State Aid Control: Are the Standards and the Institutional Setting Appropriate?

Abstract

The European Union (EU) is one of the few jurisdictions in the world that has introduced specific legal provisions for controlling State aid. The Treaty provisions are structured in such a way that the Commission is in principle obliged to authorize every single grant of aid. This has proven to be practically impossible, the more so today with 28 EU members. As a result, the Commission has issued a number of exemption and de minimis rules, for which notification is not required, aimed at ensuring a fast track for compatibility. Compatibility, however, is too often (wrongly) confused with optimality and much of State aid, while compatible, may not be optimal. The European Commission has made some effort to remedy this. For example, the modernization of State aid rightly enhanced the role of economic analysis and the need to identify a market failure before State aid is granted. This means rethinking the way individual decisions are taken, but also introducing some changes to the block exemption regulations.

One important step forward would be to subject a State aid decision to a competition assessment analysis, comparing State aid with other ways of addressing the identified market failure (regulatory reform, taxes, etc.). Such an approach, where the counterfactual is an alternative policy intervention, promoted by the OECD, is complementary to the EU provisions (where the counterfactual is the absence of the aid) and could be adopted domestically by all Member States. Furthermore, national competition authorities could be given an enforcement role, as in Denmark and Sweden, for State aid that falls within the de minimis definition. There are indeed some instances where such aid, contrary to what is presumed, may actually restrict competition. Finally, national competition authorities could be involved in the ex post evaluation of the results achieved by authorized State aid schemes or by specific individual authorization decisions. The Commission is already promoting such ex post evaluations, and the more ex post analyses are available the greater the information on the efficacy of State aid, information that could strongly influence the way the rules are interpreted and applied.