State aid action plan - Less and better targeted state aid : a roadmap for state aid reform 2005-2009 (Consultation document) {SEC(2005) 795}
Date: 2005-06-07
Institutions: European Commission
Subjects: State aid, economic and social cohesion, governance, simplification of formalities, sustainable development

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 7.6.2005 
COM(2005) 107 final 

STATE AID ACTION PLAN 

Less and better targeted state aid: a roadmap for state aid reform 2005–2009  

(Consultation document) 

(presented by the Commission) 

{SEC(2005) 795} 

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Introduction ........................................................................................................... 3 

I  A modernised state aid policy in the context of the Lisbon strategy for 

growth and jobs ......................................................................................... 3 

I.1 

I.2 

I.3 

Rationale for state aid policy: why does the EU need a state aid policy?.................... 3 

New challenges for the EC state aid policy ................................................................. 4 

How to face the new challenges? ................................................................................. 5 

II  Focusing on the key priorities ........................................................................ 8 

II.1 

II.2 

II.3 

II.4 

II.5 

II.6 

II.7 

II.8 

Targeting Innovation and R&D to strengthen the knowledge society......................... 8 

Creating a better business climate and stimulating entrepreneurship .......................... 9 

Investing in Human Capital ......................................................................................... 9 

High quality Services of General Economic Interest................................................... 9 

Better prioritization through simplification and consolidation .................................. 10 

A focused regional aid policy .................................................................................... 11 

Encouraging an environmentally sustainable future .................................................. 11 

Setting up modern transport, energy and information and communication technology 
infrastructures............................................................................................................. 12 

III  Modernising the practices and procedures of state aid............................. 12 

III.1 

Better governance - a shared responsibility with Member States .............................. 12 

III.2 

Less bureaucracy and better targeted enforcement and monitoring........................... 13 

III.3 

Adapting procedural rules to an enlarged European Union ....................................... 14 

III.4 

A comprehensive review of the remaining documents .............................................. 15 

III.5 

Establishing and evaluating the new practice for the future ...................................... 17 

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INTRODUCTION 

1. 

2. 

3. 

4. 

I. 

I.1 

5. 

6. 

7. 

Specific  challenges  call  for  a  comprehensive  reform  of  state  aid  policy  at  this 
moment.  Time  has  come  to  build  a  momentum  within  the  Commission  and  in 
partnership  with  Member  States  and  stakeholders,  so  that  state  aid  rules  better 
contribute to sustainable growth, competitiveness, social and regional cohesion and 
environmental protection. 

This Action Plan is a consultation document presenting an indicative roadmap for 
state aid reform during the period 2005/2009, which the Commission will conduct in 
close cooperation with Member States and stakeholders.  

The services of the Commission would welcome any comments on this Action Plan 
before  15  September  2005.  Moreover,  stakeholders  will  also  be  involved  in  the 
elaboration of each concrete proposal. 

Comments should be sent to the European Commission with the reference State aid 
reform by email to STATEAIDGREFFE@CEC.EU.INT or by post to: 

DG Competition  
State Aid Register 
SPA 3, office 6/5 
B-1049 Brussels 
Belgium. 

A MODERNISED STATE AID POLICY IN THE CONTEXT OF THE LISBON STRATEGY FOR 
GROWTH AND JOBS 

Rationale for state aid policy: why does the EU need a state aid policy? 

Ever since the signing of the Treaty of Rome in 1957, state aid policy has been an 
integral part of competition policy and the European Commission has been in charge 
of preventing that aid granted by Member States unduly distorts competition. 

Competition  policy  rests  upon  the  idea  that  a  market-based  economy  provides  the 
best guarantee for raising living conditions in the EU to the benefit of citizens, one of 
the  primary  objectives  of  the  EU  Treaty.  Functioning  markets  are  an  essential 
element in providing consumers with the products they wish to obtain, at low prices. 
Competition is furthermore essential to enhance the competitiveness of the European 
economy, as it creates an environment in which efficient and innovative companies 
are rewarded properly.  

State  aid  control  comes  from  the  need  to  maintain  a  level  playing  field  for  all 
undertakings active in the Single European Market, no matter in which Member State 
they are established. There is a particular need to be concerned with those state aid 
measures, which provide unwarranted selective advantages to some firms, preventing 
or  delaying  the  market  forces  from  rewarding  the  most  competitive  firms,  thereby 
decreasing  overall  European  competitiveness.  It  may  also  lead  to  a  build-up  of 
market power in the hands of some firms, for instance when companies that do not 
receive  state  aid  (e.g.  non-domestic  firms)  have  to  cut  down  on  their  market 

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presence,  or  where  state  aid  is  used  to  erect  entry  barriers.  As  a  result  of  such 
distortions of competition, customers may be faced with higher prices, lower quality 
goods and less innovation.  

Further, it is important to realise that state aid does not come for free. Nor is state 
aid a miracle solution that can instantly cure all problems. Tax payers in the end have 
to finance state aid and there are opportunity costs to it. Giving aid to undertakings 
means taking funding away from other policy areas. State resources are limited and 
they  are  needed  for  many  essential  purposes,  such  as  the  educational  system,  the 
health system, national security, social protection and others. It is therefore necessary 
for Member States to make choices transparently and to prioritise action.  

Article 87 of the EC Treaty prohibits any aid granted by a Member State or through 
State  resources  in  any  form  whatsoever  which  distorts  or  threatens  to  distort 
competition by favouring certain firms or the production of certain goods in so far as 
it  affects  trade  between  Member  States.  The  Treaty  has  given  the  Commission  the 
task to monitor proposed and existing state aid measures by Member States to ensure 
that they do not distort intra-community competition and trade to an extent contrary 
to  the  common  interest.  It  falls  under  its  responsibility  to  make  sure  that  the  level 
playing field would be maintained between Member States, no matter their different 
levels of resources and their different traditions of state intervention in the markets.  

The  Treaty  explicitly  allows  exceptions  to  the  ban  on  state  aid  where  the  proposed 
aid schemes may have a beneficial impact in overall Union terms. State aid may be 
declared compatible with the Treaty provided it fulfils clearly defined objectives of 
common interest and does not distort intra-community competition and trade to an 
extent  contrary  to  the  common  interest.  State  aid  measures  can  sometimes  be 
effective tools for achieving objectives of common interest. They can correct market 
failures,  thereby  improving  the  functioning  of  markets  and  enhancing  European 
competitiveness.  They  can  also  help  promote  e.g.  social  and  regional  cohesion, 
sustainable  development  and  cultural  diversity,  irrespective  of  the  correction  of 
market failures.  

However,  state  aid  should  only  be  used  when  it  is  an  appropriate  instrument  for 
meeting  a  well  defined  objective,  when  it  creates  the  right  incentives,  is 
proportionate  and  when  it  distorts  competition  to  the  least  possible  extent.  For  that 
reason, appreciating the compatibility of state aid is fundamentally about balancing 
the  negative  effects  of  aid  on  competition  with  its  positive  effects  in  terms  of 
common interest. 

While the horizontal state aid rules in principle cover all sectors, certain sectors have 
very  specific  rules  and  due  to  the  special  nature  of  the  rules  governing  agriculture, 
fishery,  coal  production  and  transport,  special  rules  apply.  While  the  principles  put 
forward in the Action Plan should apply to all sectors, it does not address the reform 
of these rules. The objectives of the Euratom Treaty and the obligations regarding the 
World Trade Organization have also to be taken into consideration. 

New challenges for the EC state aid policy 

There  are  new  challenges  facing  state  aid  policy  at  this  moment,  which  call  for 
action. As was clearly expressed by the European Council of November 2004, there 

8. 

9. 

10. 

11. 

12. 

I.2 

13. 

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14. 

15. 

16. 

17. 

I.3 

18. 

is a need for renewed impetus to the so-called Lisbon Strategy. The Commission 
Communication to the 2005 Spring European Council ‘Working together for growth 
and  jobs,  a  new  start  for  the  Lisbon  Strategy’,  has  already  set  out  a  new  Lisbon 
Action Programme where state aid control plays an important role.  

The  European  Council  of  March  2005  has  called  on  “Member  States  to  continue 
working  towards  a  reduction  in  the  general  level  of  State  aid,  while  making 
allowance  for  any  market  failures.  This  movement  must  be  accompanied  by  a 
redeployment  of  aid  in  favour  of  support  for  certain  horizontal  objectives  such  as 
research  and  innovation  and  the  optimisation  of  human  capital.  The  reform  of 
regional aid should also foster a high level of investment and ensure a reduction in 
disparities in accordance with the Lisbon objectives”. 

State aid policy safeguards competition in the Single Market and it is closely linked 
to  many  objectives  of  common  interest,  like  services  of  general  economic  interest, 
regional and social cohesion, employment, research and development, environmental 
protection and the protection and promotion of cultural diversity. It must contribute 
by itself and by reinforcing other policies to making Europe a more attractive place 
to  invest  and  work,  building  up  knowledge  and  innovation  for  growth  and  creating 
more and better jobs.  

The  enlargement  in  2004  was  unprecedented  in  size.  This  underlines  the  need  for 
adaptations  of  state  aid  policy  and  for  better  governance  to  ensure  an  effective 
control in the enlarged Union.  

Besides,  the  increasing  complexity  and  number  of  documents  progressively 
adopted  by  the  Commission  over  time  have  created  a  need  to  streamline  state  aid 
policy, focus attention on the most distortive types of aid and make state aid control 
more  predictable  and  user-friendly,  thereby  minimising  legal  uncertainty  and  the 
administrative burden both for the Commission and for Member States. There is also 
a need to strengthen the commitment of Member States to their obligation to enforce 
state aid rules. Finally, there is a need to increase transparency and advocacy about 
state  aid  policy  to  allow  undertakings,  the  academic  world,  competition  specialists, 
consumers  and  the  broader  public  to  get  involved  and  act  against  unlawful  aid,  in 
particular before national judges.  

How to face the new challenges? 

To face the new challenges requires a thorough modification of the existing state aid 
rules,  as  regards  both  substance  and  procedures.  Any  effective  assessment  of  the 
allocation  or  distribution  effects  of  State  aid  must  take  into  account  their  actual 
contribution  to  commonly  agreed,  politically  desirable  objectives.  The  aim  is  to 
present  a  comprehensive  and  consistent  reform  package  based  on  the  following 
elements:  

–  less and better targeted state aid;  

–  a refined economic approach;  

–  more effective procedures, better enforcement, higher predictability and enhanced 

transparency; 

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19. 

20. 

21. 

22. 

23. 

–  a  shared  responsibility  between  the  Commission  and  Member  States:  the 
Commission  cannot  improve  state  aid  rules  and  practice  without  the  effective 
support  of  Member  States  and  their  full  commitment  to  comply  with  their 
obligations to notify any envisaged aid and to enforce the rules properly.  

Economic and  legal  analyses are used to fulfil the Commission’s obligations under 
the Treaty, in some cases to determine when a measure is state aid (e.g. application 
of the market investor principle or evaluation of the justification of certain measures 
by the nature or general scheme of the fiscal system) and in particular to determine 
when state aid can be declared compatible with the Treaty. In assessing whether an 
aid  measure  can  be  deemed  compatible  with  the  common  market,  the  Commission 
balances  the  positive  impact  of  the  aid  measure  (reaching  an  objective  of  common 
interest)  against  its  potentially  negative  side  effects  (distortions  of  trade  and 
competition).  It  is  for  Member  States  to  provide  the  necessary  evidence  in  this 
respect, prior to any implementation of the envisaged measure.  

The  Commission  will  continue  to  develop  criteria  to  fulfil  its  assessment  of  aid 
compatibility,  in  particular  through  analyses  of  specific  sectors.  In  general,  the 
positive  impact  of  an  aid  depends  on:  i)  how  accurately  the  accepted  objective  of 
common interest (whether social, regional, economic or cultural) has been identified, 
ii)  whether  state  aid  is  an  appropriate  instrument  for  dealing  with  the  problem  as 
opposed  to  other  policy  instruments  and  iii)  whether  the  aid  creates  the  needed 
incentives and is proportionate. On the other hand, the level of distortion created by 
an  aid  generally  depends  on:  i)  the  procedure  for  selecting  beneficiaries  and  the 
conditions attached to the aid, ii) characteristics of the market and of the beneficiary 
and iii) the amount and type of aid. For example, restructuring aid or investment aid 
to large companies should be carefully monitored to clearly address an objective of 
common  interest,  since  the  impact  of  such  measures  on  competition  and  trade  will 
normally be significant. 

To  best  contribute  to  the  re-launched  Lisbon  Strategy  for  growth  and  jobs,  the 
Commission  will,  when  relevant,  strengthen  its  economic  approach  to  State  aid 
analysis.  An  economic  approach  is  an  instrument  to  better  focus  and  target  certain 
state aid towards the objectives of the re-launched Lisbon Strategy.  

Making more use of a refined economic approach is a means to ensure a proper and 
more  transparent  evaluation  of  the  distortions  to  competition  and  trade  associated 
with state aid measures. This approach can also help investigate the reasons why the 
market  by  itself  does  not  deliver  the  desired  objectives  of  common  interest  and  in 
consequence evaluate the benefits of state aid measures in reaching these objectives.  

One  key  element  in  that  respect  is  the  analysis  of  market  failures,  such  as 
externalities, imperfect information or coordination problems, which may be reasons 
why  the  markets  do  not  achieve  desired  objectives  of  common  interest,  in 
particular  if  they  are  of  an  economic  nature.  In  those  cases,  identifying  the  market 
failure  at  stake  will  help  evaluate  better  whether  state  aid  could  be  justified  and 
acceptable,  would  represent  the  most  appropriate  solution,  and  how  it  should  be 
implemented  to  achieve  the  desired  objective  without  distorting  competition  and 
trade to an extent contrary to the common interest.  

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State aid in the context of the Lisbon Strategy 

Competition  is  vital  for  the  economy  to  be  efficient,  to  untap  Europe’s  growth 
potential to the benefit of the European citizens. In this context, “efficiency” refers to 
the extent to which welfare is optimized in a particular market or in the economy at 
large. A “market failure” is consequently a situation where the market does not lead 
to  an  economically  efficient  outcome.  Market  failures  have  different  origins,  and 
notably:  

–  Externalities:  externalities  exist  where  actors  do  not  take  full  account  of  the 
consequences of their actions on other actors in society. Market players may not 
have to pay for the full social cost of their actions (negative externalities) like in 
the  case  of  pollution  through  industrial  activity.  Market  players  may  also  be 
unable to reap the full benefits of their actions (positive externalities) like in the 
fields of research and innovation.  

–  Public goods: public goods are goods which are beneficial for society but which 
are not normally provided by the market given that it is difficult or impossible to 
exclude anyone from using the goods (and hence making them pay for the goods). 
This can be the case of national defense and some types of public broadcasting. 

–  Imperfect  information:  imperfect  information  may  lead  to  transaction  costs, 
agency  costs,  moral  hazard  or  antiselection,  which  in  turn  lead  to  inefficient 
market outcomes. A well-known example of imperfect information can be found 
in  the  financial  market,  where  start-up  firms  usually  face  problems  in  finding 
adequate funding.  

–  Coordination problems: markets may also not function efficiently when there is a 
coordination  problem  between  market  actors.  Coordination  problems  may  exist 
for example in the field of standards setting, in transport infrastructures, or in the 
area of innovation.  

–  Market  power:  Another  reason  why  the  market  may  not  lead  to  an  efficient 
outcome is the existence of market power, for instance in a situation of monopoly. 

When markets do not achieve economic efficiency, Member States or the Union may 
want  to  intervene  in  order  to  correct  the  market  failures.  Some  of  the  above-
mentioned situations may be solved by regulatory or other means. In certain cases, 
however, Member States may envisage to use state aid. One important justification 
for state aid is therefore the existence of a market failure.  

However, it is not enough for state aid to target a market failure. Before resorting to 
State  aid,  which  is  in  general  only  the  ‘second  best’  option  to  achieve  optimal 
allocation  of  resources,  it  should  be  verified  whether  other  less  distortive  measures 
could  remedy  the  market  failure.  State  aid  should  be  the  appropriate  policy 
instrument and should be designed so that it effectively solves the market failure, by 
creating an incentive effect and being proportionate. In addition, state aid should not 
distort competition to an extent contrary to the common interest.  

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In the context of the re-launched Lisbon Strategy, the European Council has invited 
Member  States  to  pay  attention  to  market  failures.  Moreover,  an  effort  to  ensure 
social and economic cohesion and sustainable development should also be made. 

II. 

FOCUSING ON THE KEY PRIORITIES 

II.1 

Targeting Innovation and R&D to strengthen the knowledge society 

24. 

25. 

26. 

27. 

Europe’s  future  economic  development  depends  on  its  ability  to  create  and  grow 
high-value, innovative and research-based sectors capable of competing with the best 
in the world. This priority of knowledge and innovation has been clearly endorsed in 
the Communication to the Spring European Council. 

