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Europaudvalget 2006
KOM (2006) 0130
Offentligt

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 27.3.2006

COM(2006) 130 final

REPORT

State Aid Scoreboard

- spring 2006 update -

(presented by the Commission)

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Contents

Executive Summary ................................................................................................................... 3

Introduction ................................................................................................................................ 6

1.1.

1.1.1.

1.1.2.

1.1.3.

1.1.4.

1.1.5.

1.1.6.

1.2.

1.3.

2.1.

2.1.1.

2.1.2.

2.1.3.

2.1.4.

2.2.

2.3.

4.1.

4.2.

4.3.

Part One: Focus on Enlargement ................................................................................. 7

Acceding countries: Bulgaria and Romania................................................................. 7

Enlargement Process .................................................................................................... 7

Current state of play regarding negotiations ................................................................ 8

National legislation for State aid.................................................................................. 8

State aid monitoring authorities ................................................................................... 9

Enforcement record and problem areas...................................................................... 10

Overview of the State aid situation in Bulgaria and Romania ................................... 11

Candidate Countries ................................................................................................... 14

Potential Candidate Countries.................................................................................... 19

Part Two: Legislative and Policy Developments ....................................................... 23

State Aid Action Plan................................................................................................. 23

Guidelines on Regional Aid for 2007-2013 ............................................................... 24

Draft Block Exemption Regulation for Regional Investment Aid............................. 24

Communication on State Aid to Export-Credit Insurance ......................................... 24

Review of the R&D Framework and Innovation ....................................................... 24

State Aid to the Transport Sector ............................................................................... 25

State Aid to the Agriculture Sector ............................................................................ 25

Part Three: Aid awarded under the State Aid Block Exemption Regulations ........... 26

Part Four: State Aid control Procedures and Recovery ............................................. 29

Registered Aid Cases ................................................................................................. 29

Commission Decisions............................................................................................... 29

Recovery of Unlawful Aid ......................................................................................... 31

Methodological Notes ................................................................................................ 34

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XECUTIVE

UMMARY

1) Completing the fifth enlargement

The expected accession of Bulgaria and Romania, foreseen for January 2007, if they are

ready, will complete the fifth enlargement of the EU which started in 1 May 2004 with the

accession of ten new Member States. A Treaty of Accession was signed in April 2005 with a

view to welcoming both countries as members as from January 2007, if the postponement

clause is not triggered by the European Council.

2) Screening State aid measures which will continue to be in place after accession

(‘existing aid’ measures)

Three measures have been annexed to the Accession Treaty of Bulgaria that shall be regarded

as existing aid upon accession. In addition, Bulgaria submitted its first request to the

Commission to approve one measure under the interim mechanism. In the case of Romania,

no existing aid measures have been attached to the Accession Treaty nor will the interim

procedure be applied until the Commission concludes that Romania’s State aid enforcement

record has reached a satisfactory level.

3) In relative terms Bulgaria granted less aid and Romania more aid compared to the

EU-25 average

Over the period 2002-2004, total State aid

granted annually was estimated at €65 million for

Bulgaria and €981 million for Romania. In Bulgaria, total State aid represented 0.36% of

GDP which was significantly lower than the average for the ten new Member States (1.35%)

and indeed lower than the EU-25 average (0.49%). In Romania, total State aid was

significantly higher, representing 1.86% of GDP.

When aid is expressed in per capita terms, a different picture emerges with regard to the

relative position of Romania. For example, the annual average of 118 PPS

per person in

Romania was significantly less than a number of other Member States. Bulgaria’s level of 23

PPS per capita places it around the same level as the Baltic States.

4) Relatively high share of sectoral aid

In the period 2002-2004, around 87% of total State aid in Romania and 55% in Bulgaria were

earmarked for the potentially more distortive types of aid such as sectoral aid including aid to

rescue and restructure firms in difficulty. These shares of sectoral aid are relatively high

compared to the EU-25 average of 32% but are more in line with the ten new Member States

(average of 77%). The higher share of sectoral aid can be explained largely by the extensive

reforms during the transition to a market economy, privatization and restructuring companies

in difficulty.

Bulgaria awarded 25% of total aid to companies in the manufacturing sectors including steel

(10%) and a further 25% to ‘other non-manufacturing sectors’ which largely consist of aid for

Total State aid less agriculture, fisheries and transport.

Purchasing Power Standards

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heating companies and the mining industry. The very high share of sectoral aid in Romania

can be explained in part by the relatively strong support of several industries such as mining

(21%), steel (14%) and coal (11%).

5) Some (potential) candidate countries have adopted national legislation on State aid

and established national State aid monitoring structures

Among the Candidate countries, Croatia and the Former Yugoslavia Republic of Macedonia

have adopted national legislation on State aid and established national State aid monitoring

authorities. In contrast, Turkey has not yet established an operationally independent

monitoring authority nor adopted any legislation.

As regards potential Candidate countries, Serbia and Montenegro established State aid

monitoring structures within their Ministry of Finance in 2005 and Albania established a new

department in the Ministry of Economy in 2004. However, neither of these structures can be

considered as operationally independent State aid monitoring authorities. In Bosnia and

Herzegovina there is as yet no authority responsible for overseeing State aid granted in the

country.

6) The block exemption regulations appear to have significantly reduced the

administrative burden

The number of notifications to grant training aid, employment aid and SME aid has fallen

considerably since 2001 as Member States make increasing use of the possibilities offered by

the block exemption regulations. By the end of January 2006, more than 1300 information

forms on block exempted measures had been submitted since the introduction of the

regulations for SMEs and training in 2001. In 2005 alone, the Commission received more

than 400 forms on exempted measures.

7) Around 11% of all State aid cases registered in 2005 were non notified measures

In 2005, there were just under 765 cases

registered by the Commission: 663 cases were

notified by Member States, 84 non-notified cases initiated by the Commission, 17 cases

examining existing aid. Excluding the block exemption information forms, 52% of all

registered cases in 2005 concerned the manufacturing and service sectors and 34% the

agricultural sector. Of the remaining cases, 9% involved transport and energy and 4% the

fisheries sector.

8) In 2005, the Commission approved the award of State aid in 89% of its decisions

In 2005, the Commission took 646 final decisions.

In the vast majority of cases, the

Commission concludes that the examined aid is compatible with the State aid rules and allows

Member States to award such aid without carrying out a formal investigation procedure. This

was the case for 89% of decisions taken in 2005. Where the Commission has doubts whether

This figure excludes measures submitted under the block exemption regulations.

Excluded under ‘final’ decisions are all decisions taken in 2005 to open a formal investigation

procedure (55 in 2005), corrigenda, information injunctions, court cases, proposal appropriate measures

as well as measures approved under the block exemption regulations for which there is no Commission

decision as such. The total however includes those decisions in which the Commission decides that the

notified aid does not in fact constitute aid as defined under Article 87(1). There were 23 such decisions

in 2005. Also included under ‘positive’ decisions are the 2 conditional decisions taken in 2005.

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certain aid measures comply with the rules, it carries out a formal investigation at the end of

which the Commission either takes a positive, conditional or no aid decision

(making up 8%

of the decisions in 2005 in addition to the 89% of decisions approved without a formal

procedure) or that it does not comply with State aid rules and hence is not compatible with the

Common Market and takes a negative decision (3% of all decisions in 2005).

9) The number of pending recovery decisions has decreased

As of 31 December 2005, there were 75 pending recovery decisions. Germany makes up 35%

of the total while Spain, Italy and France combined account for a further 53% of all pending

recovery cases. There are no pending cases in fourteen of the EU-25 Member States.

The total amount of aid to be recovered since 2000 is € 8.6 billion. Of this figure, some € 6.0

billion (i.e. 71% of the total amount) had been effectively recovered by the end of December

2005. In addition, € 2.1 billion of recovery interests had been recovered and a further € 139

million of aid was lost in bankruptcy proceedings.

Included in this category are cases withdrawn by the Member State during the investigation procedure.

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NTRODUCTION

This update of the State aid Scoreboard aims to present the State aid situation in the current

Acceding Countries (Bulgaria and Romania). It also provides an overview in relation to State

aid in the Candidate countries (Croatia, Turkey and The Former Yugoslav Republic of

Macedonia) and in the Potential Candidate Countries (Albania, Bosnia and Herzegovina,

Serbia and Montenegro, and Kosovo under UN Security Council Resolution 1244). It draws

on material provided by Acceding Countries in the context of a major inventory and data

gathering exercise in 2005 as well as the annual reports on State aid transmitted by the

Acceding, Candidate and Potential Candidate Countries in accordance with Europe

Agreements or Stabilization and Association Agreements.

This spring 2006 update of the Scoreboard is divided into four main parts. Part One focuses

on enlargement and has three sections: Acceding Countries, Candidate Countries and

Potential Candidate Countries. The section on Acceding Countries attempts, with all the

necessary caveats, to compare the State aid amounts in Bulgaria and Romania in 2002-2004

with the average of new Member States and EU-25. It presents the overall level of State aid,

the sectors to which aid is directed and the use of various aid instruments.

The Part Two describes the progress in legislative and policy developments in State aid field

since autumn 2005. The Part Three provides a statistical overview of State aid measures

falling under five block exemption regulations (block exemptions for aid to SMEs, training

aid, employment aid, aid to SMEs in the agricultural sector and certain types of aid in the

fisheries sector). Part Four provides an overview on State aid procedures and recovery in

2005.

