Opinion of the Committee of the Regions on the State aid Action Plan — Less and better targeted State aid: a roadmap for State aid reform 2005–2009
Date: 2005-11-16
Institutions: European Committee of the Regions
Subjects: State aid, competition policy, control of State aid, governance, services of general interest, simplification of formalities

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Opinion of the Committee of the Regions on the State aid Action Plan — Less and better targeted
State aid: a roadmap for State aid reform 2005–2009

(2006/C 115/02)

THE COMMITTEE OF THE REGIONS,

Having regard to the Communication from the Commission State aid Action Plan — Less and better
targeted State aid: a roadmap for State aid reform 2005–2009, COM(2005) 107 final;

Having regard to the decision of the European Commission of 8 June 2005 to consult it on the subject,
under the first paragraph of Article 265 of the Treaty establishing the European Community;

Having regard to the decision of its Bureau of 22 February 2005 to instruct its Commission for Economic
and Social Policy to draw up an opinion on this subject;

Having regard to the Commission Decision of 18 July 2005 on the application of Article 86(2) of the
Treaty to State aid in the form of public service compensation granted to certain undertakings entrusted
with the operation of services of general economic interest, the Commission Directive …/.../EC, amending
Directive 80/723/EEC on the transparency of financial relations between Member States and public under-
takings and the Community Framework for State Aid in the form of public service compensation;

Having regard to its opinion on the revision of the guidelines for regional state aids (CdR 77/2005 fin);

Having regard to its opinion on the Commission decision on the application of Article 86 of the Treaty
to State aid in the form of public service compensation, the draft directive amending Commission Directive
80/723/EEC on the transparency of financial relations between Member States and public undertakings and
the draft Community framework for State aid in the form of public service compensation (CdR 155/2004
fin) (1);

Having regard to its opinion on the White Paper on services of general interest (CdR 327/2004) (2);

Having regard to the Resolution of the Committee of the Regions on revitalising the Lisbon strategy
adopted on 24 February 2005;

Having regard to its Draft Opinion CdR 225/2005 rev. 1 adopted on 23 September 2005 by its Commis-
sion for Economic and Social Policy (Rapporteur: Mr Gabor Bihary, Member of the General Assembly of
the Capital, President of the European Integration and Foreign Affairs Committee of the General Assembly
of the Capital (HU/PSE));

adopted the following opinion at its 62nd plenary session, held on 16/17 November 2005 (meeting
of 16 November).

(1) OJ C 43 of 18.2.2005, p. 13.
(2) OJ C 164 of 5.7.2005, p. 53.

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The Committee of the Regions' views

aid rules should consider this fact in parallel with the impact of
State aid on market functioning;

The Committee of the Regions

Welcomes the approach by the European Commission to
establish a series of large consultations on the reform of State
Aid Policy and to involve European local and regional authori-
ties through the Committee of the Regions.

Reiterates its previous position with regard to the revision of
the guidelines for regional state aids.

1. A modernised State aid policy in the context of the

Lisbon strategy for growth and jobs

The Committee of the Regions

1.1 welcomes that the State aid policy should be closely
linked to the objectives of Lisbon strategy and similarly
welcomes its reorientation towards more selective horizontal
approach (without disregarding the needs of specific targeted
regions) and its focus on key policies such as innovation and
R&D, human capital, entrepreneurship, services of general
economic interest, regional aid, sustainable environment, trans-
port, energy and information and communication technology
infrastructures;

feels that the criterion of market failure developed by
1.2
the Commission to justify State aid is an interesting approach,
but it is not based on the EC treaty, is not clearly defined, and
cannot be applied in those cases where there are no existing
markets.
It therefore objects to the idea of giving market
failure a key role as a criterion for assessing the admissibility of
State aid. Furthermore, application of the criterion of market
failure is only acceptable if Member States and regional and
local authorities,
in keeping with the subsidiarity principle,
retain adequate scope for manoeuvre in defining market failure
and in deciding how to respond to it;

recalls that

1.3
the CoR Resolution on Revitalising the
Lisbon Strategy, adopted on 24 February 2005, points out that
‘instead of pursuing the objective of a quantitative reduction in
State aid, the EU should focus on better State aid with regard
to long-term high-quality delivery of services’; considers it
indeed to be wrong to focus on the global costs of State aid
without differentiating the types of State aid and their respec-
tive benefits in terms of common interest;

