Europe Union State Aid Laws - Research Paper Example

EU Aid Laws: Legal Year in Review Your Full at the Institute of Political Studies in Strasbourg Master 2 "Economic Law and Regulation in Europe" In the area of State Aid, there were numerous changes and advancement in the law that had been in place in the European Union meant to protect the interest of parties in the Union. There was a clarification of the role of national courts in dealing with cases relating to state aid. It was discovered that national courts can make decisions on issues but they must stay within the best interests of state aid rules and regulations. They must not tilt in favor of their national agenda or go outside the scope of the rules. On the other hand, directives and rulings on issues are to be the preserve of the European Commission whilst the European Court is called upon as the court of last resort in these issues. Article 107(1) was interpreted significantly in the Doux Elevage case where it was found that in cases where government agencies and units are independent from government, their directives which seemingly favors some organizations cannot be classified as state aid. A ruling on the state aid claims and disbursement in France concerning the France Telecom and the French Government showed that in cases where the donation and/or investment into a given entity is seen as some kind of reorganization or a long-term change in the structures of the entity, it could be seen as something done outside the scope of the state aid restriction. And this could be permitted. Also, Article 107(3) (a) has been interpreted to be compatible with state aid allowances if they cover areas that are considered to be areas that need accelerated development and change. And this is typically allowed where the activity is within the scope and context of relevant rules and relevant limits set in the law of the community. The deminimis regulation was also reviewed in the current year under review. The ceiling remained at €200,000 for most aspects of the state aid system in spite of calls for an increase. The GBER and other frameworks are introduced, whilst the overall plans and objectives of the European Union has been moved to focus on the aviation industry. Numerous benefits and advantages are put in place to encourage the aviation industry. 1. Judicial Precedence in Relation to the ECJ & Related Institutions There are numerous rulings that occurred in the past year that has significance in the interpretation of European Union State Aid laws and regulations. Some of these cases provide further interpretation of the existing laws whilst others provided an insight into new circumstances and situations that were not expressly defined and stated in the European legal systems. The fundamentals of European law require issues relating to state aid to be forwarded to the European Commission. However, being a European institution, disputes relating to the European Commission can be sent to the European Court of Justice for a ruling in relation to the proper position of European law according to a given matter. Competence of National Courts in State Aid Claims Article 108(3) of the TFEU requires nations not to implement new laws about the provision on state aid unless it is accepted and authorized by the European Commission. This is known as the “standstill obligation”. Thus, before anything is done, there is the need for the EC to be notified and anything that falls short of that is to be challenged in court. However, there is the question of which courts can be authorized to hear such cases and which court has the competency to rule on these matters. Naturally, a national court is likely to rule in favor of their national desires and expectations and this might be in contravention with the best interest of the European Union. In spite of this, national courts play an important role and they could be involved under Article 14(1) of the Council Regulation (EC) No 650/1999. However, the scope of the actions and the decisions that national courts can take can be limited on several grounds. In the year under review, there was a case of who has the right and the obligation to assess whether a state aid was compatible with EU law or not. This is because there were questions on whether national courts could rule on the appropriateness of a state aid or whether the EC was the only body that could deal with such an issue. In the case of Dutch Lufthansa V Hughafen Frankfurt Hahn C284/12, there was a question of the issue of whether Frankfurt Hahn Airport charging Ryan Air less fees constituted a state aid or not in accordance with Article 107(1) of the TFEU. This is because Article 108(3) of the TFEU stated that prior to the grant of any kind of state aid, there was the need to present the facts to the Commission for assessment (Nicolaides, 2013a). It was held that the lower fees charged by the Frankfurt Hahn Airport constituted a state aid and it should have been properly presented to the European Commission for approval. The European Court of Justice held that there was the propensity of state’s courts to contradict the principles and ideas of the European Commission. As per the precedence of the ECJ it is apparent that the national courts and the Commission’s roles are complementary but separate (Case C-39/94 SFEI and Others [1996]; C-262/01 Van Calster and Others [2003] and Case – C-368/04 Transalpine Olleitung in Osterreich [2006]. Therefore in the case of aid measures in relation to the markets, the ruling of Dutch