Global Competition Law Centre 19 September 2005 – Brussels State Aid Action Plan: a Practitioner’s View Jacques Derenne Avocat aux barreaux de Bruxelles et de Paris Partner, Brussels

Plan Overview of the current situation Milestones of the State Aid Action Plan Specific issues –Economic analysis –Procedure –Violation of Article 88 (3) EC –Recovery

Overview of the current situation What is State aid? –Evolving concept –Creativity of Member States - Lack of EU integration "Competition & State aid"? –Competition, but specific features: –Inherently political and diplomatic procedure –Article 87 (3) EC –Complementary role of Commission & national courts –Another type of modernisation ? State aid rules –Procedure: artificial, unfair, unbalanced, ‘inefficient’ –Jungle of rules

State Aid Action Plan in 4 points Less and better targeted State aid Refined economic analysis More efficient procedures, better enforcement, predictability and transparence Better sharing of responsabilities between Member States and Commission

Roadmap 2005/06 –SGEI –Risk capital –Environment –Regional aid –Block exemption –Interest rates –R&D / Innovation –Credit insurance –Shipbuilding ___________________ –Best practices –Advocacy/recovery –Reg. 994/ /08 –Rescue and restructuring –Guarantees –Taxation –Public broadcasting –Extension BER? ________________ –Reg. 659/99? –Forms of aid –Cooperation with national courts 2009 –Existing aid

Economic analysis (I) General trends in anti-trust; what about State aid? Current system & case law –Article 87 (1) EC (Commission + national courts) Advantage not obtained in normal market conditions –Legal, objective concept - No de minimis rule Grant/use of State resources imputable to the State Potential distorsion of competition & effect on trade –No need to show real effect on competition and trade –Article 88 (3) EC: notification and suspensive effect –Article 87 (3) EC: compatibility assessment (Commission)

Economic analysis (II) At what stage should a more refined cost/benefit analysis be made? Impact of a balancing test under Article 87 (1) EC? –Effet utile of Article 88 (3) EC and Article 87 (1) EC? (the balancing test could affect qualification of State aid) –Distorsion of competition (competitors) v economic balancing test –Risk of confusion between Article 87 (1) and (3) EC More economic analysis –in Article 87 (1) EC (qualification or quantification?) –In Article 87 (3) EC (market failures, objectives, incentives) –See Frontier Economics/OFT 2004 Study

Procedure – current situation Plan to grant aid or alter aid: –No publication and no EC law compliance at national level Notification by Member States (where required) –No publication at EC level –Bilateral dialogue only (Member State/Commission) Preliminary examination by the Commission –Two month rule, Complete notification Article 88 (2) EC procedure (’18 month rule’) –Member States: rights of defence –Third parties (incl. beneficiary): no rights of defence –No oral hearing (comp. with anti-trust) Judicial review: level playing field?

Procedure – Commission’s position SAAP –General block exemption regulation Focus notification on the most distortive types of aid However, no appropriate enabling Council regulation –proposal to extend scope –give negative effect to BER –Procedure regulation Proposal for amendment (consultation in 2007…only?) Vague proposals (save time, increase transparency, ensure timely notification, achieve greater efficiency)

Procedure – Commissioner Kroes “Better State aid means better regulated State aid, with simplified rules and a reduced administrative burden” –No, better targeted but more administrative control “a true partnership with Member States” –Member States’ goals in conflict with EC law –Sometimes ignorance of applicable rules –Dichotomy between political decision-making and legal compliance “private complainants may be our best friends” - “competitors could become our best allies” –Third parties ignored by the law; not in a position to influence –No clear proposal to enhance their role and situation –What about beneficiaries?

Procedure – Proposals? (I) Widening scope of BER –Avoid ‘swimming pool syndrome’ Notification –Clarify scope of Article 88 (3) EC (see below) –A priori control by independent national bodies (prevention, filter) –Clarify notification stage (administrative act, legislative act, other) –Provide Commission with detailed information in EN (legal context, economic study, justifications) –Immediate publication in the OJ –10-day period for observations (comp. ECMR) –What about ‘notification’ / information from beneficiaries? (legal certainty)

Procedure – Proposals? (II) Preliminary examination (Article 88 (3) EC) –Involvement of third parties, including beneficiaries –Powers of inspection (beneficiaries) –Market enquiries, request for information (beneficiaries, third p.) –Beneficiaries’ & complainants’ rights – access to Commission –Contradiction to some extent ‘Contradictory’ procedure (Article 88 (2) EC) –Exchange of briefs – change notice into a SO –Oral hearing similar to ECMR/anti-trust procedure –Strict deadlines (ECMR) Existing aid –Increased transparency of Commission’s actions Unlawful aid: increased powers

