Opinion of the Committee of the Regions on the Revision of the guidelines for regional State aids
Date: 2005-07-07
Institutions: European Committee of the Regions
Subjects: State aid, control of State aid, economic and social cohesion, regional aid, regional development

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Opinion of the Committee of the Regions on the Revision of the guidelines for regional State aids

THE COMMITTEE OF THE REGIONS,

(2006/C 31/07)

Having regard to the decision of the European Parliament of 21 April 2005 to consult it on the ‘Revision
of the guidelines for regional State aids’, under the article 265 of the Treaty establishing the European
Community;

Having regard to the decision of its President of 19 May 2005 to instruct its Commission for Territorial
Cohesion Policy to draw up an opinion on this subject;

Having regard to the non-paper consultation document from the European Commission DG Competition
on the review of the Guidelines for regional aid;

Having regard to the Communication from the Commission — Third Report on Economic and Social
Cohesion (COM (2004) 107 final);

Having regard to the Proposal for a Council Regulation laying down general provisions on the European
Regional Development Fund, the European Social Fund and the Cohesion Fund, COM(2004) 492 final —
2004/0163 (AVC) and the other proposals for regulations of the European Commission concerning the
Cohesion Fund, COM(2004) 494 final — 2004/0166 (AVC) and the European Regional Development
Fund (ERDF), COM(2004) 495 final — 2004/0167 (COD);

Having regard to its opinion on The Third Report on Economic and Social Cohesion (CdR 120/2004 fin) (1);

Having regard to its opinion on Building our common Future Policy challenges and Budgetary means of the
Enlarged Union 2007-2013 (CdR 162/2004 fin);

Having regard to the conclusions of the Barcelona and Gothenburg European Councils, in which the
Member States agree on the compromise to reduce the level of state aids in the European Union, orien-
tating them to subjects of common interest, including economic and social cohesion;

Having regard to its draft opinion (CdR 77/2005 rev. 1) adopted on 29 April 2005 by its Commission
for Territorial Cohesion Policy (rapporteur: Mr Vicente Alvarez Areces, President of the Principality of
Asturias (ES/PES));

Whereas:

1)

2)

3)

4)

Article 158 of the EC Treaty defines the cohesion objective as follows: ‘In order to promote its overall
harmonious development, the Community shall develop and pursue its actions leading to the strengthening of
its economic and social cohesion’. Article III-220 of the Treaty establishing a Constitution for Europe
adds the territorial dimension to this objective;

although the EC Treaty generally sees state aid as distorting competition (2) regional aid is justified in
the case of certain regions where its specific objective is to develop these regions (3);

the existence of a regulatory framework for regional state aid can be instrumental in the redistribu-
tion of income and wealth within the EU as part of the European economic and social project and
thus build a stronger foundation for sustained economic growth;

regional aid is one of the factors influencing investment location, and the phenomenon of relocation
is emerging in the European internal market and globally; assistance from public authorities through
state aid should be examined from two perspectives: in a European context and with reference to
the phenomenon of globalisation;

(1) OJ C 318 du 22.12.2004, p. 1
(2) Article 87 of the EC Treaty
(3) Guidelines on national regional aid (98/C74/06), OJ C 74 of 10.3.98.

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5)

regional aid can be a useful instrument in achieving the objectives of the Lisbon Strategy, in contri-
buting to the balanced development of industrial policy throughout the EU and achieving sustain-
able growth with the creation of high-quality jobs;

adopted the following opinion at its 60th plenary session of 6 and 7 July 2005 (meeting of 7 July):

I. The Committee of the Regions' views

1. General comments

The Committee of the Regions

1.1
believes that, as regards compliance with the economic,
social and territorial cohesion objectives laid down in Article
158 of the EC Treaty, state regional aid is an instrument that
can be used by public authorities to develop their economic
and business policy. This recognised capacity of public authori-
ties should be coordinated so as to avoid increasing the imbal-
ances between countries and regions;

considers that, in order to achieve balanced develop-
1.5
ment between the different areas of the EU, it should be noted
that European regions can be divided into two groups
according to the two main problems they face:

— regions that have particular difficulties achieving economic
development and the convergence objective at European
level;

— regions with greater income and wealth than the above
regions, that need to increase their competitive ability both
in relation to more competitive regions of Europe and on a
global level.

a) Asse ssme nt of st a te a i d i n r e c e nt y e a r s

considers that better targeted state aid should have

1.2
three clear objectives:

The Committee of the Regions

a. to offset market

failures while at

the same time not

distorting competition;

b. to help reduce imbalances between areas;

c. to boost the competitiveness of businesses and areas.

