1. Brussels, 12 July 2006 Klaus-Otto JUNGINGER-DITTEL State aid rules and programming of Structural Fund’s programs for 2007-2013

2. Market Economy and EEC Treaty Main idea: Market economy is efficient  Improves standards of living  Strengthens European competitiveness

3. STATE AID RULES TO PROTECT INTERNAL MARKET  Objective of state aid control: Protection of the internal market against state interventions, and resulting negative effects on trade and distortions of competition Protection of the internal market against state interventions, and resulting negative effects on trade and distortions of competition  General ban on state aid (Art. 87(1) EC)

4. WHY STATE AID ?  Market mechanism  Pareto-Optimum But:  Market failure  Inefficiencies, sub-optimal allocation of resources  No equitable distribution  Necessity of state intervention  Exceptions to the general ban of state aid (Art. 87(2) and (3) EC) (Art. 87(2) and (3) EC)

5. CONTROL OF STATE AID  Member States have to submit plans to grant aid to Commission (Notification requirement, Art. 88(3) ECT)  Declaration of compatibility of aid: normally exclusive responsibility of European Commission (Art. 88 ECT)

6. Compliance of SF operations with State aid rules  « The Commission and Member States shall ensure that assistance from the Funds is consistent with the … policies …of the Community … » Art. 9(2) SF Council Reg.  « Operations financed by the Funds shall comply with the provisions of the Treaty and of acts adopted under it. » Art. 9.6 SF Council Reg.

7. Lawfullness of State aid Under State aid rules, State aid has to be lawfull:  Either approved by the Commission following a notification pursuant to Art. 88(3) ECT;  Or exempted from the notification requirement of Art. 88(3) ECT on the basis of a block exemption regulation adopted pursuant to Art. 89 ECT  Or constitute other existing aid

8. Existing aid in new Member States  Three possibilities*, **:  Aid under schemes put into place before December 1994;  Aid under schemes listed in Accession Treaty  Aid accepted under « interim mechanism », established by Accession Treaty *amendments to existing schemes  new aid ** Poland accepted appropriate measures pursuant to Art. 88(1) ECT to phase out all existing regional investment and operating aid schemes by end 2006

9. Managing Authority and compliance with State aid rules « The Managing Authority shall be responsible for managing and implementing the operational programme … in particular for: (a) ensuring that operations … comply with applicable Community and national rules for the whole of their implementation period. » (Art. 60, SF Council Reg.) (a) ensuring that operations … comply with applicable Community and national rules for the whole of their implementation period. » (Art. 60, SF Council Reg.)

10. Certifying Authority and verification of compliance with state aid rules  « The Certifying Authority … shall be responsible in particular for … (b) certifying that … (ii) the expenditure declared … has been incurred in respect of operations … selected for funding in accordance with the criteria applicable to the programme and complying with Community and national rules. » (Art. 61 (b) SF Council Reg.)

11. Audit authority and State aid rules « The audit authority … shall be responsible in particular for … (d) by 31 December each year from 2008-2013 (i)Submitting to the Commission an annual control report … (ii)Issuing an opinion, …, as to whether the management and control system functions effectively, so as to provide … reasonable assurance that the underlying transactions are legal and regular… » (Art. 62 SF Council Reg.)

12. Responsibilities of Member States  MS are responsible for setting up the management and control systems (Art. 70)  MS are to submit within twelve months a description of the systems (Art. 71(1).  This description shall be accompanied by a report by an independent body setting out the results of an assessment of the systems and giving an opinion on their compliance (Art. 71(2).

13. Respect of State aid rules: conclusions  It is the responsibility of Member States to respect State aid rules  This also applies to interventions co-financed by Structural Funds  Managing authority has to ensure lawfullness of operations, i.e. to ensure that aid –is granted in compliance with block exemption regulations, –or notified and approved by Commission, –or constitutes other existing aid.

14. DG Competition and Structural Funds’ Programming for 2007-2013 DG Competiton shifts its approach from ex-ante to ex-post control  DG Competition will limit itself in the programming exercise to ensure that the Member States and the Managing and Certifying Authorities are aware of their responsibilities under the Council Regulation and take the appropriate measures.  DG Competition will not assess the legality or compatibility of individual SF operations or measures, contained in the operational programmes.

15. DG Competition in the Structural Funds’implementation phase DG Competition will become active if  the MS fails to set up and ensure the proper functioning of the management/control system for state-aid aspects, in particular where the “compliance assessment report” raises reservations,  the Managing Authority fails to ensure compliance with state aid rules, in particular where the Certifying Authority refuses to certify compliance with Community policies  the Auditing Authority raises doubts as to the effectiveness of the management and control system, or as to the legality of operations,  in case of complaints by third parties.