In addition to this paper edition, a permanent online Scoreboard consisting of a series of key

indicators and a range of statistical information for the EU Member States is available on the on

the

homepage

the

Competition

Directorate

General’s

Internet

site

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

The autumn 2006 Scoreboard will cover State aid awarded in EU-25 in 2005.

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1.1.

1.1.1.

ART

: F

OCUS ON

NLARGEMENT

Acceding countries: Bulgaria and Romania

Enlargement Process

The fifth enlargement of the EU which started in 1 May 2004 with the accession of ten new

Member States will be completed by the accession of Bulgaria and Romania. The accession

negotiations with these two countries were opened at the same time with Latvia, Lithuania,

Malta and Slovak Republic following to the Helsinki European Council of December 1999.

In order to prepare associated countries for accession to the EU, the Association agreements

(also known as Europe Agreement or Stabilisation and Association Agreement) are concluded

between an interested country and the EU and its Member States. Association agreements are

mainly considered as free trade agreements but require associated countries also to develop a

functioning market economy. The Europe Agreements for Bulgaria and Romania entered into

force in February 1995. Under the Agreements, the partner countries commit themselves to

approximating their legislation to that of the EU, particularly in the areas relevant to the

internal market. The Agreements therefore contain the main substantive competition rules

which apply in areas where trade between the EU and a partner country is affected. As regards

State aid, the Agreement makes it clear that these rules are to be interpreted in accordance

with the criteria arising from the application of Article 87 of the Treaty.

To join the Union, all Candidate countries need to fulfil the accession criteria which were laid

down in the conclusions of the Copenhagen European Council in 1993. One of the

requirements is the existence of a functioning market economy and capacity to cope with

competitive pressures and market forces within the EU. This ‘economic criterion’ is the basis

for the competition negotiations. It is important to ensure that companies in the candidate

countries are able to withstand the competitive pressures of the internal market without

distortive state subsidies which were extensively used in planned economies.

This broadly

defined criterion was translated by EU into three elements that must be in place in a candidate

country before the competition negotiations can be provisionally closed: the necessary

legislative framework with respect to antitrust and State aid; an adequate administrative

capacity (in particular, a well-functioning competition authority); and a credible enforcement

record of the acquis in all areas of competition policy.

To evaluate whether these requirements are met, the Commission carries out an in-depth

assessment, including the examination of cases that the competition offices of the Candidate

countries have handled, both in the State aid and antitrust area. This enables the Commission

and the Council to assess the degree to which the competition discipline is already being

enforced in the Candidate countries.

For additional background on the transition from centrally planned to market economies see autumn

2004 update of the State aid Scoreboard, COM(2004) 750 final

http://europa.eu.int/comm/competition/state_aid/scoreboard/2004/autumn_en.pdf

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1.1.2.

Current state of play regarding negotiations

On 25 April 2005 the Accession Treaty with both Romania and Bulgaria was signed. A series

of safeguard clauses were included in the Accession Treaty, in the event the acceding

countries fail to implement commitments undertaken in the context of the accession

negotiations. According to the Commission's comprehensive monitoring report on the state of

preparedness for EU membership published in October 2005

, both Bulgaria and Romania

have continued to make progress in adopting and implementing EU legislation and have

reached a considerable degree of alignment. Romania was called upon to make increased

efforts in the area of competition policy as regards in particular the enforcement of State aid

rules. The Commission will continue to monitor progress intensively up to accession and

intends to present a monitoring report to the Council and Parliament in April/May 2006. At

that moment, the Commission may recommend that the Council postpone the accession of

Bulgaria or Romania until 1 January 2008 if there is a serious risk of any of those states being

manifestly unprepared to meet the requirements of membership by January 2007 in a number

of important areas. In the case of Romania, the Treaty specifies that the Council may, on the

basis of a Commission recommendation and after a detailed assessment decide on such a

postponement, if it finds shortcomings in Romania’s fulfilment of specific conditions in the

competition area.

No existing aid measures have been attached to the Accession Treaty of Romania, nor will the

interim procedure be applied until the Commission concludes that Romania’s State aid

enforcement record has reached a satisfactory level. In the case of Bulgaria, three measures

have been annexed to the Accession Treaty that shall be thus regarded as existing aid upon

accession. In October 2005, Bulgaria submitted its first request to the Commission under the

interim procedure pursuant to Annex V § 2.1(c) of the Accession Treaty.

1.1.3.

National legislation for State aid

Bulgaria

In Bulgaria, State aid is governed by the following legislative acts: the State aid Act (entered

into force in June 2002), the Rules on the Implementation of the State aid Act and the

Ordinance No 6

on the procedure for monitoring and ensuring transparency of State aid.

In its Comprehensive Monitoring Report

, the Commission considered that Bulgaria has

adopted the necessary State aid legislation and implementing rules to cover the main

principles of the

acquis.

Bulgaria 2005 Comprehensive Monitoring Report, 25 October 2005, SEC (2005) 1352, {COM (2005)

534 final}.

Romania 2005 Comprehensive Monitoring Report, 25 October 2005, SEC (2005) 1354, {COM (2005)

534 final}.

Amended by Ordinance No 3 of the Minister of Finance of 2004

Bulgaria 2005 Comprehensive Monitoring Report, 25 October 2005, SEC (2005) 1352, {COM (2005)

534 final}.

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Romania

Competition Law No 21/1996

lays down the framework for State aid control in Romania

and entrusts the Competition Council with certain powers in this field. The State aid Law

determines the notion of State aid and defines the modalities of authorising, granting,

controlling, inventorying, monitoring and reporting on State aid. On the basis of these two

laws, the Competition Council has adopted secondary legislation, i.e. regulations and

guidelines, which lay down detailed rules for the application of the State aid Law. The

Comprehensive Monitoring Report on Romania

notes that legislative alignment is complete.

1.1.4.

State aid monitoring authorities

Bulgaria

The Commission for the Protection of Competition (CPC) controls State aid (enforcement).

The State aid Department of the Ministry of Finance is responsible for the monitoring and

reporting of State aid.

The 2005 Comprehensive Monitoring Report on Bulgaria notes that the necessary

implementing structures and the administrative capacity of both the CPC and the State Aid

Department of the Ministry of Finance have been steadily improving, but this process needs

to continue. The CPC’s expertise in the field of State aid continues to show improvement.

Efforts have been made, but need to continue, as regards training of the authorities and the

judiciary, cooperation within the administration, and public awareness activities. A plan for

State aid coordination upon accession is needed, ensuring that current know-how is not lost.

Romania

State aid control is entrusted exclusively to the Competition Council which is an autonomous

authority consisting of seven members, appointed for a 5 year term by the President of

Romania, pursuant to the proposal of the Government. The Council members are required to

be independent in their decision-making. Within the Council there is a State Aid Monitoring

department which includes a monitoring network with 41 regional offices, composed of 86

competition inspectors. They are entrusted with State aid and other competition matters.

The Competition Law No 21/1996, published in the Official Gazette of Romania, Part I, No

88/30.04.1996, amended by Government Emergency Order (OUG) No 121/2003, published in the

Official Gazette of Romania No 461/24.05.2004 and approved by Law 184/2004, published in the

Official Gazette of Romania, Part I No 461/24.05.2004

State Aid Law No 143/1999, adopted on 27.07.1999, in force since 1.01.2000, published in the Official

Gazette of Romania Part I No 370/3.08.1999; completed and modified by Government Emergency

Order (OUG) 97/16.08.2002; Order 251/23.12.2002; lastly considerably amended by Law

603/22.12.2003, published in the Official Gazette of Romania, Part I No 930/23.12.2003, and

Ordinance 94/26.08.2004, published in the Official Gazette of Romania Part I No 803/31.8.2004.

Romania 2005 Comprehensive Monitoring Report, 25 October 2005, SEC (2005) 1354, {COM (2005)

534 final}

For more information see the website www.stateaid-bg.org.

For more information see the website http://www.competition.ro.

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1.1.5.

Enforcement record and problem areas

Bulgaria

During 2004, the CPC took 59 decisions on an ad hoc basis: 12 were considered as not

constituting State aid or qualified as de minimis aid, 43 cases were compatible while the

remaining 4 cases were not compatible.

The Comprehensive Monitoring Report on Bulgaria recognizes that the State aid enforcement

record of the CPC has improved considerably, both with regard to scope and quality, but it is

essential to continue this process, and also to continue improving the follow-up to decisions.

Efforts have been made, but need to continue, to ensure conformity with the notification

obligation and a comprehensive application of State aid rules, not least in relation to indirect

aid and privatisations. An alignment of schemes for fiscal aid and deferrals has taken place,

but the application of these rules must be subject to strict monitoring. As regards the steel

sector, a National Restructuring Programme (NRP) for the Steel Industry until 2007 has been

adopted, and strict adherence to this programme must be ensured, in particular the

commitment not to grant restructuring aid to the steel sector after 2005. There are indications

of significant delays in the implementation of various obligations outlined in the NRP, and

progress will have to be accelerated in order for the beneficiary company to achieve viability

by the end of the restructuring period. As regards the energy sector, Bulgaria has committed

to discontinue current aid to coal production and to district heating companies by the end of

2005.