While regional aid has proved effective for the first and second
of the above objectives, as shown by the studies available to
the European Commission, the third objective might require
more selective aid, such as horizontal aid (R+D, environment,
training, employment, SMEs, etc). However, all these kinds of
aid should be coordinated in terms of their aims and operation,
and should be geared towards achieving the cohesion objectives
throughout the EU;

1.3
believes that all aid granted for a certain area should
form part of strategic regional development plans in which
those projects that clearly promote regional development are
prioritised. This aid, together with other economic and busi-
ness-related factors, has an influence on the location of compa-
nies and the improvement of regional competitiveness;

1.4
takes the view that cohesion policy has obtained posi-
tive results in recent years, and that the guidelines on state
regional aid, along with the guidelines on multi-sectoral aid for
major investment projects, have helped meet the objectives of
European regional policy. Therefore, the European Commis-
sion's role in monitoring the aid granted by state authorities is
very important for less prosperous regions;

to their businesses,

takes note that various studies have shown that,

1.6
in
recent years, the volume of aid has tended to fall in less devel-
oped regions, while more competitive regions are increasing
support
through the development of
different state aid schemes on the basis of the various deroga-
tions contained in the EC Treaty. This has had undesired
effects, such as a notable drop in the effectiveness of regional
aid, and an increase in the overall volume of public expenditure
on state aid at Community level.

b) R u le s

The Committee of the Regions

supports

the
1.7
Commission in the reform of the regional state aid guidelines,
namely:

general principles

adopted by

the

— concentration on the poorest regions (in an EU25);

— competitiveness of all regions, in line with the revitalised

Lisbon Strategy;

— continuity, with a smooth transition from the current to

the new regime;

But would like to include another principle, that of:

— complementarity with

the

future

Structural

Fund

programmes;

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believes that

1.8
the regional aid guidelines provide a
framework of rules for coordinating other rules on horizontal
and sectoral aid, and serve as a point of reference in response
to the various questions often raised by the application of rules
on state aid. Revision of other state aid instruments must be
carried out with a view to helping achieve the cohesion objec-
tive and contributing to a lower overall level of state aid at
Community level, as called for in the conclusions of the Stock-
holm and Barcelona European Councils;

1.9
considers that the Commission's proposal to incorpo-
rate the new regional aid guidelines within a regulation on
exemption from notification could serve to clarify and simplify
rules on state aid as desired; recommends, however, that the
new rules should clearly set out the criteria, requirements and
limits applicable to fundable investments;

believes that

1.10
to incorporate the EU
the proposal
guidelines on multi-sectoral aid for major investment projects
into the guidelines on regional aid could help simplify the
applicable rules.

aid could help to compensate for unfavourable situations
suffered by certain areas of Europe.

Indicators:

highlights the fact that the Commission is maintaining
1.15
the classification of regions given in Article 87(3)(a) TEC, based
on gross domestic product as a way of harmonising criteria
and maps with the Structural Funds allocation criteria;

1.16
believes that unassisted regions should be classified
according to their competitiveness. In order to determine their
level of competitiveness, indicators other than the traditionally
used GDP could be applied. If this is not more in keeping with
the literal wording of Article 87 of the EC Treaty and with the
aims of European cohesion policy,
it is suggested that the
regional employment rate might also be included as a reference
indicator. It should be borne in mind, in this regard, that the
indicator set as an objective under the Lisbon agreements is the
employment rate. However, the Commission could consider
the application of other indicators, such as the unemployment
rate, population ageing and R&D capacity;

c) Ne w t h r e sh o lds p r o v i d e d fo r by t h e Commi ssi on

Net/gross grant:

p r op o s a l

The Committee of the Regions

draws attention to the Commission's proposal for
1.11
maximum aid thresholds, based on the commitment made by
Member States at the European Councils of Stockholm and
Barcelona; believes, however, that the proposal for the general
reduction of maximum aid thresholds set out by the Commis-
sion in its consultative documents may not be compatible —
particularly in some regions — with the ambitious objectives
of the Lisbon Strategy and the efforts required in terms of cohe-
sion, due to the effects of enlargement; considers that the goal
of reducing the overall level of aid could be reached in a way
that coincides more closely with the European political project,
by reorienting aid towards more selective horizontal cohesion
criteria, as established by the European Councils;