Lufthansa V Hughafen Frankfurt identified that the exclusive competence of the Commission was superior. However, this was subject to the review by European Courts. The ruling did not relegate the role of national courts to the background. The ruling of the case indicated that national courts had the duty of safeguarding the best interest of the spirit of the law forbidding state aid. However, the final decision on these cases lay with the Commission and where there were prohibitions against this, the EC was to decide this and in dispute, it was to be sent to the European Courts. Therefore the case stressed that the national courts must offer parties to a dispute some prospects that must be within the framework of Article 108(3) of the TFEU. And the rulings must be within the scope of the jurisdiction given to national courts. This role of national courts was safeguarded by Article 108(2) of the TFEU. However, the overall position and interest of the TFEU is to protect the Commission as the main and final authority that decides on these cases and issues. Intra-Governmental Institutional Payments Payment by one government institution to another through an instruction of the government was also examined in the previous year. Through this, there was a case that examined the importance of such acts and such processes. In Doux Elevage V Ministere de LAgricultere de lAlimtation [2013], it was held that whether payments were made obligatory by the state, such a payment could not be considered as a state aid since it was not a direct aid that was made as one in a strict sense. Other major cases that were decided within this scope include the British Aggregates and Dutch Nox case which held that some kind of selective agreements could be considered to be tantamount to state aid. This was based on the background of Case C-143/11 Adria-Wien [2001] ECR I-8365 where it was held that cutting down on energy taxes could be seen to be tantamount to a breach in the EU provisions. Hence, it was identified that such an arrangement was in contravention to state aid. This is because the tax authorities were held to be the same as the national authorities and their actions could be construed to be the same. Thus, the case of Doux Elevage gave a credible requirement to ascertain whether a prohibition was breached or not. The court identified that Article 107(1) of the TFEU covers advantages granted directly by the state and those granted by public or quasi-public entity that was controlled by the state. Hence, the transfer by one unit or arm of the government could be seen as a state aid. In the Doux Elevage case though, an agricultural trade organization had set some quotas for agricultural trades to finance promotions and other related processes. This was made compulsory by law by the French government and hence, this was potentially against Article 107(1). The findings of the case indicated that the trade organizations were not connected to the government. However, they were recognized by the French government. Therefore, it was identified that such an arrangement was not actually done directly by the government this is because the public organization in question was separate from the French government. This implies that interdepartmental and inter-organizational transfers that are made within government cannot be considered as state aid, as long as they can prove that they are different from the government. In that sense, entities could carry out their transfers without issues and threats of sanctions because they could do things in good faith and seek the efficient transfer of resources among public sector entity. For practical purposes, it can also be said that this ruling prevents the opening up of the floodgates which will allow all governmental transfers to come up for scrutiny which could mean massive administrative issues and problems. Redefining the Scope of Proportionality & Consideration At the heart of Directive 97/13 of the Community legal framework and Decision 128/1999, there is a law that makes it imperative for all governments to provide free and equal treatment to all telecommunications networks. This means that there was no room for any kind of selective treatment and any such treatment by the government of a member state is tantamount to providing some kind of state aid. In the Bougues case, the criterion for defining proportionality was tested in the European Court of Justice. Normally, proportionality is used as the basis for considering whether an organization got unfair/abnormal advantage or not. However, in the case at hand, it was established that state aid is considered proportional if it is kept minimal and if the returns are minimal, it might not be categorized as a state aid. There is also a question of which actions and processes can be classified as “consideration” [as the term might be used in nations with English legal traditions] for state aid. In Bougues V the European Commission this question was raised in an issue relating to the government of France in relation to France Telecom. In the facts of the case at hand, the government of France made a positive statement about France Telecom in July, September and December 2002. Since the government of France was a major shareholder, people bought into their recommendation and endorsement and bought massive shares which helped in the fundraising of the company. This issue was presented to the European Commission for examination. The European Commission ruled that state aid is used when a firm derives