Romania

During 2004, the Competition Council took 81 decisions and gave 34 opinions regarding

State aid measures for all sectors excluding agriculture, fisheries and transport. Of these cases,

10 decisions concerned State aid schemes, 52 individual aid measures and 19 no aid

decisions. The monitoring authority concluded that 33 aid measures were compatible, a

further 27 were compatible under certain conditions and 2 cases were incompatible.

In order to improve the quality of the Competition Council’s State aid enforcement record, a

pre-consultation mechanism was established in September 2004, whereby the European

Commission offers advice on draft decisions before their final adoption. This has resulted in a

noticeable improvement in the quality of these decisions although further improvement in the

quality of the Competition Council’s assessment of aid measures and their analysis is

necessary. Furthermore, attention needs to be given to following up the actual implementation

of decisions.

Measures have been taken to ensure greater respect for the ex-ante notification obligation.

The Competition Council initiated an inter-ministerial working group on State aid issues, and

the Government set up a high level inter-ministerial task force to support the work of the

Competition Council by ensuring that all State aid plans of all Ministries are notified and that

existing schemes are also scrutinised. Continued efforts are required to ensure ex-ante

notification of all new aid measures particularly in relation to restructuring cases, payment

deferrals and measures in connection with privatisation. Knowledge and respect of State aid

rules among aid granting authorities need to be further developed.

As regards State aid to the steel industry, in September 2005 Romania submitted its second

monitoring report on the implementation of the National Steel Restructuring Strategy. During

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2004, significant progress was achieved in this area though it was recognised that further and

continued efforts should be focused on implementing the commitment not to grant any further

State aid to the sector as well as implementing the other restructuring conditions and

obligations.

1.1.6.

Overview of the State aid situation in Bulgaria and Romania

This section provides an overview of the State aid in Bulgaria and Romania over the period

2002-2004. The figures are presented in comparison to the overall EU average and in

particular to the ten new Member States, which were recognized as candidate countries at the

same time as Bulgaria and Romania (see section 1.1.1 on Enlargement process).

1.1.6.1. State aid in absolute and relative terms

Over the period 2002-2004, total State aid

granted annually was estimated at €65 million for

Bulgaria and €981 million for Romania.

Table 1: State aid in Bulgaria, Romania and other 5th enlargement countries, 2002-2004

EU25 EU 15 New MS BG RO

Total State aid less agriculture,

fisheries and transport in million €

State aid as percentage of GDP (%)

Population (million)

State aid per capita (PPS)

48991 42717

0.49

450.6

109

0.45

376.5

109

6274

1.35

74.1

161

CZ EE CY LV LT HU MT PL

231 15

981 1826

43 808 139 2902 135 167

0.36 1.86 2.23 0.10 1.96 0.14 0.26 1.08 3.27 1.44 0.54 0.57

7.8 21.7 10.2 1.4 0.7 2.3 3.4 10.1 0.4 38.2 2.0 5.4

23 118 336 11 368 13 26 136 514 158 92 59

In relative terms, State aid may be expressed as a percentage of Gross Domestic Product

(GDP) or as a per capita measure. In Bulgaria, total State aid represented 0.36% of GDP

which was significantly lower than the average for the ten new Member States (1.35%) and

indeed lower than the EU-25 average (0.49%). In Romania, total State aid was significantly

higher, representing 1.86% of GDP.

When aid is expressed in per capita terms, a different picture emerges with regard to

Romania’s relative position. When purchasing power standards (PPS)

are used, Romania

awarded significantly less aid than a number of other Member States: during the period 2002-

2004, the annual average was 118 PPS per person in Romania as against 161 PPS per person

on average in the ten new Member States. Bulgaria granted much less: its level of 23 PPS per

capita places it around the same level as the Baltic States.

1.1.6.2. Sectoral distribution of aid

Over the period 2002-2004, Bulgaria granted 70% of its total State aid

to manufacturing, 5%

to coal and 25% to other non-manufacturing

which largely consist of aid for district heating

companies and the mining industry.

Total State aid less agriculture, fisheries and transport.

State aid per capita are expressed in terms of Purchasing Power Standards (PPS) and therefore take

account of differences in price levels between countries. In general, when PPS are used instead of

exchange rates, the gap between high-income and low-income countries narrows as price levels in low-

income countries tend to be low compared to richer countries.

Total State aid less agriculture, fisheries and transport.

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Over the same period, Romania granted around 65% of its aid to manufacturing, followed by

aid to the mining industry (21%) and coal (11%).

Table 2: Sectoral distribution of State aid less agriculture, fisheries and transport, 2002-

2004

% of total

Services

Manufact

uring

EU-25

EU-15

New MS

(including

tourism,

financial,

media and

culture)

Million €

Other

non-

Coal

manufact

uring

Total

49064

42790

6274

981

1.1.6.3. State aid by objective

Aid to support specific sectors is likely to distort competition more than aid for horizontal

objectives such as R&D, safeguarding the environment, regional development and support to

SMEs and also tends to favour other objectives than identified market failures. Moreover, a

significant part of such aid is granted to rescue or restructure companies, which is inevitable

in the transition from planned to market economies and in case of privatization of companies

in difficulty.

During the period 2002-2004, Bulgaria granted 45% of total State aid for horizontal

objectives while Romania granted only 13%. These shares of horizontal aid are rather low in

comparison to 68% in the EU-25 though they are more in line with the average in the new

Member States of 23%. The disparity with the EU-15 Member States can be explained in part

by the relatively strong support of several industries (e.g. coal, mining, steel and other

manufacturing industries) before accession in the context of privatisation or to ensure

viability.

Other non-manufacturing includes sectors such as electricity, gas and water supply, mining and

quarrying, oil and gas extraction, real estate, renting and business activities etc.

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Table 3: State aid for horizontal objectives and particular sectors in the Acceding

Countries, 2002-2004

EU-25 New MS

mio €

29.4

0.6

0.3

9.6

18.9

35.8

16.5

Annual averages

mio €

130.3

9.6

20.1

13.3

87.4

851.0

538.6

11.3

132.9

46.3

103.0

205.4

3.9

981.2

Horizontal Objectives

Environment

SME

Employment aid

Regional aid (1)

Sectoral aid

(2)

Manufacturing

of which shipbuilding

of which steel

of which motor vehicles

Coal

Other Non-manufacturing

Other services

Total aid less agriculture, fisheries and

transport in million €

6.5

100

3.2

16.1

65.1

100

Note: All figures are expressed in euros at 2004 constant prices so that the effects of inflation

are removed. (1) Aid for general regional development not elsewhere classified (2) Aid for

specific sectors awarded under measures for which there was no horizontal objective as well

as aid for rescue and restructuring.

State aid supporting regional development and cohesion

The Europe Agreements lay down that public aid granted by the associated countries is to be

assessed taking into account that for a five-year period they are to be regarded as areas

identical to those areas of the Community qualifying for regional aid under Article 87(3)a of

the EC Treaty, i.e. the least developed regions. In 2000, the Association Councils decided to

extend this status for another five years with respect to Bulgaria, Romania, Lithuania and

Estonia. The Association Committees adopted regional aid maps, which will expire on 31

December 2006, with respect to Romania (in 2003) and Bulgaria (in 2004). Both countries

continue to be regarded as areas identical to those areas of the Community qualifying for

regional aid under Article 87(3)a of the EC Treaty.

1.1.6.4. State aid instruments in the manufacturing and services sectors

All State aid represents a cost or a loss of revenue to the public authorities and a benefit to

recipients. However, the aid element, i.e. the ultimate financial benefit contained in the

nominal amount transferred depends to a large extent on the form in which the aid is

provided.

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Table 4: Share of each aid instrument in total aid to manufacturing and services, 2002-

2004

Grants

EU-25

EU-15

New MS

48.1

51.7

18.4

42.7

23.7

10.6

77.9

24.2

16.8

8.3

34.4

20.0

14.8

59.7

15.0

Tax

Equity

Tax

Soft loans

exemptions participations

deferrals

32.3

31.6

37.5

36.6

29.4

3.0

0.0

71.6

69.0

81.1

63.7

47.8

58.3

31.1

76.6

1.3

1.0

4.1

0.1

1.2

3.9

0.0

2.6

3.0

0.5

0.0

8.1

1.1

6.8

5.0

5.3

2.4

1.0

0.0

0.7

0.4

0.0

7.9

1.9

0.1

20.9

5.1

4.7

0.0

3.1

3.3

1.6

17.8

45.4

0.0

5.8

0.0

5.7

5.2

0.0

Guarantees

10.2

7.1

35.9

1.8

0.3

81.8

21.6

4.2

3.7

0.0

1.3

5.6

8.6

3.4

1.5

In Bulgaria, during the period 2002-2004, the most popular aid instrument was a grant (42.7%

of total aid), followed by tax exemptions (36.6%) and tax deferrals (17.8%). Guarantees, soft

loans and equity participation each amounted to less that 2% of total State aid. In Romania

during this period, the most widely used aid instrument was a tax deferral (45.4%) followed

by tax exemptions (29.4%) and grants (23.7%).

1.2.