Procedure - provoking ideas Article 87 (1) EC v. Article 88 (3) EC (I) Should only "State aid" be notified under Art. 88 (3) EC ? Thesis: scope of Article 88 (3) EC = any measure likely to constitute State aid (‘ any plan to grant or alter aid’; “ projets tendant à instituer ou à modifier des aides ”) National courts should: –not qualify measures –only verify if there was a notification and if, at the time of grant, the measure was likely to be qualified as State aid (eg, at least the first two conditions of Art. 87 (1) EC and no compliance with BER) Effectiveness of Article 88 (3) EC

Procedure - provoking ideas Article 87 (1) EC v. Article 88 (3) EC (II) Some supporting elements: –AG Slynn (van der Kooy, p. 255) : scope of 88 (3) EC wider than 87 (1) EC –AG Lenz (B. v Commission, Namur-Les Assurances du crédit) –SFEI, 1996, §§ 48 and 62 – confusion § 49 (Steinicke, § 14) –Pearle: "plans to grant or alter aid" § 31 and AG §§ –Communication on the sale of land –Privatisation (XIII Report on Competition, 1993) –Streekgewest: Article 88 (3) EC may be relied on by a litigant who is not affected by distortion of cross-border competition arising from an aid measure

Violation of Article 88 (3) EC SAAP: –promotion of advocacy to encourage full use of Article 88 (3) EC by national judges –Commission’s study on this first aspect of enforcement of State aid law at national level Situation: –Few cases (but steady increase as compared to 1999), although more than in anti-trust… –Beneficiary v State –Competitors/third parties v State –Competitors v beneficiary –National courts (administrative, civil), Commission, ECJ/CFI

Article 88 (3) EC – Remedies? (I) Private enforcement –Much more complex than in anti-trust law –Multiple actors (State – legislator, administration, recipient) –Individual aid v aid schemes Locus standi of complainants –Article 88 (3) EC protects not only competitors but also any third party affected by the violation (Streekgewest) –Beyond competition litigation: procedural compliance –Private action overcomes conflict of interest of Member State Interim relief –Obstacles remain, mainly in administrative procedures –Primacy of EC law – conflicting national rules to be set aside?

Article 88 (3) EC – Remedies? (II) Proving causation and loss in damages cases –Promote damages cases v State (incl. legislator) & beneficiaries Primacy of EC law (Factortame, Peterbroeck, Van Schijndel) Brasserie du Pêcheur (Art. 88 (3)) & liability under national law SFEI § 71 (B & F examples) –Clarify rules re damages v recovery of aid (beneficiary v State) Clarify rules to determine legal basis of action –Article 88 (3) EC v Article 87 EC (public policy rules) –Commission decision (if definitive) Clarify rules in insolvency proceedings –State’s claim - administrative receiver

Recovery SAAP –Improve enforcement of recovery decisions, monitor compliance by Member States, enforcement at national level of negative decisions –Commission’s study on this second aspect of enforcement of State aid law at national level Situation –Article 14 (3) Reg 659/1999 –52 cases -national level- 96 pending recovery cases -EC level –Inherent conflict of interest of Member States Challenge of negative decision before CFI Some cases of bad faith –Wide variety of recovery methods pursuant to national law –Recovery after sale of beneficiary (Seleco, Banks, SIM, Olympic)

How to improve recovery? (I) Recovery takes (too much) time Clarify negative decisions –amount, identification of beneficiaries, method of reimbursement Recurrent arguments rejected by case law “provided that” rule (Art. 14(3) Reg 659) - Primacy Lessons from some national procedures –automatic suspensory effect for action against recovery order by grantors violation of Article 242 EC and/or Article 10 EC ref to Atlanta, Zuckerfabrik - where is primacy of EC law? More systematic use of “TWD recovery rule” –make positive decisions dependent on enforcement of negative decisions?

How to improve recovery? (II) “Reverse TWD 94 rule” in national proceedings: –inadmissibility of any claim against national recovery order if negative decision definitive (not challenged, and manifestly admissible to challenge it or challenged on compatibility only)? Recovery pending challenge against negative Commission decision –decision to stay national proceedings (either action for recovery by the State or by the competitor, or unfair competition procedure, action for damages) –Masterfoods in State aid? What about SFEI (efficiency)? –what if decision annulled thereafter?

How to improve recovery? (III) Harmonize recovery procedures through Community legislation? Commission, an amicus curiae? Cooperation Notice –Best practice approach –Specify complementary roles –Minimum remedies (interim relief) National Surveillance Authority –Independent (NCA? – ex. of new MS with pre-accession national State aid legislation) –Preventive (notification – monitoring parliamentary procedure, federal/regional gov. action)

Global Competition Law Centre 19 September 2005 – Brussels State Aid Action Plan: a Practitioner’s View Jacques Derenne Avocat aux barreaux de Bruxelles et de Paris Partner 523, avenue Louise B-1050 Brussels T.: F.: