Tag Archives: State aid

Competition in transport

Outline of the Community (European Union) legislation about Competition in transport

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Competition > Rules applicable to specific sectors > Competition in transport

Competition in transport

Competition within the transport industry enables citizens to benefit from efficient and cheaper transport. Free competition also acts as a driving force to open up European networks and therefore gives investments and the network a continental dimension. In this context, the European Union is focusing on regulating this competition through legislation applicable to each mode of transport and a framework for State aid.

ANTITRUST LEGISLATION

Transport by rail, road and inland waterway

Competition in transport by rail, road and inland waterway

Maritime transport

Freedom to provide maritime transport services
Freedom to supply services, competition, unfair pricing practices and free access to ocean trade
Exemption for certain agreements between liner shipping companies (“consortia”)

Air transport

Exemption of certain air transport agreements from EU competition rules
Exemptions from consultations on passenger tariffs and slot allocation at airports

STATE AID LEGISLATION

Transport by rail, road and inland waterway

Public passenger transport service by rail and road

Maritime transport

Community approach to State aid for transport by sea
State aid to shipbuilding (I)
State aid to shipbuilding (II)

Air transport

Guidelines on State aid for developing regional airports

Guidelines on State aid for developing regional airports

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Guidelines on State aid for developing regional airports

Outline of the Community (European Union) legislation about Guidelines on State aid for developing regional airports

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Competition > Rules applicable to specific sectors > Competition in transport

Guidelines on State aid for developing regional airports

Document or Iniciative

Commission Communication of 9 December 2005 “Community guidelines on financing of airports and start-up aid to airlines departing from regional airports” [PDF ] [Official Journal C 312 of 09.12.2005].

Summary

The purpose of these guidelines is to clarify how the competition rules apply to the financing of airports and to start-up aid granted to airlines by the State. The Commission’s aim is to tackle air transport congestion in the main European airports and make it easier for the European public to travel, while ensuring that the competition rules are complied with. It also takes the view that developing the regional airports also helps to develop the regional economies concerned.

Financing of airports

The Commission makes it clear that the financing and provision of airport infrastructure by the public authorities must comply with the Community rules on State aid. Aid may be justified and declared compatible provided it meets an objective of general interest, such as regional development or accessibility. Additional conditions are that the aid must be in proportion to the objective set and must not adversely affect the development of trade within the EU.

Addressing the issue of subsidies for the operation of airport infrastructure, the Commission makes a distinction according to airport size since, while funding granted to airports with fewer than one million passengers a year is unlikely to distort competition or affect trade to an extent contrary to the common interest, an operating subsidy for an airport with more than one million passengers a year may constitute State aid and must therefore be notified to the Commission, which will examine its impact on competition and trade between Member States and, where appropriate, its compatibility. On the other hand, the Commission has decided that public service compensation constituting State aid granted to airports with fewer than one million passengers entrusted with a mission of general economic interest should be exempted from the notification obligation and declared compatible.

Start-up aid for airlines

Start-up aid granted to airlines operating from regional airports is a way of attracting airlines to new destinations. Operating aid of this kind is justifiable, temporarily, only in the case of small airports that do not yet have the critical mass needed to reach break-even point. In addition, the aid must provide airlines with the necessary incentive to create new routes or new schedules operated from the regional airports in question.

Large airports, on the other hand, benefit from economies of scale and are able to attract connections. This results in air traffic being concentrated on a small number of hubs which are then faced with major congestion problems. Encouraging the development of regional airports will help to make air traffic in Europe less congested and provide scope for economic development in the regions concerned.

Consequently, the Commission considers that start-up aid for the operation of new routes should be allowed for a maximum of three years (five years in the case of the outermost regions). The duration of start-up aid is clearly a sensitive issue. A balance needs to be found between facilitating the development of regional airports in their formative years and open and fair competition between European airports. The Commission takes the view that a period of three years (five years in the case of the outermost regions) meets the objectives of regional development while satisfying the requirements of fair competition.

This type of State aid may be granted to airlines either by a public authority (central, regional or local government) or through the airports that receive public subsidies. The Commission emphasises the fact that subsidies must be granted only for new routes or new schedules.

In addition, it will not be acceptable to grant start-up aid for a new air route corresponding to an existing high-speed rail link. This concern to ensure that the different modes of transport are mutually complementary is a reflection of the intermodal approach that the Commission is seeking to promote, e.g. by encouraging cooperation between the rail and air transport sectors in an effort to deal more effectively with the effects of saturation and pollution around urban areas.

The State aid guidelines apply equally to both private and public airports. The term “State aid” refers to the origin of the funds not the status of the airport. For example, a public airport may act as a private investor by granting subsidies to airlines from its own resources on the basis of commercial profitability considerations. Conversely, if a private airport uses public resources, granted by a regional or local authority for example, this constitutes State aid.

The Commission recognises the role of airlines and airports in the process of opening up European airspace and certain regions. The exponential growth of low-cost carriers in Europe has done much to help the establishment of a network of interregional air routes, making it easier for the general public to travel and promoting the growth of the local economies and job creation.

Background

These guidelines set out a legal framework for the financing of airports and for State start-up aid used by regional airports for the benefit of airlines. They thus spell out the principles underlying Commission Decision 2004/393/EC of 12 February 2004 in the Ryanair/Charleroi case. These new guidelines add to rather than replace the 1994 guidelines. They are the outcome of extensive consultation of the various parties involved in air transport and its effects on regional development.

Related Acts

Commission Decision 2004/393/EC of 12 February 2004 concerning advantages granted by the Walloon Region and Brussels South Charleroi Airport to the airline Ryanair in connection with its establishment at Charleroi [OJ L 137 of 30.04.2004].

Community guidelines on the application of Articles 92 and 93 of the EC Treaty and Article 61 of the EEA Agreement to State aids in the aviation sector [OJ C 350 of 10.12.1994].

State aid to shipbuilding

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State aid to shipbuilding

Outline of the Community (European Union) legislation about State aid to shipbuilding

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Competition > Rules applicable to specific sectors > Competition in transport

State aid to shipbuilding (I)

Document or Iniciative

Council Regulation (EC) No 3094/95 of 22 December 1995 on aid to shipbuilding [See amending acts].

Summary

Regulation (EC) No 3094/95, which was the result of an agreement concluded in 1994 within the framework of the Organisation for Economic Cooperation and Development (OECD) regarding normal competitive conditions in the commercial shipbuilding and repair industry, cannot enter into force until the agreement has been ratified by all the parties. Given the reluctance by the United States to ratify, the Council initially adopted Regulation (EC) No 1540/98 in its place. This Regulation has now expired and has been replaced by the link on state aid to shipbuilding.

Definition of some of the terms used in the Regulation (“shipbuilding”, “ship repair”, etc.).