1.5
notes that the objective of Articles 81 and 82 EC Treaty
on competition rules applying to undertakings is to protect
competition on the market as a means of enhancing consumer
welfare. Considering that the definition of ‘competition’ has to
be homogenous and coherent
the
Committee of the Regions regrets therefore the absence of any
reference to the objective of consumer welfare within the State
Aid Action Plan;

the Treaty,

throughout

is worried to note that the concept of non-affection of
1.6
trade between Member States is not used any more as a priority
criterion for granting State aid. The CoR considers indeed that
subsidies by local and regional authorities
to companies
carrying out public service obligations do not necessarily affect
trade in the single market between Member States or do
seriously impede competition, i.e. create or reinforce a domi-
nant market position of the relevant company/ies;

1.7
underlines the need for the European Union to be
internationally competitive in attracting inward investment and
considers that the State aid rules must better reflect business
reality in an open globalised economy and provide sufficient
flexibility to allow regions in the Member States to compete for
foreign (non-EU)
regions from
outside the Union which are heavily aided;

investment projects against

1.8
believes that the role of State aid is more important in
periods with lesser economic growth, therefore suggests consid-
ering flexible rules, which could take this into account;

1.9
also believes that, within an economically integrated
area, the less economically developed a Member State is, the
more State aid might be justifiable as a percentage of GDP in
order to develop public services or to provide similar public
service standards as in the other Member States; furthermore, it
considers that, within a Member State, some regions (notably
less developed regions and regions in transition) should benefit
from specific enhancements;

that

suggests

1.10
the European Commission should
strengthen the impact analysis of its own decisions in the field
of State aid, especially given the fact that the State Aid Action
Plan is built upon an ‘economic approach’ of State Aid analysis;

points out that State aid,

if sufficiently targeted and
1.4
effectively managed, can contribute significantly to meet the
requirements in terms of public service obligations set by local
and regional authorities, and believes that the reform of State

1.11
regrets that the State Aid Action Plan does not reflect
the specificity of private-public partnerships with regard to
State aid.

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2. Focusing on the key priorities

The Committee of the Regions

2.1 welcomes the intention to simplify and consolidate
block exemption regulations for training and employment aids
and draws attention to the fact that this also gives the oppor-
tunity to harmonize definitions such as e.g. the definition of
‘disadvantaged worker’ which varies from one block exemption
to the other;

2.2
believes that the distinction between specific training
and general training is mostly artificial in practice and therefore
suggests not to differentiate State aid intensity based on this in
the future;

2.3 welcomes the efforts by the Commission to comple-
the uncertainties remaining after the Altmark judge-
ment
ment (3) by adopting a set of measures concerning the rules for
financing public service obligations. The Committee of
the
Regions considers that these measures, by obliging local and
regional authorities to define their public service contracts
transparency and democratic
better, will
accountability in the management of
services of general
economic interest;

lead to greater

is pleased to note that in this context the European
2.4
Commission agrees with the Committee of
the Regions'
demand to exempt State aid granted for hospitals and social
housing companies from the notification procedure;

2.5
highlights that a proposal for a legal framework on
public services which should facilitate a definition of positive
principles remains more necessary than ever. Such a framework
should include for instance:

— criteria for distinguishing between Services of General
(SGEI) and non-economic Services of

Economic Interest
General Interest (SGI);

— principles and general obligations of SGI, such as universal
service, continuity, quality, efficiency, accessibility and user
and consumer protection;

— criteria for curbing trade distortions;

— the recognition of the right of local and regional authorities
to provide services of general economic interest themselves,
and guiding principles for financing;

— evaluation mechanisms;

2.6 welcomes the Commission's intention to issue a general
block exemption regulation to exempt certain categories of aid
from the obligation to notify the Commission and believes
that this future regulation will ensure better governance;

(3) Case C-280/00 of 24.7.2003.

supports the intention to broaden block exemptions to

2.7
integrate aid to support SMEs and R&D;

2.8
believes that due to its procedural requirements the ‘de
minimis’ exemption is very difficult to apply in practice. Any
increase of
the de minimis threshold should therefore go
together with a simplification and clarification of the current
rules governing the de minimis
regulation, notably by
explaining:

(i) whether the threshold for de minimis aid applies to inde-

pendent undertakings or separate legal entities,

(ii) how operations in more than one Member State by the
same legal entity obtaining de minimis aid in different
Member States are taken into account and