1.12
believes that the reduction of maximum aid thresholds
should be graded, taking account of various criteria affecting
regional economic development;

1.13
considers that the Commission should provide transi-
tional measures for state regional aid, consistent with the
regions' new economic situation and the new objectives of the
European cohesion policy. Thus, those regions in transition
from one status to another would experience a gradual reduc-
tion in aid that would help to ease their loss of entitlement to
use state aid as an instrument of regional development policy;

1.14
considers that economic, social and territorial cohe-
sion throughout the EU can only be achieved if different situa-
tions are dealt with in different ways. In this context, regional

believes that

the Commission's proposal

to base
1.17
maximum aid percentages in terms of gross grant (unlike the
previous period in which the different taxation systems were
taken into account via the net grant equivalent (NGE) formula)
will, rather than reducing the overall volume of aid as the
increase the differences between aid that
Commission states,
can be received by companies, taking account not of cohesion
criteria but the taxation systems in different countries. Here, it
should be noted that tax burdens vary greatly between the EU
25 countries;

1.18
considers that simplification is not in itself sufficient
reason for eliminating the NGE calculation. This calculation is
obtained by applying a formula, frequently used during the
current programming period, which does not significantly
complicate aid management. Moreover,
the NGE formula
should be used in order to calculate the real impact of state aid
on regional development.

2. Areas

that

could be covered by the exception under Article

87(3)(a) TEC

The Committee of the Regions

notes that

2.1
the Commission is proposing to reduce
maximum aid ceilings and differentiate according to three per
capita GDP categories, with bonuses for small and medium-
sized enterprises; proposes that this provision be revised so
that the overall reduction of state aid be achieved by gearing
aid towards more selective (horizontal and cohesion-related)
criteria rather than by lowering the maximum aid ceilings;

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2.2
proposes giving particular
various situations requiring special attention;

consideration to these

— regions which suffer from severe or permanent natural or

demographic handicaps, such as:

— the northernmost regions with very low population

congratulates

2.3
treatment
granted to the outermost regions, in line with the provisions of
the Constitutional Treaty — inclusion in Article 87(3)(a);

the Commission on the

notes, however,

2.4
that the Commission has not given
specific consideration to the situation of regions such as island
and upland regions, regions with low population density, rural
or border regions or those affected by regional change, whose
structural conditions hamper their development;

points out that the regions suffering from the statistical
2.5
effects of enlargement be included under Article 87(3)(a) for
the duration of the programming period (4); recalls that the
Convergence objective of
the Commission's new cohesion
policy is aimed at less developed States and regions, including
regions affected by the statistical effects of enlargement;

2.6
believes that the threshold of 75 % of per capita GDP
should be waived, in relation to state aid, for regions suffering
from the statistical effect, in the same way as Article 5 of the
draft regulation does with regard to the general provisions of
the Structural Funds; This would produce an exact match
between the convergence objective, as set out in the Commis-
sion's legislative proposals, and the map of aid for regional
purposes, in which the ‘statistical effect’ regions would only be
distinguished from other convergence objective regions by the
lower intensity of aid, in keeping with the smaller Structural
Funds allocations they would receive;

otherwise,

2.7
these regions would be further penalised,
since the effects of inclusion among regions classified under
Article 87(3)(c) or (a) are not, under the present rules governing
state aid, restricted only to the aid percentage ceiling, as indi-
cated in point 2.12 below. It would also entail problems of
integration into the design of the Structural Funds' convergence
objective intervention methods, by including regions with aid
regimes covered by different paragraphs of Treaty Article 87.

density;

— island regions;

— border regions;

— upland regions.

b) O p e r a ti ng a i d:

The Committee of the Regions

points out that the current regional aid guidelines state
2.9
that ‘In exceptional cases, such aid may not be enough to
trigger a process of regional development,
if the structural
handicaps of the region concerned are too great. Only in such
cases may regional aid be supplemented by operating aid’ (5);

