State Aid Control in the EU
- in particular the latest developments on policy concerning the
recovery of incompatible aid
The Mentor Group
The Forum for US-EU Legal-Economic Affairs
I am very pleased to have the opportunity to talk about "State
aid control in the European Union" and in particular to expand
on the latest developments of our policy concerning the recovery
of incompatible aid.
Today, state aid control is one of the key elements for the Commission
in its efforts to accompany and safeguard the achievements of
the internal market and to guarantee undistorted competition.
2) Reasons for State aid control in the EU
As you know, the maintenance of a system of free and undistorted
competition is one of the cornerstones of the European Union.
It is undisputed that competition may be distorted by advantages
given by public authorities to certain companies which compete
with other companies in the Union. All efforts under the anti-trust
rules to ensure that companies do not distort competition and
trade within the Union would be to no avail if Member States were
allowed to seek to outbid each other in offering subsidies to
save firms in economic difficulties or to attract investment.
Today, this applies more than ever. There are three major reasons
for the increasing importance of State aid control:
- First, as the Internal Market becomes a reality, the elimination
of a vast number of trade barriers between Member States also
progresses. This means that the more classical forms of distortion
of competition by Member States have disappeared. If not properly
controlled, state aid may be used to replace the barriers to trade
that have already been dismantled.
- Second, the single market in Europe and increased world-wide
competition have lead to widespread liberalisation of sectors
where competition was or is still restricted or even excluded,
such as telecommunications, postal services and energy. The consequence
of this trend is obvious: introducing competition necessarily
means enlarging the scope of state aid control to these sectors.
- There is a third reason for the increasing importance of state
aid control: in periods of serious economic difficulties with
politically unsustainable levels of unemployment, Governments
- not only in the EU, but also in other regions of the world -
are tempted to use aid as an instrument to combat unemployment,
often merely shifting the problem to another factory, another
sector, another area, another country.
3) The characteristics of State aid control in the EU
One might, of course, at least in theory, advocate the simple
ban of State aid to achieve free and undistorted competition throughout
the European Union. However, the early experience with the European
Coal and Steel Community and its strict and unconditional prohibition
of any State aid has shown that this way cannot realistically
be maintained: in some cases there are valid reasons to grant
The conclusion drawn in the Treaty of Rome was to accompany the
general prohibition to grant aid by a list of possibilities for
exemption. Properly controlled, the granting of aid may contribute
to the development of the Community as a whole, whilst potentially
harmful or protectionist effects can be eliminated.
But who would be able to carry out this task in a neutral and
well-balanced way? The Treaty of Rome solved this question by
entrusting the Commission with the task of ensuring a level playing
field of competition throughout Europe.
This is indeed the very centre-piece of State aid control in the
European Union: the Treaty of Rome not only obliges the Member
States to inform the Commission of subsidies granted to enterprises.
The obligation goes an important step further and makes the award
of aid subject to prior approval by the Commission.
The obligation of notification prior to implementation and, more
than that, the fact that the implementation of a plan to grant
or alter aid is subject to approval by an independent authority,
is one of three key elements which make the control of State aid
in the European Union unique both in international and national
law. Only the Commission may find aid compatible by applying one
of the exemption clauses provided for in the Treaty. Implementing
new aid without having obtained the Commission's approval is illegal.
The second element characterizing the State aid control system
established by the European Union follows from the first: there
are remedies against State aid decisions. Also private operators,
in particular aid recipients and competitors, may seek judicial
review before the European Courts.
Third, the Commission is not only entrusted with the day-to-day
application of the State aid rules, but is also empowered to develop
the Community's State aid control policy. Within the wide margin
of discretion entrusted to it, the Commission has gradually developed
policy through cases and - in order to ensure homogeneity and
to increase transparency - through policy frameworks, communications
Today, the Commission has at its disposal a broad set of clear-cut,
transparent and consistently applied rules in the field of State
aid control. It distinguishes between aid which is or may be declared
compatible and aid which is incompatible with the common market:
a favourable approach is usually given towards
- regional aid,
- aid to SMEs,
- aid for environmental and R&D purposes, and
- aid for the creation of employment.