Enumeration of the various types of aid and the conditions which must be satisfied for them to be judged compatible with the common market:

social assistance (when such aid is intended to cover the cost of measures for the exclusive benefit of workers who lose retirement benefits or who are made redundant or are otherwise permanently deprived of their employment in the respective shipbuilding, conversion or repair enterprise, when such assistance is related to the discontinuance of shipyard activities, bankruptcy, or changes in activities other than shipbuilding, conversion or repair);
research and development aid (when such aid relates to fundamental research, basic industrial research, applied research or development, provided the limits set by the Regulation are observed);
indirect aid (when this is given in the form of state loans and guarantees, as development assistance to a developing country or for the building or conversion of ships, provided the conditions laid down in the Regulation are observed).

Derogations in favour of Spain, Portugal and Belgium, whereby reconstruction aid granted in the form of investment assistance and any other aid for social measures not covered by the Regulation and granted after 1 January 1996 may be authorised, provided the conditions laid down in the Regulation are observed.

Possibility of considering other aid to be compatible in the particular cases listed in the Regulation.

Monitoring procedure:

obligation on Member States to give the Commission advance notice of any aid scheme or amendment of an existing scheme, any decision to apply an aid scheme to an undertaking or any individual application of aid schemes;
obligation on Member States to provide the Commission with various reports on aid, on the basis of which the Commission draws up an annual overall report to serve as a basis for discussion with national experts.

References

Act	Entry into force – Date of expiry	Deadline for transposition in the Member States	Official Journal
Regulation (EC) No 3094/95	31.12.1995	–	OJ L 332 of 30.12.1995

Amending act(s)	Entry into force	Deadline for transposition in the Member States	Official Journal
Regulation (EC) No 2600/97	23.12.1997	–	L 351 of 23.12.1997

Related Acts

Seventh Commission report to the Council on the situation in world shipbuilding [COM (2003) 232 final – Not published in the Official Journal].

The countries or regions with the largest market shares in this sector are Japan, South Korea, China and the European Union. The sector is currently reeling from a deep crisis caused by three factors: past over-ordering, the global economic slowdown – and particularly the US slowdown – and the repercussions of September 11.

Order intake worldwide fell by 12.3% from 2001 to 2002, following a decrease of 20.7% between 2000 and 2001. European shipyards have, however, been the worst affected by this slump, with orders generally down 50% on 2001 and by over 70% compared to 2000. The hardest hit vessels are container ships and cruise ships. Only oil product tankers and bulk carriers have seen increased ordering, due to the replacement of old tonnage following new European Union maritime safety regulations and strong domestic demand in the Far East.

The main shipbuilding regions have, however, been affected in different ways: Japanese yards have the advantage of strong domestic demand, especially for bulk carriers; South Korea and China are battling for tanker contracts; and the European Union is only really active in the ferries and small tankers segment, where replacement needs are building up, although it is possible that Korean shipbuilders might try to further penetrate this market segment.

Prices: the statistics show that some categories of vessel are particularly affected by a major drop in market prices. Large container ships have seen their sales prices fall as a result of excessive price-cutting by Korean yards. The trend has been such that production costs have not always been covered. This is all the more surprising as the current weakness of the US dollar against the euro, won and yen should have led to an across-the-board increase in US dollar prices. Studies have also been carried out to investigate the relationship between the normal price, which is the full cost of production plus a profit margin of 5%, and the actual contract price charged by certain Korean shipyards. Given that production costs have risen in recent years, the gap between contract prices and normal prices has widened further. The studies are based on an analysis of several Korean yards and have revealed that the difference between the normal price and the contract price ranges from between -1% and -39%. All these results indicate a clear trend: Korean shipyards are trying to grab every order that appears in the market no matter the cost, despite assertions made to the contrary by the management of the different Korean groups. This strategy could be damaging if Korean yards fail to take certain factors into consideration, such as inflation and debt servicing, and major financial difficulties could ensue in the short term.

Sixth Commission report to the Council on the situation in world shipbuilding [COM (2002) 622 final – Not published in the Official Journal].

Following the breakdown of two rounds of talks conducted by the Commission (26-27 August 2002 in Seoul and 24-27 September 2002 in Brussels) the Commission had no choice but to initiate proceedings with the World Trade Organisation (WTO) and to start bilateral consultations with the Republic of Korea. At the same time a temporary defensive mechanism was authorised for certain market segments and for a limited period only.

The crisis in world shipbuilding is deepening with very slow order intake in the major shipbuilding regions in the first six months of 2002. The main reasons are past over-supply, slowing economies around the world and the effects of 11 September. Only Japanese yards still manage to fill building slots. However, this is helped a lot by domestic demand, in particular for bulk carriers, as has been long-standing practice in this region.

World-wide ordering of new ships in the first half of 2002 was down by almost two thirds compared to average quarterly figures in 2000, which was admittedly the best year ever for shipbuilding. In the EU the situation is even worse, with ordering down by almost 80% compared to 2000. Prices for new ships have declined further and are now at the lowest level for more than a decade. Yards in South Korea have further lowered offer prices despite increases in all major cost factors, and a number of Korean yards may find it difficult to meet their financial obligations if order intake is not increased soon.

Fifth Commission report to the Council on the situation in world shipbuilding [COM (2002) 205 final – Not published in the Official Journal].

The world shipbuilding market continues to face serious difficulties due to a substantial imbalance of supply and demand. Past expansion of shipyards, mainly in Korea, but now increasingly also in China, has led to price depression. Thanks to a historically high level of ordering in 2000, prices recovered to some extent, but the significant drop in orders in 2001 has led to a new reduction in prices. The year 2001 has been very problematic for the maritime industries worldwide: the recession in the United States and the terrorist attacks of 11 September have reduced the demand for sea trade and cruises respectively. The decline in ordering affected the container ship and cruise ship sectors most, leading to a drop in overall market shares for Korea and the EU, which are particularly strong in these segments.

The detailed cost investigations undertaken by the Commission show that certain Korean yards continue to price ships below cost while others are trying to improve their bottom line. Despite various rounds of talks with Korea, the Commission did not manage to convince the Korean authorities and yards to fully implement market principles and allow a shake-out of non-viable companies. An improvement in the market situation is therefore unlikely and the Commission has consequently proposed counter-measures to the Council, including preparing the ground for requesting a dispute settlement at the World Trade Organisation and the introduction of a temporary defensive mechanism for shipbuilding.

Fourth Commission report to the Council on the situation in world shipbuilding [COM (2001) 219 final – Not published in the Official Journal].

The year 2000 has seen a significant expansion in orders for new ships. Nearly 56% more orders were placed as compared to 1999, primarily benefiting South Korean shipyards, which have seen their market share increase again. EU yards also benefited considerably from the higher demand for ships, although orders for cruise ships probably played a dominant role here. In 2000 South Korea has consolidated its dominant position on the world shipbuilding market, accounting for more than 35 % of all tonnage ordered worldwide. If cruise ship orders are included, the market share for the EU and Norway is around 18 % (in cgt). However, if they are excluded from the overall figures, the market share of EU yards for new orders in 2000 is below 10 %. In 2000 prices for new ships are reported to have recovered in certain market segments from the very low levels seen after the Asian crisis in 1997.

