The State Aid in the Member States of European Community - Case Study Example

The State Aid In The Member States Of European Community The goal of State aid supervision is, as it is stated in the original agreements of the European Communities, to make sure that administration interference does not deform competition and business. Thus, State aid is determined as a benefit in any form whatever awarded on a discerning foundation to activities by nationwide community establishments. Consequently, subsidies granted to people or common actions accessible to all companies are not stated in the Article 87 of the EC Treaty and do not include State aid. The next kinds of help are or can be well-matched with common market as it is written in Article 87: (1) help having a communal nature, given to individual customers under condition that such help is given without unfairness connected with the origin of the definite goods. (2) help to make good the harm reasoned by natural disasters or force major circumstances. (3) help given to the definite fields of the market in the Federal Republic of Germany influenced by the division of Germany, with the purpose to eliminate economic difficulties provoked by that division. (4) help to support the economic growth of fields where the revenue is strangely low or in the areas of severe unemployment. (5) help to support the implementation of an essential assignment of general European concern. (6) help to ease the expansion of definite economic actions or of definite economic fields, where this help does not unfavorably influence trading environment to the level contrary to the ordinary concern. (7) help to support background and legacy preservation where this help does not influence trading environment and rivalry in the Community to an extent that is opposing to the ordinary interest. (8) such other class of help as can be defined by decision of the Council performing by a capable mass on a suggestion from the Commission. (Phedon et al) The EC Treaty entitles a general interdiction of State aids. However, the founder of the treaty understood that under specific circumstances State support is vital for successful functioning of state economy. Thus, The Treaty gives a space for a set of objectives compatible with State aid. That is why a set of fundamental rules was complemented with legislative acts, which refer to definite exemptions. With the help of these documents the European Commission enabled a unique system of instructions, guidance for monitoring and assessing state aids in the countries of European Union. The framework of laws is reviewed on a regular basis for improvement of its effectiveness. It is corrected as to correspond to the directing of European councils for better targeted aids in order to push the economy of European countries. (Ritter et al). New legislation is worked out and approved in cooperation with those states that are members of the EU, but the set of regulations related to exemptions to Treaty prohibition rests at the disposal of the European Commission, which has the full power of investigating and making decisions. The notification procedure is a part of this activity. This procedure is obligatory for all the member states. State aid can be implemented only if approved by the Commission, and Commission has the right to call off the state aid which is recognized as incompatible. (Ritter et al) There are 4 Directorate-Generals who perform effective control over state ads with the help of this legislation framework. While competition in Transport, Fisheries, Agriculture and Coal sectors are controlled by sector services, and other sectors are governed by Directorate-Generals Competition. The aim of Commission activity is to ensure that all companies on the territories of state members function on equal terms, where competitive companies achieve success. It provides for that the state governments do not disturb the regulation of the internal markets or somehow affect the competitiveness of the companies in EU. (Phedon et al) The companies are playing an active role in this process too. They may enforce investigations by addressing the Commission with the complaints. When the Commission has doubts regarding compatibility of state aid it recommends the parties add their comments to the Official Journal of EU and then starts a formal procedure of investigation. (Phedon et al) While speaking about the regulation of state aid measures it is necessary to add that the Treaty does not determinate the aid, but it asserts that it is inconsistent with the internal markets. State aid may take various forms, like interest reduction, state grants, tax relief policy, as long as provision of services or goods made by the state on advantageous terms. In case state add may negatively affect trading and competition it is forbidden. The exemptions mentioned in the Treaty include development aid on regional level, or in so called sensitive sectors. The Commission must clearly define all types of state aid with the help of strict system of control. (Phedon et al) The state economies in all the countries of Central Europe and Eastern Europe before the fall of the iron curtain were state subsidized. As soon as the process of enlargement started, the European Union wanted to make certain that the governments of candidate countries would not draw foreign investments and grant all the types of state aids. The Europe Agreements with these countries contained the instructions to adapt the legislation of every particular nation to the norms accepted by the countries of EU. One of the important issues was the definition of difference between the new and existing aid. Annex IV in the Accession Treaty defines such difference. According to it, the aid which already exists is acceptable, but the Commission reserves the right to make arrangements for amendments if is it necessary in future. (Slocock) Another important issue for the countries candidates was establishing a special centralized authority for surveillance to control state aid structure. The negotiations concerning policy on competition and state aid regulation took place with Slovenia, Lithuania, Latvia and Estonia in 2001. All of these countries did not required arrangements of transitional character. Another group of candidates, including Czech Republic, Malta, Slovakia, Cyprus, Hungary and Poland needed some transitional agreements, for instance, "fiscal aid schemes to attract foreign investment and measures to restructure the ailing steel industries of these countries", and negotiations with these countries finished in 2002. (Slocock) Here are the summaries of transitional arrangements for some of these countries: Cyprus - reduce the volume of fiscal aid which is not compatible with the requirements for the companies offshore by 2006 The Czech Republic - change the structure of steel industry by the end of 2006 Hungary - reduce the volume of fiscal aid which is not compatible with the requirements for SME by 2012 - change the volume of fiscal aid which is not compatible with the requirements for large businesses into aid for regional investments. It should be reduced to 75% of investment cost if the company started the investment under the scheme before 1 January 2000, and to 50% if the company started the investment after 1 January 2000. In the motor vehicle industry the aid is further limited, and set at a level that corresponds to 40% of the maximum aid ceiling. - reduce the volume of fiscal aid which is not compatible with the requirements for the companies offshore by 2006 - reduce the volume of fiscal aid which is not compatible with the requirements made by local authorities by 2008 Malta- reduce the volume of fiscal aid which is not compatible with the requirements for SME by 2012- reduce operating aid granted by Business Promotion Act by 2009 - change the volume of fiscal aid which is not compatible with the requirements for large businesses into aid for regional investments. It should be reduced to 75% of investment cost if the company started the investment under the scheme before 1 January 2000, and to 50% if the company has obtained the entitlement for the tax exemption after that date up until 30 November 2000. - aid aimed at restructuring measures in the shipbuilding sector for a period, which will last until the beginning of 2009 Adjust the import, stock and wholesale market of petroleum and related product to the requirements of Article 31 of the Treaty by 2006 Slovakia - Fiscal aid to a beneficiary in the motor-vehicle manufacturing sector to be discontinued by the end of 2008. the aid to a single beneficiary in the sector of steel should be stopped by the end of 2009 or after it reached a definite amount. The purpose of the aid is to relieve the rationalization of levels of staff excess, and the resulting cost should be comparable to the volume of aid. (Kankanen) According to the legislation framework, all cases of state aid must be approved by the Commission before being implemented. Otherwise they will be regarded as illegal. The applicants for state aid must keep up to all limits put on state aid by EC: ``Where the applicant is a public authority, it should satisfy itself whether state aid rules apply to the project in consultation if necessary with The Office of the Deputy Prime Minister and should inform the ODPM immediately it has decided it does not need to notify the project to the Commission. In all other cases, no grant will be paid in respect of the project until the ODPM has been informed of the Commission's approval of the project under the notification of the state aids procedure pursuant to Article 88(3) of the EC Treaty, or the ODPM has formed the view that such notification is not required.A Recipients of illegal aid will risk being held responsible for meeting the cost of any penalty applied by the EC in the event the project is found to have infringed the State Aid rules, and also risk actions for damages from third parties.'' (Bael) There is a definite point below which the state aid should not be necessarily defined. It is valid if the project is not supposed to bring any organization of the private sector more than 100 000 euros of aid within 3 year period, including all kinds of state aid, which these organizations may get from various sources. There are areas that should be unavoidably agreed by EC despite of the funding. The plans that include a help component to businesses and are suggesting to carry out the plan, showed above, must take the following measures: a) look for verification that those who are to get the support are within the classification of a small and medium size organizations ( SME). (b) get affirmation of a SME's reception of state aid in the last three years. (c) offer SMEs partake in the project with a proof of the cash value of any aid provided. (Bael) In relation to possible positive changes which can be taken on the basis of this concept is creation of the effective state aids in the states where differentiation of incomes is too dramatic and is not properly addressed. (Bergh & Hofkes, 1998) It is also possible to suggest that while such income differences touch all countries of the world, and at global level countries represent peculiar subjects of the same differentiation state aids of equal opportunities might be created. This state aids should not be aimed at supporting separate states, as the number of organizations providing states in need with financial support is ample. such system should work for the benefit of population and will thus create solid basis of the social balance in the society. References Bael, V. 2005. Competition Law of the European Community. Kluwer Publications Bergh, J.C. van & Hofkes, M.W. 1998. Theory and implementation of economic models for sustainable development. Springer. Kankanen, J.2003. Accession negotiations brought to successful conclusion. Competition Policy Newsletter. Phedon, N., Kekelekis, M., Buyskes, Ph. 2005. State Aid Policy in the European Community: A Guide for Practitioners (International Competition Law ). Kluwer Law International Ritter, L., Braun, W.D. 2004. European Competition Law: A Practitioner's Guide. Kluwer Law International Slocock, B. 2003 Commission adopts Regulation exempting State aid for employment from notification under Article 88(1). Competition Policy Newsletter. Weber, M. 2001. The theory of economic and social organization. Free Press. Read More