Seminar 10 State Aid Control (9 December 2013)

It is impossible to cover all of state aid in one session. I want to focus on one issue: does state aid law safeguard national policies, if so how, if not what is state aid law becoming. We focus on two important cases on the definition of state aid, while the two articles look more at state aid policy. I want to explore them separately but also try and see the connections between the ECJ’s role and that of the Commission.

NB we meet on Monday 9 December at 13.00 in Sala Triaria

Reading

Articles 107 and 108 TFEU

Kaupa ‘The More Economic Approach: a reform based on Ideology?’  (2009) 3 European State Aid Law Quarterly 311

Blauberger ‘Of Good and Bad Subsidies: European State Aid Control through Soft Law and Hard Law’ (2009) 32(4) West European Politics 719

And one of these two cases. Both deal with the same issue, the notion of selectivity.

Case T-210/02 RENV British Aggregates Association v Commission, judgment of 7 March 2012

Case C-279/08P Commission v Netherlands (Nox) judgment of 8 September 2011

10 comments on “Seminar 10 State Aid Control (9 December 2013)

  1. Samantha Palladino says:

    In light of this week’s class discussion comparing US and EU policy’s with respect to state action and antitrust/competition laws, when I was reading about the EU’s policy on state aid, I found myself wondering how the US law would deal with the same thing. Would state aid policies in the US be treated any differently from state legislation that distorts competition but is immune from federal antitrust laws under Parker (like we discussed last week)? I imagine that it would not; a state policy, enacted through legislation, to provide aid to certain industries would be state legislation. And, in the US, states have very different rules regarding taxation (income tax level vary, some states don’t have it at all, and property taxes vary exponentially by location or state), which leads me to believe that US states are able to impose these conditions as they wish, and that they are not just “creative” ways to avoid the European prohibition on Member States giving state aid, as Blauberger articulated (at page 721). Even though British Aggregates Association held that the “applicant failed to demonstrate that the export exemption gave rise to tax differentiation that may amount to selective advantages for purposes of Article 87(1)” (at para 99), this suggested to me that had the applicant so demonstrated, that there could have been a violation of Article 87(1). In the US, people definitely cross borders to shop (e.g., New York to New Jersey, which has no sales tax), and clearly state taxation does create advantages, and this is considered okay.
    In general, I continue to be struck by the ways in which the EU sometimes has larger or more imposing powers with respect to the Member States than does the federal government with respect to the states in the US.

  2. Karin Fløistad says:

    One increasingly more common phenomenon in terms of how states can implement national policies when limited by state aid law, is national ownership. National ownership of companies may to some extent acheive desired policy results despite of the same policy being difficult to implement with the state aid limitations. There are many questions in this regard. First, states have to be ‘rich’ enough to actually buy shares in companies. Second, owning shares is of course not the same as controlling the company. The management will always answer to all shareholders and not only to the majority or a significant shareholder as the case may be for a state owner. Nevertheless, this may be an opportunity for instance to ensure location of companies in a specific geographical area. And there are instances of close connections between management in large national companies and the political leadership where tranparency and independency are not alwasy easy to ensure. To this end, listed companies can actualy be useful tools to acheive national policies, even discriminatory ones. Furthermore, actions can be coordinated and it si difficult for controlauthorities to demonstrate that the action is not also in the interest of the company.