2.10
recalls that the circumstances that must be evaluated
in order to determine whether structural handicaps are ‘too
great’ are referred to in Article III-220 of the Constitutional
Treaty;

2.11
notes that the proposal for new regional aid guidelines
exempts the outermost regions and regions with low popula-
tion density from the general prohibition on operating aid.
However, no mention is made of other clear structural handi-
caps, such as those suffered by island, border or upland
regions. In the case of regions with permanent handicaps, it
would make sense not to demand that operating aid be degres-
sive and temporary.

c) Ot h e r conse q u e n ce s for r e g i ons no long e r classi -

fi ed under A rti cle 87(3)(a )

a) B onu ses for cer tai n r e g i ons:

The Committee of the Regions

The Committee of the Regions

2.8
believes that, bonuses should also be considered for
other regions suffering from natural, geographic or demo-
graphic handicaps:

2.12
stresses the fact that, by no longer classifying regions
under Article 87(3)(a), not only will aid percentages be
reduced, but percentage bonuses will also be lost in various
horizontal or
from
certain prohibitions or limitations will be lost, such as for oper-
ating aid, aid to companies in difficulty, ad hoc aid, etc.;

frameworks, and exemptions

sectoral

— rural areas;

— areas affected by industrial transition;

2.13
calls on the Commission to examine whether regions
with natural, structural or demographic handicaps that are no
longer to be classified under Article 87(3)(a) could benefit from
the more favourable treatment granted to such regions.

(4) As stated in the CoR Opinion on the Third report on economic and

(5) Guidelines on national regional aid (98/C74/06), paragraph 5 of the

social cohesion (CdR 120/2004)

Introduction.

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3. Areas

that

could be covered by the exception under Article

87(3)(c) TEC

eligible under Article 87(3)(c), and that operating aid to trans-
port be allowed that is not temporary or degressive;

The Committee of the Regions

3.1 welcomes the fact that the Commission is willing to
adjust the percentage of the population living in the regions
coming under Article 87(3)(c) by including all those regions no
longer covered by Article 87(3)(a); believes, however, that the
regions suffering from the statistical effect of enlargement
intents and purposes, be covered by Article
should,
87(3)(a) and should therefore not be included in this section;

to all

3.2
reiterates its calls that, as stated in the CoR Opinion on
the Third report on cohesion, ‘the regions affected by natural effect’
(regions no longer covered by Article 87(3)(a) due to economic
growth) should ‘have a transition from Article 87(3)(a) to Article
87(3)(c) over the course of the aid period’. In terms of grading and
level of aid, this transition should resemble the one provided
for regions suffering from the statistical effect;

3.3
considers that, among the regions covered by the
exception in Article 87(3)(c) (regions previously covered under
Article 87(3)(a)), the following specific cases should be consid-
ered:

— regions no longer covered by Article 87(3)(a) for economic
reasons, once the transitional period mentioned in point
3.2 has ended;

— regions that, in addition to no longer being covered under

Article 87(3)(a), are:

— areas with low population density;

— island, border or upland areas;

— rural areas and areas affected by industrial transition;

considers

3.4
bonuses over the maximum threshold for general aid;

these regions

should benefit

that

from

3.5
also requests that territories suffering serious economic
crisis be temporarily eligible under Article 87(3)(c); this would
apply to situations related to major restructuring measures
(such as a large company closing down, with a large number of
job losses);

3.6
also requests that regions suffering some of the handi-
caps listed above, with a GDP per capita of no more than
100 %, or with an abnormally low employment
rate, be
temporarily eligible under Article 87(3)(c). The Commission
should periodically review economic regional
in
order to assess the eligibility of regions receiving aid under
RAGs, taking into account the economic growth and the unem-
ployment rate;

indicators,

3.7
asks that both regions with low population density and
islands not covered by Article 87(3)(a) be included as regions

3.8
considers that the different problems in each region
should be evaluated in line with various criteria so as to
measure the region's competitive and economic development
potential, and that state aid should be granted in a flexible
manner in accordance with these criteria.

4. Areas covered by the regional competitiveness and employment

objective

The Committee of the Regions

4.1
welcomes the Commission's decision to take a thematic
approach rather than one based on selected geographical areas,
in order to achieve consistency between competition policy
and regional policy and the objectives of Lisbon and Gothen-
burg;

4.2
with regard to the provision under which regions
excluded from Article 87(3)(a) and (c) can be eligible for hori-
zontal aid, in line with the objectives set out at the last Euro-
pean Councils, warns that economic situations and territorial
differences may need to be taken into account in order to meet
the regional policy objectives;

proposes, therefore, that regions be classified according
4.3
to their level of competitiveness, so that the horizontal aid can
be received in a graded manner;

that,

believes

4.4
to ensure real consistency between
competition and regional policies, the criteria for territorial
classification of unassisted regions should be covered in the
new regional aid guidelines, and that the horizontal frame-
works should allow for more favourable treatment of regions
with lower levels of competitiveness, based on the classification
drawn up in the regional aid guidelines. This more favourable
treatment could involve bonuses above the aid thresholds
provided for in the horizontal frameworks;

4.5
draws the Commission's attention to the fact that, in its
most recent proposal for maximum regional aid thresholds, the
small and
only percentage
medium-sized enterprises in non-eligible regions. This contrasts
with the considerable reduction planned for certain eligible
areas (especially those affected by the statistical effect and
natural effect);

considered was

increase

for

4.6
believes that the cohesion policy objectives defined in
the Treaty require different treatment in line with the various
that actually exist; calls on the
situations and problems
Commission to define the different treatment required for each
region, according to its level of development and competitive-
ness;

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4.7
highlights the case of unassisted regions which share a
land border with another, assisted region; requests that in such
cases, as well as drawing up maximum differential aid percen-
tages between neighbouring regions, other parameters be taken
into account that compare regions' economic and competitive
capacities. This would prevent situations that are unjustifiable
in terms of the European cohesion policy;

4.8
calls for ceilings to be established for volumes of overall
state aid, according to the level of regional competitiveness.
This figure could be determined in relation to per capita GDP
or to the population.

5. Regional aid and horizontal frameworks

The Committee of the Regions

requests that, in order to meet the strategic objectives
5.1
set at
the Lisbon and Gothenburg summits, horizontal aid
(R+D, environment, employment, training, SMEs, etc.) should
be deployed particularly in regions with a lower level of
economic development or competitiveness; to this end, particu-
lar emphasis should be given to coordinating the various rules
regulating regional and horizontal aid;

5.2
requests that for both assisted and unassisted regions,
bonuses over the aid thresholds provided for in the various
horizontal aid frameworks should be considered, both graded
and in line with the various regional situations, putting special
emphasis on and enabling greater flexibility for centres of tech-
nological innovation;

considers that de minimis aid, low-level aid, or aid with
5.3
limited effects on Community trade cannot alone counteract
low development levels in a particular region; on the contrary,
this type of aid can be used to a higher degree in countries or
regions with a greater financial capacity and, therefore, higher
wealth indicators;

proposes,

5.4
the European Commission
that
analyse and take into consideration the impact of this type of
aid on regional development.

therefore,

6.2
proposes making special efforts in this field in order to
effectively coordinate all aid that impacts on regional develop-
ment, so as to ensure favourable treatment of sectoral aid
granted in less developed, less competitive regions;

efforts

the European Commission's

6.3 welcomes
to
develop the regulatory framework of state aids for services of
general economic interest. It would also be desirable for less
prosperous regions and regions which suffer from severe or
permanent natural or geographic handicaps to have a more
favourable framework for the development of their services of
general economic interest and indeed a clear and comprehen-
sive framework to distinguish those services that must be
deemed economically significant from those that are not;

the

that

interest

believes

6.4
exemption from notification of
compensation for public services should be extended to include
services of general
that represent essential tasks of
public authorities, especially provision of social housing, public
hospitals, education and general social services. The Commis-
sion should raise the notification thresholds, and notification
should be ex post. This formal procedure would thus have no
negative impact on the provision of essential services, which
otherwise might be blocked.

7. Types of aid

The Committee of the Regions

7.1
recalls that regional aid is granted as direct aid to
investment or investment-linked employment aid. However,
other means of support have also proved particularly useful in
boosting entrepreneurship and promoting productive invest-
ment to improve the economic climate; this applies to equity
participation in enterprises, regional risk-capital funds, business
incubators, guarantees, affordable industrial land (particularly in
regions where it is very expensive), etc.;

urges the Commission to consider adding new forms of
to regional aid, which would optimise the use of

7.2
support
public funds and have a more limited effect on competition.