In this context, in 2005, the Commission will adopt a Communication on state aid 
and innovation which will analyse the need and the potential to adapt existing rules 
in  order  to  create  the  appropriate  framework  conditions  to  foster  innovation  in  the 
EU.  This  will  complement  the  Competitiveness  and  Innovation  Framework 
Programme. Innovation is related to a process connecting knowledge and technology 
with the exploitation of market opportunities for new or improved products, services 
and business processes compared to those already available on the common market 
and encompassing a certain degree of risk. This process may be hampered by market 
failures  (mostly  externalities,  public  goods  and  imperfect  information  leading  to 
inefficient dissemination, insufficient funding and labour market mismatches). State 
aid  can  be  justified  when  it  is  necessary  to  increase  the  incentive  to  innovate  and 
when it does not lead to a crowding out of private initiatives or to unfair competition.  

The  Commission’s  Vade  mecum  on  Innovation  has  shown  that  a  number  of 
possibilities  already  exist  to  grant  aid  to  target  the  market  failures  which  are 
hampering  innovation  activities,  but  that  the  rules  could  nevertheless  be  improved. 
Additional  possibilities  will  be  analysed  to  cover  measures  which  can  boost 
innovation  in  the  common  interest.  Particular  attention  will  e.g.  be  paid  to  the 
specific situation of small and medium-sized enterprises, to the role of intermediaries 
(e.g.  clusters,  technology  centres)  and  to  highly-skilled  researchers  working  in  the 
area  of  innovation.  The  specific  amendments  suggested  in  the  Communication  will 
subsequently be made when the relevant rules are revised. 

In addition, the Commission will modify the Community Framework for Research 
and Development, in the light of the Lisbon and Barcelona objectives. This review 
will  also  seek  to  better  take  into  account  the  priorities  of  the  Community’s  R&D 
policy  such  as  the  promotion  of  cross-border  research  cooperation,  public-private 
research  partnerships,  dissemination  of  research  results  and  important  research 
projects  of  common  European  interest.  State  aid  to  R&D  could  enable  Member 
States to target market failures and provide the right incentives for industry to invest 
more  in  R&D.  The  Commission  will  base  the  review  of  the  framework  on  an 
approach better reflecting an interactive industrial innovation process which can also 
take account of continuous feedback from the market.  

28. 

The framework should also take account of the growing importance of public private 
partnerships in the R&D field. In particular, it should provide for adequate provisions 
for  collaborative  research  including  the  ownership  of,  access  to  and  exploitation  of 

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Intellectual Property Rights obtained in such projects. Furthermore, the need to allow 
for aid for dissemination will have to be considered in the course of the review. The 
Commission will also consider if the scope of the framework should be extended to 
cover types of aid in favour of certain innovative activities, not already covered by 
existing  guidelines  or  regulations  thereby  creating  a  Framework  for  R&D  and 
innovation.  In  addition,  if  the  Commission  can  establish  clear  and  general 
compatibility criteria on the basis of experience, it will exempt certain aid measures 
from the obligation to notify to the Commission.  

II.2 

Creating a better business climate and stimulating entrepreneurship 

29. 

30. 

Urgent  action  is  needed  to  improve  the  business  climate,  notably  by  reducing  the 
total  administrative  burden,  simplifying  and  improving  the  quality  of  legislation, 
facilitating the rapid start-up of new enterprises, and creating an environment more 
supportive to business. 

To  facilitate  the  rapid  start-up  of  new  enterprises,  the  Commission  will  review  the 
Communication  on  risk  capital.  The  aim  of  the  review  will  be  to  contribute  to  a 
culture  of  entrepreneurship  and  further  stimulate  investment  in  the  form  of  risk 
capital, in particular in favour of start-ups and young, innovative SMEs, where this 
can  properly  address  identified  market  failures.  In  particular,  the  Commission  will 
focus on the need to further increase the flexibility of the rules to take into account 
diversity, especially as regards the level of the safe-harbour investment tranches for 
which the so-called 'equity gap' is presumed to exist. 

II.3 

Investing in Human Capital 

31. 

The  achievement  of  a  high  level  of  employment,  sustainable  growth  and  economic 
and  social  cohesion  are  key  objectives  of  the  Community.  The  European 
Employment Strategy (EES), which is a cornerstone of the revised Lisbon Strategy, 
promotes a high level of employment together with a skilled, trained and adaptable 
workforce.  This  requires  a  substantial  investment  in  human  capital.  In  this  context, 
state  aid  could  be  justified  when  it  is  necessary  to  provide  the  right  incentives  for 
employers to engage more workers, particularly those who have difficulties to access 
and  remain  on  the  labour  market,  and  to  provide  appropriate  training  for  workers. 
Furthermore,  strengthening  the  adaptability  and  upgrading  skills  of  workers  and 
enterprises  overall,  and  improving  the  quality  of  education  and  training  provisions 
are  a  key  to  improve  the  capacity  of  the  EU  to  anticipate,  trigger  and  absorb 
economic change of an ever accelerating pace. 

32. 

The block exemption regulations for training and employment aids both expire at the 
end  of  2006.  The  Commission  intends  to  simplify  and  consolidate  these  block 
exemptions in the context of a general block exemption regulation, taking account of 
the principles set out above. 

II.4 

High quality Services of General Economic Interest 

33. 

The provision of effective and high quality Services of General Economic Interest 
(SGEI)  is  a  key  component  of  the  European  welfare  state  and  is  essential  for 
ensuring social and territorial cohesion, including in the field of education, training 
and culture, and for the exercise of an effective citizenship. High quality SGEI also 

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contribute to the competitiveness of the European economy. Member States enjoy a 
wide  margin  of  discretion  when  deciding  whether  and  in  what  way  to  finance  the 
provision  of  services  of  general  economic  interest.  However,  to  avoid  distortion  of 
competition the compensations granted should make the performing of public service 
missions  feasible  without  leading  to  overcompensation  and  undue  distortions  of 
competition.  

