 56 or 114 PPS 

State aid legislative, 
administrative  and 
enforcement 
framework  

(www.p-m.hu).  Due 

State  aid  in  Hungary  has  been  monitored  and  controlled  by  the  State  Aid 
Monitoring  Office  and  its  predecessor  within  the  Ministry  of  Finance  since 
1996 
to  constitutional  concerns  against  direct 
applicability of the acquis and the absence of a transposition of Community 
rules in Hungarian law, the Office was  able to base its opinions directly on 
the substantive State aid rules and give binding opinions only from 1 January 
2002, when a bill amending the Act on Public Finance and an implementing 
decree containing the substantive rules were adopted. From 1 May 2004, the 
national  state  aid  rules  have  been  modified  and  the  state  aid  rules  of  the 
acquis  became  directly  applicable  in  Hungary.  The  Article  of  the  Act  on 
Public Finance defining the notion of state aid was replaced by a reference to 
Art.  87  of  the  EC  Treaty.  A  new  procedural  decree  entered  into  force  that 
aims  to  maintain  the  previous  notification  procedure  vis  à  vis  the  State  Aid 
Monitoring Office as a national (pre-) control and co-ordination function. The 
Ministry  of  Finance  where  necessary  notifies  aid  measures 
the 
Commission. 

to 

State aid in the 
years 2000-2003 

Hungary granted annually €571 million of state aid in the years 2000-2003.55 
This  represented  1.04  %  of  GDP  or  the  equivalent  of  €56  per  capita.  This 
amount was stable during the observed four years, except for a slight increase 
in  2002  mostly  due  to  a  higher  appropriation  for  environmental  protection 
purposes.  

State  aid  system  in 
Hungary 

The  Hungarian  system  differs  from  those  of  other  Member  States  in  that 
almost all aid is granted through a few so-called earmarked schemes within 
which aid grantors publish call for applications (sub-schemes). These contain 
the  more  detailed  rules  for  granting  aid  for  a  specific  objective  each  year. 
While  the  number  of  schemes  was  between  ten  and  twenty,  the  number  of 
sub-schemes  was  over  one  hundred.  Both  the  major  framework  schemes 
taking  the  form  of  acts,  ministerial  or  governmental  decrees  and  the  sub-
schemes are subject to prior notification to the State Aid Monitoring Office. 
Meanwhile the budgets of the earmarked schemes are established in the Act 
on  the  Annual  Budget;  those  of  the  sub-schemes  are  determined  by  the  aid 
granting  bodies  within  the  limits  of  the  general  scheme.  Generally,  major 
schemes remain in force for an indefinite period of time, in contrast to sub-
schemes that are renewed every 6 or 12 months with changing objectives and 
criteria.  Ad  hoc  aid  in  Hungary  can  be  granted  only  as  a  government 
decision. Aid at local level is granted on the basis of a local decree (scheme) 
or  local  decision  (ad  hoc  aid).  Previously,  fiscal  aid  was  obtained 
automatically if the criteria of the law were fulfilled. These particularities of 
the Hungarian system are reflected in the share of ad hoc aid to total state aid 
which was 6% on average. 

55 

The  expenditure  figure  for  tax  exemptions  granted  under  the  Investment  tax  benefits  scheme  was 
estimated for 2003 to be €254 million in 2000 constant prices, due to lack of precise data. 

EN 

55 

   EN 

 
                                                 
Aid to horizontal 
objectives 

Most  of  the  above-mentioned  earmarked  schemes  were  directed  towards 
horizontal  objectives  amounting  to  €241  million  or  42%  of  total  aid  in  the 
observed  period.  Annually  €40  million  (7%)  was  devoted  specifically  to 
Hungarian  SMEs.  State  aid  policy  also  aims  to  foster  employment  (4%), 
support  environmental  protection  and  energy  saving  (3%)  and  strengthen 
R&D activities (3%). 

Regional aid in 
Hungary 

A  large  proportion  of  horizontal  aid  was  granted  through  general  economic 
development  schemes.  Thus  the  figures  show  an  annual  average  of  €134 
million  of  regional  aid,  equivalent  to  23%  of  total  aid.  Yearly  €44  million 
(8%  of  total  aid)  of  regional  funding  came  from  local  governments  in  the 
form of tax exemptions.  

Sectoral and Rescue 
and  Restructuring 
aid 

Sensitive sectors 

The  whole  Hungarian  territory  is  regarded  as  a  region  described  in  Art. 
87(3)(a) of the Treaty. The country is made up of three NUTS I level regions, 
in  which  7  NUTS  II  regions  are  represented.  In  five  NUTS  II  level  regions 
large enterprises may be granted aid up to 50% of the eligible costs of initial 
investment  or  job  creation.  There  are  significant  disparities  within  some 
regions, notably in Central Hungary and Western Transdanubia. In Budapest, 
the GDP per  capita figure is considerably higher than that of the County of 
Pest  making  up  the  rest  of  Central  Hungary.  Accordingly,  the  aid  intensity 
ceiling for the County of Pest is 40% while in Budapest it is 35%. 

Despite  the  growing  number  of  schemes  directing  aid  to  horizontal 
objectives, in expenditure terms,  sectoral aid still outweighed horizontal aid 
in the period prior to accession. Aid given to this potentially more distortive 
objective  amounted  to  an  average  of  €331  million  between  2000  and  2003 
(58%  of  total  aid).  Much  of  the  sectoral  aid  is  made  up  of  tax  exemptions 
allowed  under  a  transitional  arrangement  that  is  being  phased  out  (see 
below).  These  investment  tax  benefits  accounted  for  €305  million  (53%  of 
total aid) per year, benefiting mainly the manufacturing sector. In 2001, the 
financial  sector  also  benefited  from  around  €10  million.  No  rescue  and 
restructuring aid was granted in the period under review. 

Some 4% of total aid, i.e. around €22 million per year was granted to the coal 
mines  to  moderate  the  impacts  caused  by  their  necessary  gradual  closure. 
Hungary  also  has  a  fairly  small  steel  industry.  In  the  course  of  its 
privatisation,  the  sector  received  restructuring  aid  in  the  mid-1990s. 
Following this, no incompatible restructuring aid was granted. Before 2000, 
uncapped  corporate  tax  exemptions  were  granted  to  the  motor  vehicle 
industry,  which  may  not  have  been  in  line  with  the  Community’s  Motor 
Vehicle  Regulations.  Under  the  transitional  arrangements  negotiated  by 
Hungary,  the  sector  may  continue  to  benefit  from  tax  exemptions  that  are 
limited to 30% or 20%, depending on the start date of the investment, of the 
eligible  investment  costs  allowed  for  large  enterprises  under  the  same 
arrangement. 

Aid instruments 

Prior  to  accession,  State  aid  in  Hungary  took  mostly  the  form  of  a  fiscal 
instrument. Tax exemptions and other duty relief made up 62% of total aid, 
followed by grants (37%). Guarantees and soft loans were rarely used. 

Fiscal aid 

The  issue  of  fiscal  aid  was  discussed  at  length  prior  to  closure  of  the 
Competition Chapter during the accession negotiations with Hungary. Until 1 
January 2003, fiscal aid was outside the control of the State Aid Monitoring 

EN 

56 

   EN 

 
Transitional 
arrangements with 
Hungary 

Existing aid in 
Hungary 

Looking to the 
future… 

Office  insofar  as  it  was  granted  automatically  on  the  basis  of  provisions 
included  in  the  Hungarian  Act  on  Corporate  Taxes  and  Dividends.  The  Act 
foresaw  a  number  of  different  fiscal  aid  schemes  (tax  breaks)  e.g.,  for  so-
called high priority regions and entrepreneurial zones. Most of these schemes 
provided  incompatible  investment  aid  (i.e.  not  limited  as  a  percentage  of 
eligible initial investment costs). 

The modification of the Act, bringing these schemes into compliance with the 
acquis and the Europe Agreement (i.e. ensuring that no further incompatible 
benefit  was  granted)  by  1  January  2003,  was  a  pre-condition  for  the  EU 
agreeing  to  any  transitional  arrangements.  Consequently,  the  EU  accepted 
transitional  arrangements  (1)  for  the  HUF  3  billion  and  HUF  10  billion 
investment schemes up to the limit of 75% or 50% of eligible investment cost 
from  1  January  2003;  (2)  SMEs,  which  were  granted  benefits  by  31 
December 2002 can retain them up to 31 December 2011; (3) under the off-
shore  scheme,  all  individual  benefits  granted  under  the  scheme  by  31 
December 2002 have to be fully phased out by 31 December 2005; and (4) 
for tax exemptions granted by local authorities up to 2% of the net receipts of 
an  undertaking,  which is  unlikely  to  surpass  the  de minimis  threshold,  until 
31 December 2007. The value of these tax exemptions before accession was 
€350 million yearly (61% of total state aid). 

Hungary has 39 existing state aid measures through which it can award aid in 
future  without  prior  notification  to  the  Commission.  21  of  these  measures 
were annexed to the Treaty of Accession while a further 18 were approved by 
the  Commission  as  existing  aid  under  the  interim  mechanism.  These  were 
mostly the ‘general earmarked schemes’ described above. 

