DG Competition 1 Regional State aid Review of the regional aid guidelines

DG Competition 2 Main policy objectives o Concentration of regional aid to investment in the least favoured regions o Competitiveness and growth of all European regions, including flexibility for Member States and regions to pursue local regional policy o Continuity; a smooth transition from the current rules

DG Competition 3 Current rules: RAG o Basic principle: exceptional nature of regional aid u Overall coverage of 42.7% of Community population (EU-15) u Criteria for allocating the Community ceiling between Member States u Criteria for selection of regions: s Article 87(3)(a) less than 75% EU GDP/cap. Broad coherence with objective 1. s Article 87(3)(c) based on indicators chosen by MS. No coherence with Objective 2.

DG Competition 4 Impact of enlargement o Overall coverage increased from 42.7% (EU-15) to 52.2% (EU-25) o (a) regions from 22.0% to 34.2% o (c) regions from 20.7% to 18.0% o Coverage would rise to 55.1% in EU 27

DG Competition 5 The context of the revision o The current maps expire on o DG COMP made use of u Conclusions of European Councils u Comments submitted by Member States u Consultations with EP and CoR u Experience with the present RAG, aid maps and aid schemes u Literature (surveys, studies and academic papers) on the economics and effectiveness of regional aid u The Third Cohesion report

DG Competition 6 Conclusions of European Councils o The Lisbon, Gothenburg, Stockholm and Barcelona European Councils: less and better-targeted State aid o Questions u Is the award of aid for initial investment and linked job creation really the most effective way of promoting cohesion? u Can the aid levels allowed under the present guidelines be reduced without decreasing the effectiveness of such aid?

DG Competition 7 The Third Cohesion report o Three main objectives: convergence, regional competitiveness and employment, and European territorial co-operation u Convergence will be promoted by supporting growth and job creation in the least developed Member States and regions u Regional competitiveness and employment will be promoted by supporting a limited number of domains of intervention: innovation and the knowledge economy, environment and risk prevention, accessibility and services of general economic interest o The choice of a thematic approach rather than one based on selected geographic areas (map- based approach) allows for coherence between regional and competition policies

DG Competition 8 A new approach to regional policy o Shifting from subsidies that temporarily compensate for regional disadvantages to the provision of public goods and incentives permanently increasing the potential of regions to growth u Regional investment aid to the poorest regions u Operating aid in limited cases u Phasing out of regions that lose eligibility to Article 87(3)(a) u [Possibility for Member States to designate a limited proportion of their territory for Art 87(3)(c) coverage??] u Horizontal thematic approach for the rest of the territory

DG Competition 9 The different classes of regions post 2006 o Article 87(3)(a) regions ie less than 75% average EU- 25 GDP/cap o Statistical effect regions (phasing out regions) ie less than 75% average EU-15 GDP/cap (82.2% EU-25 GDP/cap) o Economic development regions (ex (a) regions with more than 75% average EU-15 GDP/cap o Low population density regions less than 12.5 inhabitants km² o Possibly other Art 87(3)(c) regions o Non-assisted regions

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DG Competition 11 December 2004 proposal o Population coverage proposed 35.29% u Article 3a areas: 27.26%, of which s GDP below 45%, 40% aid: 7.37% s GDP below 60%, 35% aid: 6.03% s GDP below 75%, 30% aid: 13.86% u Statistical effect regions: 4.01% u Economic growth regions: 3.53% u Other low population density areas: 0.49% o Bonuses u Small companies + 20% u Medium companies + 10%

DG Competition 12 Proposed standard aid intensities (GGE) LargeMediumSmall 87(3)(a) 45% GDP40%50%60% 87(3)(a) 60% GDP35%45%55% 87(3)(a) 75% GDP30%40%50% 87(3)(c) statistical30%15%40%25%50%35% 87(3)(c) low pop20%30%40% 87(3)(c) ec dvlpt15%25%35% Non-assisted areas-10%20%

DG Competition 13 Aid in non-assisted regions o No regional investment aid for large enterprises o Greater flexibility pro-Lisbon activities of large enterprises; R&D, innovation, environmental investments, training etc o Significantly more flexible regime for SMEs

DG Competition 14 Reaction of Member States o Four key groups of Member States u EU 10 – want aid concentrated on them and highest possible intensities u The current cohesion countries (ESP, GR, Port) want to keep existing advantages u The nationalists (Fr, De, Ös, UK+Lux) want scope for a national regional aid policy u The less-aid group, (Dk, Nl, Sv + It) basically support COM

DG Competition 15 From the July 2005 Proposal to the final guidelines Proposed coverage EU % 42% + 50% safety net o Article 87(3)(a)27.7% o Statistical effect 3.6% o Economic development + low population density4.0% o Additional (c) allocation6.7% o 50% Safety Net1.1%

DG Competition 16 The amended proposal for Areas eligible for Article 87(3)(a) o Aid for large companies in NUTS II regions with GDP/cap below 75% of the EU-25 average u GDP below 45%: 50% gross u GDP below 60%: 40% gross u GDP below 75%: 30% gross o Bonuses u Small companies + 20% u Medium-sized companies + 10%

DG Competition 17 The amended proposal for Areas eligible for Article 87(3)(a) o Outermost regions u GDP below 45%: n/a u GDP below 60%: 40% + 20% gross Guyane u GDP below 75%: 30% + 20% gross Açores, Guadeloupe, Martinique, Réunion u GDP above 75%: 30% + 10% gross Canaries, Madeira o Plus SME Bonuses

DG Competition 18 Statistical effect regions o Retain (a) status until (2010) aid intensity 30% gross + SME bonuses o Review in 2009 (2010) based on most recent data o Regions < 75% EU-25 GDP retain (a) status until 2013 o Other regions move to (c) status u aid intensity 20% gross + SME bonuses u Operating aid to be phased out by

DG Competition 19 Article 87(3)(c) regions o Flexibility for Member States to select (c) regions, subject to: u Respect of overall allocation u Conditions of eligibility o Economic development and lpd regions no longer earmarked

DG Competition 20 Article 87(3)(c) regions - allocation o Economic development regions o Low population density regions o 6.7% allocated to Member States by method used in 1998 based on disparity within Member States, using data available in April 2005 u GDP data u unemployment data o Additional allocation to ensure no Member State looses more than 50% of its 1998 coverage

DG Competition 21 Article 87(3)(c) regions - eligibility o Economic development regions: o Low population density regions o Less prosperous areas: u GDP < 100% GDP, or u Unemployment > 115% national average o Regions adjacent to an (a) region, or 3rd country o Regions of 50,000 + undergoing major structural change or in relative decline o Small islands (less than 5000 inhabitants) o Pockets of deprivation (SME aid only) u Minimum population 20,000

DG Competition 22 Article 87(3)(c) regions – aid intensities o Statistical effect (c) regions 20% o Other regions, normally 15% gross o Reduced to 10% gross for less prosperous areas with: u GDP > 100% GDP, and u Unemployment < 100% EU-25 average o May exceptionally be increased in regions adjacent to (a) regions or third countries to ensure disparity does not exceed 20% o Transitional rules for economic development regions

DG Competition 23 Transitional provisions o Phasing in of reductions in aid intensity, for: u (a) regions > 15% reduction u economic development regions o Transitional safety net; 66% of current (c) coverage for 2 years o Two years to phase out operating aid

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DG Competition 25 RAG, scope and sensitive sectors o No major changes to scope: RAG apply to all sectors except: u Coal, Fisheries, Production of agricultural products o Prohibitions on regional investment aid: u Steel (except SMEs), Synthetic fibres o Apply subject to special rules to u Transport, shipbuilding, agricultural processing and marketing o No other sensitive sectors for investment aid

DG Competition 26 Conditions for granting regional investment aid – main changes o Clarification of definition of initial investment o Rules on incentive effect o Maintenance of the investment for at least 5 years (reduced to 3 years for SMEs) u Member States may impose longer periods o Rules on discounting

DG Competition 27 Eligible expenses for investment aid – main changes o Land, buildings, plant and machinery no standard base o Clarification of rules on leasing o Moveable assets should be new exceptions; SMEs and takeovers o Consultancy costs for SMEs o More generous treatment of intangible assets: up to 50% of eligible costs for large firms

DG Competition 28 Large investment projects o Integration of MSF into RAG o Automatic scaling down mechanism for eligible expenses over 50m u m -50% of normal aid intensity u > 100m - 34% of normal aid intensity o Transparency mechanism for eligible expenses > 50m o Notification threshold – aid exceeds maximum allowed for a project with 100 m eligible expenses o In depth assessment of investment aid where; u Beneficiary has more than 25% market share or u Capacity increase >5% in a declining market

DG Competition 29 Transparency o Obligation to publish all regional aid schemes on the internet Possibility to exclude costs incurred before publication of the scheme from eligible costs

DG Competition 30 Operating aid o Permanent handicaps of the outermost areas u Possibility of a safe-harbour for operating aid in outermost regions, up to 10% of turnover. o Permanent transport aid in the outermost and low population density areas o Permanent aid to offset depopulation in the least densely populated areas o Temporary and degressive operating aid to offset bottlenecks in 3(a) areas o Exclusion of operating aid to financial services sector o Transitional phasing out of operating aid in areas loosing 3(a) status over 2 years

DG Competition 31 Enterprise aid o New form of aid to encourage business start-ups in the assisted areas o Widely defined eligible expenses in first five years of start-up o Maximum 3m per enterprise in (a), 2m per enterprise in (c) o 1m bonus for (a) regions < 50% EU-GDP, low population density regions and islands o Intensities years 1-3years 4-5 (a) 35% 25% (c) 25% 15%

DG Competition 32 Next steps o Adopted by Commission, end 2005 o Proposals for appropriate measures o Maps approved by COM, 1st semester 2006 o Exemption regulation for transparent regional investment aid, Oct 2006 o Examination of regional aid schemes 2nd semester 2006

DG Competition 33 o The State aid action plan Aid outside the assisted areas