an advantage either directly or indirectly from the states budget. The real effect of this indicated that the European Commission required such an action to involve real economic benefits. Thus, it was held that a positive statement did not constitute an aid. However, on appeal, the European Court of Justice ruled that in cases where special interventions are conducted alongside other drives and processes which can be seen as one major conduct, that act can be considered to be one. Hence, a government could be liable for providing aid in the form of endorsements and other benefits-in-kind if they are connected to actual events in which money changed hands. ECJ & Energy Matters and Development Some regions are eligible for assistance for various reasons like development and national plans and agendas under Article 107 (3) (c) of the TFEU. This includes areas that are deprived and need to be given some added incentives to become more developed and enhanced. Such areas have a quota that can be allotted to the authorities in order to selectively improve these parts of the European Union. However, the limits and restrictions placed on these areas are dependent on specific legislations and the framework of regulations that are set up to deal with the changes and improvements that are available in the area. Thus, the European Commission also came up with a ruling on the position of environmental aid and its impact on businesses. This involved the Environmental Works Hull (EWH) and the Commission Decision 34051. This involved the case of an environmental aid given by the state to a small company that had a small market share. The European Commission held that in cases where the aid is small and the market share of the company in question is also small and the aid does not distort competition, then the aid could be given without seeking approval from the Commission. This implies that environmental aid could be given in some proportions to help some smaller entities to achieve results if and only if they are minimal and do not overtly distort competition in the European Union. 2. New Rules & European Reforms on Regulations and Directives Relating to State Aid Laws There are numerous directives and attempts by the authorities in the European Union to make rules and regulations that affected State Aid laws in the past year. This includes various processes and principles that guide the affairs and processes of giving and handling aid from the state that is meant for improving businesses and other entities. Perhaps the most popular of them is the de minimis proposals which sought to provide better ways and approaches to dealing with the existing state aid laws and its related systems and principles. The De Minimis Regulation The new de minimis rules apply to items for the period that ranges from 2014 – 2020. This is means to enhance the European Union and enable it to deal with its issues and matters in a much more appropriate way and manner. The new rules continue to maintain existing rules and current practice, however, there are new limits that are set for controlling aid which is significantly different from the previous standards (European Commission, 2013a). The new provisions maintain the ceiling of €200,000 as the aid that can acquired in a single transaction relating to money taken from the EU or its agencies. The initial plan was to increase the maximum amount to €300,000 or more but this was not agreed upon so they stuck to the existing ceiling. Also, there were demands for the establishment of a central register for de minimis aid. However, for some strategic sectors of the EU economy, there were raises in the de minimis threshold. This includes the area of agriculture where the de minimis was doubled. The regulation sought to expand the role of the de minimis aid. This was published in the official journal and was based on Regulation 1408/2013. The de minimis regulation, 1407/2013 is not to be granted to export related activities. In cases where the undertaking involves road freight transport sector, the ceiling is €100,000 but it cannot be awarded for the acquisition of road transport vehicles. It cannot be used to top up awards made under approved aid scheme that leads to some kind of circumvention of the main rules and regulations. The de minimis indicates that new awards must not breach the ceiling in a 3-year period. This will be considered as a divergence. Thus, the ceiling applies to a 3-year period and it is relevant to all aid that is to be given in the current year and forms part of the 2020 plan of the European Union. The GBER The General Block Exemption Regulation (GBER, 2012), identifies elements and aspects of State Aid Modernization as it was presented to the European Commission for enactment. The idea is to ensure that state aid must contribute to sustainable, smart and achievable growth and inclusive growth as well as focus on cases with the biggest impact on the European Union. The idea is also to promote faster and robust decisions that will be made by various entities. In order to attain this end, there are various aspects of the status quo that the GBER sought to modify and change. First of all, the GBER asserts that the existing rules are complex and it comes with little incentive for observance of the rules and regulations (EU GBER, 2012). Also, there is a general lack of consideration of the cumulative impact of the state aid systems that are used around the Single Market. Thus, in order to make the best of the existing situation, the GBER sought to promote the following pointers so they could be implemented in the six year period from 2014 to 2020. They include amongst other things: 1. Increasing the flexibility of the state aid systems to reflect realistic thresholds 2. Increasing safeguards to ensure that there is more transparency and hence a better tilt towards compliance. 