1. Business environment in the EUPrepared by Dr. Endre Domonkos (PhD) 1st Semester, Academic Year 2011/2012

2. I. Monitoring state intervention Competition in the common market can be distorted not only by the behaviour of undertakings, but also by State intervention. It is obvious that State intervention may involve a conflict of interests between the economic operators benefiting from such intervention and their competitors in the Member States, which will be placed in a less favourable position and will press their government to redress the situation. In fact, as other forms of protectionism diminish, the importance of State aids as an anti-competitive mechanism tend to grow. Indeed, the four largest Member States account for 88% of all aid granted in the Union. The Commission processes more than one thousand aid applications every year.

3. II. The notion of State aid A company which receives government support obtains an advantage over its competitors. Therefore, the EC Treaty generally prohibits State aid unless it is justified by reasons of general economic development. To ensure that this prohibition is respected and exemptions are applied equally across the European Union, the European Commission is in charge of watching over the compliance of State aid with EU rules. As a first step, it has to determine whether a company has received State aid, which is the case if the support meets the following criteria: By contrast, general measures are not regarded as State aid because they are not selective and apply to all companies regardless of their size, location or sector.

4. III. Compatible and incompatible aids I. Article 87 of the EC Treaty stipulates that „any aid granted… which distorts or threatens to distort competition by favouring certain undertakings or the production of certain gooods shall, in so far as it affects trade between Member States, be incompatible with the common market.” The Commission has devised a mechanism for fixing and revising the reference rates used to calculate the grant equivalent of aid. However under the „de minimis” rule, aid of less than EUR 100 000 over three years is judged not to affect trade between Member States and thus need not be identified to the Commission. Paragraph 2 of Article 87 considers that the following shall be compatible with the common market, provided that aid is granted without discrimination related to the origin of the products concerned.

5. III. Compatible and incompatible aids II. Paragraph 3 of Article 87, for its part, stipulates that the following may be considered to be compatible with the common market: The Council has empowered the Commission to adopt block exemption regulations for certain categories of horizontal aid. A Commission decision of 22 July 1998 clarifies the circumstances in which public funding for training may be caught by the competition rules on State aid and sets the criteria which it applies in ascertaining whether such aid is compatible with the common market. The Commission may adopt a position on the possible application of one of the above derogations from the incompatibility of aid. The Member States are obliged, under Article 88 paragraph 3 of the EC Treaty to inform it in sufficient time, through a detailed questionnaire, of any plans to grant new aid or alter existing aid. Such aid may not be granted by Member States until the Commission has taken a final decision on it.

6. III. Compatible and incompatible aids III. Council Regulation lays down detailed rules for the application of Article 88 of the EC Treaty. Under the procedure of monitoring national aids, the Commission gives notice to the Member State proposing to grant aid to submit its comments within a given time limit, normally set at one month. The other Member States are also invited to submit their comments on the proposed aid in question, as are other interested parties. The Commission may decide either not to object to the proposed aid or to require that it be abolished or to call for certain alterations to be made to it. If the Member States concerned is not in agreement with the Commission’s decision it may, within two months, refer the matter to the Court of Justice.

7. IV. General aids I. Aid from which any undertaking whatsoever can benefit, without regard to its geographical location or to the sector to which it belongs, is regarded as general aid. The Commission has to be able to verify, prior to their being granted, the general aids are in response to genuine economic and social needs, that they lead to an improvement in the structures of beneficiary undertakings and that they do not give rise to problems at Community level. The Commission tries to prevent aid that does not pursue clearly defined objectives. The Commission systematically prohibits State export aid within the Community and normally prohibits aid, which does not have a counterpart in the Community interest.

8. IV. General aids II. However, certain general aids are granted to achieve legitimate objectives and may be approved by the Commission under certain conditions, specified in its communications. In addition to regional development aids, this is generally the case for research and development aids, aids in favour of small and medium- sized enterprises, environmental protection aids, aids for rescuing and restructuring firms in difficulty, vocational training aids for employment. The Commission established since 1986 a Community framework for State aids for research and development. In order to reduce red tape, prior notification is required only for individual research projects costing more than EZR 25 million and benefiting of more than EUR 5 million in aid.

