IP/02/242
Brussels, 13 February 2002
Commission approves overhaul of rules on large investment aid, including in automobile and synthetic fibres sectors
The European Commission today approved a major reform to establish a faster, simpler and more accountable control system of Government support to large investments in the EU. The so-called "Multisectoral Framework on regional aid for large investment projects" will create greater transparency and reduce the overall level of subsidies granted in the European Union, to the benefit of a healthy competition and taxpayers alike. The new Framework will enter into force on 1 January 2004; for the motor vehicle and the synthetic fibres sector it will enter into force already on 1 January 2003. Both aspects, i.e. increased transparency and a significant aid reduction, are in line with the conclusions of the European Council in Stockholm, which requested Member States to reduce State aid. The reform will increase the responsibility of Member States in the implementation of State aid rules. At the same time, the rules will guarantee the effective control of State aid levels in a larger and more heterogeneous Community.
"The main purpose of the new framework is to limit the subsidy race between European regions for attracting major projects. Such 'subsidy auctions' certainly are against the common European interest", EU Competition Commissioner Mario Monti explained. "The new Framework will apply in the same way all over the Community. For each region, it will introduce the same reduction scale in order to limit the distortive effects of considerable amounts of aid granted to large projects, while maintaining the differentiation between aid levels for regions with different regional disadvantages."
The Commissioner also commented on the increased transparency and rapidity introduced by the revised rules: "Compared to the present system, the notifications will be much simpler to prepare and fewer projects need to be submitted to the Commission. For notified projects, the assessment will be much more rapid than it is today. The Commission will only verify that the project is not likely to cause serious distortion of competition using much simpler criteria than the current ones. In addition, everybody will know from the outset how much aid the company can obtain. This will be an important improvement with respect to the present rules that give no certainty as regards the final authorised aid amount."
Finally, Mr Monti reiterated the reasons for adopting new rules. "Our experience with the current framework has been disappointing: The rules are not transparent enough. Cases require a lot of work and time. The resulting aid levels have been unpredictable and generally too high to prevent unjustified distortions of competition."
Reasons for specific State aid rules for large projects
The need for a restrictive approach on regional aid to large-scale and mobile investment projects (i.e. projects which the company concerned could carry out in various locations) is widely acknowledged. The completion of the single market makes it more important than ever to maintain tight controls on State aid for such projects:
- the distorting effect of aid is magnified as other government-induced distortions of competition are eliminated and markets become more open and integrated;
- large investments are less affected by region-specific problems of disadvantaged areas;
- moreover, companies making large investments usually possess a considerable bargaining power vis à vis the authorities granting aid, which may lead to a spiral of increasingly generous promises of aid, probably to a level much higher than what is necessary to compensate for the respective regional handicaps.
In order to address these specific concerns, the Commission introduced an instrument, the "Multisectoral framework on regional aid for large investment projects" that has been applied since September 1998. The present reform is based on the experience in applying that framework over a period of more than three years.
Remedies to the shortcomings of the present rules
Firstly, the current framework did not, contrary to its intentions, have a significant impact on State aid levels for large investments. The new system will reduce aid levels according to a scale based on the size of the investment. Secondly, the different rules for specific sectors (like motor vehicles and synthetic fibres) are complex to apply and have led to a lack of homogeneity. Their integration into the new framework will radically simplify the existing legislation and increase the transparency of State aid control. Thirdly, the utilisation of a much simpler instrument will reduce the administrative burden for administrations at all levels (national, regional, local) and will enhance the predictability of decisions of allowable aid amounts for investors and administrations alike. And fourthly, in order to prevent serious distortions of competition, the new Framework provides for stricter rules for sectors suffering from structural problems.
Time to prepare for the changes
In view of the substantial changes that the reform entails, the new Framework will only be applicable as from 1 January 2004. Member States will therefore dispose of sufficient time to prepare for it and to ensure that investment plans that were designed under the old rules can still be implemented as foreseen. The new framework will apply until 31 December 2009.
Reduced aid levels…
Under the new Framework, the starting point for determining the admissible aid level for a specific project remains the aid ceiling laid down in the Regional aid maps agreed between the Commission and the Member States. These aid maps, which are valid until the end of 2006 (end of 2003 in the case of Germany) identify the regions where investments are eligible for support from national or regional coffers, together with the maximum aid intensity (expressed in percentages of the investment) for each area.