Third Commission report on the situation in world shipbuilding [COM (2000) 730 final – Not published in the Official Journal].

In this report the Commission confirms the general trend highlighted in the second report of 18 May 2000, namely that, despite increased orders, ship prices have not on the whole recovered the ground lost since 1997. Prices continue to be depressed owing to the very low offer prices from yards in South Korea, which is now the biggest shipbuilding country in the world. Over the first eight months of 2000, its shipyards took more than 40% of all new orders. The Commission considers the stagnation in prices to be all the more alarming in that the European Union has drastically cut back state aid to shipbuilding. Despite the signing of the Agreed Minutes in June 2000 aimed at obtaining from South Korea firm commitments on non-intervention in the financing of shipbuilding, bilateral talks ended in failure. The Commission thus plans to:

continue its monitoring of the market situation;
examine the European industry’s complaint of October 2000 against Korean dumping, in order to deal with this problem under WTO rules;
remain open, at the same time, to any Korean proposals;
continue efforts to re-establish fair competition at international level;
encourage the International Monetary Fund to ensure that the restructuring of Korean shipyards is closely monitored;
continue to cooperate with the industry on competitiveness issues;
examine with the Council any possible action to address the problem.

Second Commission report on the situation in world shipbuilding [COM (2000) 263 final – Not published in the Official Journal].

The report takes stock of the world shipbuilding market. The market is in crisis, with supply outstripping demand. Vessel prices are falling in the face of unbeatable competition from Korean yards, which are prepared to sell at a loss in order to ensure market share and cash flow. To address the problem, the European Commission obtained an agreement from the Korean authorities to restrict State financial intervention in the shipbuilding industry. The Commission also gathered evidence pointing to unfair competition, and a complaint may be filed under the Trade Barriers Regulation.

First Commission report on the situation in world shipbuilding [COM (1999) 474 final – Not published in the Official Journal].

The report describes overcapacity on the shipbuilding market, with a marked imbalance between supply and demand caused mainly by South Korea’s increased capacity. Vessel prices were between 15 and 30% down on 1998 levels, stimulating demand and increasing the Korean yards’ market share. There were reasons to believe that Korean yards were offering vessels at below-retail rates.

Council Regulation (EC) No 1177/2002 of 27 June 2002 concerning a temporary defensive mechanism to shipbuilding [Official Journal No L 172 of 2.7.2002].

The commitments contained in the Agreed Minutes signed by the European Commission and the Government of the Republic of Korea on 22 June 2000 with a view to ensuring an effective price surveillance mechanism have not been effectively implemented by the Korean side and therefore a satisfactory result has not been obtained.

Consequently, despite the ban imposed by Council Regulation (EC) No 1540/98, the 2002 Regulation introduces a temporary defensive mechanism applicable to certain segments of the market (namely container ships and product and chemical tankers) for a short and limited period authorising support of 6% of contract value before aid. The aim is to enable Community shipyards to overcome unfair Korean competition. This Regulation expires on 31 March 2004.

This summary is for information only. It is not designed to interpret or replace the reference document, which remains the only binding legal text.

Another Normative about State aid to shipbuilding

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic

Competition > Rules applicable to specific sectors > Competition in transport

State aid to shipbuilding (II)

To remove the differences between the rules applicable to the shipbuilding industry and to those applicable to other industrial sectors.

2) Document or Iniciative

Framework on state aid to shipbuilding [Official Journal C 317 of 30.12.2003].

3) Summary

Background

Since the early 1970s, state aid to shipbuilding has been subject to a series of specific Community regimes. This framework, which replaces Council Regulation (EC) No 1540/98, is designed to remove the differences between the rules applicable to the shipbuilding industry and those applicable to other industrial sectors. However, it takes account of specific factors affecting the shipbuilding sector, namely:

the nature of the world shipbuilding market (overcapacity, depressed prices, etc.);
the nature of ships as very large capital goods in respect of credit facilities;
the difficulty of applying the World Trade Organisation (WTO) rules on unfair trading practices to the shipbuilding sector;
the existence of agreements within the Organisation for Economic coordination and development (OECD) in the shipbuilding sector; this mainly concerns the 1994 Agreement on respecting normal competitive conditions in the shipbuilding and repair industry, which has not entered into force and which the OECD is in the process of replacing.

Definitions

For the purposes of this Framework, the following definitions shall apply:

shipbuilding: the building of self-propelled seagoing commercial vessels;
ship repair: the repair or reconditioning of self-propelled seagoing commercial vessels;
ship conversion: the conversion of self-propelled seagoing commercial vessels of not less than 1 000 gt, on condition that conversion operations entail radical alterations to the cargo plan, the shell, the propulsion system or the passenger accommodation;
self-propelled seagoing commercial vessels, including:

– vessels of not less than 100 gt used for the transportation of passengers and/or goods;
– vessels of not less than 100 gt for the performance of a specialised service (for example, dredgers and ice breakers);
– tugs of not less than 365 kW;
– fishing vessels of not less than 100 gt;
– unfinished shells of vessels.

Scope

Aid to shipbuilding includes aid to any shipyard, related entity, shipowner or third party which is granted, whether directly or indirectly, for the building, repair or conversion of ships.

The Framework provides for special measures in relation to investment aid for innovation, closure aid, export credits, development aid and regional aid.

Research, development and innovation aid

Aid granted to defray expenditure by shipbuilding, ship repair or ship conversion firms on R&D projects may be considered compatible with the common market if it complies with the rules laid down in the Community framework for state aid for research and development.

Aid granted for innovation in existing shipbuilding, ship repair or ship conversion yards may be deemed compatible with the common market up to a maximum aid intensity of 20% gross, provided that it contributes to the search for innovative products and processes.

Closure aid

Aid to defray the costs resulting from the total or partial closure of shipbuilding, ship repair or ship conversion yards may be considered compatible with the common market provided that the resulting capacity reduction is of a genuine and irreversible nature.

The costs eligible for aid are:

payments to workers made redundant or retired before the legal retirement age;
the costs of counselling services to workers made or to be made redundant or retired;
payments to workers for vocational retraining;
expenditure incurred for the redevelopment of the yard, its buildings, installations and infrastructure for use other than shipbuilding.

Companies receiving partial closure aid must not have benefited from rescue and restructuring aid in the past ten years. For further information, see the Community guidelines on state aid for rescuing and restructuring firms in difficulty.

Employment aid

Aid granted for the creation of employment, the recruitment of disadvantaged and disabled workers or to cover the additional costs of employing disadvantaged and disabled workers in shipbuilding, ship repair or ship conversion firms may be considered compatible if it complies with the substantive rules laid down in Commission Regulation (EC) No 2204/2002.