34. 

The  White  paper  on  services  of  general  interest  announced  that  the  Commission 
would adopt legislative texts to provide more guidance on this principle. To increase 
legal certainty, the Commission will adopt a Decision on the basis of Article 86(3), 
and  guidelines  to  specify  under  which  conditions  public  service  compensations 
which constitute state aid are compatible with the Treaty. The Commission Decision 
would  grant  an  exemption  of  notification  for  small  scale  compensations.  Special 
conditions should also apply to hospitals and social housing companies. Finally, the 
Commission will adapt the transparency directive, to take account of the evolution of 
the jurisprudence of the European Courts.  

II.5 

Better prioritization through simplification and consolidation 

35. 

36. 

37. 

To  ensure  better  governance  and  facilitate  the  granting  of  aid,  which  is  clearly 
compatible with the Treaty, the Commission will issue a general block exemption 
regulation  to  exempt  certain  categories  of  aid  from  the  obligation  to  notify  to  the 
Commission.  The  regulation  will  be  based  on  the  principle  that  state  aid  policy 
should focus on the most distortive types of aid and that it should set clear ‘positive’ 
and ‘negative’ priorities.  

The  Council  has  enabled  the  Commission,  through  the  Enabling  Regulation,  to 
exempt  certain  areas  in  which  the  Commission  can  define  general  compatibility 
criteria,  which  should  lead  to  the  same  interpretations  in  different  Member  States. 
The  Commission  has  the  power  under  certain  conditions  to  exempt  aid  related  to 
SMEs,  R&D,  environment,  employment,  training  and  regional  development.  In  the 
general  block  exemption,  the  Commission  intends  to  simplify  and  consolidate  the 
existing block exemptions (training, SME and employment) and integrate a broader 
range of exemptions, notably as regards aid to support SMEs and R&D. Categories 
of aid which can be clearly defined may fall within the scope of a block exemption 
regulation,  whilst  for  some  forms  of  aid  which  cannot  be  precisely  defined  in 
advance, guidelines may constitute a more flexible instrument. 

The  Commission  will  also  consider  integrating  some  categories  of  aid,  such  as 
regional and environmental state aid and rescue aid for SMEs while addressing the 
problems raised by cumulation of different types of aids. The Commission will also 
consider  exempting  larger  amounts  of  aid  than  presently,  on  the  basis  of  economic 
analysis  and  experience.  However,  this  will  be  made  on  the  condition  of  greater 
responsibility by Member States in complying with the rules and criteria set by the 
block exemptions. 

38. 

In  addition,  the  threshold  under  which  Member  States  may  grant  de  minimis  aid 
without  further  specific  requirements  will  be  increased  to  take  account  of  the 
evolution of the economy. 

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II.6 

A focused regional aid policy  

39. 

40. 

41. 

42. 

43. 

44. 

As was clearly expressed in its Communication to the Spring European Council, the 
Commission is fully committed to sustainable development and to modernising and 
advancing Europe’s social model. This commitment also applies to state aid policy. 

In this context, cohesion in particular is an important element of the Lisbon strategy: 
reducing  disparities  between  the  regions  of  Europe  is  a  factor  of  stability  and  a 
tremendous  growth  potential.  Past  enlargements  have  shown  that  there  is  scope  for 
win-win  development  between  richer  and  poorer  regions.  State  aid  policy  can 
contribute  to  such  a  positive  outcome,  by  preventing  a  damaging  subsidy  race 
between  regions,  and  by  creating  the  right  incentives  for  growth  and  jobs,  in  the 
least-developed regions and elsewhere. 

The  Commission’s  regional  aid  policy  needs  to  be  updated  to  take  account  of 
developments  in  the  seven  years  since  the  last  guidelines  were  adopted  in  1998,  in 
particular enlargement. The Commission has launched a review of the Community 
guidelines  on  regional  aid  (or  ‘RAG’),  and  has  the  intention  to  integrate  the 
Multisectoral  Framework  on  regional  aid  for  large  investment  projects.  This 
review  will  take  account  of  the  Third  Cohesion  Report,  which  suggests  organising 
future  cohesion  policy  around  three  main  objectives:  a)  convergence;  b)  regional 
competitiveness  and  employment;  and  c)  European  territorial  co-operation.  These 
objectives  also  underlie  the  Commission’s  proposals  for  the  structural  fund 
regulations. 

Given the necessity to use investment aid to large firms sparingly in order to preserve 
its effectiveness in promoting overall, long-term competitiveness through a reduction 
of  regional  disparities,  this  type  of  aid  could  mainly  be  concentrated  on  the  least-
developed regions.  

Regional  aid  must  be  seen  in  the  context  of  the  possibilities  for  granting  aid  for 
horizontal purposes envisaged in this Communication, in particular for aid measures 
more  directly  linked  to  the  pursuit  of  the  Lisbon  agenda.  It  will  be  necessary  to 
examine whether and to which extent regional bonuses present in current horizontal 
texts should be maintained. 

The  Commission  will  also  examine  what  levels  of  aid  can  be  justified  outside  the 
least-developed  regions,  what  the  aid  differentials  should  be,  what  categories  of 
undertaking should benefit and for which categories of aid. All this should will the 
Member States sufficient flexibility to develop policies at national level to promote 
regional  competitiveness  and  employment  and  European  territorial  cooperation, 
while meeting the overall objective of ‘less and better targeted aid’.  

II.7 

Encouraging an environmentally sustainable future  

45. 

46. 

Environmental protection is in itself essential. It can also be a source of competitive 
advantage  for  Europe,  by  providing  opportunities  for  innovation,  new  markets  and 
increased competitiveness through resource efficiency and investment. 