Candidate Countries

EU Member States decided in Luxembourg on 3 October 2005 to launch accession

negotiations with Croatia and Turkey. The advancement of the negotiations will be guided by

the candidate countries’ progress in preparing for accession. Progress will be measured in

particular against the Copenhagen criteria (see section 1.1.1.). For each chapter of the

negotiations, the Council must lay down benchmarks for the provisional closure of

negotiations, including a satisfactory track record on implementation of the acquis. Existing

legal obligations relating to alignment with the acquis must be fulfilled before negotiations on

the chapters concerned are closed. Long transition periods may be necessary. Issues relating

to competition and State aid will be dealt in a separate chapter during the negotiations.

TURKEY

Association Agreement between EU and Turkey

Turkey made its first application to join what was then the EEC in July 1959. This led to the

creation of an association agreement (Ankara Agreement) between the EEC and Turkey in

September 1963. This Agreement envisaged the progressive establishment of a customs union

which was established in 1995 together with a Free Trade Agreement between the ECSC and

Turkey.

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State of play of negotiations

In 1987, Turkey applied for full membership. At the Helsinki European Council of December

1999 Turkey was officially recognised as a candidate state and the formal opening of

accession negotiations with Turkey took place on 3 October 2005.

State aid monitoring authority, legislation and monitoring system

There is as yet no operationally independent State aid monitoring authority, no State aid

legislation has been adopted and there is no regular annual reporting.

Progress and problem areas

The issue of State aid has been raised systematically by the Commission in its regular reports

on Turkey’s progress towards accession. Already in the 2000 report

the need to establish a

State aid authority was indicated as there was no single authority responsible for carrying out

State aid control by systematically assessing the compatibility of aid with the Community

acquis. Accordingly, no enforcement record has been established. The Commission also

called for an increase of transparency through the establishment of an inventory of existing

State aid and regular annual reporting.

To date, no significant progress has been made with regard to the adoption of State aid

legislation or the establishment of a State aid monitoring authority. This is hindering the

proper implementation of competition rules, resulting in potential competition infringements

in markets via the allocation of public resources.

In the 2004

report an additional problem of State aid for steel restructuring was indicated –

Turkey requested the prolongation of the period in which restructuring aid may be granted to

the steel industry

. In order for the EU to consider the request it was agreed that, the Turkish

authorities had to submit an acceptable National Restructuring Programme (NRP) for the steel

sector providing appropriately detailed information and individual business plans for all

companies involved in the restructuring process. The EU had provided technical assistance to

establish a NRP which has been concluded in spring 2005. However, the NRP has not yet

been adopted by the government. So far, the Turkish authorities have not even ensured a

satisfactory level of transparency on State aid granted to the sector. Only one law, related to

investment allowance, has been notified to the Commission, in April 2005.

As a consequence, there is still significant work to be done in the field of State aid. In its

Decision of 23 January 2006 on the principles, priorities and conditions contained in the

Accession Partnership with Turkey

, the Council set for Turkey the following short term

priorities in the field of State aid: to align with the acquis concerning State aids, including in

sensitive sectors such as steel, establish a national State aid monitoring authority and ensure a

strict control of State aids; and to ensure transparency and continuous exchange of

information.

http://europa.eu.int/comm/enlargement/report_11_00/pdf/en/tu_en.pdf

COM (2004) 656 final

http://europa.eu.int/comm/enlargement/report_2004/pdf/rr_tr_2004_en.pdf

Under specific conditions defined in the 1996 ECSC Turkey Free Trade Agreement

OJ L 22, 26.01.2006

http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2006/l_022/l_02220060126en00340050.pdf

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CROATIA

Stabilisation and Association Agreement

Croatia was the second country after the Former Yugoslav Republic of Macedonia to sign a

Stabilisation and Association Agreement with the EU on 29 October 2001. This agreement

entered into force on 1 February 2005

State of play of negotiations

Croatia presented its application for EU membership on 21 February 2003. In its Opinion

published on 20 April 2004, the Commission concluded that in general Croatia could be

regarded as a functioning market economy. However it was stressed that Croatia should make

all necessary effort to remove remaining weaknesses. The Commission listed competition as

one of the areas where Croatia would have to make considerable and sustained efforts to align

its legislation with the acquis and to effectively implement and enforce it.

In the light of these considerations, the European Council of June 2004 subsequently decided

that Croatia was a candidate country and EU Member States agreed in Luxembourg on 3

October 2005 to launch accession negotiations with Croatia.

State aid legislation

The first State aid legislation in Croatia was the State Aid Act which entered into force on 2

April 2003. On the basis of this Act and a subsequent Regulation, the Competition Council

adopted the Ordinance on the form and content of notifications, method of data collection and

keeping the State aid register.

On 6 December 2005 a new State Aid Act came into force which replaced the previous one.

The new provisions of the State aid Act have increased the competences of the Croatian

Competition Agency (CCA), improved the State aid monitoring system and enabled the CCA

to recover unlawful State aid.

State aid monitoring authority

The CCA was established in early 1997 though State aid control only became one of its tasks

in 2003. The managing body of the CCA is the Competition Council, consisting of five

members, of which one is the appointed president of the Council. The CCA administrative

capacity has been developed recently but is still under-resourced.

State aid monitoring system

Legislative proposals involving State aid have to be submitted to the CCA for its prior

opinion, before being sent to the Government or the Parliament. This opinion is binding on

the Government, but may be overturned by the Parliament. However, it remains to be seen to

The Interim Agreement, including provisions on competition and state aid entered into force 1 March

2002. The Interim Agreement was signed in order to allow the early entry into force of the trade and

trade-related provisions of the SAA.

COM(2004) 257 final, http://europa.eu.int/comm/enlargement/croatia/pdf/cr_croat.pdf

The English version of the Act is available on the CCA website:

http://www.crocompet.hr/e_index.asp

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what extent the Parliament will make use of this possibility. All proposals for granting State

aid must also be submitted to the Competition Agency for prior authorisation.

According to the Commission’s 2005 Progress report’

, the CCA has started to develop a

State aid enforcement record. In 2004, the Agency concluded 27 State aid cases (decisions

and opinions). Whereas most cases resulted in approvals, there was one finding of

incompatible aid and five findings of conditionally compatible aid. According to the report,

enforcement needs to be strengthened considerably, both in relation to its scope and the

carrying out of economic and legal assessment. In addition, there is a problem of aid grantors

not respecting the notification obligations or providing sufficient cooperation to the

Competition Agency.

Progress and problem areas

The progress report also indicates the following problems regarding State aid issues in

specific sectors:

•

fiscal aid – the fiscal aid regime, especially the Profit Tax Act, Investment Promotion Act

and Free Zones Act need to be urgently aligned with State aid rules.

•

regional aid - Croatia has to submit a proposal for a regional aid map;

•

shipbuilding sector – viable restructuring plans need to be urgently adopted in order to

comply with State aid rules and in view of the importance of the industry in Croatia;

•

steel sector – Croatia has not fulfilled its obligation under the SAA and the Interim

Agreement to establish a restructuring programme for its steel industry by March 2004 at

the latest. Given the continued State aid provided to both sectors, these programmes need

to be urgently adopted in order to comply with State aid rules and with SAA obligations.

In general, there is a need for a full review of legislation and of other sector-specific aid,

including aid to the textile industry and for tourism.

In its Decision of 20 February 2006 on the principles, priorities and conditions contained in

the Accession Partnership with Croatia, the Council set for Croatia the following short term

priorities in the field of State aid

•

Ensure further alignment of primary and secondary legislation so as to allow effective

State aid control with binding decisions for both aid schemes and individual aid measures.

•

Strengthen the administrative capacity and the independence of the Competition Agency,

ensure the development and training of the judiciary in competition matters.

•

Strengthen the State aid enforcement record, in particular by ensuring respect of

notification obligations and a proactive assessment of all aid measures.

COM (2005) 561 final of 9.11.2005

http://europa.eu.int/comm/enlargement/report_2005/pdf/package/sec_1424_final_en_progress_report_h

r.pdf

OJ L 055, 25.02.2006

http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2006/l_055/l_05520060225en00300043.pdf

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•

Ensure that existing aid schemes and all fiscal legislation are aligned with the State aid

acquis.

•

Adopt and start implementing viable restructuring programmes in the steel and

shipbuilding sectors, in line with EU requirements.

•

Ensure transparency of State aid by establishing a comprehensive inventory and reporting

of all aid measures in force at all administrative levels and raise awareness of competition

principles.

THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA

Stabilisation and Association Agreement

The Former Yugoslav Republic of Macedonia signed a Stabilisation and Association

Agreement (SAA) on 9 April 2001 as the first Western Balkan country. It entered into force

on 1 April 2004.

State of play of negotiations

A formal application for EU membership was submitted on 22 March 2004. In its opinion on

the application of 9 November 2005, the Commission recommended that the Council should

grant the status of candidate country to the Former Yugoslav Republic of Macedonia which

the Council duly did on 17 December 2005. The Commission considers that negotiations for

accession should be opened once the country has reached a sufficient degree of compliance

with the membership criteria.

State aid legislation

•

In April 2003 the State Aid Law was passed, followed by three implementing regulations

in December 2003

The government’s Manual of Procedures imposes on all government agencies and

departments a duty to notify all envisaged aid measures to the State Aid Commission (SAC),

although in practice this rule appears to be observed only partially. In the future, the country

will need to adopt rules for horizontal aid measures, as well as a methodology for setting the

level of compensation for companies entrusted with the performance of services of general

economic interest.