Development aid and export credits

Aid to shipbuilding in the form of development aid or export credits may be considered compatible with the common market if it complies with the terms of the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and with its Sector Understanding on Export Credits for Ships.

Regional aid

Regional aid to shipbuilding, ship repair or ship conversion may be considered compatible with the common market on condition that it fulfils the following conditions:

aid must be granted for investment in upgrading or modernising installations with a view to improving productivity and must not be linked to financial restructuring of the yards concerned;
in the regions referred to in Article 87(3)(a) of the EC Treaty and in compliance with the regional aid map, the intensity of the aid must not exceed 22.5%;
in the regions referred to in Article 87(3)(c) of the EC Treaty and in compliance with the regional aid map, the intensity of the aid must not exceed 12.5 % or the applicable regional aid ceiling, whichever is the lower.

Aid must cover eligible expenditure as defined in the Community guidelines on regional aid.

Member States are required to submit annual reports to the Commission on all existing aid schemes. This Framework will be applicable from 1 January 2004 until 31 December 2006 at the latest. It may be reviewed by the Commission during this period, in particular in the light of the Community’s international obligations.

4) Implementing Measures

5) Follow-Up Work

This summary is for information only. It is not designed to interpret or replace the reference document, which remains the only binding legal text.

State aid for public service broadcasting

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State aid for public service broadcasting

Outline of the Community (European Union) legislation about State aid for public service broadcasting

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Audiovisual and media

State aid for public service broadcasting

Document or Iniciative

Communication from the Commission on the application of State aid rules to public service broadcasting [Official Journal C 257 of 27.10.2009].

Summary

Since the 2001 Communication from the Commission on the application of state aid rules to public broadcasting, technological changes have significantly changed the broadcasting and audiovisual markets, including an increase in competition with new players entering the market as well as the availability of new media services. In order to compete, both public and private broadcasters have had to diversify their activities, moving to new distribution platforms and expanding the range of their services. This diversification of the publicly funded activities of public service broadcasters has resulted in a number of complaints by other market players. There have also been significant legal developments since the 2001 Communication, with the introduction of the Audiovisual Media Services Directive which extends the scope of the European Union (EU) audiovisual regulation to emerging media services. Due to these technological, market and legal developments, an update to the 2001 Communication on state aid for public broadcasting is necessary.

The assessment of state aid in the EU is based on Articles 107 and 108 of the Treaty on the Functioning of the European Union (TFEU) (ex-Articles 87 and 88 of the Treaty establishing the European Community (TEC)). In accordance with Article 107 TFEU, state aid includes the following conditions:

aid must be granted by an EU country, or by means of state resources;
it must distort or threaten to distort competition by favouring the beneficiary;
it must be liable to affect trade between EU countries.

Article 106(2) TFEU (ex-Article 86(2) TEC) provides a derogation from the ban on state aid for undertakings operating a service of general economic interest. To benefit from this exemption, the following conditions apply:

the service in question is clearly defined as a service of general economic interest by the EU county concerned;
the undertaking in question must be explicitly entrusted by the EU country with the provision of that service;
the ban on state aid must obstruct the performance of the particular tasks assigned to the undertaking and the exemption from the ban must not affect the development of trade to an extent that would be contrary to EU interests.

For public broadcasting the above must be adapted in accordance with the Amsterdam Protocol which:

states that the public service remit is conferred, defined and organised by each EU country;
provides for a derogation for funding granted to broadcasting organisations for the fulfilment of the public service remit so long as it does not affect trading conditions and competition in the EU to an extent that would be contrary to EU interests.

The state aid assessment by the Commission requires transparency. This consists of a precise definition of the public service remit. The undertaking carrying out this service must be clearly entrusted with that task. The public service compensation should not exceed the net costs of the public service. EU countries should ensure regular supervision of the use of public funding and the carrying out of the public service mandate.

In relation to the diversification of public broadcasting services, the Commission considers that public service broadcasters should be able to take advantage of the opportunities offered by digitisation and internet-based services to benefit society by offering services on all platforms, provided that it does not distort competition or disproportionately affect the market. However, EU countries must consider whether significant new audiovisual services envisaged by public service broadcasters fulfil the conditions of the Amsterdam Protocol in serving the democratic, social and cultural needs of the society, without having disproportionate effects on trading conditions and competition. EU countries must determine what qualifies as a significant new service.

The rapid evolution of the broadcasting markets means that broadcasters are turning to new sources of financing, such as online advertising or the provision of services for payment. Whilst traditionally public broadcasting services are free-to-air, the Commission considers that a direct remuneration in such services does not necessarily mean that the services are not part of the public service remit. The communication states that as long as the pay element does not compromise the benefit to society which distinguishes public services from purely commercial activities.

State aid in the agriculture sector

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State aid in the agriculture sector

Outline of the Community (European Union) legislation about State aid in the agriculture sector

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Agriculture > General framework

State aid in the agriculture sector

Document or Iniciative

Community guidelines for state aid in the agriculture and forestry sector 2007-13 [Official Journal C 319 of 27.12.2006].

Summary

The guidelines cover state aid in the agriculture and forestry sector for the period 2007-13 and replace the previous guidelines (2000-06) established for agriculture.

These guidelines apply to state aid granted for the production, processing and marketing of agricultural products. Annex I of the Treaty on the Functioning of the European Union (TFEU) provides a detailed list of the agricultural products included. They do not apply to the fisheries and aquaculture sector but, unlike the previous ones (2000-06), are applicable for aid for some forestry activities.

European Union (EU) countries are still obliged to notify the Commission of state aid for certain Annex I products that are not covered by a common market organisation (CMO), but the Commission may only make observations on the aid schemes. EU countries are invited to take on board these observations to avoid the risk of infringement procedures.

State aid is categorised in the guidelines as follows:

rural development measures;
aid for risk and crisis management;
other types of aid;
aid for the forestry sector.

RURAL DEVELOPMENT MEASURES

In line with Regulation (EC) No 1698/2005, which regulates EU support for rural development (the second pillar of the Common Agricultural Policy (CAP)), the guidelines set out the rules governing state aid for rural development measures or other closely related measures.

Aid may be authorised for investment in agricultural holdings in the following cases:

aid for investment in agricultural holdings proper;
aid for the conservation of traditional landscapes and buildings;
aid to relocate farm buildings where this is done in the public interest;
aid for necessary investment to improve the environment, hygiene conditions and animal welfare;
aid for additional costs due to investment made in EU countries to implement Directive 91/676/EEC;
aid for investment in compliance with applicable EU or national rules (only for additional costs incurred by young farmers to implement the rules within 36 months of their establishment).

Aid for investment in connection with the processing and marketing of agricultural products is authorised where it meets the conditions laid down in one of the following provisions:

Commission Regulation (EC) No 800/2008;
the Commission guidelines on national regional aid for 2007–13.