According to the new framework, the actual aid intensity that a large project can receive will then be automatically reduced in accordance with the following reduction scale:
|
Size of the project | ADJUSTED Aid ceiling |
| Up to € 50 million | No reduction. 100% of regional State aid ceiling |
| For the part between € 50 million and € 100 million | 50% of regional State aid ceiling |
| For the part exceeding € 100 million | 34% of regional State aid ceiling |
…but no drying up support where it is needed and makes sense
This system is easier to apply, more transparent and more predictable than the rules it replaces. It also respects the differences in economic development between the regions or their particular structural problems, since these are already taken into account in the different regional aid ceilings which, once more, remain at the basis of the system. A big investment in a region suffering from serious problems will continue to be eligible for more aid than the same investment in a region with less serious disadvantages.
Large investments will still be able to receive large amounts of aid under the new system. For example, a large corporation investing € 100 million in one of the German New Länder could still get around € 25 million of tax-payers money. Such large amounts of public money still constitute very powerful incentives. Moreover, the Commission's experience shows that large investments have often taken place with low aid levels.
The new Framework also recognises that large investments can effectively contribute to regional development. That is why it includes a cohesion bonus that will be granted to large projects co-financed by the EC structural funds. For such projects, the allowable aid intensity calculated under the above scale will be multiplied by a factor of 1.15. In so doing, the new system will take into consideration the value-added of these large co-financed projects for the economic and social cohesion of the Community. This approach strikes a good balance between the objective of reducing the most distorting types of State aid, on the one hand, and the cohesion objectives laid down in the Treaty, on the other.
Some projects still to be notified and assessed individually
Below an investment amount of € 100 million, there will not be any notification requirement. However, the Commission will exercise an ex-post control, by way of reports to be submitted by the Member States, as to the respect of the new rules. Above € 100 million, the notification of individual cases will be compulsory only if the aid proposed is higher than what a € 100 million project could obtain as a maximum amount by applying the above reduction scale.
Example: In an area with a regional aid ceiling of 20% and if the EU's structural funds do not intervene, a project with an investment totalling € 100 million could obtain € 15 million in State aid according to the above reduction scale. For a new factory costing € 250 million, aid up to the same amount of € 15 million could be granted without notification to the Commission. If the intended aid level was, for example, € 25 million, the project would have to be notified.
In its assessment of notified projects, the Commission will use competition considerations, i.e. it will look at the situation of the specific sector concerned. If such a project reinforces a high market share (>25%) of the company concerned, or increases capacity in a non-growing sector by more than 5%, no aid will be authorised. Conversely, if these conditions are not met, the amount of aid that can be authorised is calculated using the table above.
Example: In an area with a regional aid ceiling of 20%, a new project costing € 250 million that does not reinforce a high market share, and does not increase capacity in a non growing sector, can obtain up to € 25.2 million in aid (i.e. € 15 million for the first € 100 million of investment, plus € 10.2 million for the remaining € 150 million of investment).
Special rules for sectors suffering from structural problems
A list of sectors suffering from structural problems (e.g. structural production overcapacities) will be established by 31 December 2003. No aid will be authorised for these sectors.
For the year 2003, synthetic fibres and cars will be subject to transitional rules that will maintain the strict approach of the current sector specific rules ending on 31 December 2002. In particular, projects in the synthetic fibres sector will not be eligible for investment aid. Projects in the motor vehicle sector will be allowed up to 30% of the respective regional ceiling for the year 2003. While the rate of 30% of the regional ceiling for cars might seem rather low, it should be remembered that, in comparison to the current rules, a larger number of projects in the motor vehicle sector will be eligible for aid, and for the individual projects the eligible costs will in principle be higher than currently. So, in all, the reduction of aid for the motor vehicle industry will not be as substantial as might appear from the outset.
As from 2004, both cars and synthetic fibres will cease to have their own rules, and will be fully integrated in the new Multisectoral Framework.
Thus, an important feature of the new Framework is that it will, for the first time, integrate regional investment aid for all sectors under a common set of rules. This aim, which is clearly stated in the current Multisectoral Framework, will be achieved when the new Framework enters fully into force in 2004.