The  Community  guidelines  on  state  aid  for  environmental  protection  are 
applicable  until  2007.  In  2005,  the  Commission  will  start  reflecting  on  ways  and 

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to  better  address 

the  challenges  and  opportunities 

means 
that  sustainable 
development  creates,  as  set  out  in  the  Lisbon  and  Sustainable  Development 
Strategies, especially with the aim of ensuring a full internalisation of environmental 
costs.  In  particular,  the  Commission  will  attempt  to  encourage  eco-innovation  and 
improvements in productivity through eco-efficiency in line with the Environmental 
Technologies Action Plan (ETAP). Certain measures might also be exempted under 
the general block exemption from the obligation to notify the aid. 

II.8 

47. 

Setting  up  modern  transport,  energy  and  information  and  communication 
technology infrastructures 

The Lisbon Action Plan stresses that modern transport, energy and information and 
communication  technology  infrastructures  throughout  the  EU  territory  are  a 
prerequisite for reaping the benefits of a re-invigorated Lisbon Strategy. It therefore 
invites  Member  States  to  fulfil  their  commitments  in  terms  of  investments  for 
Transport and Energy Networks. Member States increasingly rely on Public Private 
Partnerships to build infrastructures. It is thus important that state aid rules are clear 
for the assessment of public resources involved in Public Private Partnerships. More 
generally,  as  a  consequence  of  the  recent  opening  of  formerly  state-controlled 
markets, public bodies are increasingly involved in a number of markets. This may 
raise legal issues regarding the applicability of state aid rules. The Commission will 
consider the need to issue guidance in those matters. 

III.  MODERNISING THE PRACTICES AND PROCEDURES OF STATE AID  

III.1 

Better governance - a shared responsibility with Member States 

48. 

49. 

50. 

Currently, there are certain shortcomings in the practices and procedures of state 
aid policy, which can be observed in the long time frame for the treatment of cases. 
To  a  certain  extent  the  reason  for  this  delay  is  to  be  found  in  the  many  obligatory 
requirements in the Council procedural regulation (EC) No 659/1999 (ex: linguistic 
coverage and publication requirements), and if no action is taken this time frame is 
even  likely  to  increase  due  to  enlargement.  Longer  time  frames  are  clearly  an 
unacceptable  outcome,  bearing  in  mind  that  a  trade  off  might  exist  between  the 
duration  of  the  procedure  and  ensuring  an  effective  control  while  safeguarding  the 
rights of third parties.  

Where  possible  within  the  scope  of  the  current  procedural  regulations,  the 
Commission will in the short term improve its internal practice and administration, 
and increase efficiency, enforcement and monitoring. Since the success will depend 
on  the  practices  in  Member  States  too,  they  should  also  make  an  effort  to  improve 
their efficiency, transparency and implementation of state aid policy.  

The  Commission  will  consider  issuing  best  practices  guidelines  after  consulting 
Member States as well as the public on how procedures could be improved to better 
administrate state aid control. It will notably try to instil more predictable timelines; 
clear  intermediary  steps  in  the  procedure  and  ensure  higher  transparency  by 
providing more information on Internet. The Commission will also reduce delays by 
encouraging  a  higher  quality  of  notifications  and  by  discouraging  incomplete 

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notifications  by  a  more  systematic  use  of  the  information  injunction,  requesting 
Member States to provide complete information within a certain period.  

51. 

While  the  Commission  has  the  competence  to  adopt  detailed  state  aid  rules,  the 
successful implementation of the rules and procedures depends to a large extent on 
Member  States.  In  the  context  of  enlargement,  the  screening  of  state  aid  measures 
was  conducted  by  operationally  independent  monitoring  authorities  in  the  new 
Member  States.  This  has  been  a  valuable  experience  which  should  be  taken  into 
account  when  considering  further  cooperation  between  the  Commission  and  all 
Member States. In this context, the Commission will examine whether independent 
authorities in Member States could play a role as regards facilitating the task of the 
Commission in terms of state aid enforcement (detection and provisional recovery of 
illegal aid, execution of recovery decisions). 

III.2 

Less bureaucracy and better targeted enforcement and monitoring  

52. 

53. 

Best  practices  guidelines  together  with  the  general  block  exemption  and  the 
increased de minimis ceiling are expected to reduce both the time it takes before the 
Commission reaches its decisions and the administrative burden for Member States. 
But Member States should engage more actively to ensure that the conditions for 
the  exemptions  are  fully  respected  and  that  necessary  information  is  kept  in 
accordance with the relevant rules, in order to enable the Commission to verify the 
compatibility in case of doubts or complaint. 

The  effectiveness  and  credibility  of  state  aid  control  presupposes  a  proper 
enforcement  of  the  Commission’s  decisions,  especially  as  regards  the  recovery  of 
illegal  and  incompatible  state  aid.  Recent  experience  has  shown  that  the 
implementation  of  recovery  decisions  by  Member  States  is  not  satisfactory  and, 
moreover,  that  conditional  or  positive  decisions  are  sometimes  not  correctly 
implemented by the Member States. The Commission will therefore:  

–  seek to achieve a more immediate and effective execution of recovery decisions, 
which  will  ensure  equality  of  treatment  of  all  beneficiaries.  To  this  effect,  the 
Commission  will  monitor  more  closely  the  execution  of  recovery  decisions  by 
Member  States.  Recovery  has  to  be  carried  out  in  accordance  with  national 
procedures. But where it appears that recovery is not carried out in an immediate 
and effective manner, the Commission will more actively pursue non-compliance 
under Articles 88(2), 226 and 228 of the Treaty; 

–  request  more  transparency  in  the  general  principles  of  state  aid  control  and 
consider establishing a network of state aid authorities or contact points in order 
to facilitate the flow of information and exchange of best practices; 

–  promote advocacy, awareness and understanding of state aid control at all levels 
to help the granting authorities in designing measures that are compatible with the 
treaty rules. 

54. 

The Commission will step up its monitoring of the compliance by Member States 
of conditions laid down in state aid decisions, including the respect of the provisions 
of the block exemption regulations. It will also encourage Member States to engage 
in benchmarking to verify that state aid is achieving the objective and is the best type 

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55. 

56. 

of state intervention for any given objective. This could be done in partnership with 
national Courts of Auditors.  

The Commission will also engage in advocacy to encourage stakeholders to ensure 
that the rules of state aid are fully respected. Article 88(3) EC has direct effect and 
gives  national  judges  the  power  to  suspend  and  provisionally  recover  aid  granted 
illegally before its approval by the Commission. Private litigation in front of national 
courts  could  therefore  provide  increased  discipline  in  the  field  of  state  aid.  The 
awareness  of  company  auditors,  national  market  regulators  and  national  Courts  of 
Auditors  could  also  be  reinforced.  To  this  effect,  the  Commission  has  launched  a 
study focusing on two main aspects of enforcement of state aid law at national level; 
namely  the  role  of  national  courts  in  the  protection  of  rights  conferred  upon 
interested  parties,  notably  competitors  of  the  beneficiaries  of  unlawful  aid,  and  the 
enforcement at national level of negative decisions, in particular those with recovery 
obligation.  

One  additional  area  where  national  judges  could  play  a  greater  role  could  be  in 
controlling whether measures deemed to fall under a block exemption or under the de 
minimis thresholds, and which have therefore not been notified to the Commission, 
actually  fulfil  the  necessary  criteria.  If  needed,  the  Commission  will  consider 
reviewing the Notice on cooperation between national courts and the Commission in 
the state aid field, in particular whether to expand its scope to other national bodies. 

III.3  Adapting procedural rules to an enlarged European Union 

57. 

The Commission will examine all possible actions to lower administrative costs and 
improve  the  procedural  rules  with  a  particular  aim  to  reduce  the  time  period  for 
treatment of cases in which the Commission has opened procedure; to provide a clear 
incentive  to  comply  with  the  obligation  to  notify  aid  measures  and  to  achieve  an 
enhanced  efficiency,  monitoring  and  enforcement.  In  this  context,  the  Commission 
intends  to  present  a  consultation  document  in  2007  which  will  be  discussed  with 
Member  States,  and  could  lead  to  a  proposal  for  amendment  of  Council 
Regulation (EC) No 659/1999 (procedural Regulation).  

58. 

Possible options to consider are e.g.: 

–  To save time and increase transparency, the Commission could increase the use 
of the internet; the Commission could also commit to conclude its investigation in 
shorter  time-frame,  provided  Member  States  ensure  good  co-operation,  that 
procedures  be  opened  in  case  of  doubts,  and  that  negative  decisions  could  be 
adopted  if  all  relevant  information  has  not  been  submitted  before  a  certain 
deadline.  In  addition,  administrative  procedures  and  linguistic  issues  such  as 
translation requirements could be reviewed.  

–  To  ensure  that  aid  measures  are  duly  notified,  the  scope  of  the  recovery 
injunction could be expanded  to  invoke a systematic transitory recovery  of non-
notified aid and some sort of deterrence mechanism on Member States could be 
introduced  for  measures  which  have  not  been  notified.  For  instance,  periodical 
reviews  of  the  track  records  of  Member  States  in  terms  of  notification  could  be 
implemented. Where it appears that a Member State fails in notifying properly its 

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state  aid,  the  Commission  could  pursue  the  non-compliance  under  Articles  226 
and 228 of the Treaty to seek penalties.  

–  To achieve greater efficiency, the discussion and design of appropriate measures 
could  be  formalised  more  precisely.  Also,  the  Commission  could  enhance  the 
consultation  of  market  participants  and  the  gathering  of  relevant  sectoral 
information through new instruments granting additional investigative powers. A 
written procedure for the Advisory Committee on state aid could also be foreseen. 

59. 

In addition the Commission will evaluate the need to enlarge the scope of Council 
Regulation  (EC)  No  994/98  enabling  the  Commission  to  block  exempt  additional 
types of measures, e.g. aid for culture and heritage conservation. In that context, the 
Commission intends to clarify the roles and uses of block exemptions and guidelines, 
and will consider the possibility of giving the block exemptions not only a positive 
effect like the one they already have, but also in certain cases a negative effect. This 
would mean that some criteria for exemption of notification would also be criteria for 
compatibility  of  aid,  which  would  enable  the  national  jurisdictions  to  apply  block 
exemptions  directly  not  only  by  declaring 
the 
incompatibility of certain aid. 

the  compatibility  by  also 

III.4  A comprehensive review of the remaining documents 

60. 

61. 

62. 

The  Commission  has  considered  the  necessity  to  review  every  single  Commission 
document  related  to  the  granting  of  state  aid.  In  the  last  stage  of  the  reform  the 
Commission  will  aim  at  reviewing  the  remaining  documents,  where  necessary,  so 
that the same principles are applied consistently and comprehensively in all state aid 
instruments. 

Along  those  lines,  the  Commission  will  review  the  Communication  on  short-term 
export-credit  insurance,  and  the  methodology  for  the  calculation  of  reference  and 
recovery rates. Before the new rescue and restructuring aids guidelines published in 
2004  lapse  in  2009,  the  Commission  will  start  reflecting  upon  the  need  to  change 
some  of  the  existing  provisions  of  the  guidelines.  In  particular,  it  will  take  into 
account  the  amendments  of  regional  aid  policy,  the  relationship  with  different 
national  insolvency  procedures  and  the  rules  for  the  social  protection  of  the 
workforce of companies under restructuring. 

Media,  audiovisual  services,  creative  industries  and  the  cultural  sector  as  a  whole 
have  a  high  potential  in  terms  of  innovation,  competitiveness,  growth  and  job 
creation.  They  are  also  key  in  preserving  and  promoting  the  rich  cultural  and 
linguistic  diversity  in  the  EU.  In  examining  state  aid  issues  in  these  sectors,  the 
Commission  fully  takes  into  account  the  relevant  Treaty  provisions  (particularly 
Articles 151(4) and 87(3)(d)) and the Protocol on the system of public broadcasting 
in the Member States annexed to the Treaty of Amsterdam, and reflects the specific 
public  interests  attached  to  these  activities.  In  that  respect,  it  will  revisit  its 
Communication  on  the  application  of  state  aid  rules  to  public  service 
broadcasting.  Notably  with  the  development  of  new  digital  technologies  and  of 
Internet-based services, new issues have arisen regarding the scope of public service 
broadcasting  activities.  It  will  also  consider  reviewing  the  Communication  on 
certain  legal  aspects  relating  to  cinematographic  and  other  audiovisual  works 
(cinema  communication).  In  addition,  and  on  the  basis  of  its  experience  in  this 

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63. 

64. 

65. 

66. 

field,  the  Commission  could  ask  the  Council  to  extend  the  scope  of  the  Enabling 
Regulation, so that cinema can also benefit from a block exemption.  

In  addition,  the  Commission  will  engage  in  a  broader  thinking  about  the  ways  in 
which  state  aid  is  given  to  undertakings.  Some  aid  measures  are  more  transparent 
than others; some are more directly targeted towards precise objectives. This raises 
questions  about  the  effectiveness  and  distortive  effects  of  different  forms  of  aid. 
Therefore, the Commission will issue a consultation document on the aid element 
in  different  forms  of  aid,  in  order  to  collect  the  view  of  member  states  and  of 
undertakings.  The  consultation  could  indicate  whether  the  Commission  should 
systematically be stricter towards certain forms of aid than towards others.  

To  complement  that  general  reflection,  the  Commission  will  revisit  its  Notice  on 
state aid in the form of guarantees to incorporate its experience and assess whether 
the  current  rules  and  criteria  should  be  amended.  In  the  same  context,  the 
Commission  will  consider  revising  its  Notice  on  the  application  of  the  state  aid 
rules  to  measures  relating  to  direct  business  taxation  published  in  1998,  in 
particular to examine whether it should be extended to indirect taxation.  

Finally,  the  Commission  will  decide  whether  a  Framework  for  state  aid  to 
shipbuilding is still needed or if the sector should simply be governed by horizontal 
rules. 

Following  agreement  on  a  new  Council  regulation  on  rural  development,  expected 
for  June  2005,  the  Commission  will  undertake  a  review  of  the  existing  specific 
measures for state aid in the agricultural sector. Draft proposals will be presented 
in  time  to  allow  for  formal  adoption  in  2006  and  application  from  1  January  2007 
onwards. 

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III.5 

Establishing and evaluating the new practice for the future  

67. 

After  having finalised the comprehensive review of State aid, the Commission will 
conduct an evaluation exercise, in order to make sure that the new rules and practice 
of state aid policy work properly for the benefit of European citizens. If necessary, 
new actions will be proposed. 

68. 

Figure 1 gives an overview of the road map 2005-2009 with an indicative division in 
three stages.  

Figure 1: Roadmap 2005 -2009 (indicative) 

Modifications  2005/2006 
Substance  

Road  map  for  state  aid  reform 
2005-2009 
Regional aid guidelines 
General  Block  Exemption  (SME, 
employment,  training,  R&D,  de 
minimis, regional, environment) 
Communication interest rates  
Guidelines R&D and Innovation 
Communication  short  term  credit 
insurance 
Communication risk capital 
Decision  and  guidelines  on  the 
Services  of  General  Economic 
Interest and transparency directive 
Guidelines environment  
Framework  on  State  aid 
Shipbuilding 
Communication on innovation 

to 

Internal best practices guidelines 
Promotion  of  state  aid  advocacy. 
Increase  monitoring  of  decisions 
and recovery 
Possible  proposal  for  amendment 
of  the  Council  Regulation  (EC) 
No 994/98 (enabling regulation) 

2009 
Assessment of 
the reform and 
review of 
existing state 
aid rules 

in 

2007/2008 
Assessment/modification of the  rescue 
and restructuring aid guidelines.  
Notice  on  state  aid 
guarantees 
Communication  on  direct  business 
taxation 
Communication  on  state  aid  to  public 
broadcasting.  
Possible additional block exemptions  

form  of 

Consultation  document  on  possible 
modification  of  Council  Regulation 
(EC) No 659/99. 
Consultation document on the different 
forms of aid 
Possible  proposal  for  amendment  of 
Council  Regulation  (EC)  No  659/99 
(procedural Regulation) 
Notice 
between 
on 
national courts and the Commission in 
the state aid field 

cooperation 

Consultation 
documents 

Procedure 

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69. 

Figure 2 gives an overview of the expected major changes to the architecture of State 
aid rules.  

Figure 2: EXPECTED MAJOR CHANGES TO THE ARCHITECTURE  

Current

Future

Guidelines, Frameworks, 
etc

R&D

Regional

Environnement

Risk Capital

Large Investments

Rescue and restructuring

Services of general
economic interest

Block exemptions

SME

Training

Employment

De minimis

* * * 

Guidelines, Frameworks, etc

R&D 

Regional

Environnement

Risk Capital

Rescue and restructuring

Services of general economic
interest

Blocks exemptions

General block exemption: 
SME (including risk capital 
and aid related to innovation 
activities), Training, 
Employment, R&D, 
Environment, Regional 

Services of general 
economic interest

De minimis

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