9. IV. General aids III. The Commission authorises subsidies helping companies adapt to environmental standards. The Community framework is designed to ensure that State aid granted for environmental purposes complies with the „polluter pays” principle and is consistent with the internal market and the Community’s competition policy. Aids granted to assist companies facing a particularly difficult market situation, such as structural overcapacity, are accepted only in exceptional circumstances. The Community guidelines on State aid for rescuing and restructuring firms in difficulty set out the Commission’s approach to examining aid of this type.

10. IV. General aids IV. Vocational training aid is exempt from the notification requirement. The Commission regulation on the application of Articles 87 and 88 of the EC Treaty to State aid for employment allows Member States to grant aid for job creation and the recruitment of disadvantaged or disabled workers without having to apply for prior authorisation from the Commission. Other types of employment aid are not prohibited but require prior notification. In force until 2006, the regulation introduces a block exemption system for both types of State aid mentioned above, up to certain ceilings so as to avoid any distortional effects. It covers selective measures for certain sectors or regions, and not general employment-policy measures, which do not constitute State aid.

11. V. Regional aid Article 87(3)(a) of the Treaty applies State aid to promote the development of „areas where standard of living is abnormally low or where there is serious underemployment”. This is why Article 87 (3)(a) status is granted on the basis of an EU criterion (NUTS II regions with a GDP per capita (PPS) lower than 75% of the EU 15-average GDP per capita (PPS) are also eligible under Article 87 (3) (a). Article 87(3)(c) of the Treaty covers aid to other types of (national) problem regions „aid to facilitate the development of … certain economic areas”. The list of regions qualifying for this exemption is also decided by the Commission, but on a proposal by Member States.

12. VI. Sectoral aids I. The Commission’s policy on sectoral aids: The „Community framework” encompassing national measures may therefore be elaborated when the conditions in a sector so dictate. The „Community framework” includes guidelines for the objectives to be attained at Community level and a description of how to achieve that. The framework for aids to sectors in crisis could generally be based on the criterion of „overcapacity”. In February 2002, the Commission considered that the specific sectoral frameworks should be integrated into a multisectoral framework. It has therefore approved the recasting of the rules applicable to regional aid to large investment projects.

13. VI. Sectoral aids II. Under this framework no advance notification of aid below certain thresholds for large investment projects is required, provided that aid is granted in accordance with a regional aid scheme approved by the Commission. In the field of aid to shipbuilding a Council Regulation implements the provisions of the OECD Agreement. In the field of a maritime transport sector, the Commission adopted new guidelines for State aid. The Steel Aid Code applies to steel firms the Community rules applicable to aid for research and development and for environmental protection with a view to ensuring fair competition in this particularly sensitive industry.

14. VII. Public undertakings I. The public sector, made up of public undertakings, joint ventures and undertakings controlled by the public authorities by means of holdings, varies in size from one EU country to another. While remaining neutral with regard to the legal position on ownership in the Member States, the EC Treaty stipulates, in Article 86, that „in the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measures contrary to the rules contained in this Treaty…”. Such undertakings therefore have the same obligations as private firms, including those laid down in Article 12 (prohibition of discrimination on grounds of nationality) and 81 to 89 (rules of competition). However, Article 86(2) allows exceptions to the rules of competition of the Treaty in favour of public utility undertakings.

15. VII. Public undertakings II. Indeed, governments grant certain public enterprises statutory monopoly protection. These exclusive rights could prevent, however, the creation of a real internal market in the sectors in question, if Member States could protect from competition their monopolistic enterprises. Member States must, therefore, not take measures, which could lead their public enterprises enjoying monopoly rights to infringe Community rules on competition or the free movement of goods and services. The Commission’s Directive obliges Member States to supply the Commission, at the latter’s request, with information on public funds made available directly or indirectly to public undertakings.

16. VII. Public undertakings III. The Commission recognises that the operation of services of general economic interest – in the sense of Article 86(2) of the EC Treaty – must not be prejudiced. Commission directives have paved the way for liberalisation in the satellite telecommunication sector. The Commission Directive (Directive 88/301) on free competition on the Community markets in telecommunications terminal equipment. The Commission Directive (Directive 2002/77) on competition in the markets for electronic communications networks and services.

17. VIII. Application of State aid law by national courts I. The Commission Notice on the enforcement of State aid law by national courts, adopted in April 2009, underlines the key role of national courts in the enforcement of European State aid law. They may be called upon to apply State aid law in a variety of scenarios: Article 88(3) of the EC Treaty provides that Member States may not implement new State aid measures before they have been approved by the Commission ('standstill obligation'). National courts also play an important role in the enforcement of recovery decisions adopted by the Commission under Article 14(1) of Council Regulation (EC) No 659/1999. The General Block Exemption Regulation, which entered into force in August 2008 and has direct effect in the Member States' legal systems, could also give rise to disputes before national courts.