  3. Sara Perez says:

    The Commission’s State aid Action Plan (SAAP) generally states that State aid may be approved only if it remedies a market failure or if it serves equity objectives. My comment focuses on the first prong, whether State aid remedies a market failure. Kaupa argues that the Commission has limited whether State aid can apply to remedy a market failure because it really only applies to a few types of market failures (the Commission’s working paper only lists three possible market failures for State aid to apply). Further, State aid is only justified if the intervention will lead to more efficient results than the markets. This is based on the, Commission’s, I believe flawed, assumption that the market regulates itself and state intervention typically has the effect of disrupting the market. Kaupa makes a valid point that the Commission privileges market-imitating remedies over other potentially more effective means to remedy a market failure. In this regard, the Commission effectively limits State aid and encourages its use only as a last option to remedy a failing market.
    However, some economists have shown that the market is unpredictable and, especially in times of economic crisis, unstable. Further, in light of the current global economic crisis, assumptions regarding inherent market rationality and stability are questionable. Even more, the global economic crisis has shown us the necessity of State aid to correct market failures. I’m not sure if the Commission’s assumptions regarding market stability and the perceived negative effects of state intervention still hold up. At best, these assumptions may be true when the global economy is stable, but they do not leave room for State aid to intervene during a global economic crisis. This is especially true for any of the market failures that are not listed in the Commission’s working paper.

  4. Itsiq Benizri says:

    The relationship between European and national state aid policies seems to be less and less favourable for the member states.

    First, the prohibition of state aids in itself became stronger. While member states tried to avoid the qualification of state aid by creating other instruments to achieve the same goal, the Commission and the Court adapted their definition of state aid to include all of these new instruments (see for example the RENV case). It then became more and more difficult to circumvent the state aid qualification.

    Second, the exceptions remained as an emergency exit for the member states. However, these exceptions are formulated in such a way that they are extremely subject to interpretation. This involves that the one who has the key of the interpretation has the power to define and shape the exceptions. In this case, this is the Commission. Then, the Commission used soft law and then hard law to give to the exceptions the precision they lacked in the Treaty.

    Such an initiative had two consequences.

    The first consequence is that the Commission then moved from the negative integration which characterized the state aid policy until then to a positive integration. There is thus an harmonization from above in the scope of state aids.

    The second consequence is that this move leads to the limitation of the member states policy. Indeed, if it becomes harder and harder for a state to not fall into the definition of a state aid, and to fall into one of the exceptions only when its action corresponds to what the Commission defined as an exception. This means that the Commission defined what is a good state aid policy. Therefore, playing such a role involves the limitation of the member states policy.

  5. Jonas von Kalben says:

    When reading the case C-279/08P Commission v Netherlands (Nox) judgment of 8 September 2011 I was surprised by the interpretation of “the concept of financing through state resources”, which is condition for the application of the state aid rules. The CJEU upheld the argument of the GC that this requirement was met because “the emission allowances […] were put at the disposal of the undertakings concerned free of charge, whereas they could have been sold or put up for auction”. Hence, whenever a state abstains from creating a source of income, it potentially grants an aid. This seems to be a very broad interpretation. It appears to get very close to an approach according to which any inducement of an advantage by the state could potentially be perceived as a state aid. In favour of this approach one could argue that it avoids circumventions of state aide control. On the other hand it seems to restrain the autonomy of the MS as many measures become subject to the state aid control by the commission.
    At the same time I am not sure how compelling the arguments of the AG and the GC to distinguish this case from PreussenElektra actually are. They argue that – contrary to the “sufficiently direct connection” between the free emission allowances and the loss of revenue – there is no ample connection between the imposition of the obligation to purchase and possible diminution in tax receipts. They also argue that the foregoing of resources is not “inherent” in any instrument to regulate emissions by an emission allowance scheme (because the state has the choice to sell these allowances instead) but it is “inherent” in a legislative provision that obligates to purchase electricity of supply from renewable energy sources at a minimum price higher than the economic value. But what is a “sufficiently direct connection” and when is the foregoing of resources “inherent” in a measure (this seems to depend on the alternatives one takes into account)? Maybe one could also argue that in both cases there is a mere causality between the state measure and the advantage of certain undertakings but no negative effect on the public budget and hence no state aid.