(iii) what is the status of EC aid when determining whether the

de minimis threshold has been reached;

therefore supports the increase of de minimis aid threshold
and requests this to be based on the cumulate inflation since
the last increase in 2001;

2.9
considers that, due to the huge increase in state aids
granted to non-profit bodies, the Commission should make a
clear and explicit reference to such bodies, in keeping with the
relevant case-law of the Court of Justice;

believes that

the improvement of

2.10
Information and
Communication Technology (ICT) infrastructure will have the
same significant importance as the improved transport and
energy infrastructures; notes, however, that market conditions
for ICT development are different, therefore draws attention
to the need for specific guidelines allowing greater flexibility in
granting aid for developing ICT in general;

2.11

that

the European Commission has
2.11.1 welcomes
launched an 24 August 2005 a public consultation on the
Review of
the Guidelines for State Aid for Environmental
Protection but regrets that the tight deadline for replies set on
10 October 2005;

2.11.2
expresses its support for extending the scope of the
current guidelines to ‘consumer health’, which in the view of
the regions encompasses the notions of
the Committee of
‘safety of civilians and their environment’, ‘safety of employees’
and ‘health of employees’;

2.11.3
supports explicit rules for environmental investment
aid to companies in order to deal with pollution caused by
other companies;

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2.11.4

advocates maintaining higher aid intensity for SMEs;

3. Modernising the practices and procedures of State aid

The Committee of the Regions

3.1 welcomes the Commission's proposals to ensure better
governance of State aid;
in particular supports issuing best
practices guidelines after consulting Member States as well as
the involved parties;

points out

that shared responsibility with Member
3.2
States is one of
the key issues of State aid reform, and
welcomes therefore the elements of the State Aid Action Plan,
that strengthen the Member States' commitment;

believes that

there should be an evaluation of

3.3
the
proposal to create independent State aid monitoring authorities
in individual Member States,
in terms of procedural benefits
and the roles these authorities would undertake, and asks that
local and regional authorities be consulted in such an evalua-
tion;

3.4
calls for the establishment of a network of national
State aid authorities, to enable the continuous flow of informa-
tion and exchange of best practices, which could increase
Member States' commitment and promote better governance;

3.5
supports the outlined system of a certain flexibility
combined with a strict timetable, differentiating simple cases
from those needing deeper investigation;

3.6
calls with regard to the announced overhaul of the
Procedural Regulation 659/1999 for a strengthening of the
rights of third parties (beneficiaries and plaintiffs) in the proce-
dures following the initiation of proceedings;

3.7
requests to be consulted on the assessment or modifica-
tion of the rescue and restructuring aid guidelines, indicated by
the Roadmap for 2007/2008, as well as on other relevant
reforms which affect local and regional authorities.

The President

of the Committee of the Regions

Peter STRAUB

2.11.5
considers that it is necessary to maintain higher
levels of aid intensity for those regions which due to economic
transformation are lagging behind in meeting the requirements
of the acquis communautaire in the field of environment.

the

that

2.12 welcomes
European Commission has
launched on 21 September 2005 a public consultation on the
reform on the rules on State aid for innovation (COM(2005)
436) but regrets the tight deadline for replies set on 21
November 2005;

the Committee expresses, in line with the objective
2.12.1
of simplification, its support to integrating innovation in the
current Community framework for State aid for research and
development (4) as opposed to creating a new specific ruling;

2.12.2
State aid towards small and medium-sized enterprises;

it supports the objective to target innovation-related

2.12.3
tion of aid for innovation and regional aid;

it pleas for retention of the current allowed cumula-

the Committee wonders, with regard to innovative
2.12.4
start-ups, why only ‘exemptions of [50 %] on social contribu-
tions and other local/regional taxes (i.e. not linked to profits)’
are envisaged;

it welcomes that ‘State aid to SMEs and/or to activ-
2.12.5
ities far away from the market may qualify for lighter proce-
dural
exempted from notification’
COM(2005) 436 (recital 24);

and could be

rules,

questions however the focus given by the Commis-
2.12.6
sion to ‘market failure’. The Commission admits indeed that
innovation related-activities are specific in that they are often
distant from the market: ‘Experience shows that it is very diffi-
cult
to know in advance which innovative products and
services will become successful in the market.’ COM(2005) 436
(recital 18).

Brussels, 16 November 2005.

(4) Official Journal C 45, 17.2.1996, pp. 5-16.