Due to a number of measurement difficulties set out in section 1.3.1, it is not 
possible  to  provide  an  accurate  forecast  of  future  aid  expenditure  levels. 
However, by looking at the situation in the last year before accession, 2003, it 
can  be  observed  that  €67  million  (13%)  of  total  aid  was  awarded  under 
measures that will not continue beyond accession. Aid given under existing 
schemes (16 out of a total of 22 measures in 2003), i.e., that are scheduled to 
continue after 1 May 2004, amounted to 28% of total aid in 2003. Finally, a 
considerable amount of aid (€293 million or 59% of the total) was awarded as 
investment  tax  benefits  which  are  set  to  continue  under  the  transitional 
arrangements  foreseen  in  the  Treaty  of  Accession.  The  latter  figure  implies 
that  aid  levels  are  likely  to  remain  relatively  high  up  to  the  end  of  the 
transitional period but may decrease thereafter. 

EN 

57 

   EN 

 
State aid for horizontal objectives and particular sectors in Hungary, 2000-2003 

Horizontal Objectives
     Research and Development
     Environment
     SME
     Employment aid
     Training aid
     Heritage conservation, cultural aid
     Risk capital
     Regional aid n.e.c. (1)

Sectoral aid (2)
     Manufacturing
     Coal
     Financial Services
     Other services

Total aid less agriculture, fisheries 
and transport in million €

Average 2000-2003
mio € % of total
42%
3%
3%
7%
4%
1%
1%
0%
23%

240.6
14.8
19.7
40.0
22.0
3.9
5.6
0.6
134.0

330.7
304.8
22.3
2.4
1.2

571.3

58%
53%
4%
0%
0%

100%

2000
mio €

2001
mio €

2002
mio €

2003
mio €

164.0
7.2
17.5
16.5
13.3
0.0
-
-
109.5

418.5
393.2
25.3
-
-

582.5

242.9
28.0
9.7
41.3
24.2
0.8
0.2
-
138.7

327.9
287.5
29.8
9.8
0.9

570.9

332.2
20.0
48.0
73.6
26.0
0.6
7.1
-
156.9

303.3
284.7
18.6
-
-

635.5

223.2
3.9
3.7
28.4
24.4
14.0
15.3
2.5
131.0

273.1
253.7
15.5
-
4.0

496.3

Note: All figures are expressed in euros at 2000 constant prices so that the effects of inflation are removed. (1) 
Aid  for  general  regional  development  not  elsewhere  classified.  (2)  Aid  for  specific  sectors  awarded  under 
measures for which there was no horizontal objective as well as aid for rescue and restructuring. 

EN 

58 

   EN 

 
 
Latvia 

Year 2004 
Population: 2.3 million 

GDP: €10.3 billion 
GDP per capita: €4479 or 9790 PPS 
Exchange rate: 1€ = 0,6597LVL 

Annual average years 2000-2003 
Total State aid less agriculture, fisheries and transport 
(national currency): 13 million LVL 
Total State aid (euro): €23 million 
State aid as a percentage of GDP: 0.26% 
State aid per capita: €10 or 21 PPS

State aid legislative, 
administrative and 
enforcement 
framework 

Prior  to  accession,  State  aid  in  Latvia  was  controlled  by  the  State  Aid 
Surveillance  Commission,  which  was  set  up  in  1997.  A  State  aid  law  on 
“Control  of  the  State  and  local  government  aid  to  entrepreneurial  activity” 
was adopted in February 1998. As of 1 May 2004, the State Aid Surveillance 
Commission ceased its decision-making power on State aid cases due to the 
transfer  of  competences  to  the  European  Commission.  However,  the  State 
Aid  Control  Department  within  the  Ministry  of  Finance  (www.fm.gov.lv) 
continues to work as a contact-point between national aid granting authorities 
and the Commission. The Department advises national institutions and acts as 
a  filter  before  notifications  on  planned  state  aid  measures  are  sent  to  the 
Commission.  The  Department  covers  State  aid  issues  regarding  the 
manufacturing  sector  (including  aid  to  non-Annex  I  agricultural  products) 
and the transport sector. Due to accession, the Latvian State aid control law 
was amended in order to be compatible with Community State aid rules. The 
amended law determines the permissible aid objectives, costs to be supported 
and  maximum  aid  intensities,  as  well  as  national  procedures  on  control  of 
State aid. 

State aid in the 
years 2000 – 2003 

Latvia granted annually around €23 million of aid in the period 2000 - 2003. 
This represented 0.26% of GDP or the equivalent of €10 per capita. The aid 
was granted through 32 State aid measures, of which 17 were schemes and 15 
ad hoc measures. 

Aid for horizontal 
objectives 

Regional aid in 
Latvia 

Aid  for  horizontal  objectives  amounted  annually  to  €13  million  or  55%  of 
total  aid  in  the  period  2000-2003.  Around  2%  of  total  aid  was  granted  to 
SMEs mainly through 9 State aid schemes which had various purposes such 
as  the  development  of  non-agricultural  entrepreneurial  activities,  helping 
Latvian  enterprises  to  participate  in  international  fairs  and  exhibitions, 
consultations for the start-up of entrepreneurial activity, etc.  

The largest share of horizontal aid (50% of total aid) was awarded to regional 
objectives,  amounting  to  an  average  of  €12  million  per  year.  Regional  aid 
was to a large extent granted under the law on foreign investments, and via 
Special  Economic  Zones  and  a  Free  Ports  scheme  under  which 
manufacturing  companies  in  free  zones  received  tax  relief  from  the 
immovable property tax and enterprise income tax.  

Latvia  has  a  per  capita  GDP  that  does  not  exceed  60%  of  the  Community 
average  (35%  in  2002).  Latvia  is  therefore  regarded  as  an  area  identical  to 
those  areas  of  the  Community  described  in  Article  87(3)(a)  of  the  Treaty. 
There are five regions at NUTS III level for which the maximum aid intensity 
is 50% NGE. This ceiling can be raised by 15 percentage points in the case of 
aid granted to SMEs. 

EN 

59 

   EN 

 
 
 
Sectoral and Rescue 
and Restructuring 
aid 

In Latvia sectoral aid accounted for 45% of total aid. It was mainly granted in 
the form of rescue and restructuring aid to firms in difficulties. The bulk of 
the €7 million was awarded for the capitalisation of tax debts accrued before 
privatisation as well as deferred tax provisions for pre-privatisation tax debts 
that could not be capitalised.  

Aid instruments 

In  the  period  2000-2003,  grants  were  the  most  frequently  used  form  of  aid 
instrument  making  up  35%  of  total  aid.  They  were  followed  by  equity 
participation (25%) and tax exemptions (20%).  

Existing aid in 
Latvia 

Looking to the 
future… 

Latvia has 25 existing state aid measures, through which it can award aid in 
future  without  prior  notification  to  the  Commission.  6  measures  were 
approved by the Commission as existing aid in the Treaty of Accession and 
19  under  the  interim  mechanism.  These  measures  are  earmarked  for 
horizontal objectives.  

Due to a number of measurement difficulties set out in section 1.3.1, it is not 
possible  to  provide  an  accurate  forecast  of  future  aid  expenditure  levels. 
However, by looking at the situation in the last year before accession, 2003, it 
can  be  observed  that  €4  million  (43%)  of  total  aid  was  awarded  under 
measures that will not continue beyond accession. Aid given under existing 
schemes, i.e., that are scheduled to continue after 1 May 2004, amounted to 
€5 million (57 % of total aid) in 2003. Data for 2003 are provisional.  

State aid for horizontal objectives and particular sectors in Latvia, 2000-2003 

2000
Average 2000-2003
mio € % of total mio €

2001
mio €

2002
mio €

2003 (3)
mio €

Horizontal Objectives
     Environment
     SME
     Commerce
     Regional aid n.e.c. (1)

Sectoral aid (2)
     Manufacturing

12.9
0.1
0.5
0.5
11.8

10.5
10.5

55%
0%
2%
2%
50%

45%
45%

Total aid less agriculture, fisheries 
and transport in million €

23.4

100%

14.6
0.4
0.5
0.5
13.3

31.0
31.0

45.6

18.1
0.0
0.5
0.4
17.2

9.6
9.6

10.7
0.0
0.3
1.0
9.4

0.6
0.6

27.7

11.3

8.3
0.0
0.8
0.1
7.3

0.7
0.7

9.0

Note: All figures are expressed in euros at 2000 constant prices so that the effects of inflation are removed. (1) 
Aid  for  general  regional  development  not  elsewhere  classified.  (2)  Aid  for  specific  sectors  awarded  under 
measures for which there was no horizontal objective as well as aid for rescue and restructuring. (3) Figures for 
the year 2003 are provisional. 

EN 

60 

   EN 

 
Lithuania 

Year 2004 
Population: 3.4 million 

Annual average years 2000-2003 
Total State aid less agriculture, fisheries and transport 
(national currency): 121 million LTL 
Total State aid (euro): €34 million 

GDP: €17.5 billion 
GDP per capita: €5079 or 10653 PPS   State aid as a percentage of GDP: 0.24% 
Exchange rate: 1€ = 3.4518 LTL 

State aid per capita: €10 or 22 PPS

State aid legislative, 
administrative and 
enforcement 
framework 

Prior to accession, State aid in Lithuania was controlled by the Competition 
Council which was set up in March 1999. The Competition Council did not 
form part of any Ministry and was therefore operationally independent from 
all  State  aid  granting  authorities.  A  Law  on  Monitoring  of  State  Aid  to 
Undertakings  was  passed  on  18  May  2000.  On  the  basis  of  this  law,  the 
Competition  Council  carried  out  functions  which  are  now  held  by  the 
European Commission. The above Law was amended on 15 April 2004 and 
changed 
Council 
(www.konkuren.lt/english/index.htm) to a co-ordination activity for state aid 
matters. In compliance with the procedures approved by the Government, it 
now  provides  advice  to  state  aid  providers  and  gathers  information  on  state 
aid for submission to the Commission. 

Competition 

role 

the 

the 

of 

State aid in the 
years 2000 – 2003 

Lithuania  granted  annually  €34  million  of  aid  in  the  years  2000-2003.  This 
represented 0.24% of GDP or the equivalent of €10 per capita. 

Aid for horizontal 
objectives 

Aid  for  horizontal  objectives  totalled  annually  €1.4  million  in  the  period 
2000-2003,  which  represented  4%  of  total  aid.  The  largest  amount  (€0.7 
million) was granted for commerce and internationalization objectives (2% of 
total  aid)  through  a  scheme:  “Partial  payment  of  insurance  premiums  in 
export  credit”.  The  purpose  of  the  scheme  is  to  subsidise  partially  the 
premiums paid by undertakings for the insurance of export credit (only non-
commercial, non-marketable risks are subsidised). A further €0.4 million was 
granted for R&D activities. 

Regional aid in 
Lithuania 

Regional  aid  amounted  to  an  annual  average  of  €0.3  million  in  the  period 
2000-2003.  This  represented  around  1%  of  total  state  aid  and  was  mainly 
granted on an ad hoc basis. There was only one regional aid scheme, which 
provides tax exemptions for investments in the Klaipeda free economic zone. 

Lithuania has a per capita GDP that does not exceed 60% of the Community 
average  and  is  therefore  regarded  as  an  area  identical  to  those  areas  of  the 
Community described in Article 87(3)(a) of the Treaty. There are 10 regions 
at NUTS III level in which the maximum aid intensity for granting regional 
aid is 50% NGE. These ceilings can be raised by 15 percentage points in the 
case of aid granted to SMEs. 

Sectoral and Rescue 
and Restructuring 
aid 

Aid directed at specific sectors went mostly to the manufacturing sector and 
amounted  annually  to  €33  million  in  the  period  2000-2003.  This  accounted 
for 96% of total aid. Most of the aid went for the rescue and restructuring of 
ailing firms. 

Aid instruments 

Grants were the most frequently used form of aid instrument making up 41% 
of total aid in the period 2000-2003. Guarantees accounted for 28% of total 
aid, tax exemptions 17% and equity participation 10%. 

EN 

61 

   EN 

 
Existing aid in 
Lithuania 

Lithuania has 16 existing state aid measures, through which it can award aid 
in  future  without  prior  notification  to  the  Commission.  3  of  these  measures 
were annexed to the Treaty of Accession while a further 13 were approved by 
the  Commission  as  existing  aid  under  the  interim  mechanism.  These  aid 
measures are to a large extent earmarked for horizontal objectives. 

State aid for horizontal objectives and particular sectors in Lithuania, 2000-2003 

Horizontal Objectives
     Research and Development
     Commerce
     Regional aid n.e.c. (1)

Sectoral aid (2)
     Manufacturing
     Other Non-manufacturing Sectors

Total aid less agriculture, fisheries and 
transport in million €

2000
Average 2000-2003
mio € % of total mio €

2001
mio €

2002
mio €

2003 (3)
mio €

1.4
0.4
0.7
0.3

32.6
32.1
0.5

34.0

4%
1%
2%
1%

96%
94%
2%

100%

1.2
0.2
1.0
0.0

40.0
40.0
0

41.2

1.5
0.6
0.8
0.0

13.0
13.0
0

14.5

1.3
0.4
0.5
0.5

57.4
57.4
0

58.7

1.5
0.3
0.3
0.9

20.2
18.2
2

21.8

Note: All figures are expressed in euros at 2000 constant prices so that the effects of inflation are removed. (1) 
Aid  for  general  regional  development  not  elsewhere  classified.  (2)  Aid  for  specific  sectors  awarded  under 
measures for which there was no horizontal objective as well as aid for rescue and restructuring. (3) Figures for 
the year 2003 are provisional. 

EN 

62 

   EN 

 
Malta 

Year 2004 
Population: 0.39 million 

GDP: € 4.3 billion 
GDP per capita: € 10,997 or 16,194 PPS  State aid as a percentage of GDP: 3.86 % 
Exchange rate: 1€ = 0.426 MTL 

State aid per capita: € 404 or 601 PPS 

Annual average years 2000-2002 

Total  State  aid 
transport (national currency): 64.4 million MTL 
Total State aid (euro): € 158.7 million 

less  agriculture, 

fisheries  and 

State aid legislative, 
administrative and 
enforcement 
framework 

State aid in the 
years 2000-2002 

Business Promotion 
Act 

The  concept  of  State  aid  was  adequately  transposed  in  Regulation  3  of  the 
Maltese  State  Aid  Monitoring  Regulation.  State  aid  procedural  rules  were 
laid down in the Business Promotion Act56 and in other secondary legislation. 
The  State  Aid  Monitoring  Board  was  set  up  on  30  June  2000  as  an 
independent body within the Ministry for Economic Services and reached full 
capacity  by  the  second  quarter  of  2001  (www.mfin.gov.mt).  State  aid  in 
Malta is granted by virtue of legislation, administrative policy measures and 
agreements  between  the  beneficiaries  and  the  central  Government  and  its 
agencies. The main aid grantor is the Malta Enterprise Corporation, whereas 
no  State  aid  is  granted  by  local  governments.  State  aid  legislation  was 
amended  in  2004  to  reflect  Malta’s  accession.  The  State  aid  Board  has 
maintained its monitoring function and is now the point of reference on State 
aid  issues  in  Malta  ensuring  that  compliance  with  State  aid  rules  and 
principles,  regarding  for  example  notifications,  is  maintained  in  Malta 
without impinging on matters which are the Commission’s competence. 

Malta  granted  annually  €159  million  of  state  aid  through  around  10  aid 
measures  in  the  years  2000-200257.  This  represented  3.86%  of  GDP  or  the 
equivalent of €404 per capita. The Maltese state aid system does not favour 
either  aid  schemes  or  ad  hoc  measures  with  each  category  accounting  for 
around half of total aid. The relatively high level of state aid in comparison to 
other Member States can be explained by two aid schemes. 

Firstly,  the  manufacturing  sector  is  assisted  by  means  of  a  scheme  of 
incentives under the Business Promotion Act (BPA), which are  mainly of a 
fiscal nature. The BPA is a framework scheme, containing a number of sub-
schemes,  most  of  them  aiming  to  encourage  growth  in  ‘promising’ 
manufacturing sectors. Another pursued objective is to provide incentives to 
encourage  the  establishment  of  new  manufacturing  companies,  especially 
those  with  the  potential  to  be  the  catalysts  for  the  introduction  of  new 
technologies  and  know-how  in  Malta.  A  part  of  the  scheme  grants  fiscal 
incentives to companies licensed to operate in the Freeport (previously Malta 
Free  Ports  Act).  Most  of  the  Regulations  under  the  BPA  were  amended 
before  accession  and  are  now  mainly  in  line  with  the  acquis.  As  part  of 
Malta’s  transitional  arrangements,  a  few  other  Regulations  of  the  Act  that 
allow for reduced rates of income tax and operating aid will be kept in force 
until  the  end  of  the  period  set  in  the  Treaty  of  Accession  even  though  they 
don’t fully comply with Community state aid rules. Between 2000 and 2002 
on  average  39%  of  total  state  aid  was  granted  under  the  regulations  of  the 
BPA  in  various  forms  (reduced  rate  of  income  tax,  investment  tax  credits, 

56 

57 

By Act VI/2001, the former Industrial Development Act and the Malta Freeport Act were renamed and 
merged into the Business Promotion Act. 
The observation  period  in  case  of  Malta  was  reduced  to  the  years 2000 to  2002 due  to  late  reporting 
obligations of aid grantors. 

EN 

63 

   EN 

 
                                                 
Restructuring of 
shipbuilding and 
ship repair sector 

Aid for horizontal 
objectives 

Regional aid in 
Malta 

Sectoral, rescue and 
restructuring aid 

Tourism sector 

Aid instruments 

soft loans, etc.). 

Secondly,  the  acceptance  of  Malta’s  request  for  another  transitional 
arrangement  concerning  its  shipbuilding  and  repair  sector  is  and  will  be 
reflected  for  the  coming  years  in  Malta’s  relatively  high  state  aid  level. 
Shipbuilding  and  repair  is  the  biggest  individual  industrial  sector  on  the 
island  characterised  by  overcapacity, 
insufficient  financing  facilities, 
increased  labour-costs  and  insufficient  productivity  levels.  In  order  to 
restructure  the  two  Maltese  facilities  that  are  state-owned  and  are  loss 
making,  a  special  transitional  regime  closely  monitored  by  the  Commission 
was agreed upon in the Treaty of Accession. Within the scope of this scheme, 
Malta is allowed to grant aid up to a maximum overall amount of 419 million 
Maltese lira (around €984 million) in restructuring aid during the period from 
2002  until  the  end  of  2008.  Between  2000  and  2002,  aid  to  this  sector 
averaged €81 million per year, representing around half the total aid. 

Aid for horizontal objectives amounted to a relatively low €8 million per year 
or 5% of total aid in the period under review. The objectives aimed by these 
aid  schemes  were  backing  export  activities  (4%),  training  of  employees 
(0.5%)  and  patronizing  SMEs  (1%).  With  the  amendment  of  the  Business 
Promotion  Act,  incentives  linked  to  exports  are  no  longer  provided. 
Moreover,  enlarging  the  types  of  horizontal  objectives,  a  new  scheme 
supporting the Maltese film industry was introduced from 2003. 

No  support  was  given  purely  under  the  Community  Guidelines  for  national 
regional  aid  in  the  period  2000-2002,  although  Malta  qualifies  for  regional 
aid in terms of Article 87(3)(a) of the EC Treaty with regional aid intensities 
for  investment  aid  of  40  %  for  large  companies  and  55  %  for  SMEs  as  its 
GDP per capita was 69% of the EU average in 2002. The country has been 
designated as one region at NUTS Levels I and II and two regions at NUTS 
Level III consisting of Malta and Gozo-Comino. 

In  contrast  to  horizontal  objectives,  sectoral  and  rescue,  restructuring  and 
closure  aid  constituted  a  vast  95%  of  total  state  aid  in  Malta  between  2000 
and  2002  (€151  million  per year).  This relatively  high  percentage  has  to  be 
attributed  to  the  above-mentioned  sectoral  weaknesses  of  the  shipbuilding 
industry  and  fiscal  benefits  to  manufacturing  companies.  Apart  from  the 
shipbuilding and ship repair sectors, Malta does not grant aid to those sectors 
considered as ‘sensitive’ in the Union namely coal, steel, synthetic fibres and 
motor vehicles. 

The  tourism  sector  was  another  beneficiary  of  state  aid  measures  in  Malta 
(5%  or  €9  million  per  year)  in  the  observation  period.  The  Tour  operator 
support scheme that has been in place since 1986, was phased out during the 
second  quarter  of  2004.  Its  main  aim  was  to  provide  incentives  related  to 
package tours sold by United Kingdom and Irish operators. 

State  aid  took  the  form  of  various  fiscal  and  non-fiscal  instruments.  Tax 
exemptions were the most frequently used aid instrument making up 37% of 
total  aid  in  the  period  2000-2002,  followed  by  favourable  loans  (33%). 
Grants accounted for 19% of total aid, while guarantees (10%) and tax credits 
(1%) given by the state were lesser used aid instruments. 

Existing aid in 
Malta 

Malta  has  11  existing  state  aid  measures  through  which  it  can  award  aid  in 
future  without  prior  notification  to  the  Commission.  6  sub-schemes  of  the 

EN 

64 

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Transitional 
arrangements with 
Malta 

Looking to the 
future ... 

Business  Promotion  Act  and  a  cultural  aid  scheme  were  annexed  to  the 
Treaty  of  Accession  while  a  further  4  measures  were  submitted  to  the 
Commission as existing aid under the interim mechanism. The latter are still 
under assessment. 

three 

transitional 

requests  which  after  successful 
Malta  submitted 
negotiations were included in the Treaty of Accession. During a transitional 
period,  SMEs,  which  were  eligible  for  tax  exemptions  granted  by  virtue  of 
the Business Promotion Act, will be allowed to continue to benefit from this 
aid until the end of 2011, in light of the legitimate expectations created in this 
respect.  For  other  undertakings,  state  aid  for  regional  investments  can  be 
given up to 75% or 50% of the eligible investment costs. Secondly, operating 
aid under the provisions of the same Act may be given until the end of 2008 
within predefined limits. For the arrangements concerning the ship repair and 
shipbuilding sector see above. 

Due to a number of measurement difficulties set out in section 1.3.1, it is not 
possible  to  provide  an  accurate  forecast  of  future  aid  expenditure  levels, 
especially  as  the  latest  data  refer  to  2002.  However,  by  looking  at  the 
situation in 2002, it can be observed that €84 million (48%) of total aid was 
awarded under measures that will not continue beyond accession. Aid given 
under  existing  schemes  (4  out  of  a  total  of  16  measures  in  2002),  i.e.  that 
were  scheduled  to  continue  after  1  May  2004,  amounted  to  only  €6  million 
(3%  of  total  aid)  in  2002.  A  further  4  schemes  submitted  in  2004,  for 
approval  as  existing  aid,  are  still  being  assessed  and  are  therefore  not 
included in the figures. Finally, a relatively high amount of aid (€86 million 
or  49%  of  the  total)  was  awarded  under  the  transitional  arrangements 
foreseen in the Treaty of Accession. The latter figure implies that aid levels 
are likely to remain relatively high up to the end of the transitional period but 
may well decrease thereafter. 

State aid for horizontal objectives and particular sectors in Malta, 2000-2002 

Horizontal Objectives
     SME
     Commerce
     Training aid

Sectoral aid (1)
     Manufacturing
        of which shipbuilding
     Other Non-manufacturing Sectors
     Other services
Total aid less agriculture, fisheries and 
transport in million €

Average 2000-2002
mio €

% of total

2000
mio €

2001
mio €

2002
mio €

8.2
1.3
6.1
0.8

150.5
140.7
81.3
1.2
8.7

158.7

5%
1%
4%
0%

95%
89%
51%
1%
5%

100%

9.4
-
8.7
0.7

126.7
118.0
79.9
1.2
7.4

136.1

7.5
1.4
5.2
0.9

156.8
146.2
75.3
1.2
9.4

164.3

7.6
2.5
4.3
0.7

168.2
157.9
88.5
1.1
9.2

175.7

Note: All figures are expressed in euros at 2000 constant prices so that the effects of inflation are removed. (1) 
Aid for specific sectors awarded under measures for which there was no horizontal objective as well as aid for 
rescue and restructuring. 

EN 

65 

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Poland 

Year 2004 
Population: 38.2 million 

Annual average years 2000-2003 

Total  State  aid 
transport (national currency): 9937 million PLN 
Total State aid (euro): € 2409 million 

less  agriculture, 

fisheries  and 

GDP: €189 billion 
GDP per capita: €4 965 or 10 421 PPS  State aid as a percentage of GDP: 1.3% 
Exchange rate: 1€ = 4,5861PLN 

State aid per capita: €63 or 127 PPS 

State aid legislative, 
administrative and 
enforcement 
framework 

The Law on the conditions for admissibility and supervising of state aid for 
entrepreneurs came into force on 1 January 2001. Prior to accession, State aid 
in  Poland  was  controlled  by  the  Office  for  Competition  and  Consumer 
Protection  (OCCP)  (www.uokik.gov.pl/).  The  OCCP  is  not  linked  to  any 
ministry and therefore operationally independent from all aid granting bodies. 

As  from  1  May  2004  the  competence  of  monitoring  state  aid  shifted  from 
national to Community level. Poland introduced a new Act of 30 April 2004 
on the procedural issues concerning State aid58, which provides guidance on 
drafting  state  aid  notifications  for  submission  to  the  Commission.  The 
objective of the Act is to ensure that notifications are prepared in accordance 
with  the  Community  State  aid  rules.  Co-ordination  of  the  work  prior  to 
submitting an aid scheme to the Commission lies with the OCCP President. 
The  Act  refers  to  the  procedures  to  be  followed  for  new  aid,  existing  aid, 
unlawful aid, recovery of aid, misuse of aid, as well as cases concerning State 
aid before the Courts. The Act also regulates the issue of reporting on State 
aid  granted  to  enterprises  in  Poland.  The  entities  granting  aid  and  their 
beneficiaries  have  an  obligation  to  report  regularly  to  the  President  of  the 
OCCP  on  all  cases  of  awarded  State  aid.  The  President  of  the  Office  must 
then inform the Commission of the aid. 

State aid in the 
years 2000 – 2003 

Poland granted annually around €2.4 billion of aid in the years 2000 - 2003. 
This represented 1.29% of GDP or the equivalent of €63 per capita. 

Aid to horizontal 
objectives 

Aid  for  horizontal  objectives  totalled  annually  €577  million  and  accounted 
for  24%  of  total  aid.  It  was  made  up  largely  of  aid  for  regional  objectives 
(11% of total aid) and employment objectives (7%).  

Employment  aid  amounted  annually  to  €158  million  in  the  period  2000  – 
2003.  A  significant  proportion  of  employment  aid  was  earmarked  for  the 
rehabilitation  of  working  persons  with  disabilities.  In  most  Member  States, 
employment  measures  fall  under  the  category  of  ‘general  measures’. 
However,  in  this  case,  the  measure  qualifies  as  State  aid  due  to  the 
discretionary power enjoyed by the aid awarding authorities.59 

During  the  period  under  review,  relatively  lower  amounts  of  state  aid  were 
granted for other horizontal objectives such as environment (annually around 
€54  million),  training  (€54  million),  R&D  (€24  million),  and  SMEs  (€18 
million).  It  is  expected  in  the  coming  years  that  environmental  aid  will 
increase,  because  Poland  is  allowed  to  grant  investment  aid  to  achieve 
standards  for  which  a  transitional  period  has  been  agreed.  This  transitional 

58 
59 

Journal of Laws No 123, item 1291 
See Chapter 2.4 of the Scoreboard Spring 2004 update on the difference between general measures and 
state aid measures for employment purposes 

EN 

66 

   EN 

 
                                                 
Regional aid in 
Poland 

Sectoral, rescue and 
restructuring aid 

arrangement  was  approved  on  the  grounds  that  private  companies  have 
considerable  investment  costs  in  order  to  achieve  EU  environmental 
standards. The duration of the aid is limited to the transition period while the 
aid  intensity  is  limited  to  the  regional  aid  ceiling  (30-50%)  with  a  15% 
supplement for SMEs. 

Almost  half  the  regional  aid,  totalling  on  average  €269  million  per  year, 
consisted of tax exemptions awarded to undertakings,  mainly under the law 
on special economic zones. Under the Special Economic Zones Act of 1994, 
companies  located  in  the  zones  could  be  granted  tax  exemptions,  which 
constituted  operating  aid.  On  1  January  2001,  the  Act  was  modified  and 
brought into line with the EU acquis regarding regional investment aid so that 
the tax exemptions are limited to a percentage of the initial investment costs. 
However, Poland requested a transitional period for those companies, which 
had  acquired  rights  under  the  old  incompatible  scheme  up  to  2017.  After 
successful  negotiations,  these  tax  exemptions  were  allowed  until  the  end  of 
2011 in the case of small enterprises and until the end of 2010 in the case of 
medium-sized  enterprises.  As  for  large  companies,  the  aid  is  limited  to  a 
maximum of 75% or 50% of the eligible investment costs depending on the 
date when the company obtained its zone permit.  

The entire territory of Poland is regarded as an area identical to those areas of 
the  Community  described  in  Article  87(3)(a)  of  the  Treaty.  None  of  the  16 
regions  at  NUTS  II  level  in  Poland  exceeds  60%  of  GDP  per  capita. 
Accordingly the aid intensities (NGE) are as follows: 
50% for 40 regions at NUTS III level, 
40% for the regions of Wroclaw, Cracow, Gdansk-Gdynia-Sopot, 
30% for the regions of Poznan and Warsaw. 

These  ceilings  can  be  raised  by  15  percentage  points  in  the  case  of  aid 
granted to SMEs. 

Around  76%  of  total  aid  was  aimed  at  specific  sectors  or  awards  of  ad  hoc 
aid. The coal sector received annually €1.34 billion of State aid in the period 
2000  -  2003,  which  accounted  for  56%  of  total  aid  in  Poland.  It  is  worth 
noting  however  that  by  far  the  largest  amount  was  granted  in  2003 
(provisional  figure  of  €3.88  billion).  A  large  proportion  of  this  aid  (€1.65 
billion)  in  2003  was  granted  to  current  production  while  the  remainder  was 
directed to general restructuring of the whole sector.  

Over  the  period  2000-2003,  Poland  granted  on  average  €122  million  to  its 
steel sector, which made up 5% of total aid. However, the annual average of 
€ 122 million is rather misleading as the largest amount was granted in 2003 
alone  (provisional  figure  of  €458  million).  Aid  for  rescue  and  restructuring 
companies in difficulty accounted for more than 13% of total state aid. 

Aid instruments 

The  most  frequently  used  state  aid  instruments  in  Poland  during  the  years 
2000-2003 were tax exemptions (34% of total State aid) followed by grants 
(32%) and guarantees (23%). 

Existing aid in 
Poland 

Poland  has  currently  25  existing  state  aid  measures,  through  which  it  can 
award aid in future without prior notification to the Commission. 7 of these 
measures  were  annexed  to  the  Treaty  of  Accession  while  a  further  18  were 
approved by the Commission as existing aid under the interim mechanism. In 
addition,  some  measures  proposed  under  the  interim  mechanism  are  still 

EN 

67 

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being assessed. 

Transitional 
arrangements 

According  to  the  Treaty of  Accession,  Poland  has  transitional  arrangements 
in  three  areas:  state  aid  for  restructuring  of  the  steel  industry,  fiscal  aid  in 
special  economic  zones  and  state  aid  for  environmental  protection  (see 
description above and Annex I). 

State aid for horizontal objectives and particular sectors in Poland, 2000-2003 

Horizontal Objectives
     Research and Development
     Environment
     SME
     Employment aid
     Training aid
     Regional aid (1) 

Sectoral aid (2)
     Manufacturing
        of which steel 
     Coal
     Other non-manufacturing sectors

Total aid less agriculture, fisheries 
and transport in million €

Average 2000-2003

2000
mio € % of total mio €

2001
mio €

2002
mio €

2003 (3)
mio €

576.8
24.4
53.8
18.4
157.7
53.7
268.8

1832.5
487.9
121.6
1337.2
7.3

24% 1186.8
23.5
83.3
1.5
452.2
-
626.3

1%
2%
1%
7%
2%
11%

76%
20%
5%
56%
0%

578.0
197.5
21.0
351.2
29.3

392.2
22.6
22.6
12.7
68.5
117.1
148.7

1285.7
589.8
7.0
695.9
-

344.3
30.9
35.6
27.7
46.0
84.1
120.0

1022.4
604.4
-
417.9
-

383.8
20.7
73.8
31.5
64.0
13.8
180.1

4443.7
559.9
458.4
3883.8
-

2409.2

100% 1764.8

1677.9

1366.7

4827.5

Note: All figures are expressed in euros at 2000 constant prices so that the effects of inflation are removed. (1) 
Aid  for  general  regional  development  not  elsewhere  classified.  (2)  Aid  for  specific  sectors  awarded  under 
measures for which there was no horizontal objective as well as aid for rescue and restructuring. (3) State aid 
figures for 2003 are provisional. 

EN 

68 

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Slovenia 

Year 2004 
Population: 1.99 million 

GDP: € 25.5 billion 
GDP per capita: €12 795 or 17 240 PPS 
Exchange rate: 1€ = 239 SIT 

Annual average years 2000-2003 

less  agriculture,  fisheries  and 

Total  State  aid 
transport (national currency): 30 432 million SIT 
Total State aid (euro): € 139 million 
State aid as a percentage of GDP: 0.69% 
State aid per capita: € 70 or 100 PPS 

State aid legislative, 
administrative and 
enforcement 
framework 

After accession 

State aid in the 
years 2000 – 2003 

In Slovenia, systematic monitoring and controlling of the allocation of state 
aid  has  been  in  place  since  1997.  In  2000,  the  State  Aid  Control  Act  was 
adopted together with its implementing regulations. Since February 2000, the 
control  of  state  aid  has  been  carried  out  by  the  Commission  for  the 
Monitoring  of  State  aid  (www.gov.si/mf/),  an  independent  body  whose 
members  were  appointed  by  the  government.  Expert,  technical  and 
administrative  tasks  were  carried  out  for  the  Commission  by  the  Sector  for 
Monitoring of State Aid at the Ministry of Finance. Moreover, the system to 
control  state  aid  granted  by  local  authorities  in  Slovenia  by  means  of 
reporting or preliminary control was set up in 2002. 

This legislation ceased to exist upon accession when the Community state aid 
rules  became  directly  applicable.  The  national  state  aid  regulation  was 
replaced  by  a  corresponding  legal  act  entering  into  force.  On  the  date  of 
accession the responsibility for the control of state aid was transferred from 
the  national  State  Aid  Control  Commission  to  the  European  Commission. 
Accordingly,  the  national  State  Aid  Control  Commission  was  dissolved.  In 
order not to lose the considerable knowledge built up in previous years, the 
State  Aid  Control  sector  continues  to  play  a  role  in  state  aid  issues  and  to 
represent  the  control,  information  and  coordination  point  for  the  Slovenian 
administration. The staff continues to give support to different Ministries and 
grantors of state aid in preparing notifications as well as giving opinions on 
block exemption matters and collecting state aid data. 

Slovenia granted annually around €139 million of aid in the years 2000-2003. 
This  represents  0.69%  of  GDP  or  the  equivalent  of  €70  per  capita. 
Significantly  higher  amounts  in  the  years  2000  and  2001  can  be  partly 
explained by a state aid scheme for restructuring the steel sector. Around €35 
million of aid, primarily in the form of guarantees, was granted in these years 
to the steel industry for restructuring the sector which was completed in 2001. 
In  2003  aid  grew  slightly,  particularly  within  horizontal  objectives.  On 
average  90%  of  the  aid  was  given  under  schemes,  while  €14  million  was 
awarded under ad hoc measures. 

State aid to 
horizontal 
objectives 

Aid for horizontal objectives amounted to €102 million or 73% of total aid in 
the  period  2000-2003.  Environmental  aid,  largely  in  the  form  of  tax 
exemptions, accounted for 17% of total aid. R&D measures made up 16% of 
total aid and employment and training activities 23%.60 

60 

As  the  rules  for  the  Slovenian  Active  employment  policy  scheme  and  the  measures  for  co-financing 
education in form of general and special training offer higher benefits to specific sectors or groups of 
employees, they partially constitute state aid, which is fairly exceptional within aid measures for these 
objectives.  See  Chapter  2.4  of  the  Scoreboard  Spring  2004  update  on  the  difference  between  general 
measures and state aid measures for employment purposes. 

