Mar - British Chamber of Commerce in the Czech Republic

Legal CornerAct n. 59/2000 Coll. is a basic legal regulationgoverning the sphere of State Aid in the CzechRepublic. The Act on State Aid (hereinafterreferred to as “the Act”) was adopted as aresult of realisation of the Czech Republic’sobligations arising mainly from Art. 64 of theEuropean Agreement instituting the associationbetween the Czech Republic on one sideState Aidand the European Community and its memberstates on the other, (hereinafter referred to as“European Agreement”) and from Protocol 2of this European Agreement about the ESUOproducts, where the Czech Republic obligatedto proceed in accordance with provisions ofArt. 87 and 88 of the European CommunityEstablishment Treaty, (hereinafter referred toas “EEC Treaty”) at providing and controllingState Aid.The valid act respects basic principles arisingfrom the above provisions of Art. 87 and88 of the EEC Treaty, which bans any aidprovided by the state or from the state or publicmeans, in a way which disrupts or impends todisrupt the economic competition by givingpreferential treatment to certain businessactivities or production branches to such extentthat the trade between particular memberstates might be affected.In conformity with relevant EuropeanUnion legislation, (hereinafter referred to as“acquis communautaire” or “acquis”), the actdefines the spheres and activities, for whichState Aid can be provided, as well as the purpose,for which State Aid might be provided,including its limit. The main task of the actwas to define the procedural rules, which theOffice for the Protection of Competition(Hereinafter “OPC”) is obligated to keep whilereviewing the compatibility of the State Aid 1 .After the Czech Republic’s joining theEuropean Union, (Hereinafter “EU”), thecompetency to judge the compatibility of StateAid with the joint market, passes over to theEuropean Commission, (Hereinafter “Commission”).Acquis consigns to the Commissionsignificant competencies to monitor, controland limit the forms and standards of providingState Aid in all member countries. The generalmanagement of the Directorial General forCompetition, (hereinafter “DG IV”), whichis the primary authority responsible for supervisionover providing State Aid, took noticeespecially of stricter use of these competencies 2 .The basic concept laid down by the EECTreaty stems from the view, that any form ortype of State Aid is forbidden, but on theother side the EEC Treaty specifies in itsArticles 87 (2) and (3) the types compatible with the Common Market and those,which may be considered to be compatible with the Common Market.The AttributesIn order to fall within the scope of Article 87 (1) of the EEC Treaty the followingconditions must be met:1. that the aid had been imposed by a public authority; or2. that the measure results in a transfer of recourses from the State or in the Statereceiving less recourses; and3. that the aid distorts competition by favouring certain undertakings or by producing ofcertain goods competing with the undertaking or production of other Member States;4.that the products or services are traded within the Community.State RecoursesThe first condition to be met is that the State Aid must be provided by the state body,or through the direction or supervision of the state or it must involve a reduction,actual or potential in revenue for the state.The requirement of the distortion of competition and effect on trade betweenthe Member statesArticle 87 (1) requires that there must be a likelihood of distortion of competitioncapable of affecting the trade between the Member States. In its 11 th Report onCompetition Policy in 1981, the Commission took the view that State Aid alwaysdistorted the competition. Before reaching the decision the Commission alwaysexamines the extent to which the aided products or services are traded within theCommunity and the state of the sector of the objective area and on this basis concludeswhether or not the competition is likely to be distorted (see below). The EU authoritieswill also consider the position of relevant beneficiary prior receiving the StateAid and if it has been improved then the Article 87 will have been met.The final element in article 87 (1) is that there should be an effect on inter-statetrade. In the case Philip Morris Holland BV versus Commission of EuropeanCommunities, Case No. 730/1979, the European Court of Justice (Hereinafter “ECJ”)ruled that when state financial aid strengthened the position of an undertakingcompared with other undertakings competing in intra-Community trade, the lattermust be regarded as affected by that aid.Notification and Authorisation ProcedureAid granted by the Member States has to be divided into two groups according towhether they are “existing aids” or “new aids”. The distinction between those twotypes is crucial. The difference is that in case of existing aid the Commission can openand review the aid and in case of new aid the Commission will always review the aidmeasures in question.Existing AidAccording to Article 87, the Commission shall, in co-operation with the MemberState, keep under constant review all existing aid measures. These include also thoseaids that were applied at the time of entry into force of the EEC Treaty, or at the timeof accession, and measures, which have either explicitly or implicitly been approvedby the Commission under the above-mentioned Article 87. In case of the CzechRepublic and other candidate countries, aid schemes provided before their accessionto the EU and mentioned in the Accession Treaty Annex, called “Transparency list”,will be deemed as existing aids, which definitely does not mean the Commission willdraw a thick line and forget the past. Acquis 3 allow to the Commission reopen theprovided State Aids, if the Commission is of the opinion that an existing aid is,or became, incompatible with the single market and it will start the procedureand ask for the information, with all consequences offered by the present acquiscommunautaire 4 .New Aid and Authorisation ProcedureCommunity supervision of State Aid is based on a system of ex ante authorisation.Contd. on page 141/ OPC as the supervisory authority possesses the capacity neither to provide State Aid nor to intervene in deciding to which the provider will provide the aid from the public means. Its main task is tojudge whether State Aid, which the provider is going to provide to the concrete beneficiary, is in accordance with the principles of the single market, concerning the amount, purpose and whether all theconditions, established by law for its provision, were fulfilled.2/ Former commissar for the protection of competition, Mr. Karel van Miert, identified State Aid as the biggest and most important barrier for fair competition and business in the single market.3/ Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty.4/ Acquis provides, if the Commission later finds out that the State Aid became not compatible with the basic principles of the Common market or that the State Aid is being misused, the Member Stateconcerned must abolish or alter it.8 FOCUS MARCH 2003