3. Simplified checks and balances for incentive effects and that are to ensure that there will be simple processes and procedures to ensure the best results are attained. 4. Providing regional aid by examining approved maps to distribute aid for development. 5. Providing aid for small and medium scale enterprises. 6. Providing aid for research entities to promote innovation. 7. Training and employment aid to improve skill levels in the European Union. 8. Providing aid for environmental preservation and enhancing environmental responsibilities (EU GBER, 2013). The GBER also discussed the threshold for investigations of state aid into project and this was set at €200,000 which was viewed to be very little by the Germans (Bruggermann et al, 2012). However, this set the materiality level to a point where aid will not be investigated by the European Commission. However, in cases where an issue is brought to the Commission involving lower amounts, a hearing would take place on it (Bruggermann et al, 2012). But aid that is higher than that set in the threshold will be subjected to a specific investigation that will analyze its motives and impacts. Natural Disasters Also, natural disaster aid was to be facilitated and improved in 2013/14 through laid-down rules and regulations (EC Competition DG, 2013a). Article 107 (2) (b) of the TFEU stipulates that aid is to be made available to change things that are caused by natural disasters and this must be compatible with the internal market. The aid must be notified to the Commission (Article 108). The new proposals for modifying this focused on how to clarify, accelerate and notify appropriate authorities. In order to do this, there must be an insight into the background of the natural disaster in question and to qualify, the natural disaster must be consistent with Article 2(1) of the Council Regulation (EC 2012/2002). The level of the damage must be high and the relevant documents must be tendered as evidence and the beneficiaries must be identified or selected. The budget presented for natural disaster aid applications must span over a one-year period and might be paid in installment (EC Competition DG, 2013a). This involves specific financial aids that are given to victims and the eligible cost include the natural disasters cost, cost of productive tools, stocks amongst others (EC Competition DG, 2013a). State Aid, Productivity and the Financial Crisis There were new rigid guidelines that focus on the aftermath of the financial crisis and the public subsidies to promote investments (Alumnia, 2013). This is because the financial crisis provided major financial constraints and strains on the European economy and in order to promote a recovery, there was a need for the European authorities to make some injections into industries and crucial organizations like the banking sector to enhance the chances of the EU to gain important results. Therefore new and rigid guidelines on subsidies were put in place to promote transparency and help to evaluate state aid (Alumnia, 2013). This was meant to link the various subsidies with the European 2020 objectives. Thus, state aid had to have a strong grounding and a strong basis to be accepted by the relevant authorities. In order to promote efficiency on basis of allocating state aid, the following processes were suggested: 1. Reduction in rigid disparities 2. Promotion of research and development 3. Promotion and adoption of higher environmental standards (EC DG Competition, 2013). In this quest, the EC DG criticized the ex-ante system of analyzing the worth of projects. This is because the ex-ante system is based on pre-set standards and evidence shows that the impact of aid is limited if these pre-set standards are invoked in evaluating aid and its usage in organizations. Rather, there is the need for the use of systematic methods of evaluation to evaluate the spending processes and methods of formulating policies (EC DG Competition, 2013). Another position presented by the Competition Directorate General (2014) concerning the assessment, the following yardsticks was presented for the identification of acceptable businesses and entities that deserve state aid: 1. An entity with commonly accepted objectives; 2. Addressing well defined project features 3. Limit distribution of competition to the barest minimum (Competition Directorate General, 2014). However, if the business objectives deviate from the normal market practice, the people behind the business will need to prove objectively that their activities conform to the market economy operation principle to qualify for state aid (Nicolaides, 2013f). Thus, the European Court of Justice requires the Commission to ensure that the proof being brought by an entity seeking funding in exceptional situations will need to show evidence of market economy operation principles (Nicolaides, 2013f). Bucher (2013) identifies that the ex-ante and ex-poste systems of evaluation as per Article 30 was to be promoted in an important way and manner to ensure the efficient allocation of state aid in the European Union. These are to be applied to programs of high spending and the results are to be sent to the European