State aid monitoring authority and monitoring system

The State aid Law established in June 2003 a State Aid Commission (SAC) which is

authorized to supervise all types of State aid. The Commission’s 2005 ‘Analytical Report’

raised concerns about SAC’s ability to enforce the State aid rules effectively and

Regulations on i) the procedure for submitting a report to the State Aid Commission, ii) determining the

conditions and procedures for granting aid for recovery and restructuring of enterprises in difficulty and

iii) determining the conditions and procedures for granting regional aid. Official Gazette of the Former

Yugoslav Republic of Macedonia No 24/2003 and 81/2003

Analytical Report for the Opinion on the application from the Former Yugoslav Republic of Macedonia

for EU membership. COM (2005) 562 final of 9.11.2005

http://europa.eu.int/comm/enlargement/report_2005/pdf/package/sec_1425_final_en_analytical_report_

mk.pdf

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independently given, for example, that the three members of the SAC hold full-time positions

as officials of ministries and have to perform their tasks as Commissioners in addition to these

positions. Considerable efforts will be needed to strengthen the institutional capacity of the

SAC.

The SAC is obliged to submit an annual report on State aid granted in the course of the

previous year to the Government by 31 March. This report should contain all the information

concerning SAC decisions, the total amount of aid and its distribution. The report is submitted

annually to the European Commission.

Progress and problem areas

In addition to the above mentioned shortcomings, the Commission’s ‘Analytical Report’

stresses that substantial work will need to be undertaken to ensure that the country’s industrial

policies are made compatible with the State aid rules. There is also a problem with a high

degree of evasion of social security contributions and taxes. The widespread and systematic

non-payment of social security contributions and taxes by many industrial companies leads to

unfair competition and is not acceptable in a territory which is to be integrated into the

internal market. In its Decision of 30 January 2006 on the principles, priorities and conditions

contained in the Accession Partnership with the Former Yugoslav Republic of Macedonia and

repealing Decision 2004/518/EC

, the Council set the following short term priorities in the

field of State aid:

•

establish a credible enforcement record and ensure the independence of the State Aid

Commission, providing it with adequate staff and premises;

•

establish a comprehensive inventory and reporting of all aid measures in force;

•

further align the legislation with the EU State aid rules;

•

raise awareness among government institutions and the business sector.

Finally, the Former Yugoslav Republic of Macedonia has also a steel industry, which was

restructured under a national restructuring program through privatization, which did however

not provide for the granting of State aid.

1.3.

Potential Candidate Countries

The Stabilisation and Association Process remains the framework for the Western Balkan

countries, all the way to their future accession. Formal contractual relations between the EU

and those countries have been (and are being) established through Stabilisation and

Association Agreements (SAA). Similar to the “Europe Agreements” with previous candidate

countries, the SAA provides the contractual framework for relations between the EU and a

Western Balkan country and helps to prepare each country for future membership by

introducing EU rules in various fields well in advance of accession.

COM (2005) 562 final

http://europa.eu.int/comm/enlargement/report_2005/pdf/package/sec_1425_final_en_analytical_report_

mk.pdf

OJ L 35, 7.02.2006

http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2006/l_035/l_03520060207en00570072.pdf

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So far, Croatia and the Former Yugoslav Republic of Macedonia have SAAs in force. Albania

is close to finalising such an agreement, while Serbia and Montenegro and Bosnia and

Herzegovina have just opened SAA negotiations.

ALBANIA

Stabilisation and Association Agreement

Following the EU decision in June 2001 to proceed with SAA negotiations with Albania,

negotiations were officially opened on 31 January 2003. The Commission’s Enlargement

Strategy Paper of November 2005

found that Albania’s reform progress paved the way for

the conclusion of SAA negotiations.

State aid legislation, monitoring authority and monitoring system

In April 2005, the Law on State aid was adopted, incorporating the principles of EU State aid

rules. Work has started on the drafting of implementing rules.

A new State Aid Department was established in March 2004 within the Ministry of Economy.

The Department has increased its staff and employs seven experts.

Progress and problem areas

According to the Commission’s Albania 2005 Progress Report

, Albania has taken important

legislative and administrative steps in establishing structures to regulate competition and State

aid. However efforts are needed to ensure that State aid and competition issues are covered by

consistent and complementary legislation and that an operationally independent State Aid

Authority is established as foreseen in 2006.

In its Decision of 30 January 2006 on the principles, priorities and conditions contained in the

Accession Partnership with Albania and repealing Decision 2004/519/EC

, the Council set

the following short term priorities in the field of State aid:

•

adopt implementing legislation on State aid;

•

establish an operationally independent State aid authority;

•

ensure progress towards the completion of a comprehensive State aid inventory.

Communication from the Commission 2005 enlargement strategy paper, COM (2005) 561 final,

http://europa.eu.int/comm/enlargement/report_2005/pdf/package_v/com_561_final_en_strategy_paper.

pdf

COM (2005) 561 final of 9.11.2005

http://europa.eu.int/comm/enlargement/report_2005/pdf/package/sec_1421_final_en_progress_report_a

l.pdf

OJ L 35, 7.02.2006

http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2006/l_035/l_03520060207en00010018.pdf

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SERBIA AND MONTENEGRO including KOSOVO

Stabilisation and Association Agreement

On the basis of a Feasibility Report

in which the Commission concluded that Serbia and

Montenegro was sufficiently prepared to negotiate an SAA, the Union opened negotiations on

a Stabilisation and Association Agreement with both Republics in October 2005.

SERBIA

State aid legislation, monitoring authority and monitoring system

State aid legislation has not been adopted. Serbia has established structures within the

Ministry of Finance in order to monitor State aid and prepare for a control regime. However,

there is no operationally independent State Aid Authority. On 9 September 2004, the Serbian

Government passed a Resolution which empowered the Ministry of Finance to set up and

manage a Working Group. The task of the Group was to draw up an inventory of forms and

types of State aid granted in 2004. The Group proposed that the Serbian Government, pending

the adoption of future regulations, require of all Ministries and Funds to maintain records of

disbursed State aid and, where necessary, to present such records to competent authorities

upon request. A first State aid report, covering 2003 and part of 2004, was adopted and

submitted to the European Commission.

MONTENEGRO

State aid legislation, monitoring authority and monitoring system

State aid legislation has not been adopted, but is in preparation. A Monitoring team to

supervise and monitor State aid was established within the Ministry of Finance on 24 March

2005. There is no operationally independent State Aid Authority. A Report on State aid is

prepared by the Monitoring team. A first State aid report, covering 2003 and part of 2004,

was adopted and submitted to the European Commission.

Progress and problem areas in Serbia and Montenegro

According to the ‘Serbia and Montenegro 2005 Progress Report’

, Montenegro and Serbia

need to strengthen their new State aid structures and ensure full transparency, by establishing

a comprehensive aid inventory and reporting system for all aid measures in force, based on an

EU-harmonised State aid definition. Gradually, each Republic will also need to set up a

system of ex-ante control of all new aid measures and alignment of existing aid measures,

through an operationally independent State aid authority, with the power to authorise or

prohibit all aid measures and to order recovery of unlawfully granted aid.

Kosovo as defined by the UNSCR 1244.

12 April 2005 and endorsed by the Council on 25 April 2005

COM (2005) 561 final of 9.11.2005

http://europa.eu.int/comm/enlargement/report_2005/pdf/package/sec_1428_final_en_progress_report_c

s.pdf

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In its Decision of 30 January 2006 on the principles, priorities and conditions contained in the

Accession Partnership with Serbia and Montenegro including Kosovo as defined by the

United Nations Security Council Resolution 1244 of 10 June 1999 and repealing Decision

2004/520/EC

, the Council set the following short term priorities in the field of State aid: to

strengthen State aid coordination points and create full State aid transparency, as a first step

towards State aid control.

KOSOVO

State of play of negotiations

As confirmed by the Thessaloniki Summit in June 2003, Kosovo is firmly anchored in the

framework of the Stabilisation and Association Process. On 14 June 2004 the Council adopted

a European Partnership with Serbia and Montenegro including Kosovo as defined by the

UNSCR 1244. The On 20 April 2005 the Commission adopted a Communication on

Kosovo

in which it concluded that the possibility of negotiating a fully fledged SAA with

Kosovo was not on the table at present.

Progress and problem areas

According to the Commission’s 2005 Progress Report

United Nations Mission in Kosovo

Regulation 2004/44 of October 2004 on the Law on Competition defines competition policy

for Kosovo and takes a first step towards the development of a sound market economy in

Kosovo by prohibiting acts that restrict, suppress or distort competition. The Law provides for

the establishment of a Kosovo Competition Commission.

BOSNIA AND HERZEGOVINA

Stabilisation and Association Agreement

On 21 October 2005 the Commission recommended the opening of negotiations for a SAA to

the Council. These negotiations were officially opened on 25 November 2005.

State aid legislation, monitoring authority and monitoring system

There is no authority responsible for overseeing State aid granted in the country and no

adequate legislation has yet been adopted. There is also no progress in compiling a

comprehensive inventory of State aid schemes.

OJ L 35, 7.02.2006

http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2006/l_035/l_03520060207en00320056.pdf

‘A European Future for Kosovo’COM(2005) 156 final

http://europa.eu.int/comm/enlargement/docs/pdf/COMM_PDF_COM_2005_0156_F_EN_ACTE.pdf

COM (2005) 561 final of 9.11.2005

http://europa.eu.int/comm/enlargement/report_2005/pdf/package/sec_1423_final_en_progress_report_k

s.pdf

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Progress and problem areas

In addition to the above mentioned problems the Commission’s 2005 Progress Report’

states that as regards State aid, little progress can be noted. According to the Bosnia and

Herzegovina authorities, no State aid is provided at State-level. However, the two Entities

continue to provide public assistance, either to companies or sectors.

In its Decision of 30 January 2006 on the principles, priorities and conditions contained in the

Accession Partnership with Bosnia and Herzegovina and repealing Decision 2004/515/EC

the Council set the following short term priorities in the field of State aid: adopt the necessary

legislation on competition and State aid, and align the already existing legislation with EU

competition and State aid rules.

2.1.

ART

: L

EGISLATIVE AND

OLICY

EVELOPMENTS

State Aid Action Plan

In June 2005, the Commission launched a State Aid Action Plan

outlining the guiding

principles for a comprehensive reform of State aid rules and procedures over the next five

years. The consultation process, which ended in September, attracted comments from more

than 130 interested parties

. The Economic and Social Committee, the Committee of the

Regions and the European Parliament

also made comments. Having assessed the results of

the consultation, the Commission has begun to implement the various aspects of the Action

Plan, including drawing up future rules.

The Commission aims to adopt a future R&D and Innovation Framework and new Risk

Capital Guidelines around the summer of 2006, a general block exemption regulation at the

beginning of 2007, and Environmental Aid Guidelines in 2007. On 9 March 2006

Commission adopted the draft Block Exemption Regulation on

de minimis

aid

, which

proposes to replace the current

de minimis

aid regulation 69/2001

COM (2005) 561 final

http://europa.eu.int/comm/enlargement/report_2005/pdf/package/sec_1422_final_en_progress_report_b

a.pdf

OJ L 35, 7.02.2006

http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2006/l_035/l_03520060207en00190031.pdf

COM(2005) 107 final, 7.6.2005,

http://europa.eu.int/comm/competition/state_aid/others/action_plan/

http://europa.eu.int/comm/competition/state_aid/others/action_plan/consult.html

Press Release - IP/06/144 - 09.02.2006

The European Parliament’s Resolution on State aid reform 2005-2009, 14.02.2006 supports

Commission plans to reform the State aid rules. The Parliament adopted a report by Gunnar Hökmark

(EPP-ED, SE) which approves the Commission’s aim of making State aid an instrument for growth and

jobs as part of the Lisbon strategy.

http://www.europarl.eu.int/omk/sipade3?PUBREF=-//EP//TEXT+TA+P6-TA-2006-

0054+0+DOC+XML+V0//EN&L=EN&LEVEL=0&NAV=S&LSTDOC=Y&LSTDOC=N

http://europa.eu.int/comm/competition/state_aid/others/action_plan/dm_en.pdf

Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Articles 87 and 88

of the EC Treaty to de minimis aid, OJ L 10, 13.01.2001, pages 30-32

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2.1.1.

Guidelines on Regional Aid for 2000 -2013

The compatibility of regional aid with the EC Treaty is governed by the Commission’s

regional aid guidelines. The current guidelines were adopted in 1998 for an unlimited period

of time. In April 2003, the Commission decided to apply these guidelines until 2006, and to

proceed to their review for the period after 2006, “in due course in order to give the Member

States and the Commission time before the end of 2006 to draw up, notify and approve the

regional aid maps for the period after 1 January 2007”. These new guidelines should apply for

the whole of the next structural fund programming period, from 2007 to 2013.

Following an extensive consultation process, which began in April 2003, the Commission

adopted the Guidelines on national regional aid on 21 December 2005

2.1.2.

Draft Block Exemption Regulation for Regional Investment Aid

On 21 December 2005 the Commission adopted a draft Block Exemption Regulation for

regional investment aid

, which is envisaged to be adopted before the end of 2006. The

objective of the draft Regulation is to simplify administrative procedures for Member States,

while reinforcing transparency and legal certainty. The Regulation would exempt the Member

States from notifying, once their regional aid map for the period 2007-2013 is adopted, all

transparent regional investment aid schemes which fulfil the criteria of the Regional aid

guidelines and respect the maximal intensities as laid down in their regional State aid map.

2.1.3.

Communication on State Aid to Export-Credit Insurance

In December 2005, the Commission published a Communication

amending the 1997

communication on the application of the State aid rules to short-term export-credit insurance

(“STEC”)

expired on 31 December 2005. The Commission has decided to extend the

validity of the 1997 Communication until 31 December 2010. The Commission left

unchanged the definition of marketable risks contained in the 2001 amendment of the

communication. However, due to the fact that in most Member States there is unavailable or

insufficient cover of export-credit insurance offered by private insurers to micro and small

companies with a limited export turnover, the Commission services have proposed to consider

their export-related risks, if and to the extent the private market in the Member States does not

currently exist, as temporarily non-marketable, also in consideration of the need for the

private market to adapt to the increased market size created by the EU enlargement.

2.1.4.

Review of the R&D Framework and Innovation

The existing Community Framework for State Aid for Research and Development

expired

on 31 December 2005

. In the State Aid Action Plan, the Commission decided “to consider if

Published in the Official Journal C 54, 4.3.2006, p. 13.

Draft text is published on DG Competition website:

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

OJ C 325 22.12.2005. Communication of the Commission to Member States amending the

communication pursuant to Article 93(1) [now Article 87] of the EC Treaty applying Articles 92 and 93

[now Articles 87 and 88] of the Treaty to short-term export-credit insurance.

OJ C 281, 17.9.1997, as amended in OJ C 217, 2.8.2001, and OJ C 307, 11.12.2004.

OJ C 45 of 17.2.1996, as amended by the Commission communication amending the Community

Framework for State Aid for Research and Development, OJ C 48 of 13.2.1998, p.2.

OJ C 111, 8.5.2002.

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the scope of the Framework for Research and Development 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

”54.

Following the Commission’s adoption of a consultation document on innovation, it was not

possible to have a common framework for R&D and Innovation in place before the end of

2005. A first exchange of views with Member States should take place at the beginning of

2006, with a view to adoption of the future R&D and Innovation Framework around the

summer of 2006. Accordingly, the Commission decided to apply the existing R&D

framework until the entry into force of such a document, by 31 December 2006 at the latest

2.2.

State Aid to the Transport Sector

One of the main objectives of the common transport policy is the promotion of

environmentally friendly modes of transport in order to achieve a reduction of road transport.

For this purpose, two elements are essential.

First, Member states need to encourage cleaner modes of transport and measures to increase

energy efficiency. This has been underlined in the Commission green paper on energy

efficiency from May 2005 and in the proposal for a Commission directive to promote the

purchase of clean vehicles by public authorities, adopted in December 2005. During the on-

going revision of the guidelines for State aid for environmental protection, the Commission

should pay particular attention to the promotion of clean transport and energy-efficient

transport.

Second, the revitalisation of the railway sector is considered as a key element in the

Community’s common transport policy. Rail transport has to be made, once again,

competitive enough to remain one of the leading players in the transport system in an

enlarged Europe. By 2007, the entire European freight network, both internationally as

nationally, will have been opened up completely to competition. The arrival of new railway

companies should make the sector more competitive and encourage the national companies to

restructure. In this context, specific guidelines for the railway sector will be developed in

2006 with a view to establishing a common approach to public contributions to the railway

sector. It is necessary from both a legal and a political point of view that national authorities,

companies and individuals are made aware, in a clear and transparent way, of the rules

applicable to the railway sector in this new more competitive environment. This initiative will

significantly increase transparency and legal certainty.

2.3.

State Aid to the Agriculture Sector

On 8 February 2006 the Commission adopted a draft Commission regulation

with the

objective of reviewing the existing State aid exemption Regulation concerning aid to

agricultural small and medium-sized enterprises. The aim of the proposal is to simplify the

Paragraph 28 of the State Aid Action Plan.

OJ C 310, 8.12.2005.

Draft regulation can be found:

http://europa.eu.int/comm/agriculture/stateaid/exemption/commprop_en.pdf

and Press Release on this proposal IP/06/134, 08/02/2006:

http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/06/134&format=HTML&aged=0&lang

uage=EN&guiLanguage=en

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administration of agricultural State aid and to facilitate crisis support. This proposal includes

compensation for bad weather and animal and plant diseases in the present exemption

regulation for State aid in the agriculture sector. This would greatly speed up the

implementation of State aid in such situations of crisis for farmers. At the same time, the

Commission proposes to significantly simplify the present regulation and encourage better

risk management. From 2010 onwards, bad weather aid will only be exempted if the farmer

has also taken out insurance against such risk; drought compensation will require

implementation of the water framework directive, requiring full recovery of the costs of water

services provided to agriculture. Finally, the regulation proposes an innovative system of

“calls for interest” for investment aid. Member States shall be obliged to accept projects with

lower aid intensities first. Only the remaining budget may be attributed to projects for which

higher support has been asked for. Following consultation of Member States and stakeholders,

the Commission plans to implement this regulation from January 2007.

ART

HREE

: A

EGULATIONS

AWARDED UNDER THE

TATE

LOCK

XEMPTION

With a view to reducing the administrative burden for specific types of aid, block exemptions

for aid to SMEs, training aid, employment aid, certain types of aid in the fisheries sector and

aid to SMEs in the agricultural sector have come into force over the past few years

57.

Initial

results are positive: the number of measures being notified for these types of aid has fallen

considerably since 2001 as Member States make increasing use of the possibilities offered by

the block exemption regulations. By the end of January 2006, more than 1300 information

forms on block exempted measures had been submitted since the introduction of the

regulations for SMEs and training in 2001 (see Table 5). In 2005 alone, the Commission

received more than 400 forms on exempted measures: 197 on exempted aid for SMEs

primarily in the manufacturing and services sectors, a further 87 for SMEs in the agricultural

sector, 70 on training aid, 26 on aid to employment, and 22 for exempted aid in fisheries.

Four Member States, Italy (28% of the total number of measures), the United Kingdom

(23%), Germany (14%) and Spain (11%) accounted for 75% of all the information forms

submitted 2001-2005. Compared with 2004, the majority of Member States increased their

use of the possibilities offered to exempt aid, especially for SMEs. However, the number of

measures submitted by some of the EU-15 Member States is rather low: less than 10 in total

in Denmark, Finland, Ireland, Luxembourg, Portugal and Sweden. The ten new Member

States accounted for more than 20% of the measures submitted in 2005. In the agricultural

Commission Regulation (EC) No 70/2001 of 12 January 2001 on State aid to SMEs (OJ L 10,

13.01.2001, pages 33-42) and No 364/2004 of 25 February 2004 amending Regulation (EC) No

70/2001 as regards the extension of its scope to include aid for research and development (OJ L 63,

28.02.2004, pages 22-29);

Commission Regulation (EC) No 68/2001 of 12 January 2001 on training aid (OJ L 10, 13.01.2001,

pages 20-29) and No 363/2004 of 25 February 2004 amending Regulation (EC) No 68/2001 (OJ L 63,

28.02.2004, pages 20-21);

Commission Regulation (EC) No 2204/2002 of 5 December 2002 on State aid for employment (OJ L

337, 13.12.2002, pages 3-14);

Commission Regulation (EC) No 1/2004 of 23 December 2003 on State aid to SMEs in the agricultural

sector (OJ L 1, 03.01.2004, pages 1-16);

Commission Regulation (EC) No 1595/2004 of 8 September 2004 on State aid to SME active in the

production, processing and marketing of fisheries products (OJ L 291 of 14.09.2004, page 3-11).

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sector, the possibility to exempt aid, introduced in 2004, has been taken up by 16 of the 25

Member States.

Table 5: Trend in the number of measures for which information sheets were submitted

under the State aid block exemption regulations, 2001-2005, EU-25

Type of State

aid block

exemption

SME

Training

Employment

Agriculture

Fish

Total

2001

101

149

2002

123

203

Year

2003

139

200

2004

149

322

2005

197

402

Total

709

330

159

1276

2006

January

Note: The table excludes cases withdrawn. Figures for the ten new Member States are

included as of 1 May 2004. Source: DG Competition

Table 6: Number of measures by Member State for which information sheets were

submitted under the State aid block exemption regulations, 2001-2005

Type of block exemption regulation

Member

State

EU-25

SME

709

211

169

Training

330

Employment Agriculture

159

Fish

Total

1276

184

134

359

290

Note: The table excludes cases withdrawn. Figures for the ten new Member States are

included as of 1 May 2004. Source: DG Competition

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The State aid block exemption regulation on SMEs

was amended in February 2004 as

regards the extension of its scope to include aid for research and development. Member States

have increasingly used this possibility. In 2005, arround 20% of all block exempted measures

for State aid to SMEs included aid for research and development.

As regards expenditure, an estimated €3.4 billion was awarded in 2004 under the three block

exemption regulations for SMEs, training and employment

59.

Aid to SMEs accounted for €2.1

billion, €1.1 billion went for training aid and €0.2 billion for employment aid. In 2004, Italy

made up for 47% of total expenditure in the EU-25 Member States followed by the United

Kingdom (27%) and Germany (12%).

It is also worth looking at the share of exempted aid to total aid directed at horizontal

objectives. EU-wide, aid under the block exemption regulations represented around 10% of

all aid directed at horizontal objectives though for several Member States the share was

considerably higher: Belgium 14%, Greece 16%, Poland 21%, United Kingdom 22% and

Italy 31%.

Table 7: Aid awarded under measures for which information sheets were submitted

under the State aid block exemption regulations, 2004

EU-25

SME

2 051.6

48.4

0.3

299.3

40.5

36.7

45.4

13.8

839.4

0.1

8.0

2.2

4.3

713.2

Training

Employment

1 110.6

212.0

47.5

66.4

32.2

12.3

24.1

1.0

8.1

0.3

694.3

64.5

31.8

2.5

101.0

24.5

0.2

211.2

0.7

Total

3 374.2

95.9

0.3

397.9

52.8

61.8

53.5

14.1

1 598.2

0.1

8.0

34.1

107.7

24.5

0.2

925.0

Figures exclude expenditure for measures submitted under the block exemptions for

agriculture and fisheries. Figures for the ten new Member States are included from 1 May

2004. Source: DG Competition.

Commission Regulations (EC) No 70/2001 of 12 January 2001 on State aid to SMEs (OJ L 10,

13.01.2001)

Data are not yet available for agriculture and fisheries.

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4.1.

ART

OUR

: S

TATE

ID CONTROL

ROCEDURES AND

ECOVERY

Registered Aid Cases

The Commission controls the Member States’ granting of State aid by means of a formal and

transparent procedure (Council regulation No. 659/1999 laying down detailed rules for the

application of Article 88 of the EC Treaty). According to the regulation, “any plans to grant

new aid shall be notified to the Commission in sufficient time by the Member State

concerned.” Although the vast amount of aid is notified, for around 11% of registered aid

cases, it was not the Member State but the Commission that had to initiate the control

procedure after finding out about the aid, for example following a complaint

60.

In 2005, there were 764 cases

registered by the Commission: 663 cases were notified by

Member States, 84 non-notified cases initiated by the Commission, 17 cases examining

existing aid. In addition, information forms for more than 400 measures were submitted under

the block exemption regulations (see Part Three). Excluding the information forms, 34% of

all registered cases in 2005 concerned the agricultural sector and 52% the manufacturing and

service sectors. Of the remaining cases, 9% involved transport and energy and 4% the

fisheries sector (Table 8).

Of the 663 notifications, just over half were received from five of the largest Member States:

Italy accounted for 18% of the total, Germany 10%, Poland 9%, Spain 9% and the United

Kingdom 8%. Of the 84 non-notified cases, 15 concerned the United Kingdom

62,

Germany, 9 Italy and 8 France.

Table 8: Number of registered aid cases in 2005

Sector

Agriculture

Manufacturing and services

Transport and energy

Fisheries

Total

Notified aid Non-notified Existing aid

cases

aid cases

cases

236

350

663

Total

263

400

764

Source: DG Competition, DG Fisheries, DG Agriculture, DG Transport.

4.2.

Commission Decisions

In 2005, the Commission took 646 final decisions.

In the vast majority of cases, the

Commission concludes that the examined aid is compatible with the State aid rules and allows

In 2005 there were 218 registered complaints, some of which may have led (or may lead) to new

registered cases.

This figure excludes measures submitted under the block exemption regulations.

8 of these non-notified measures were in the fisheries sector.

Excluded under ‘final’ decisions are all decisions taken in 2005 to open a formal investigation

procedure (55 in 2005), corrigenda, injunctions, court cases and proposals for appropriate measures. No

Commission decisions are taken for aid awarded under the block exemption regulations. The total

however includes those decisions in which the Commission decides that the notified aid does not in fact

constitute aid as defined under Article 87(1). There were 23 such decisions in 2005. Also included

under ‘positive’ decisions are the 2 conditional decisions taken in 2005.

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Member States to award such aid without carrying out a formal investigation procedure. This

was the case for 89% of decisions taken in 2005. Where the Commission has doubts whether

certain aid measures comply with the rules, it carries out a formal investigation during which

third parties and all Member States are invited to provide observations. At the end of the

formal investigation procedure, the Commission either takes a positive, conditional or no aid

decision

(making up 8% of the decisions in 2005 in addition to the 89% of decisions

approved without a formal procedure) or that it does not comply with State aid rules and

hence is not compatible with the Common Market and takes a negative decision (3% of all

decisions in 2005).

Table 9 shows the share of incompatible and compatible aid cases on which the Commission

reached a decision between 2003 and 2005. Over this three-year period, five Member States

accounted for around 70% of all final decisions: Italy (24% of the total), Germany (16%),

France (11%), Spain (10%) and the United Kingdom (9%). Following accession in May 2004,

just over 100 final decisions on new aid measures had been taken in the ten new Member

States by the end of 2005.

Around half (51%) of all final decisions over the period 2003-2005 were in the manufacturing

and service sectors, followed by agriculture (40%) transport (6%) and fisheries (3%). It is

important to bear in mind that these figures do not distinguish between large and complex

cases involving billions of euro and requiring a lengthy investigation and relatively minor

measures for which the aid amount may be less than one million euro.

Of the 94 negative decisions over this three-year period, more than half concerned Italy (28)

and Germany (22). They were followed by France (11), Spain (7), United Kingdom (6) and

Belgium (6), the Netherlands (3) and Austria (3). No other Member State exceeded 2 negative

decisions in the last three years. As regards incompatible unlawful aid, 58 of the 94 negative

decisions taken by the Commission included a recovery order

.65

Included in this category are cases withdrawn by the Member State during the investigation procedure.

The remaining 36 decisions either concerned cases in which the aid was not awarded, existing aid cases

or cases where recovery was not ordered due to legitimate expectations.

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Table 9: Number of negative and positive decisions, 2003-2005

Negative decisions

Total

EU-25

1884

301

181

216

456

111

171

Approved

without

objections

1614

235

160

183

401

100

150

Other positive

decisions

176

All negative

decisions

of which

recovery

ordered

Note: Some double-counting exists in those cases for which there is both a negative and

positive decision. The category ‘other positive decisions’ is made up of positive and

conditional decisions following a formal investigation procedure as well as all ‘no aid’

decisions. Source: DG Competition, DG Fisheries, DG Agriculture, DG Transport.

4.3.

Recovery of Unlawful Aid

Article 14 (1) of Council Regulation 659/1999 states that “where negative decisions are taken

in cases of unlawful aid, the Commission shall decide that the Member State concerned shall

take all necessary measures to recover the aid from the beneficiary.”

As of 31 December 2005, there were 75 pending recovery decisions, compared to 84 on 30

June 2005. In the second half of 2005, 17 pending recovery cases were closed, whilst eight

new recovery decisions were taken (Table 10). The geographical distribution of pending

recovery cases remains relatively stable: Germany accounts for the largest number of pending

recovery cases (35%). Taken together, Spain, Italy and France account for a further 53% of all

pending recovery cases. There are no pending cases in fourteen of the EU-25 Member States.

Excluding recovery cases in the agriculture, fisheries and transport sectors.

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Table 10: Pending recovery cases by Member State, first semester 2005

Situation

New cases in Cases closed

30/06/2005

2 sem 05

in 2 sem 05

Situation

31/12/2005

EU-25

Source: DG Competition.

Table 11 provides data on the amounts of aid to be recovered under the 104 recovery

decisions adopted since 2000

. For 73 of these decisions, relatively accurate information

exists on the amount of aid involved. This information shows that the total amount of aid to

be recovered on the basis of decisions adopted between 1/1/2000 and 31/12/2005 is € 8.6

billion

Table 11: Trend in the number of recovery decisions and amounts to be recovered,

2000-2005

2000

356

125.5

17.1

108.4

277.8

No of decisions adopted

No of decisions for which the amount is known

Total aid to be recovered (in million €)

(1)

Amounts recovered:

(in million €)

Of which: a. principal reimbursed/or in blocked

account

b. aid lost in bankrupcty

c. interest

d. aid registered in bankruptcy

Amount oustanding

(2)

% still pending to be recovered

2001

1043.1

1019.5

911.2

28.6

79.7

16.9

Year of Decision

2002

2003

2004

1095.4

1015.6

5112.9

1442

1037.4

1.2

403.4

6.2

2005

17.9

2.5

2.4

0.1

7.5

Total

104

8640.9

8223.5

6004.8

138.9

2079.8

1306.6

2497.2

28.9%

1230.3

894.6

0.7

335

133.8

4403.7

3142.1

1261.6

864.4

230.5

64.7%

103.3

9.9%

56.8

5.2%

120.3

11.8%

1970.8

38.5%

15.5

86.6%

(1) Only for Decisions for which the aid amount is known. (2) Amount excluding interest.

Source: DG Competition.

For 31 of the recovery decisions adopted since 2000, the Member State concerned has not yet

submitted reliable information on the aid amount involved. The availability of information on

amounts to be recovered is particularly limited in the case of aid schemes, especially tax or

quasi-tax aid measures, and aid measures involving guarantees. The Commission continues its

efforts to obtain information from the Member States on the aid amounts involved.

On 31/12/2005, there were still a further 16 recovery decisions pending that were adopted before

1/1/2000.

The autumn 2005 Scoreboard reported a total of €9.4 billion. This discrepancy is due to the fact that

some Member States submitted a revised estimate of the amounts to be recovered under some schemes.

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Of the € 8.6 billion of aid to be recovered under decisions adopted since 2000, some € 6.0

billion (i.e. 71.1% of the total amount) ad been effectively recovered by the end of December

2005. In addition, € 2.1 billion of recovery interests had been recovered and a further € 139

million of aid was lost in bankruptcy proceedings.

Recovery of incompatible State aid is a lengthy process: 16 of the recovery decisions still

pending at the end of June 2005 were adopted before the year 2000. Most of the older pending

recovery cases concern companies that are involved in bankruptcy proceedings and that are no

longer active. Of the 104 decisions adopted between 2000 and December 2005, 45 were

closed by the end of 2005 (Table 12).

Table 12: Trend in the closure of recovery cases

2000

No of recovery decisions

adopted

No of recovery cases that are

closed by 31/12/05

2001

Year of the Decision

2002

2003

2004

2005

Total

104

Source: DG Competition.

As underlined in the State Aid Action Plan (SAAP), the effectiveness and credibility of State

aid control presupposes a proper enforcement of the Commission’s decisions. The

Commission therefore announced in the SAAP that it will seek to achieve a more effective

and immediate execution of the recovery decisions, which will ensure equality of treatment of

all beneficiaries. To this effect, the SAAP announces that the Commission will monitor more

closely the execution of the recovery decisions by Member States. Where Member States do

not take all measures available to implement such decisions, the Commission will more

actively pursue non-compliance under Articles 88(2), 226 and 228(2) of the Treaty.

The table 13 below gives an overview of the pending recovery cases for which the

Commission has decided to initiate Art. 88 (2) or Art 228 (2) EC Treaty action.

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Table 13: The pending recovery cases for which the Commission has decided to bring

the case before the Court of Justice

Case number/title

CR44/97 – Magefesa I&II

State of play and recent developments

13/10/99: Commission decision to initiate Art. 88 (2) action against ES

02/07/02:ECJ judgment condemning ES for failing to implement CEC

decision

29/11/00: Commission decision to initiate Art. 88(2) action against IT

01/04/04:ECJ judgment condemning IT for failing to implement CEC

decision

05/03/03: Commission decision to initiate Art. 88 (2) action against ES

CR49/98 – Employment measures

CR48/99 –CR50/99 CR52/99 –

CR54/99

Basque fiscal aid schemes

CR03/99 – Spanish shipyards I

CR38/98 – Kimberly Clark/Scott

Paper

CR27/99 – Municipalizzate

CR62/00 – Thuringen Porzellan

(Kahla)

CR62/03 – Urgent employment

measures

CR 58-59-60/00 – Basque fiscal

aid schemes

CR 57/03 – Tremonti Bis

CR 36/01– Beaulieu Ter Lembeek

26/06/03: ECJ judgment condemning ES for failing to implement CEC

decision

18/10/04: Commission sent letter of formal notice to Spain to initiate

Art. 228 (2) infringement procedure

06/10/04: Commission decision to initiate Art. 88 (2) action against FR

19/01/05: Commission decision to initiate Art. 88(2) action against IT

16/02/05: Commission decision to initiate Art. 88(2) action against DE

06/04/05: Commission decision to initiate Art. 88(2) action against IT

21/12/05: Commission decision to initiate Art. 88(2) action against ES

25/01/06: Commission decision to initiate Art. 88(2) action against IT

25/01/06: Commission decision to initiate Art. 88(2) action against BE

ETHODOLOGICAL

OTES

The State aid data for the period 2002-2004 presented in this Scoreboard were provided by

the national administrations of Bulgaria and Romania in response to the inventory and data

gathering exercise, launched by the Commission in September 2005, as well as the annual

reports on State aid transmitted by these countries in accordance with their transparency

obligations laid down in the Europe Agreements. Additional data on population, GDP and

exchange rates were obtained from Eurostat. Total aid excludes agriculture, fisheries and

transport for which comparable data are not available.

State aid expenditure is attributed to the year it was made. In cases that result in expenditure

over a number of years, the total amount is attributed to each of the years in which

expenditure took place. All data are provided in million (or billion where appropriate) euro at

constant 2004 prices so that the effects of inflation are removed.

The data have been harmonised as far as possible by applying the same methodology as that

used for the EU Member States in the autumn 2005 update of the State aid Scoreboard

. In

principle, the data included in this Scoreboard should refer to measures that have been

COM(2005) 624 final of 9.12.2005

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assessed by the national State aid monitoring authorities and have been considered to

constitute State aid as defined under Article 87 of the Treaty. Accordingly, general measures

and public subsidies that have no affect on trade and do not distort or threaten to distort

competition are not dealt with in the Scoreboard as they do not constitute State aid.

The following symbols have been used in the Scoreboard:

n.a.

NGE

New MS

R&D

SMEs

GDP

not available

real zero

less than half the unit used

net grant equivalent

new Member States

research and development

small and medium-sized enterprises

Gross Domestic Product

Further information on methodological issues may be found on the online Scoreboard:

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