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EU &CompetitionJuly2012EUROPEAN COMMISSION CONSULTS ONMAJOR PLANS TO MODERNISE STATE AIDEuropean Commission announces initiative toreform State aid controlOn 8 May 2012, the European Commission (the“Commission”) announced its intention to reformEU State aid control. The reforms are part of theEuropean Union’s (the “EU”) growth strategyfor this decade, Europe 2020. The Commissionsees State aid control as paramount in allowingthe single market to function without distortion.It is hoped that legislation will be adopted inearly 2013, with instruments of the new initiativeimplemented by the end of 2013.It is the Commission’s intention that the reformswill lead to better targeted State aid controlthat can promote growth and competition, limitdistortion and run more efficiently. To facilitatethe reform, the Communication highlights thefollowing three objectives:• To foster sustainable, smart and inclusivegrowth in a competitive internal market.• To focus Commission scrutiny on cases withthe biggest impact on the internal market.• To streamline the rules and provide for fasterdecisions.Fostering growthThe Commission states that there should bea focus on “good aid”, that targets a marketfailure and thereby complements, rather thanreplaces, private spending. It is also hoped thataid will stimulate innovation, green technologies,human capital development, avoid environmentalharm and promote employment and EUcompetitiveness. The Commission notes thatState aid will only achieve the desired publicpolicy objective when it has an incentive effect.This means that the aid should induce thebeneficiary to undertake activities it would nothave done without the aid.For State aid to help achieve this growth, theCommission has proposed the following reforms:

• Identification and definitionof common principles: theCommission wants to clarifycommon principles, such as theassessment of the compatibilityof aid measures, of marketfailures, of incentive effects and ofnegative effects of aid.• Revision and streamlining of Stateaid guidelines: the Commissionintends to modify existing Stateaid guidelines, such as thosefor Regional Aid, Research &Development & Innovation,Environmental Aid, Risk Capitaland Broadband so that theyare aligned with the commonprinciples by the end of 2013.There will be revised guidelineson rescue and restructuring aidfor non-financial firms to ensurethat market processes are onlyinterrupted by State interventionwhen justified. There are alsoproposals for new guidelinesfor rescuing and restructuringfinancial institutions, which will bein line with future proposals for EUcrisis management and resolution.Prioritising cases with the biggestimpact on the internal marketThe Commission wishes to conducta more rigorous examination ofcomplainants in order to prioritise thescrutiny of State aid that covers only alarge and potentially distortive part ofthe single market. For smaller cases,the Commission intends to definemore proportionate and differentiatedrules, which can be implemented bysupport measures of Member States.The increased responsibility forMember States will, however, requirepost monitoring by the Commission toensure compliance.To assist in prioritising what Stateaid cases should attract scrutiny, theCommission proposes:• A review of the de minimisRegulation to ensure that thecurrent threshold corresponds tomarket conditions.• A review of whether certaincategories of aid are compatiblewith the internal market and,therefore, exempt from priornotification. The Communicationsuggests that this could include:aid granted to culture; aid given inresponse to natural disasters; oraid to (partly) funded EU-projects.• A review of the General BlockExemption Regulation (“TheBlock Exemption”) for Stateaid to include the categories ofState aid which may be deemedcompatible.The Commission reiterates howeverthat an increase in the sphere ofState aid that is made exempt fromprior notification will have to befacilitated by increased responsibilitiesof Member States to make surethat there is effective compliancewith the Block Exemption or the deminimis Regulation above. To date,the Commission’s monitoring hasrevealed significant difficulties inthe enforcement of regulations byMember States and tighter measureswill have to be adopted by MemberStates to facilitate less involvement bythe Commission.Streamlined rules and fasterdecisionsThe Communication acknowledgesthe need to streamline and reformprocedures in order to deliverdecisions within a more businessrelevanttimeframe. At present theassessment procedures are toolengthy and complicated. To assistin streamlining these procedures, thenew package will:• Clarify and explain the notion ofState aid: under Art.107 TFEUthe definition of State aid can besubject to wide interpretation inassessing the intervention of theMember State; the advantageconferred on a recipient; or thedistortion of competition.• Modernise the State AidProcedural Regulation (the“Procedural Regulation”) withregard to complaints-handling,allowing the Commission toprioritise allegations of potentialaid that may impact on theinternal market, rather than havingto examine all allegations.• Modernise the ProceduralRegulation to improve toolsused to gather informationin order to increase theefficacy of investigations. TheCommunication stops short ofrevealing what these powerscould be.Implementing the reformsIn order for these measures to beimplemented proportionately, theCommission has opened a publicconsultation to collate the views ofMember States and stakeholders.Responses to the consultationshould be submitted by 5 October2012. In light of the responses, theCommission will propose a revisedRegulation by December 2012, whichwill be subject to debates in the EUParliament and the EU Council of02 EU & Competition

Ministers. Legislation will then followin 2013.It is clear that some stakeholders willwelcome the proposals to streamlineassessment procedures and focusonly on large and potentially distortiveaid. On the other hand, some haveconsidered that State aid, underArt.107 TFEU, is being manipulated bythe Commission as a tool to controlthe public spending of MemberStates. In addition, certain proposalsregarding increased authority given toMember States, the party responsiblefor providing the aid, could proveineffective. While streamliningprocedures and updating the rulesto reflect current market realities hasbeen welcomed, it is anticipated thatsome of the proposals are likely toface strong resistance by MemberStates. In particular, this will be thecase if the Commission enriches itspowers by directly seeking informationfrom third parties and aid beneficiariesin State aid proceedings. This ispotentially a radical reform and onewhich is not envisaged under thepresent rules.HFW is able to advise all stakeholderson State aid issues. Our dedicatedState aid team has acted previouslyfor recipients of State aid,complainants, awarding authorities,Governments and public bodies inState aid proceedings both beforethe European Commission and theEuropean Courts.For more information, please contact,Eliza Petritsi, Partner, on +44 (0)207264 8772/+32 2 643 3402 oreliza.petritsi@hfw.com, orKonstantinos Adamantopoulos,Partner, on +32 2 643 3401 orkonstantinos.adamantopoulos@hfw.com,or Anthony Woolich, Partner, on+44 (0)20 7264 8033 oranthony.woolich@hfw.com, or yourusual HFW contact.“It is clear that some stakeholders willwelcome the proposals to streamlineassessment procedures and focus onlyon large and potentially distortive aid. Onthe other hand, some have consideredthat State aid, under Art.107 TFEU, isbeing manipulated by the Commission asa tool to control the public spending ofMember States.”EU & Competition 03

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