Parliament and Council for approval or review. The ex-ante system is used before interventions and it involves identifying problems, defining objectives, analyzing expected effects of different options and outlining results (Bucher, 2013). On the other hand, the ex-poste system is meant to analyze promised and actual effects and assess what has been done and what the results are (Nicolaides, 2013g). This culminates in effective and efficient methods of doing things in the future. Synthesis of Relevant legal rules related to State Aid Law. The analysis indicates that any member state that seeks to provide any form of support for an organization within its boundaries will have to first approach the European Commission and report their plan to them. Failure to do that is a breach and any member state can raise an issue in a national court or presented to the European Commission for a view on it. The rulings of the European Commission on such issues can be subjected to legal proceedings in the European Court of Justice. It is clear from the rulings of the European Court of Justice that intergovernmental organizations payments, even if are ordered by the government does not constitute state aids. Rather, payment that is made in the form of a reduction in the states budgets either directly or indirectly forms part of the states aid. Where aid does not necessarily promote high returns or distort competition or is of an environmental nature, the state might not face any sanctions in relation to providing illegal state aid. However, in cases where a benefit-in-kind is given and the benefit is part of a bigger package that can be considered to be an unacceptable subsidy, the ECJ could view it as one big transaction and inflict penalties by factoring in the issue at hand to the circumstances involving the payment of subsidies. Since it is recognized as one big package and the context is seen as one large process. The State Aid Modernization framework that has been put forward seeks to improve the core and fundamental interests of the state. This is because the previous system of providing aid to help struggling public entities in nations helped to promote and breed inefficiency. Rather, the new SAM system is meant to promote and enhance efficiency by rewarding entities that serve the best interests of the European Union. The main process through which the SAM work is through better targeting, improved interests and enhanced efficiency. This is done by giving to better processes and services and supporting such processes and systems. There is also aid given to help to promote aid and this is done through proposals to make the aid access process more flexible and also enhance the safeguards and transparency systems to aid a simplified method and process for collecting such aid. Natural disaster aid laws are also streamlined and the method of claiming funds for natural disaster issues are more flexible and clearly lays down. Also the threshold for taking aid has been set at €200,000. And all such transactions in state aid are to be investigated for their purpose and significance. Case Analysis of the European Aviation Industry The EU 2020 target focuses on several sectors including transportation. This is because transportation is crucial for the success of the Common Market. Thus, the aviation industry is one of the key areas and aspect of the EU that has been set aside for improvement and enhancement. The European Union model involves promoting private ownership by the year 2020. This is to be done by seeking private hands in the aviation industry. And this is to be done through the provision of aid to people who need them to thrive as private entities in the aviation industry. This is meant to improve accessibility in these areas (EC, 2013). The State Aid Modernization system is well designed to help organizations to meet this target and to provide investment aid to help private entities to own and control crucial entities in the aviation industry. This will help stakeholders like aviation engineering firms and airlines in order to enable them to enter the aviation industry and also attain optimum results and break even. The privatization of the industry will enhance it and make it much more productive than others. Conclusion State aid is to be authorized only through the EC. However, in 2014, various events and activities have shown that there could be some exceptions in areas where aid does not promote extremely high returns that will distort competition or they are environmental in nature and do not bring in so much revenue that earnings of other competitors will be significantly modified. This shows that the jurisprudence of the past year shows that there are some areas where state aid can be given voluntarily by member states albeit in aspects that does not distort competition. Fundamentally, state aid modernization is involved in improving the targeting, improving the interests of the EU and enhancing efficiency and quicker delivery and better processes of assessing state aid applications. In the past year, proposals for improving state aid focuses on linking aid to the development of the EU 2020 plans. Hence, state aid ought to go to productive areas and provide flexible processes and systems as well as transparency. An example of such strategic areas crucial to the EU 2020 is the area of aviation which the states seek to promote through privatization. Hence, state aid is increasingly available to private persons to encourage them to become more productive. Read More