    I also found the dispute between the GC and the CJEU on the question whether or not the measure is “selective” very interesting. The GC argued that as the system benefits equally all undertakings that are subject to a strict emission standard (only these are in the same legal and factual situation), it can’t be perceived as “selective”. Other undertakings, which are not subject to identical or comparable obligations, must not be treated in the same way. Hence, according to the GC the commission failed to prove that the undertakings obtaining the benefit and the undertakings not obtaining it were in the same situation. On the contrary, the CJEU held that even tough the concept of aid does not include „measures creating different treatment of undertakings in relation to charges where that difference is attributable to the nature and general scheme of the system of charges in question“, the MS that introduced such a differentiation between undertakings in relation to charges has to show that it is actually justified by the nature and general scheme of the system in question. As the MS did not show that the differentiation is justified, the commission was right to consider the measure as a state aid. It appears that following the distribution of the burden of proof by the CJEU, it is easier for the commission to control MS measures under the state aid rules. This is another rather broad interpretation of the state aid.

  6. Delphine Defossez says:

    I totally agree with Blauberger when he states that the Commission has developed (and imposed) its own view of what is ‘good’ state aid. The way the Treaty’s articles have been drafted allows the Commission to act as a supranational authority. Once again it is the CJEU that helped the Commission to be in the position it now stands.
    The wording of article 107(1) refers to the idea developed for the free movement of goods: that the measure should not actually or potentially hinder intra-trade union. This might seems weird as state aid has another purpose than allowing goods to move freely around.
    The approach of the Commission to State aid is rather restricted, if one read article 106-107TFEU. Unemployment is not considered as a good reason which would allow States to intervene. That principle may have harsh consequences. For instance with Peugeot, France could not help the company as much as it which to do, partly because of EU law. If France would have helped it would have been regarded as protectionism of its companies. On the one hand, it is bad for French employees who have lost their jobs. On the other hand, it is good for the country in which the factories have been moved to. But here is the problem: when companies close in one EU Member State, it is not certain that it will reopen with the Union. Therefore, it is twice a lost for the Union. by not allowing States to help certain companies, in a sense the Union ‘allow’ for more unemployment in certain countries.
    Europe and US with regard to State aid are radically opposed; under US law state aid will be the exclusive competence of the states and it will be accepted to have different approaches, whereas at EU level Member States have to comply with EU law.

  7. Céline Estas says:

    I found Blauberger’s article useful to understand how the Commission became able to influence national state aid policies and how these policies have been shaped. The Commission has definitely acquired a central role in the state aid policy.
    However, did this gain of power totally eliminate the margin of appreciation of the Member States when they want to adopt aids? Their margin of appreciation has obviously been reduced since the adoption of the Treaty of Rome. For instance, as Art. 107 (3) is written in broad terms, a wide margin of appreciation should have been granted to the Member States; but these terms have been detailed by the Commission, reducing therefore the Member States’ margin. Blauberger argues however that such margin of appreciation could still exist in some ways, for instance as a consequence of the introduction of the block exemption regulations (p. 732). Even though a margin of appreciation still exists, this movement questions the future of this policy and its limits.

    Another element that attracted my attention is the scope and the place of the aim of the national aid. I was confused after reading Kaupa’s article and the cases because both speak about the objectives of the measures but not in the same way.
    On the one hand, the ECJ states, as a general principle, that the qualification of the measure as aid depends on its effects and not its aim. This principle seems quite clear for the Court, although it did not seem so clear for the General Court in the first British Aggregates decision. Indeed, in this case, the Court of Justice found that the General Court made a mistake in taking into account the aim of the measure at the beginning of the decision (British Aggregates §11). However, in the case law of the Court the aim takes place in the second part of the analysis, when the measure qualified as aid is assessed on the basis of Art. 107 (3) TFEU (Commission v. Netherlands §75).
    On the other hand, Kaupa exposes the form that the aim of the measure should have in the Commission’s policy. After this reading, I feel that the aim of the measure should be construed broadly by the Commission in its decisions to respect a certain margin of appreciation of the Member States. In this context, as Kaupa suggests it, the economics elements should be taken into account in the analysis of a possible aid, but they should not be able “to override goals set by democratically elected institutions”, respecting therefore this margin (p.321).

  8. Mariajo says:

    When going through the readings I was left with two main questions:

    1. Is it justified to have two different approaches on the one hand to Arts. 101 and 102 and on the other hand to Article 107?

    Kaupa takes issue with applying the more economic approach (MEA) to state aid, and limiting permissibility to remedying ‘market failures’. He criticizes the hidden ideological turn towards neoclassical economics and therefore the placement of efficiency as overriding goal for state aid law. This statement sits somewhat in tension with Blauberger’s article, which stresses that the BERs make sure that MS can indeed follow other policy goals than curing market failures with their state aid policy, even though this policy must be ‘horizontal’ in nature. In any case, EU harmonization brought about by soft law will still reduce MS freedom in their individual state aid policy choice.

    What struck me as interesting, is that Kaupa did not seem to take general issue with the MEA in respect of Articles 101 and 102. If we imagine that reduced national budgets restrain the feasibility of implementing state aid policies, why not allow private enterprises to ‘help’ Member States in this respect? For example through granting objective justifications to undertakings furthering public policy aims, whose practices would otherwise be found in breach of competition law. Taking such a perspective would however require a total overhaul of the analysis under Articles 101 and 102.

    2. Is the approach to state aid discriminating between rich and poor MS?

    As Jonas I found the passage on the ‘selectivity’ criterion in Nox a little intriguing. As long as the economic advantage granted by a MS (i) is not such as to favour certain undertakings or the production of certain goods or (ii) a differentiation between undertakings in relation to charges shows that it is actually justified by the nature and general scheme of the system in question, the MS is safe. My thinking might be totally mislead here, but wouldn’t it be easier for a rich MS to satisfy the selectivity criterion than for a poor one? If I understand the selectivity criterion correctly, the more undertakings benefit from a state measure, the safer it is from being called upon by the Commission for a breach of state aid law. But benefiting a larger number of undertakings will presuppose a larger budget for it, which might prevent a poorer MS to even begin a beneficial type of state aid policy, because it could not extend it to all affected undertakings equally, without losing the desired impact.

  9. Haukur says:

    One of the interesting aspects of EU state aid law is the lack of cross border considerations. Usually the main focus point is potential distortion of competition within a single member state. The cases about the selectivity criteria highlight this issue.

    In those cases the decisive issue is whether the measure that granted an advantage was a general measure benefiting all comparably situated undertakings within the territory of the member state, or whether the measure was selective in only granting an advantage to some of the comparably situated undertakings. It follows that a selective grant is bad and a general grant is good, or at least not as bad. That however neglects the fact that a general grant, although equitably distributed within a single member state, can distort competition at the level of the EU.

    We have seen that although state aid is by default prohibited, the Commission recognises the fact that in some cases it may be useful to stimulate economic growth and to advance new economic sectors and beneficial technologies that the market would not risk advancing as quickly. The trick is however to strike the balance between the good aid that creates beneficial incentives and the bad cynically motivated aid, which is granted on the basis of political patronage irrespective of its economic usefulness.

  10. Sylvi says:

    Although this is slightly unrelated to the readings, I found this week’s topic interesting because it highlighted overlaps/similarities between EU competition law and the law of the WTO that I have already noted throughout the semester. Reading about the EU policy on state aid brought to mind the WTO rules on subsidies and countervailing measures, and I was surprised to see that the EU definition of state action appears to be narrower than the WTO conception of subsidies, even though both concepts cover the same issues and prerequisites. I am obviously not an expert in WTO law, but the EU’s permissible measures that “may be considered to be compatible with the common market,” to me, seemed to provide more leeway than the WTO discipline on subsidies because unlike in the trade context, the EU doctrine on state action takes into account the potential benefits of a particular state measure. The SAAP “effects and efficiency based approach,” outlined by Kaupa, assesses the positive and negative effects of a state aid measure. By contrast, by my limited knowledge on the matter, I do not think that WTO jurisprudence on subsidies utilizes a balancing test; rather a measure is actionable as a subsidy regardless of its negative/positive effects. Even if my personal analysis of the overlap between the disciplines is misplaced, I do think that it is interesting to consider the role of EU competition law in the larger framework of the WTO.

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