18. VIII. Application of State aid law by national courts II. In this context national courts may have to assess whether a certain aid measure meets a certain requirement of the Regulation or not, so that no individual notification is necessary and the standstill obligation under Article 88(3) of the EC Treaty does not apply. When called upon to apply State aid rules to a case pending before it, a national court must respect any relevant Community rules in the area of State aid and the existing case law of the Community courts. Cooperation with the Commission: The Commission is committed to support national courts where they need assistance in reaching a decision on a pending case. Commission support to national courts can take two different forms:

19. IX. Request for information or opinion on State aid issues Given the key role which national courts play in the enforcement of the State aid rules, the Commission is committed to helping national courts where the latter find such assistance necessary for their decision on a pending case, as is stated in the Commission Notice on the enforcement of State aid law by national courts. The Commission thereby wishes to make a fresh attempt at establishing closer cooperation with national courts. When supporting national courts, the Commission must respect its duty of professional secrecy and safeguard its own functioning and independence. In fulfilling its duty under Article 10 of the EC Treaty towards national courts, the Commission is therefore committed to remaining neutral and objective.

20. IX. Request for information I. A national court may, inter alia, ask the Commission for the following types of information in its possession: Information concerning a pending Commission procedure; In the absence of a decision, the national court may ask the Commission to clarify when this is likely to be adopted. In addition, national courts may ask the Commission to transmit documents in its possession. In transmitting information to national courts, the Commission needs to uphold the guarantees given to natural and legal persons under Article 287 of the EC Treaty.

21. IX. Request for information II. Articles 10 and 287 of the EC Treaty do not lead to an absolute prohibition for the Commission to transmit to national courts information covered by professional secrecy. The duty of loyal cooperation requires the Commission to provide the national court with whatever information the latter may seek. There are further scenarios where the Commission may be prevented from disclosing information to a national court. In particular, the Commission may refuse to transmit information to a national court where such transmission would interfere with the functioning and independence of the Communities. The Commission will endeavour to provide the national court with the requested information within one month from the date it receives the request.

22. X. Request for opinion I. A national court may ask the Commission for its opinion on economic, factual and legal matters concerning the application of the State aid rules. Possible subject matters for Commission opinions include, inter alia: Such opinions can relate to each of the criteria under Article 87 of the EC Treaty. Whether a certain aid measure meets a certain requirement of a Block Exemption Regulation so that no individual notification is necessary and the standstill obligation under Article 88(3) of the EC Treaty does not apply. Whether a certain aid measure falls under a specific aid scheme which has been notified and approved by the Commission or otherwise qualifies as existing aid.

23. X. Request for opinion II. Where the national court is required to order the recovery of interest, it can ask the Commission for assistance as regards the interest calculation and the interest rate to be applied. The legal prerequisites for damages claims under Community law and issues concerning the calculation of the damage incurred. Moreover, unlike the authoritative interpretation of Community law by the Community courts, the opinion of the Commission does not legally bind the national court. Timing The Commission will endeavour to provide the national court with the requested opinion within four months from the date it receives the request.

24. XI. Provisions in the field of State aid in the Treaty of Lisbon The Treaty of Lisbon made some modifications in the field of State aid. The Treaty of Lisbon amended the list of state aids which were compatible with the internal market in relation to cases when a Member State might grant aid automatically, and when the Commission might authorise such aid. The first group includes three cases: In the category on non-automatic aid, for which the Member State requires permission from the Commission, the Treaty of Lisbon adds aid to promote economic development of the overseas territories of Guadeloupe, French Guiana, Martinique, Réunion, the Azores, Madeira and the Canary Islands.

25. Conclusion The Commission tries to ensure that aid to undertakings does not constitute the resurgence of protectionist measures in a new form. For the majority of State aid cases, the most relevant exemption clauses are those of Article 87(3)(a) and 87(3)(c) of the Treaty: The State aid exemptions are the followings: State aid reforms aims to redirect aid to Lisbon-related objectives, such as R&D&I, risk capital measures, training, renewable energy/climate change and other measures for protection of the environment. State aid control is important because it contributes to avoid a wasteful use of public resources.