Environmental and animal welfare aid must meet the general objectives of EU environmental policy. This consists of the precautionary principle and the principles that preventive action should be taken, that as a priority environmental damage should be rectified at source and that the polluter should pay.

Aid to compensate for handicaps in certain areas must contribute to maintaining land use for agriculture, conserving rural areas and maintaining and promoting sustainable farming systems. To qualify for this aid, EU countries must demonstrate the handicaps in question and provide proof that the amount of aid avoids any overcompensation of these handicaps. The level of compensatory payments must be proportionate to the economic impact of the handicaps. Only the economic impact of permanent handicaps that lie outside human control may be taken into account for calculating the amount of compensatory payments.

Aid for meeting standards is designed to cover part of the costs incurred and loss of income as a result of applying standards in the fields of environmental protection, public health, animal and plant health, animal welfare and occupational safety.

Aid for the setting up of young farmers is for persons under 40 years of age who are setting up an agricultural holding for the first time as farm manager. Eligible beneficiaries may also submit a plan to develop their agricultural activities.

Aid for early retirement or for the cessation of farming activities is authorised subject to the conditions for permanent and definitive cessation of commercial farming activities.

Aid for producer groups aims to encourage the establishment of producer groups to concentrate their supply and adapt their production to market requirements. This aid is limited to small and medium-sized enterprises (SMEs). Eligible expenditure includes: rental of suitable premises, purchase of office equipment, including computer hardware and software, administrative costs (including staff), overheads and other expenses.

Aid for land reparcelling aims to support the exchange of plots of agricultural land and to facilitate the establishment of economically viable holdings. Aid may only be granted to cover the legal and administrative expenses involved in reparcelling up to 100 % of actual expenditure incurred.

Aid to encourage the production and marketing of quality agricultural products aims to improve the quality of agricultural products and to encourage farmers to participate in food quality schemes.

Under technical support in the agricultural sector, aid may be granted for the following measures:

education and training provided to farmers and agricultural workers;
replacement services to cover farmers’ absence due to holiday or sickness;
consultancy services provided by third parties;
organisation of forums to pool knowledge between enterprises and organisation of and participation in competitions, exhibitions or fairs;
publication of factual or scientific data;
publications.

Aid in the livestock sector targets support for the maintenance and improvement of the genetic quality of EU livestock.

Aid for the outermost regions and the Aegean islands aimed at meeting the needs of these regions will be examined by the Commission on a case by case basis, in accordance with the specific legal provisions applying to these regions, and with regard to the compatibility of the measures concerned with rural development programmes for the regions concerned.

RISK AND CRISIS MANAGEMENT

State aid may be granted to manage crises in the sector of primary agricultural production. However, distortions of competition must be avoided as far as possible. Requiring a minimum contribution from producers to losses or the cost of such measures provides an incentive for minimising risk. The following risk and crisis management measures are eligible for state aid:

aid to compensate for damage to agricultural production or the means of agricultural production;
aid regarding TSE (transmissible spongiform encephalopathies) and fallen stock;
aid towards the payment of insurance premiums;
aid for closing production, processing and marketing capacity.

Aid for rescuing and restructuring firms in difficulty will be assessed in accordance with the applicable EU guidelines on state aid for rescuing and restructuring firms in difficulty.

OTHER TYPES OF AID

Regulation (EC) No 800/2008 provides certain conditions under which aid for employment and aid for research and development are authorised.

There are horizontal aid instruments applicable to the agriculture sector. State aid for the agriculture sector is also covered by more general rules on the compatibility of aid with the TFEU, such as training aid (which is also covered by Regulation (EC) No 800/2008), state aid in connection with investment capital, state aid in the form of guarantees and state aid in the form of public service compensation.

Aid for advertising agricultural products may be authorised if the advertising campaign is centred on quality products – recognised EU designations (such as registered designation of origin – protected designation of origin (PDO) and protected geographical indication (PGI)) or for national or regional quality labels. Advertising campaigns must not be dedicated directly to the products of one or more particular company or companies.

Aid linked to tax exemptions under Directive 2003/96/EC may be granted by applying reduced or zero rates of taxation, provided that no differentiation is made in the agricultural sector. This covers products used as fuel for primary agricultural production or energy and electricity products used for primary agricultural production.

Aid in the form of subsidised short-term loans is no longer authorised.

AID FOR THE FORESTRY SECTOR

Up to now there have not been any specific EU rules governing state aid for the forestry sector. Aid could be granted under EU general rules for all sectors or under certain specific regulations. In the interests of transparency, the Commission has therefore sought to more clearly define EU policy on state aid for the forestry sector. However, the guidelines apply only to living trees and their natural environment in forests and other wooded land. They do not apply to state aid for forest-based industries, timber transport, wood processing or other forestry resources used as products or for the purpose of energy generation.

Aid in the forestry sector is authorised for the following purposes:

to contribute directly towards maintaining and enhancing the ecological, protective and recreational functions of forests, local biodiversity and a healthy forest ecosystem;
afforestation of agricultural and non-agricultural land, establishment of agri-forestry systems on agricultural land, Natura 2000 payments, payments for the forestry environment, restoring forest potential, introducing prevention systems, and non-productive investments;
to cover additional costs and loss of revenue linked to using more demanding environmentally friendly forestry techniques than those imposed by the rules, if the owners concerned undertake voluntarily to use these techniques and this commitment meets certain conditions;
to purchase forestry land, provided that the intensity of aid is within the limits set for aid for investment in agricultural holdings;
training for forestry owners and workers and for consultancy services provided by third parties;
setting up forestry associations;
support for initiatives to spread new techniques, pilot or demonstration projects under the conditions laid down in the chapter on technical assistance in the agricultural sector in the guidelines.

PROCEDURES

All new aid schemes and all new aid must be notified to the Commission before they are implemented, unless the aid is covered by one of the exemption regulations adopted by the Commission. In contrast to the guidelines for 2000-06, only aid schemes of limited duration are now authorised, with the maximum duration being seven years. These new guidelines apply from 1 January 2007.

EU countries must submit annual reports and the Commission reserves the right to request additional information.

These guidelines apply until 31 December 2013. However, the Commission reserves the right to amend them in the light of important considerations of competition policy, agricultural policy, human and animal health or in order to take account of other EU policies or international commitments.

BACKGROUND

The new guidelines form part of the 2003 reform of the CAP, which confirms the importance of rural development and shows the Commission’s concern to make aid granted by EU countries in the agriculture sector more coherent. The guidelines for the period 2007-13 are based on Regulation (EC) No 1698/2005 on support for rural development by the European Agricultural Fund for Rural Development, and in particular Articles 88 and 89 thereof, which contain specific provisions regarding state aid.

New European commitment for services of general interest

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New European commitment for services of general interest

Outline of the Community (European Union) legislation about New European commitment for services of general interest

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Internal market > Single market for services

New European commitment for services of general interest

Document or Iniciative

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, of 20 November 2007, accompanying the Communication on “A single market for 21st century Europe” – Services of general interest, including social services of general interest: a new European commitment [COM(2007) 725 final – not published in the Official Journal].

Summary

The Commission identifies the essential principles which may be applied to Services of General Interest (SGIs) (FR) throughout the whole European Union (EU). This Communication constitutes a reference framework for the governance of, and compliance with, the specificities of SGIs. This is the case before the entry into force of the Treaty of Lisbon and its Protocol on Services of General Interest.

Diversity of the Services of General Interest

SGIs are subject to public service obligations. It is for the public authorities at national, regional or local level to decide the nature and scope of the SGIs. Public authorities can provide these services themselves or they can entrust the responsibility of providing them to public or private entities.

For its part, the EU retains shared responsibility which enables it to regulate and define the conditions for the operation of SGIs with a European dimension.

The SGIs are divided into two categories and are governed by different European rules:

services of general economic interest (SGEIs), which are provided for remuneration, are subject to European internal market and competition rules. However, derogations to these rules may be authorised in order to ensure that the general interest is respected. Certain SGIs have a European dimension, specifically the large network industries (postal services, telecommunications, transport services and the supply of electricity and gas) and are regulated by specific European rules. In addition, European rules relating to public procurement, environmental protection and consumer protection may be applied to them;
non-economic services, such as police, justice and statutory social security schemes, are not subject to specific European legislation, nor to the internal market and competition rules.

In practice, the operation of these services often differs from one Member State to another. Furthermore, the distinction between economic and non-economic services requires case-by-case analysis of each activity.

Social services of general interest

The way in which Social Services of General Interest (SSGIs) are provided is generally personalised in order to meet the needs of vulnerable users, and is based on the principle of solidarity and equal access.

They may be of an economic or non-economic nature, including in the case of non-profit making organisations. The definition of economic activity depends essentially on the way in which the activity is provided, organised and financed, and not on the legal status of the service provider.

They are mainly:

statutory and complementary social security schemes, covering the main risks of life (health, ageing, occupational accidents, unemployment, retirement and disability);
other services provided directly to the person such as social assistance services, employment and training services, social housing or long-term care.

Modernising the European rules

The Commission commits to adopting a series of actions based on the Protocol on Services of General Interest annexed to the Treaty of Lisbon. These actions shall enable the European regulatory framework applicable to SGIs to be consolidated. The actions are based on the following objectives:

improving access to information and developing communication tools, such as the creation of an interactive information service or a single market assistance service;
adopting sectoral policies, specifically in the fields of energy, transport, e-communication, and postal, social and health services;
monitoring actions to guarantee quality, transparency and good progress.

Context

This Communication follows on from the 2004 Commission White Paper and the 2006 opinion of the Parliament which contributed to the debate and converging views on the role and approach of the EU with regard to SGIs. It also draws on the results of the public consultation on social services of general interest initiated in 2006.

Related Acts

Commission Staff Working Document – Guide to the application of the European Union rules on state aid, public procurement and the internal market to services of general economic interest, and in particular to social services of general interest [SEC(2010) 1545final – Not published in the Official Journal].

The Commission publishes a guide aimed at clarifying the European rules applicable to Services of General Interest and to Social Services of General Interest. The Commission specifies the rules relating to the freedom of establishment and the freedom to provide services in the internal market, to competition, to the Service Directive, to State aid, to public procurement and to the service concessions of public authorities.

State aid for railway undertakings

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State aid for railway undertakings

Outline of the Community (European Union) legislation about State aid for railway undertakings

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Transport > Rail transport

State aid for railway undertakings

Document or Iniciative

Community guidelineson State aid for railway undertakings [Official Journal C 184 of 22.7.2008].

Summary

The objective of these guidelines is to provide guidance on the compatibility of State aid for railway undertakings with Articles 73 and 87 of the Treaty establishing the European Community. State aid which distorts or threatens to distort competition within the Common Market is prohibited (Article 87.1 EC). Derogations are however provided for, in particular when aid promotes the economic development of the European Union in general (Article 87.3 EC).

Also, Article 73 of the Treaty provides that aids are compatible with the Treaty if they meet the needs of coordination of transport or if they represent reimbursement for the discharge of certain obligations inherent in the concept of a public service. Aid relating to Public Service Obligations (PSOs) is covered by a specific Regulation and is consequently excluded from the scope of these guidelines.

Scope

These guidelines apply to railway undertakings as well as to urban, suburban or regional passenger transport undertakings with regard to aid for the purchase and renewal of rolling stock. Public funding for infrastructure managers is not covered.

The guidelines cover the following support measures:

The support of railway undertakings by means of infrastructure funding.

The Commission considers that this type of funding may constitute aid if it allows undertakings to benefit indirectly from an advantage by lightening the burden of charges that encumber their budget. It is therefore important to evaluate whether the measure for infrastructures does actually have such an effect. Where infrastructure use is open to all potential users in a fair and non-discriminatory manner, and access to that infrastructure is charged for at a rate in accordance with Community legislation in force, the Commission considers that public financing of the infrastructure does not constitute State aid. If such financing is considered to constitute aid, it may nevertheless be authorised if the infrastructure in question meets the needs of transport coordination.

Aid for the purchase and renewal of rolling stock.

The Commission highlights the necessity of investing in the modernisation and/or renewal of the fleet of locomotives and carriages used for passenger transport. The Commission considers that such investment is indispensable to keeping rail transport competitive with other modes of transport which cause more pollution, to limiting the impact of this means of transport on the environment and to enhancing the interoperability of national networks.

The compatibility assessment of aid for the purchase and renewal of rolling stock should be made according to the common-interest objective to which the aid is contributing. Within this framework, the Commission applies rules defined for the following aid categories:

aid for coordination of transport (Article 73 of the Treaty),
aid for restructuring railway undertakings in difficulty,
aid to small and medium-sized enterprises,
aid for environmental protection,
aid relating to Public Service Obligations, regional aid.

Debt cancellation by States with a view to the financial rejuvenation of railway undertakings.

The Commission notes that the level of indebtedness of many railway undertakings remains very high, in particular in Member States who acceded in 2004, the effect of which is the limitation of their investment capacity. Under certain conditions, debt cancellation may be considered as aid compatible with the Common Market if it seeks to ease the transition towards an open railway market, without unduly distorting competition and trade between Member States.

Aid for restructuring railway undertakings.

The compatibility of State aid for restructuring firms in difficulty in the railway industry is assessed on the basis of the 2004 guidelines on aid for restructuring. These guidelines do not provide for derogations for railway undertakings. The Commission nevertheless considers that given the difficulties of the European rail freight sector, it is in the common interest that aid granted to railway undertakings in difficulty might, under certain circumstances, be considered compatible with the Treaty. Derogations will apply under certain conditions, only to the freight divisions of railway undertakings and for restructurings notified before 1 January 2010.

Aid for coordination of transport.