On the other hand, the Commission does, as a general rule, not
- general investment aid for large companies outside well-defined
disadvantaged geographic areas,
- export aid, and
- operating aid, i.e. aid to cover current expenses of enterprises
of a continuous or periodic character.
Furthermore, a close and in-depth scrutiny is carried out in cases
- rescue and restructuring aid,
- financial transactions between the State and its public companies
resulting in aid, and
- aid to companies in certain sensitive sectors such as steel,
shipbuilding, motor vehicles and synthetic fibres.
In substance, our rules match the new provisions set out in the
Agreement on Subsidies and Countervailing Duties under the "GATT
1994" and are, in some respects, even more strict. However,
the supervisory functions of the Commission and the European Courts
go much further than that of the WTO institutions. In the EU,
the main principle is "approval prior to implementation"
compared to a more simple annual "notification after implementation"
procedure under the WTO system. Moreover, private operators cannot
take action on the international level under the WTO rules.
4) Enforcement of the State aid discipline in the EU
One crucial question remains: How do we enforce the State aid
The notification discipline ensures that the Commission sees and
evaluates aid. Aid which does not meet all the conditions required
to benefit from one of the possibilities for exemption is incompatible
with the objectives of the Treaty and must not be implemented.
Thus, recovery is at stake only in cases where a Member State
has not fulfilled its obligation to await the Commission's decision
before awarding aid.
It has not been easy to establish, step-by-step, a strict and
coherent State aid policy. Introducing a systematic policy to
recover incompatible aid has proven even more difficult.
Let me recapitulate the most important milestones:
- It was in 1973 that the Court, in the German "mining regions"
case, (1) clarified the Commission's right to order recovery of
illegally granted aid.
- In the course of the Eighties, recovery orders became constant
Commission practice. The Court firmly backed the Commission's
approach by stating that recovery is the "logical consequence"
(2) of the finding that an aid was unlawfully granted. In its
recovery policy, the Commission concentrated its efforts on "big"
cases like Renault and Peugeot (1988), Alfa Romeo (1989) or British
- The "Boussac"-judgment, delivered by the Court in
1990, (3) can be regarded as a "cornerstone" in two
First, it stated that the Commission is obliged to examine the
compatibility of an aid even in cases where the Member State has
not fulfilled its obligation to notify and to await the Commission's
decision. Thus, it is not possible for the Commission to order
recovery simply for the reason that a Member State has granted
aid whilst failing to respect the procedural obligation to notify.
To order recovery, therefore, the Commission must also establish
the substantive incompatibility of the aid with the common market.
However, when faced with aid implemented before a decision has
been taken, the Commission has the power to issue an interim
decision ordering the Member State concerned to suspend further
payment pending the outcome of the Commission's investigation.
Moreover, this interim decision may also contain an order to provide
the Commission with all necessary information in order to enable
it to assess the compatibility of the aid with the common market.
We have done so recently in the "Volkswagen"-case concerning
aid to projects in Eastern Germany. (4)
- In a communication issued in June 1995, (5) the Commission went
a step further and announced that it may, in appropriate cases,
adopt an interim decision ordering the Member State to recover
any amounts which have been disbursed in infringement of the Treaty.
In doing so, the Commission reacted to the problem that a suspension
order does not have any practical meaning in cases where the unnotified
aid is already paid in full.
To sum up: what we have achieved during the past years is an increased
notification discipline and a very high public awareness of the
consequences of unlawfully granted aid. It has been made clear
that the purpose of recovery is to re-establish the previously
existing situation on the market.
However a number of difficulties remain: It may take several years
from the Commission decision to actual recovery. The recovery
order is - like any other decision in the State aid field - addressed
to the Member State concerned, which then has to recover the aid
in accordance with national law. Procedurally speaking, the beneficiaries
of illegal aid may use all remedies available under national law
in order to seek to delay or suspend the immediate restoration
of the previously existing situation.