6. Sectoral aid and regional development

The Committee of the Regions

8. Aid and relocation

The Committee of the Regions

6.1
highlights the fact that aid granted in some sectors
particularly affects the economic development of regions; this
for example; draws
applies to aid in the transport sector,
attention to aid to low-cost airlines or maritime transport,
which can boost
the development of regions with greater
economic problems, often caused by geographical barriers;

8.1
is pleased to note that the proposal for the new Com-
munity Structural Fund Regulations introduces a requirement
to maintain investments for seven years, with Community aid
forfeited if the recipient company relocates to another area
before this period expires. However, exceptions could be made
in accordance with the technological characteristics of different
sectors.

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9. Definition of initial investment

The Committee of the Regions

believes that it is as important to consolidate compa-
9.1
nies already set up in an area as it is to attract new companies.
Thus, unfavourable treatment should not be given to compa-
nies already established in a particular area and investing in
expansion and consolidation, as opposed to companies with
similar investment projects that are setting up in the same area.
Also,
if support is only given for initial start-up, businesses
might be encouraged to relocate;

considers that land purchase and development costs
9.2
vary greatly from one region to another, depending on the
physical features of the terrain therefore, rather than prohi-
biting the funding of land-related costs, it would be better to
limit it as a proportion as the planned investment total,
in
regions where land purchase, development, etc. are a significant
factor;

9.3
also proposes introducing systems or percentages for
intangible investment in order to limit the maximum amount
of funding in relation to the total investment.

II. The Committee of the Regions' recommendations

The Committee of the Regions calls for:

the reform of regional aid in order to reduce its overall
1.
amount, as established by the Stockholm and Barcelona Coun-
cils and redirect it in line with the cohesion objectives, taking
account of different regional situations and the priorities set
out by the EU. The overall volume of regional aid could be
reduced by fairer means than just cutting maximum thresholds
across the board;

the net grant equivalent concept to be maintained for the

2.
calculation of regional aid;

3.
transitional periods to be considered for regions moving
from classification under Article 87(3)(a) to Article 87(3)(c). In
these cases, aid should be graded in such a way as to prevent
these regions from paying for enlargement (regions affected by
the statistical effect and natural effect). Also, regions falling
under Article 87(3)(c) and those losing this status should be
given better treatment, while taking into account the maximum
population limit for receiving regional aid;

Brussels, 7 July 2005

4.
the drawing up of objective criteria and sound legal argu-
ments to classify regions and grade regional aid in line with the
cohesion objectives;

5.
classification criteria to be laid down in order to take
account of the specific features of each region, independent of
geographical location. This classification should be adapted to
take account of the progress made by each region over time;

6.
percentage bonuses to be given consideration for regions
with natural, demographic or structural handicaps, whether
classified under Article 87(3)(a) or 87(3)(c) of the EC Treaty;

the inclusion of bonuses to be given consideration in the
7.
horizontal frameworks for regions according to their levels of
development and competitiveness
(assisted and unassisted
regions);

the coordination of regional aid guidelines with hori-

8.
zontal aid and the priority objectives of the Lisbon agenda;

9.
the inclusion of coherent criteria in the regional aid
guidelines relating to aid for sectors that play a key role in
regional development;

10.
examination and analysis by the European Commission
of the diversity of regional situations existing in Europe, so that
its proposals can be adjusted to meet equitable criteria;

aid for which a region is eligible to form part of stra-

11.
tegic regional development plans;

12.
other indicators to be considered in order to assess the
regional economic situation, such as the employment rate,
particularly in the case of unassisted regions;

the use of other forms of business aid that are easier to

13.
manage and cost less in terms of public funds;

the establishment of higher thresholds for the notifica-
14.
tion of services of general economic interest: this notification
should be ex post, distinguishing those rights which are
enshrined in national constitutions and are not economic
services;

15.
special consideration to be given to new forms of busi-
ness support (risk capital, guarantees, equity participation, tax
relief, etc.).

The President

of the Committee of the Regions

Peter STRAUB