The concept of ‘transport coordination’, used in Article 73 of the Treaty, implies an intervention by public authorities which is aimed at guiding the development of the transport sector in the common interest. Aid for coordination of transport may be in several forms:

aid for infrastructure use;
aid for reducing external costs designed to encourage a modal shift from road to rail;
aid for promoting interoperability, and, to the extent to which it meets the needs of transport coordination, aid for promoting greater safety, the removal of technical barriers and the reduction of noise pollution;
aid for research and development in response to the needs of transport coordination.

The Commission presents in detail the method to determine eligible costs, as well as the conditions making it possible to ensure that this aid meets the conditions of compatibility mentioned in Article 73 of the Treaty. Aid for rail infrastructure use, reducing external costs and interoperability is considered as compatible when it is necessary and proportionate.

Aid for research and development is subject to specific provisions set out in Article 9 of the PSO Regulation. The Community framework for State aid for research, development and innovation applies to this type of aid.

State guarantees for railway undertakings.

The Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees sets out the legal requirements applicable to State guarantees, including in the rail transport field.

Implementation

These guidelines apply to all aid, whether or not notified, as from 22 July 2008. Member States must modify their existing aid schemes so as to comply with them by 22 July 2010 at the latest.

Context

The European Community is conducting a policy to revitalise the rail industry, by introducing conditions fostering competition on the rail transport services markets, by encouraging technical harmonisation on the European rail networks and by granting financial support in the TEN-T programme and the Structural Funds framework.

EU framework for state aid in the form of public service compensation

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EU framework for state aid in the form of public service compensation

Outline of the Community (European Union) legislation about EU framework for state aid in the form of public service compensation

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Regional policy > Management of regional policy

EU framework for state aid in the form of public service compensation

Document or Iniciative

Community framework for state aid in the form of public service compensation [Official Journal C 297 of 29.11.2005].

Summary

Public service compensation covers the costs incurred by operators carrying out public service tasks set by European Union (EU) country public authorities.

Along the years, both the Commission and the European Court of Justice (ECJ) have defined:

what state aid is but exempted (see Decision 2005/842/EC);
what state aid is not and therefore exempted (see European Court of Justice (ECJ) rulings ‘Altmark Trans GmbH ’ (2003) and ‘Enirisorse SpA ’ (2003)).

The aim of this framework is to define rules and principles which specify the conditions under which public service compensation not covered by Decision 2005/842/EC is compatible with Article 106(2) of the Treaty on the Functioning of the European Union (TFEU) (ex-Article 86 (2) of the Treaty establishing the European Community (TEC)). This framework applies to all activities governed by the TFEU, with the exception of the transport sector and the public service broadcasting sector.

Since EU countries have a wide margin of discretion regarding the nature of services that could be classified as services of general economic interest (SGEI), the Commission’s task is to ensure that EU countries do not stray from the definition of a SGEI laid down in Article 106(2) TFEU.

In this regard, the Commission proposes that EU countries’ national legislation should provide clear indications as regards:

the precise nature and duration of public service obligations;
the undertakings and territory concerned;
the nature of any exclusive or special rights assigned to the undertaking;
the parameters for calculating, controlling and reviewing the compensation;
the arrangements for avoiding and repaying any over-compensation.

Compensation may not exceed the costs of carrying out public service obligations and may only be used for the functioning of the SGEI. Public service compensation includes all advantages granted by the State in whatever form.

Compensation must be used for the operation of the SGEI concerned. Public service compensation granted for operation outside the scope of SGEI is not justified, and consequently constitutes incompatible state aid. The costs to be taken into consideration include all those incurred during the operation of the SGEI.

The revenue to be taken into account must include at least the entire revenue earned from the SGEI. The undertaking receiving public service compensation may, however, enjoy a reasonable profit. EU countries determine what amounts are to be considered reasonable profit. In this regard, they may introduce incentive criteria relating, among other things, to the quality of service provided and gains in productive efficiency.

Over-compensation constitutes incompatible state aid since it does not serve the SGEI’s function. Regular preventive checks should therefore be carried out by EU countries.

An over-compensation excess of no more than 10 % of annual compensation may however be carried into the next year. Over-compensation exceeding 10 % may exceptionally be justified if the SGEI’s function is served in the context of variable costs. This exceptional situation should be regularly reviewed and not last more than four years.

Transfers of over-compensation may take place where another SGEI is operated by the same undertaking. EU countries must ensure that such transfers are subject to proper account control and transparency according to Directive 80/723/EEC.

Public service compensation is subject to the obligation of prior notification requirement.

This framework will apply for six years following publication in the Official Journal. EU countries must bring their existing schemes regarding public service compensation into line with this framework, within 18 months of publication.

Key terms used in the act
Services of general economic interest (SGEI): activities inherently economic in nature, such as postal services, telecommunications, transport, or electricity or gas provision. They have a distinct European dimension and are thus regulated by a specific Community legal framework. They are also subject to internal market and competition rules as laid down in the Treaty on the Functioning of the European Union.

Key terms used in the act

Services of general economic interest (SGEI): activities inherently economic in nature, such as postal services, telecommunications, transport, or electricity or gas provision. They have a distinct European dimension and are thus regulated by a specific Community legal framework. They are also subject to internal market and competition rules as laid down in the Treaty on the Functioning of the European Union.

Reform of the EU State aid rules on Services of General Economic Interest

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Reform of the EU State aid rules on Services of General Economic Interest

Outline of the Community (European Union) legislation about Reform of the EU State aid rules on Services of General Economic Interest

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Internal market > Single market for services

Reform of the EU State aid rules on Services of General Economic Interest

Document or Iniciative

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 23 March 2011 – “Reform of the EU State Aid Rules on Services of General Economic Interest” [COM(2011) 146 final – Not published in the Official Journal].

Summary

Context

The package on State aid for Services of General Economic Interest (SGEI) is set to be revised. The current package includes a number of measures adopted in 2005, in particular the SGEI Decision and the SGEI Framework, in which the Commission clarified the application of Articles 106 and 107 of the Treaty on the Functioning of the European Union (TFEU) (on State aid) to compensation for SGEI.

In its communication “Towards a Single Market Act”, the Commission undertook to adopt, by 2011, a communication and a series of measures on services of general interest. The Commission has emphasised that the EU and its member countries must ensure that public services are easier to operate at the appropriate level, adhere to clear financing rules, are of the highest quality and are accessible to everyone. EU competition rules only apply to those services of general interest that are “economic” in nature.

Review of the SGEI State aid rules

The overall objective of the proposed reform of the State aid rules for SGEI is to increase the contribution that SGEI can make to the wider EU economic recovery. EU countries need to guarantee certain services at affordable conditions to their citizens, such as hospitals, education, social services, communications and transport.