EN 

69 

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Regional aid 

Sectoral and Rescue 
& Restructuring aid 

Aid instruments 

Existing aid in 
Slovenia 

Looking to the 
future… 

Aid for regional objectives amounted to €9 million or 7% of total aid in the 
period  under  review.  Slovenia  as  one  single  region  reaches  70%  GDP  per 
capita of the Community average. This means that the whole area of Slovenia 
can  be  treated  as  one  NUTS  II  level  region  eligible  under  Article  87(3)(a) 
whose  per  capita  GDP  is  higher  than  60%  but  lower  than  75%  of  the 
Community average where regional aid may be granted up to 40% NGE. The 
exception is Central Slovenia (the Ljubljana region), for which the proposed 
ceiling  is  limited  to  35%  NGE  as  the  GDP  per  capita  reaches  96%  of  the 
Community average. 

In  the  years  2000-2003  sectoral  and  rescue,  restructuring  and  closure  aid 
constituted  27%  of  total  state  aid  (€37  million).  This  relatively  high 
percentage  can  largely  be  explained  by  the  above-mentioned  restructuring 
program  within  the  steel  sector  as  well  as  closure  aid  for  the  coal  mining 
sector which represented 7% of total aid. All state aid was allocated to the re-
employment of miners within the scope of the program of gradual closure of 
coal mines. 

Grants were the most frequently used aid instrument making up 46 % of total 
aid in the period 2000-2003, followed by tax exemptions and relief from the 
payment  of  social  security  contributions  (33%).  Capital  investments  and 
conversions of debt into equity participation accounted for 11% of total aid, 
while favourable loans (6%) and guarantees (4%) given by the state were the 
least frequently used aid instruments. 

Slovenia has 36 existing state aid measures through which it can award aid in 
future  without  prior  notification  to  the  Commission.  15  of  these  were 
annexed  to  the  Treaty  of  Accession.  These  aid  measures  were  generally 
schemes  earmarked  for  horizontal  objectives,  particularly  for  environmental 
protection  and  investments,  stimulation  of  development  of  certain  regions 
(Zasavje  and  Posocje)  and  promotion  of  audiovisual  media  productions.  A 
significant  number  of  schemes  were  designed  to  restructure  or  gradually 
close  mining  activities  (see  above)  and  boost  employment.  A  further  21 
measures were approved by the Commission as existing aid under the interim 
mechanism.  They  mostly covered  adjustments  to  the  schemes  already  listed 
in the Treaty of Accession as existing aid. One example is a scheme designed 
for  financing  programs  and  measures  for  stimulating  entrepreneurship  and 
competition  for  the  years  2002-2006,  boosting  SMEs,  R&D  activities  and 
specific regions. This scheme alone amounted to around €20 million in 2003, 
representing 17% of total aid.  

Due to a number of measurement difficulties set out in section 1.3.1, it is not 
possible  to  provide  an  accurate  forecast  of  future  aid  expenditure  levels. 
However, by looking at the situation in the last year before accession, 2003, it 
can  be  observed  that  €36  million  (31%)  of  total  aid  was  awarded  under 
measures that will not continue beyond accession. Aid given under existing 
schemes (23 schemes out of a total of 43 measures), i.e., that are scheduled to 
continue after 1 May 2004, amounted to 69% in 2003.  

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2000
mio €

2001
mio €

2002
mio €

2003
mio €

State aid for horizontal objectives and particular sectors in Slovenia, 2000-2003 

Horizontal Objectives
     Research and Development
     Environment
     SME
     Employment aid
     Training aid
     Heritage conservation, cultural aid
     Natural disasters
     Regional aid n.e.c. (1)

Sectoral aid (2)
     Manufacturing
      of which steel
     Coal
     Other services

Average 2000-2003
mio € % of total
73%
16%
17%
9%
21%
2%
1%
2%
7%

101.7
22.2
23.1
12.4
28.9
2.5
0.7
2.5
9.4

37.2
26.9
8.8
9.7
0.6

27%
19%
6%
7%
0%

128.8
19.8
13.2
22.9
64.2
2.1
-
2.0
4.5

42.2
30.8
3.8
11.4
-

102.2
21.0
25.2
11.6
20.1
3.1
-
4.8
16.3

69.8
69.6
31.4
0.2
-

82.1
22.1
22.9
6.8
16.5
2.6
0.4
3.3
7.4

15.0
0.5
-
14.4
0.0

97.1

93.6
25.7
31.2
8.5
14.6
2.0
2.4
-
9.2

21.7
6.5
-
12.9
2.2

115.3

Total aid less agriculture, fisheries 
and transport in million €

138.8

100%

171.0

172.1

Note: All figures are expressed in euros at 2000 constant prices so that the effects of inflation are removed. (1) 
Aid  for  general  regional  development  not  elsewhere  classified  (2)  Aid  for  specific  sectors  awarded  under 
measures for which there was no horizontal objective as well as aid for rescue and restructuring. 

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Slovak Republic 

Year 2004 
Population: 5.4 million 

GDP: €25 billion 
GDP per capita: €6052 or 11370 PPS 
Exchange rate: 1€ = 40.296 SKK 

Annual average years 2000-2003 
Total State aid less agriculture, fisheries and transport 
(national currency): 5022 million SKK 
Total State aid (euro): €118 million 
State aid as a percentage of GDP: 0.47% 
State aid per capita: €22 or 51 PPS

State aid legislative, 
administrative and 
enforcement 
framework 

Prior  to  accession,  State  aid  in  Slovakia  was  controlled  by  the  State  Aid 
Office (SAO), a body set up under the State Aid Act in the year 2000. The 
drafting  of  State  aid  legislation  belonged  under  the  competence  of  the 
Ministry of Finance. The State Aid Act regulated the granting of State aid for 
a wide range of horizontal and sectoral objectives. Upon accession, Slovakia 
amended  this  Act.  State  aid  is  now  directly  regulated  by  the  relevant 
Community State aid rules. The Office of State aid Assistance was dissolved 
upon  accession  though  the  competences  and  some  employees  were 
transferred to the Ministry of Finance. The current State Aid Act defines the 
position and competences of the state administration in the State aid area and 
sets out the responsibilities for State aid (including de minimis aid) providers. 

State aid in the 
years 2000 – 2003 

The  Slovak  Republic  granted  annually  around  €118  million  of  aid  in  the 
period 2000-2003. This represented 0.47% of GDP or the equivalent of €22 
per capita. 

Aid for horizontal 
objectives 

Aid for horizontal objectives totalled €29 million, which accounted for 24% 
of total aid. The largest proportion of horizontal aid was granted for regional 
objectives  which  amounted  to  an  annual  average  of  €20  million  during  the 
period  under  review.  Around  €4.4  million  was  granted  for  R&D  with  a 
further €1.6 million for environmental and energy saving objectives.  

Regional aid in 
Slovakia 

Sectoral, rescue and 
restructuring aid 

The Slovak Republic consists of three regions, in which GDP per capita does 
not exceed 75 % of the Community average (Western Slovakia 45%, Central 
Slovakia 42% and Eastern Slovakia 39%) and of one region, in which GDP 
per  capita  in  PPS  is  98%  of  the  Community  average  (the  region  of 
Bratislava).  According  to  the  guidelines  on  regional  national  aid,  the  first 
three regions are regarded as areas identical to those areas of the Community 
described  in  Article  87(3)(a)  of  the  Treaty.  Therefore  the  maximum  aid 
intensity is 50% NGE in there regions. The region of Bratislava is regarded 
as  an  area  identical  to  those  areas  of  the  Community  described  in  Article 
87(3)(c) of the Treaty and the maximum regional aid intensity is 20% NGE. 
These  ceilings  can  be  raised  by  15  percentage  points  in  the  case  of  aid 
granted to SMEs. 

Aid  for  sectoral  objectives  totalled  annually  €89  million  and  accounted  for 
76% of all aid. Aid for the steel sector, which made up 46% of total aid, is 
likely  to  continue  in  the  coming  years,  because  the  Slovak  Republic 
requested a transitional period to protect fiscal aid granted for ten years under 
the Act No 366/1999 on Income Tax to foreign investors in the steel sector. 
The aid can be granted only until the end of 2009 or when the aid reaches a 
pre-determined  amount.  A  further  31%  of  sectoral  aid  was  granted  to  the 
motor  vehicles  sector.  This  sector,  too,  is  likely  to  receive  state  aid  in  the 
coming  years  due  to  a  similar  10-year  transitional  period  to  protect  tax 
exemptions granted under the Act No 192/1998 to beneficiaries in the motor-
vehicle manufacturing sector. This fiscal aid can be granted only until the end 

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of  2008  and  the  aid  is  limited  to  a  maximum  of  30%  of  the  eligible 
investment costs. 

Aid instruments 

Tax  exemptions  were  the  most  frequently  used  form  of  aid  instrument 
making up 72% of total aid in the period 2000–2003. Guarantees accounted 
for 17 % and grants 10% of total aid. 

Existing aid in the 
Slovak Republic 

Transitional 
arrangements 

Looking to the 
future ... 

Slovak Republic has currently 71 existing state aid measures, through which 
it can award aid in future without prior notification to the Commission. 9 of 
these  measures were annexed to the Treaty of Accession while a further 62 
were  approved  by  the  Commission  as  existing  aid  under  the  interim 
mechanism.  In  addition,  some  measures  proposed  under  the  interim 
mechanism are still being assessed. 

Two transitional arrangements were included in the Treaty of Accession, one 
for  the  steel  sector,  the  other  for  the  motor  vehicle  sector  (see  description 
above and Annex I).  