However, the rule that aid must be recovered with interest at
market rates calculated from the date of the actual award "softens"
somewhat the length of the recovery period. Moreover, it is important
to note that the recovery claim sticks to the company regardless
of changes of ownership and without any term of prescription.
An analysis of the Commission's decisions shows that the percentage
of cases where the aid is eventually recovered gradually rises.
This confirms what seems to be a general underlying principle
in the process of European integration: once a specific target
has been set, the Community is usually able to achieve it in a
step-by-step approach. The policy concerning recovery can be said
to be in its third phase: In the Seventies, the Court confirmed
the principle. In the Eighties, the Commission established the
Today, in the Nineties, we seek to improve the effectiveness of
the Commission's practice. In view of the fact that recovery is
undertaken according to national law, we are approaching this
in cooperation with the Member States. This effort is based on
the Courts findings that national law cannot stand in the way
of full application of Community law. Member States have to cooperate
with the Commission to overcome all difficulties encountering
the implementation of a recovery order. (6)
In parallel, national Courts can play an important role in the
field of state aid. The prohibition of granting aid before the
Commission has taken its decision is one that has direct effect.
(7) This means that individuals may invoke an infringement of
this obligation before a national Court. The role of national
Courts is to preserve the rights of individuals faced with possibly
illegal State aid until the final decision of the Commission.
(8) Competitors may thus achieve suspension of payments or recovery
of illegally granted aid pending the outcome of a Commission decision
on the matter.
This important task of national courts of safeguarding competitor's
interest was emphasised in a landmark decision of the European
Coort of Justice handed down just last week: (9) the Court held
that a national court is obliged to meet a request for recovery
in cases of unnotified aid, unless exceptional circumstances are
Last weeks judgment also underlines that it is the States' responsibility
to notify aid. Therefore, individuals may sue the State for damages
resulting from illegally granted aid. On the other hand, a beneficiary
cannot be held liable for damage caused to other economic operators
on the sole base of community law.
In its recently published Notice on cooperation with national
Courts in the field of State aid, (10) the Commission offers to
assist national Courts in such cases. It is our hope that national
Courts will use this assistance and thereby increase the possibilities
for competitors to seek interim protection of their rights before
national Courts in State aid cases.
Much of this must sound rather exotic to you. In the United States,
you do have an effective anti-trust law, but you do not have laws
on the control of subsidies provided to industry by individual
states or local authorities. However, for the European Union,
State aid control is an essential tool to accompany and safeguard
the implementation of the single market.
Moreover, we think that State aid control has its role to play
wherever free trade in goods and services is established. This
was the reason to enshrine our rules on State aid in certain far-reaching
agreements with third countries. To mention the most important
ones: the Europe-Agreements with the Central and Eastern European
States and the customs-union agreement with Turkey.
This was also our reason to negotiate, in the WTO context, clear-cut
state aid criteria and more transparency in this field. In view
of the increasing inter-dependency on the world markets, it is
my hope that similar ideas would strike roots also outside the
European Union and its European partners.
* * * * * *
(1) ECJ Case 70/72, Commission/Germany, ECR 1973, 813 (829).
(2) See e.g. ECJ Case C-142/87, Belgium/Commission (Tubemeuse),
ECR 1990, I-959 (1020).
(3) ECJ Case C-301/87, France/Commission, ECR 1990, I-307.
(4) Commission Decision 96/179/EC of 31.10.95 enjoinding Germany
to provide all documentation, OJ 1996 L 53/50.
(5) OJ 1995 C 156/5.
(6) ECJ Case C-303/88, Italy/Commission (ENI-Lanerossi), ECR 1991,
(7) ECJ Case 120/73, Lorenz/Germany, ECR 1973, 1471 (1484).
(8) See ECJ Case C-354/90, FNCE ("Saumon"), ECR 1991,
(9) ECJ case C-39/94, SFEI, judgment of 11.7.1996.
(10) OJ 1995 C 312/8.