In accordance with the requirements of the SGEI Decision and the SGEI Framework, the Commission has conducted a wide consultation. This included asking EU countries to report on the application of the current package on SGEI as well as launching a public consultation. Overall the consultation process concluded that the introduction of the current package on SGEI was generally welcomed and that the existing legal instruments have made a positive contribution to the overall objective of legal certainty. The consultation also, however, demonstrated the need for improvement; in particular, the need for clearer, simpler, more proportionate and more effective instruments to ensure an easier application of the rules. To achieve this, the Commission is considering basing the upcoming reform on the two key principles of clarification and a diversified and proportionate approach.

To ensure an improved clarity, the Commission is considering providing further guidance on core issues in the field of State aid rules for SGEI. Insofar as concepts are defined by the Treaty on the Functioning of the European Union (TFEU) as interpreted by the Courts, the Commission’s role is limited to providing guidance on how it understands the TFEU and the case law. The Commission considers giving guidance, inter alia, on:

the distinction between economic and non-economic activities under State aid rules and the qualification of certain entities as undertakings;
the limits that State aid rules impose on EU countries when defining an economic activity as an SGEI;
the conditions under which compensation for certain SGEI provided at local level affects trade between EU countries, thereby falling within the scope of State aid rules;
the requirements which public authorities have to follow under State aid rules when they entrust an undertaking with the performance of an SGEI;
the conditions under which compensation for SGEI does not involve State aid because the tender selects the provider at the least cost for the community or because the price charged is in line with that of an efficient and “well-run” undertaking (these two alternatives derive from the European Court of Justice’s Altmark judgment);
how to increase convergence between the application of State aid and public procurement rules;
the interplay between the rules of the package and other sector specific SGEI rules.

The current package on SGEI already distinguishes different levels of scrutiny. In a diversified and proportionate approach, the Commission is planning to differentiate to an even larger extent between different types of services depending on the extent to which State aid in these economic sectors poses a serious risk of distorting competition. This would involve:

simplification of the application of the State aid rules for certain types of social services organised by local communities, which are particular in their financing structure and objectives and which only have a minor impact on intra-EU trade;
an increased emphasis on efficiency of large-scale commercial services entrusted with public service obligations, by taking into account the efficiency and quality levels of the SGEI provider in the compensation granted.

State aid for employment

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State aid for employment

Outline of the Community (European Union) legislation about State aid for employment

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Employment and social policy > Job creation measures

State aid for employment

State aid for job creation and aid to promote the recruitment of disadvantaged and disabled workers are exempt from any obligation to notify.

Document or Iniciative

Commission Regulation (EC) No 2204/2002 of 12 December 2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment. [See amending acts].

Summary

The Regulation applies to two categories of employment aid: aid for job creation and aid to promote the recruitment of disadvantaged and disabled workers. Other types of employment aid are not prohibited, but they must be notified to the Commission in advance.

In accordance with Article 87(1) of the EC Treaty, aid exempted by the Regulation must have as its object and effect the promotion of employment, while leaving trade unaffected. Export aid is not covered by the Regulation.

Aid granted to an individual enterprise and aid which does not lead to an overall increase in the number of employees (e.g. aid to help convert temporary contracts into permanent ones) remains subject to the prior notification requirement. Enterprises which qualify for rescue and restructuring aid remain subject to the relevant EU guidelines.

The Regulation applies to all industries apart from coalmining (Council Regulation 1407/2002), shipbuilding (Council Regulation 1540/98) and transport, which remain subject to sector-specific rules.

Job creation

With regard to employment aid intended for job creation, the Regulation lays down the following ceilings:

In areas and sectors which do not qualify for regional aid, the gross aid intensity must not exceed the ceilings of 15 % in the case of small enterprises and 7.5 % in the case of medium-sized enterprises.
In areas and sectors which qualify for regional aid, the ceilings correspond to those mentioned on the regional aid maps and in the multisectoral framework for regional aid for large investment projects. In the case of SMEs, the ceiling is increased by 10 or 15 percentage points according to whether the areas are covered by point (c) or point (a) of Article 87(3). In less-favoured areas, it is these ceilings or, where appropriate, the higher ceilings provided for in Regulation 1257/1999 that apply.

Aid may be granted for a maximum period of two years, provided that the employment created:

represents a net increase in the number of employees;
is maintained for a minimum period of three years, or two years in the case of SMEs;
benefits workers who have never had a job or are unemployed.

To receive this type of aid, the beneficiary must submit an application to the Member States.

Recruitment of disadvantaged or disabled workers

The Regulation contains definitions of “disadvantaged worker” and “disabled worker” that are broad enough to include, in the case of the former, any person who is a member of an ethnic minority, a migrant or unemployed and, in the case of the latter, any person who has a physical, mental or psychological impairment.

In the case of aid to promote the recruitment of disadvantaged or disabled workers, Member States may grant enterprises aid of up to 50 % (for disadvantaged workers) and 60 % (for disabled workers) of wage costs and compulsory social security contributions over a period of one year. Aid may also be granted to compensate for the reduced productivity of such workers and to adapt premises and provide special assistance.

Cumulation

The ceilings laid down in the Regulation apply irrespective of whether the resources are national resources or EU resources. On the other hand, only aid to disadvantaged and disabled workers may be combined with other State aid or with other EU support measures, provided that this does not result in a gross aid intensity exceeding 100 % of wage costs.

Transparency and monitoring

In order to ensure effective monitoring and a sufficient degree of transparency, the Commission requires Member States:

to notify it, within 20 working days using a standard form (Annex I), of the implementation of any aid scheme exempted by the Regulation;
to maintain detailed records of aid schemes exempted by the Regulation;
to compile an annual report on the application of the Regulation (Annex II).

At the end of the period of validity of the Regulation, aid schemes exempted under the Regulation will remain exempted during an adjustment period of six months.

Regulation (EC) No 2204/2002, initially scheduled to expire on 31 December 2006, was extended a first time until 31 December 2007 by Regulation (EC) No 1040/2006, then a second time until 30 June 2008 by Regulation (EC) No 1976/2006.

Background

Within the framework of Regulation 994/98, which allows the Commission to exempt certain categories of State aid, the Regulation is designed to exempt aid for job creation and aid to promote the recruitment of disadvantaged and disabled workers in order to simplify administrative procedures.

In the light of experience gained in applying employment aid provisions, the Regulation exempts employment aid where it is intended for areas that qualify for regional aid, or for small and medium-sized enterprises (SMEs) rather than large enterprises.

The Regulation takes account, however, of the guidelines on national regional aid and of Regulation 70/2001 on State aid to small and medium-sized enterprises.

References

Act	Entry into force – Date of expiry	Deadline for transposition in the Member States	Official Journal
Regulation (EC) No 2204/2002	02.01.2003-30.06.2008	–	OJ L 337 of 13.12.2002

Amending act(s)	Entry into force	Deadline for transposition in the Member States	Official Journal
Regulation (EC) No 1040/2006	28.07.2006	–	OJ L 187 of 08.07.2006
Regulation (EC) No 1976/2006	24.12.2006	–	OJ L 368 of 23.12.2006