Due to a number of measurement difficulties set out in section 1.3.1, it is not 
possible  to  provide  an  accurate  forecast  of  future  aid  expenditure  levels. 
However, by looking at the situation in the last year before accession, 2003, it 
can  be  observed  that  €9  million  (8%)  of  total  aid  was  awarded  under 
measures that will not continue beyond accession. Aid given under existing 
schemes, i.e., that are scheduled to continue after 1 May 2004, amounted to 
€12 million (11 % of total aid) in 2003. Finally, a considerable amount of aid 
(€95 million or 81% of the total) was awarded under fiscal measures for the 
steel sector and motor vehicle manufacturing and which are continuing under 
the  transitional  arrangements  foreseen  in  the  Treaty  of  Accession.  This 
implies that aid levels are likely to remain relatively high up to the end of the 
transitional period but may well decrease thereafter. 

State aid for horizontal objectives and particular sectors in the Slovak Republic, 2000-2003 

Horizontal Objectives
     Research and Development
     Environment
     SME
     Commerce
     Heritage conservation, cultural aid
     Regional aid (1)

Sectoral aid (2)
     Manufacturing
        of which steel
     Coal

     Other non-manufacturing sectors

     Financial Services

Total aid less agriculture, fisheries 
and transport in million €

Average 2000-2003
mio €

%

28.7
4.4
1.6
1.4
0.8
0.6
19.7

89.3
69.8
41.1
3.1

9.2

7.2

24%
4%
1%
1%
1%
1%
17%

76%
59%
35%
3%

8%

6%

2002

2001

2000
2003
mio € mio € mio € mio €
21.5
0.7
0.0
0.0
3.0
0.0
17.8

66.4
8.1
6.5
4.9
0.0
0.7
46.2

14.7
4.0
0.0
0.0
0.3
1.8
8.6

12.0
4.9
0.0
0.7
0.0
0.0
6.4

73.5
49.2
18.2
4.3

20.0

119.2
70.7
46.3
4.9

14.7

0.0

28.9

69.8
64.3
37.1
3.4

2.1

0.0

94.9
94.9
62.8
0.0

0.0

0.0

118.0

100% 140.0

131.1

84.5

116.5

Note: All figures are expressed in euros at 2000 constant prices so that the effects of inflation are removed. (1) 
Aid  for  general  regional  development  not  elsewhere  classified  (2)  Aid  for  specific  sectors  awarded  under 
measures for which there was no horizontal objective as well as aid for rescue and restructuring. 

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Bulgaria 

Year 2004 

Annual average 2000 - 2003 

Population: 7.8 million 

Total  State  aid  less  agriculture,  fisheries  and  transport 
(national currency): 187 million BGN 

GDP: € 19.6 billion 

Total State aid (euro): € 89 million 

GDP per capita: € 2,515 or 6,975 PPS 

State aid as a percentage of GDP: 0.6% 

Exchange rate: 1€ = 1.9593 BGN 

State aid per capita: € 11 or 37 PPS 

Source: Bulgarian Annual Reports on State aid 2000-2003 

Over  the  period  2000-2003,  total  State  aid  (less  agriculture,  fisheries  and  transport)  in  Bulgaria 
amounted on average to €89 million, the equivalent of 0.6% of GDP or €11 per capita. Around 76% of 
the  aid  was  earmarked  for  sectoral  objectives.  The  relatively  large  share  of  aid  granted  to  seven 
companies  in  the  coal  and  ore  mining  sector  (32%  of  total  aid)  has  aimed  at  the  restructuring, 
privatisation  and  closure  of  ineffective  production  in  the  Bulgarian  coal  mining  industry.  Aid  to  the 
manufacturing  sector  also  constitutes  a  significant  share  of  total  aid.  A  large  proportion  of  this  aid 
covers  the  difference  between  the  cost  and  retail  prices  fixed  by  the  Government  and  was  mainly 
granted to 17 district central heating companies. 

Romania 

Year 2004 

Annual average 2000 – 2002 

Population: 21.7 million 

Total  State  aid  less  agriculture,  fisheries  and  transport 
(national currency): 36.377 billion ROL 

GDP: € 55.9 billion 

Total State aid (euro): € 1,111 million 

GDP per capita: € 2,576 or 6,850 PPS 

State aid as a percentage of GDP: 3,3% 

Exchange rate: 1€=41,071 ROL 

State aid per capita: € 50 or 181 PPS 

Source: Romanian Annual Reports on State aid 2000-2002 

Over  the  period  2000-2002,  total  State  aid  (less  agriculture,  fisheries  and  transport)  in  Romania 
amounted on average to €1.1 billion, the equivalent of 3.3% of GDP or €50 per capita. Sectoral aid, 
including  rescue  and  restructuring,  represented  on  average  67%  of  overall  aid.  Around  30%  was 
allocated to the restructuring and privatisation of the Romanian steel sector, which itself accounted for 
the exceptionally high level of aid granted in 2001. A further 25% was granted for other rescue and 
restructuring purposes. On average, horizontal objectives, including regional aid, accounted for 33% 
of overall aid. Almost all horizontal aid was granted under general schemes to enhance privatisation, 
modernisation, investment and production.  

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ANNEX III: FOLLOW-UP TO COUNCIL CONCLUSIONS ON STATE AID 

The following summaries of national contributions are provided in addition to the material provided in 
Section 2.2. 

Specific efforts to reduce and redirect aid 

Denmark contends that its industrial strategy concentrates on improving the general environment and 
growth  conditions  of  firms,  rather  than  on  helping  individual  firms  directly.  For  example,  in  food, 
agriculture and fisheries the annual appropriations for R&D projects (under the Innovation Act) have 
been  falling  steadily.  Up  to  2003,  a  subsidy  was  given  to  a  number  of  associations  providing 
specialised agricultural advice. In 2004 the subsidy was cut back, in line with the Government’s policy 
of reducing direct subsidies to trade and industry and placing the emphasis instead on improving the 
general business environment. In this case, the saving of €13 million made in 2004 was reflected in a 
corresponding reduction in land taxes for all farmers. 

Portugal  also  draws  a  distinction  between  different  types  of  State  aid,  arguing  for  example,  that 
operating  aid,  which  by  its  nature  is  likely  to  cause  greater  distortion  to  competition,  ceased  many 
years ago to form part of panoply of new state aid measures in Portugal. At the same time, economic 
and social cohesion is a central objective of state aid policy. This is reflected in the fact that the large 
majority of existing aid schemes include a regional objective. 

France has opted for budgetary restrictions as a way of meeting the commitment to reduce State aid. 
With the exception of aid for R&D and SMEs, a good many budget appropriations for operations have 
been  either  frozen  or  revised  downwards.  Instead,  France  is  pursuing  a  policy  broadly  based  on  the 
development of research and on support for SMEs. More specifically, support for enterprises today has 
two strategic focal points: First, the stepping-up of aid for research and innovation will take the form 
of increased public involvement in the emergence and development of “competitiveness poles”. The 
aim is to provide back-up, through better coordination and a concentration of funds on innovation and 
training, for cooperative and multidisciplinary projects which will have the biggest positive impact on 
the  industrial  and  scientific  base.  The  increase  in  the  number  of  industrial  accidents  is  inducing  the 
French authorities to consider redirecting aid towards the employment zones hardest hit by industrial 
change, an approach justified on grounds of national solidarity and social and territorial cohesion. 

In  Spain,  most  of  the  programmes  currently  under  way  in,  for  example,  the  Madrid  Autonomous 
Region  have  a  horizontal  content,  with  innovation  being  a  key  factor  when  evaluating  projects.  To 
qualify for aid, SMEs must carry out projects that do not fall within their normal activities, and there 
must be a lower component of investment aid relative to aid for activities not funded by companies’ 
current  expenses.  Specifically  in  relation  to  innovation  aid,  re-targeting  is  being  achieved  through 
restrictive criteria which are being tightened each year in order to phase out aid for projects in which 
the element of “innovation” may start to become obsolete or has already substantially penetrated the 
market. For example, aid for implementation of ISO 9000 quality standards has not been granted in the 
last  two  years  since  implementation  of  these  standards  is  now  regarded  merely  as  a  market 
requirement rather than an innovative initiative. 

Improvements to national State aid set-up 

In Spain, the recently adopted “General Law on Subsidies”61 establishes a single legal framework for 
state aid as well as making several significant improvements to the current legislative framework. For 
example, it introduces general improvements in the procedures for managing and controlling state aid, 

61 

Law 38/2003 of 17 November 2003. Official State Gazette No 276, 18.11.2003. 

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clearly  defines  fraudulent  practices  and  establishes  a  system  of  sanctions  for  such  practices;  it  also 
aims to improve the instruments for evaluating the effectiveness of the aid. One intention is to draw up 
strategic  plans  in  the  medium  term  to  ascertain  the  effects  of  the  aid  policy  and  thus  determine  the 
priorities for optimising use of the resources, which will make it easier to evaluate the effect of state 
aid on the budget. The Law also defines the basic principles of the aid policy stipulating that “when 
the objectives that have been set affect the market, their aim must be to correct clearly identified faults 
and their distortionary effects must be kept to a minimum”. 

The DTI (Department for Trade and Industry) in the United Kingdom has carried out a recent review 
of  Business  Services.  The  aim  of  the  Review  was  to  restructure  the  manner  in  which  DTI  business 
support services  were organised, to rationalise the  current business support schemes  and close those 
which  were  unnecessary  or  not  achieving  their  desired  results.62  The  new  business  support  structure 
consists of a small number of horizontal products organised in themes that reflect the DTI’s strategic 
priorities, which are aimed at addressing demonstrable market failures and which should also create a 
more  transparent,  accessible  and  understandable  system  for  the  Department’s  end  customers.  This 
approach should also lead to an increase in the proportion of aid given for horizontal objectives. In a 
similar vein, the Netherlands reports that attempts are being made to streamline as many schemes as 
possible  in  order  that  the  panoply  of  aid  instruments  is  more  easily  accessible  for  users  and  more 
transparent. 

Belgium  has  recently  introduced  a  series  of  legislative  changes and economic policy changes which 
support  policies  of  reduction  and  redirection  as  well  as  ensuring  greater  effectiveness  and  better 
coherence among various policies. For example, the reform of the Economic Expansion Acts for the 
Walloon Region was finalised in 200463. Among the decrees adopted were stricter requirements for aid 
to  large  firms,  increased  incentives  for  SMEs  making  it  easier  for  them  to  obtain  aid,  incentives  to 
promote  environmental  protection  and  more  lasting  use  of  energy.  The  Act  also  foresees  improved 
infrastructure  for  hosting  economic  activities,  with  provision  being  made  in  particular  for  the 
demarcation  of  special  use  areas  such  as  science  parks,  the  establishment  of  telecommunications 
infrastructures, incubators, etc. The reform therefore has the twofold aim of reducing the overall level 
of aid – mainly to large firms – and of shifting the focus to horizontal aid (SMEs, the environment, 
etc.), as well as being designed to ensure greater effectiveness on the part of aid and better dovetailing 
between  Walloon  business  policies.  The  Flemish  region  has  also  reviewed  its  economic  aid  policy 
concluding  that  “the  roles  of,  and  the  division  of  responsibility  between,  government  and  the  other 
economic actors is changing considerably. In today's society, government has mainly an activating and 
framework-setting  role,  which  stimulates  stakeholders  to  implement  community  interests.”  This 
requires government action that uses new types of policy instrument such as measures to support life-
long learning in firms and other forms of aid to improve entrepreneurship. 

In  France,  the  Government  intends  to  develop  tools  making  it  possible  both  to  increase  familiarity 
with, and hence keep under control, aid measures implemented by local and regional authorities and to 
delegate  responsibilities  to  those  authorities.  A  new  law  on  local  freedoms  and  responsibilities64 
provides that the regions should draw up each year both a quantitative and a qualitative review of aid 
granted in their territory by all local and regional authorities. These censuses are designed to enable 
local  and  regional  authorities  and  the  State  to  better  assess  the  effectiveness  of  the  economic 
intervention tools used and hence to refocus them in a more coordinated and more strategic direction, 
the aim being, not to grant aid, but to act in a targeted manner in support of actions which shape the 
economic development of France. 

62 

63 

64 

By 2002, there were around 180 separate schemes and projects operating in support of business in the 
UK. 
New legislation on economic growth has also been adopted by both the Flemish Government and the 
Brussels Region. 
Number 2004-809, adopted 13 August 2004 and published in the Official Journal in France n°190 of 17 
August 2004, p.14545 (c.f. Article 1). 

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The Slovak Republic reported on how it has set the implementation and development of the objectives 
of the Lisbon strategy as one of its priority tasks. It has defined the following instruments, including 
among the objectives the continuation of a state aid policy aimed at reducing the volume of state aid 
granted in Slovakia: reform of public finances and of the public sector; a fiscal policy based on three 
pillars,  transparency  (i.e.  timely,  accurate  and  complete  information  on  ongoing  public  finance 
processes), responsibility and increased efficiency. 

Poland has included a programme to re-target State aid towards horizontal objectives in its National 
Development  Plan  for  the  years  2004-2006.  In  this  respect,  State  aid  shall  be  directed  at  the 
strengthening  of  competitiveness  of  enterprises  through  the  support  of  research  and  investments 
serving the innovativeness and improvement of products and services. The aid, hitherto concentrated 
on  large  state-owned  enterprises,  shall  primarily  be  granted  to  SMEs  which  conduct  innovatory 
activities. Such efforts will continue in the National Development Plan for 2007-2013, during which 
aid directed to individual sectors of the economy is expected to decrease. 

The Ministry of Economy in Lithuania contends that one of the main reasons for the success of state 
aid given so far is “the thorough and appropriate evaluation of projects that have been considered for 
funding, as well as careful monitoring during the course of the project.” This can be illustrated by the 
success of many firms which have participated in the Eureka65 projects. 

The Estonian Competition Act imposes an obligation on all State aid grantors to ensure transparency 
and monitor the effectiveness of State aid. The Ministry of Finance as the co-ordinating body on State 
aid issues in Estonia has planned to deal with this matter in the near future. 

Slovenia has set up a system to monitor and allocate state aids, to ensure transparency and to measure 
the effectiveness  and efficiency of State aids. In  this  context, the Slovenia Government has  recently 
introduced  a  set  of  “instructions”  to  help  in  the  assessment  of  each  aid  measure.  These  include 
defining  the  precise  aims  of  the  aid  and  a  series  of  indicators  as  well  as  carrying  out  an  annual 
evaluation. The first results of this evaluation exercise are expected by mid-2005. 

As pointed out in particular by Cyprus, the competent authorities when drafting new measures “have 
been largely guided by the experience gained from the implementation of previous measures and the 
feedback  from  the  beneficiaries  of  such  measures.”  They  have  also  been  willing  to  take  into 
consideration the views and suggestions of organisations representing the interests of beneficiaries and 
other  interested  parties  such  as  the  Employers  and  Industrialists  Federation,  the  Cyprus  Chamber  of 
Commerce and Industry, etc. 

Improving transparency and raising awareness 

Spain has also taken concrete steps to improve transparency and now obliges aid grantors to make this 
aid  public.  The  new  General  Law  on  Subsidies  (see  above)  provides  for  the  State  Public  Accounts 
Department to create a national database in order to make aid more effective, prevent the cumulation 
or  concurrent  granting  of  different  aid  schemes  and  facilitate  planning,  monitoring  and  follow-up 
measures.  This  will  provide  the  economic  players  with  more  information  on  aid  and  enhance  aid 
control  and  effectiveness  by  making  it  easier  to  eliminate  the  aid  schemes  with  the  most  adverse 
effects on free market conditions. Among the new Member States, Slovenia reports on recent work to 
build up a detailed database of all State aid measures and of the obligation on aid grantors to ensure 
transparency. 

The United Kingdom described its proactive approach to raising awareness of and local expertise in 
State aid. The aim of these activities has been “to increase wider knowledge of the State aid rules, help 
them  to  build  consideration  of  the  State  aid  rules  into  the  design  of  their  schemes  at  the  earliest 

65 

EUREKA (European research, development and cooperation programme) 

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possible stage and to encourage/assist aid administrators to find approaches to their projects which are 
in harmony with the Government’s policy on reorientation and reduction of State aid”. In practice, this 
entails providing advice to officials in various departments and offices to assist them in designing aid 
schemes so that, wherever possible, they either do not contain State aid or may be incorporated within 
the State aid block exemptions. Where this is not possible assistance is provided in the notification of 
aids. In addition, the Government operates training and awareness raising activities.  

Improving the effectiveness of aid 

Work  in  Finland  has  focussed  primarily  on  developing  a  qualitative  evaluation  of  aid.  In  Finland 
evaluating aid programmes is  a statutory duty. This means that the authorities  have an obligation to 
monitor the conduct of aid programmes and to have evaluations carried out to report on the objectives 
of the aid and its effectiveness. A long-term objective is to standardise evaluation practices and, as far 
as possible, introduce a common monitoring system for the different authorities. One related project is 
the project launched by the Government Institute for Economic Research entitled “Taxation, State Aid 
and Business Conditions”. The research focuses on the real competitiveness of the Finnish economy 
and  the  key  factors  influencing  it.  The  purpose  is  to  map  changes  in  the  structure  of  business  and 
production  as  well  as  the  processes  of  privatisation.  The  focus  is  on  using  what  powers  the  public 
authorities have to improve real competitiveness through economic and industrial policy and business 
taxation. The aim is also to analyse the trend in business aid granted by the State and its effectiveness. 

Greece  is  in  the  process  of  developing  a  methodology  for  assessing  the  effectiveness  of  aid  and  its 
contribution  to  the  improvement  of  the  competitiveness  of  the  Greek  economy.  The  Ministry  of 
Economic  Affairs  and  Finance,  which  is  responsible  for  monitoring  state  aid,  is  at  the  stage  of 
commissioning a study of the subject. 

In the United Kingdom, the appraisal of all Government spending (whether this constitutes State aid or 
not) is a fundamental part of the policy development process. This is written into both Departmental 
funding  systems  and  HM  Treasury’s  advice  to  Departments  and  wider  Government  (“The  Green 
Book:  Appraisal  and  Evaluation  in  Central  Government66.  These  formal  appraisal  processes  ensure 
that, before resources are granted, the rationale, objectives and proposed methodologies of all support 
measures have been scrutinised. This helps ensure that the design of the instrument is such that both 
the likelihood of success of the instrument and value for public money are maximised. The appraisal 
protocols  also  require  ongoing  monitoring  and  evaluation  of  the  support  instruments  so  that,  should 
they be seen not to be achieving their expected results, the reasons for this can be examined and any 
necessary changes made. 

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