State Aid Developments in 2013 - Research Paper Example

European Union Aid Rules and their Modifications in the year of of In the area of competition laws and state aid laws, 2013 heralded a number of changes and modifications in the structures and systems that were put in place in the European Union. This involved numerous changes in the application and integration of various rules and regulations relating defining state aid. This happened through various cases and aspects of jurisprudence in the European Court of Justice and other European Commission cases. The aim of this paper is to analyze the State Aid Law in the context of competition law and how it has been modified over the past year (2013). The fundamental aim of the European Union is to seek massive prosperity amongst its citizens by maintaining a Single Market. And one of the main aims of attaining this end is to promote competition. This is done by maintaining Anti-Trust laws to ensure that all organizations get an equal footing in matters of competition to ensure their survival. To this end, the paper undertakes a critical review of European Union anti-trust laws and competition law and how it has been changed under the period being reviewed. To this include an emphasis on ECJ jurisprudence and other legal cases and matters that were raised in the period in relation to the EU state aid laws and rules. This will be critiqued through the review of landmark cases and issues. Reforms and changes made within the period will also be analyzed. This will review the various regulations and directives that have been put forward and those that have been accepted in relation to European competition laws. Finally proposals that are of sufficient importance that were put before the European Union will be discussed and critiqued. This involve the various arrangements made by the EU with the view of boosting and enhancing the EU state aid law and state aid systems that have been put forward by various branches and arms of the European Union. 1. European Jurisprudence in Relation to State Aid Law 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. 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. The main cases that were handled by the European Court of Justice related to the “flag carriers” cases. This involved the need to clarify the cases and issues relating to the ability of nations and states to provide some kind of aid or sponsorship to their national carriers and how this was to be viewed under the European state aid laws and regulations. In the case of Ryan Air V Commission which was ruled upon in June 2013 by the ECJ, Ryanair presented a case against Alitalia. The facts of the case indicate that in 2009, Alitalia accessed state aid from the government of Italy. This is because the Italian national carrier went bankrupt in 2008 and the Italian state gave it a loan of €300 million as a form of equity which was used to purchase the airline’s assets and this culminated in the incorporation of CAI airlines which was of a substantially different legal corporate formulation than Alitalia. Ryanair’s argument was that the money given as loan or equity was a state aid which was illegal. This is because the government of Italy owned 49.9% of the shares of Alitalia at that time. However, Alitalia argued that the bank provided independent services and the government simply purchased certain assets from the company. On first instance, when the case was reported, the European Commission undertook an investigation but Ryanair argued that it was not a complete investigation hence the findings were not valid. Ryanair argued against the admissibility of the actions of the Commission, their competency to come up with the decision they took and the general lack of good faith in relation to the free market principle. In examining this case, the ECJ considered jurisprudence involving cases like the Hungarian government and Maltese government in relation to their national carriers in the previous year. The Hungarian government was told to recover unlawful state aid given to the national carrier (EC Press Release P/12/7). On the other hand, the commission allowed the Maltese government’s €130 aid given to the national airline because they gave that aid based on the need to maintain long-term viability and this was consistent with the EU Rescue and Restructuring rules. After much consideration, the ECJ ruled that CAI was a completely different entity. And the use of a bank as an independent and objective broker gave the aid the legitimacy it needed to be viewed as acceptable. In line with this, it was declared that the aid given by the Italian government was acceptable and was not in contravention with the European Union’s state aid rules and regulations. 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. 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. Payment by one government 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. This implies that interdepartmental and inter-organizational transfers that are made within government cannot be considered as state aid. 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. In yet another case, the criteria 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. The role and position of environmental aid had to be examined in the year 2012 but it was published in 2013. This is important because environmental aid seem to be a point of contention and a point of relevant discussions. And this is bound to rise and increase significantly over the years because the European Union has an emphasis on promoting environmentally responsible activities and processes. The case at hand involved the Environmental Works Hull (EWH) where environmental aid was given by a state to a small company with 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. 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. 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. 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. 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. 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. 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. 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. This involves specific financial aids that are given to victims and the eligible cost includes the natural disasters cost, cost of productive tools, stocks amongst others. 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. 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. 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. 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. Another position presented by the Competition Directorate General 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. 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. 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. The ex-ante and ex-poste systems of evaluation as per Article 30 were 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. 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. 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. 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