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MEMO/07/151

Brussels, 24th April 2007

State aid: Commission launches consultations on simplified rules for block exemptions – frequently asked questions

(see also IP/07/549)

What is a block exemption Regulation?

In a block exemption Regulation, the Commission declares that certain categories of state aid are compatible with the Single Market and shall not be subject to the requirement of prior notification laid down in Article 88(3) of the EC Treaty. Consequently, Member States may implement state aid measures which fulfil the conditions of the Regulation without having gone through the notification procedure. This reduces the administrative burden for the Member State concerned, the beneficiaries and the Commission.

With regard to the substantive conditions under which aid may be granted, there is no major difference between Community frameworks and guidelines (soft law), on the one hand, and block exemption Regulations on the other hand. All these instruments impose similar conditions in order to ensure the compatibility of the aid with the EC Treaty: they define eligible beneficiaries, set maximum aid intensities, define eligible expenses and may include additional conditions for certain aid measures. The content of these conditions is inspired from the practical experience gained by the Commission, especially through the application of preceding frameworks and guidelines. As regards the draft general block exemption Regulation (GBER) on which the Commission is now launching consultations, relevant experience is drawn, inter alia, from the environmental aid guidelines, guidelines on risk capital and the framework on research and development (see http://ec.europa.eu/comm/competition/state_aid/legislation/horizontal.html). Because they can be applied directly by national administrations and judges, the conditions imposed by block exemption Regulations must always be very precise.

In what way will the draft GBER simplify state aid rules?

One of the main objectives of the reform of state aid rules, set out in the "State Aid Action Plan" adopted by the Commission in 2005 (see IP/05/680 and MEMO/05/195) and http://ec.europa.eu/comm/competition/state_aid/reform/reform.html), is to create a simple, user-friendly and coherent set of legislative rules applying to those types of aid which can be considered to fulfil the conditions of compatibility outlined in Article 87(3) of the EC Treaty. Simplification can best be achieved with the adoption of "block exemptions" exempting Member States from the obligation of prior notification of the aid to the Commission. The types of aid that the Commission may include in such a block exemption are determined in the so-called "Enabling Regulation". (Council Regulation (EC) No 994/98).

In this perspective, the draft GBER incorporates into a single text a series of existing block exemption Regulations adopted since 2001: aid to SMEs, research and development aid in favour of SMEs, aid for employment, training aid and regional aid. A complete list of the block exemptions is available at:

http://ec.europa.eu/comm/competition/state_aid/legislation/block.html.

In addition, the Commission proposes to integrate in the new draft GBER three types of aid which have so far not been block exempted: environmental aid, aid in the form of risk capital and research and development aid for large companies. The exemption conditions for the first two categories are largely inspired by the requirements of the existing risk capital guidelines (see IP/06/1015) and environmental guidelines (see IP/00/1519), In line with the provisions of the recent Framework on R&D&I (see IP/06/1600 and MEMO/06/441), the GBER also allows for exempting research and development aid in favour of large enterprises.

Moreover, in line with the Commission's "Better Regulation" agenda, the GBER intends to harmonise as far as possible, all horizontal aspects applying to the different aid areas concerned. A common horizontal chapter of the GBER therefore contains, amongst others, common definitions of standard concepts, common requirements as regards the transparency of aid, shared provisions on the incentive effect, a comprehensive overview of the sectoral exclusions applying to the different types of aid and uniform requirements as regards monitoring.

What are the major differences between the existing block exemption Regulations and the draft general block exemption Regulation?

For regional aid, the draft general block exemption Regulation essentially integrates the recently adopted block exemption for regional investment aid (Commission Regulation n° 1628/2006, see IP/06/1453).

For investment and employment aid for SMEs, the major change as compared to Commission Regulation n° 70/2001 lies in the increase of the applicable basic aid intensity from up to 15% for small and 7.5 % for medium-sized enterprises to 20% for small and 10% for medium-sized enterprises, in line with the harmonisation of the SME bonus.

No environmental aid previously benefited from a block exemption. The draft provisions of the draft GBER dealing with this type of aid are therefore largely based on the existing environmental guidelines and the Commission's decision making practice. In parallel to the draft GBER, the Commission intends to revise the environmental guidelines.

Exemptions for aid in the form of risk capital are also new in the draft GBER. The conditions for this type of aid are inspired from the risk capital guidelines adopted by the Commission in 2006 (see IP/06/1015).

Aid for research and development in favour of SMEs was already exempted under Commission Regulation n° 364/2004. The revised provisions in the draft GBER, which would also apply to large enterprises, are inspired from the new Framework for Research, Development and Innovation which entered into force on 1.1.2007 (see IP/06/1600 and MEMO/06/441).

Provisions relating to training aid build upon the existing Commission Regulation n° 68/2001, but in light with the Commission's experience in applying this Regulation, the applicable notification threshold has been doubled to 2 M€, while definitions have been clarified.

The existing rules for employment aid contained in Commission Regulation n° 2204/2002 have been simplified in the draft GBER and would essentially cover measures for disadvantaged and disabled workers. Overlaps with other types of aid, mainly with regional aid, aid for SME and employment aid, have been removed.

Do block exemption Regulations apply regardless of the amount of aid?

No. The existing block exemption Regulations contain ceilings for individual notification. This means that aid measures exceeding these ceilings would still have to be notified to the Commission individually. The new draft GBER has largely simplified the application of these ceilings, but the individual notification obligation persists. For instance, environmental aid amounting to more than €5 million would still have to be notified to the Commission before being granted to a beneficiary.

The level of these ceilings confirms the intention of the Commission to focus its attention on big state aid cases, which contain a greater risk of distortion of competition and trade. At the same time, they reduce the procedural burden for a high number of comparatively small cases, where it may be safely assumed that the overall balance of the effects of the aid is positive for the Community.

What are the basic rules of state aid policy?

State aid policy is one of the three main pillars of EU competition policy. State aid control stems from the need to maintain a level playing field for all companies active in the Single Market, irrespective of the Member State in which they are established. State aid control also contributes to avoiding contests between Member States where they try to outbid each other to attract investment. Preserving competitive markets is the best way for European citizens to get the products they want at low prices, and to foster innovation and growth in the EU.

The EC Treaty (Article 87) prohibits any aid granted by a Member State in any form whatsoever which distorts competition by favouring certain firms or the production of certain goods where such aid affects trade between Member States. A number of exceptions are allowed. However, all state aid measures need to be notified by the Member States to the Commission prior to their implementation, unless they are covered by a block exemption Regulation. The Commission has the exclusive competence to declare such aid compatible with the EC Treaty.

Would the draft GBER constitute a relaxation of state aid rules?

No. The draft GBER does not alter the fundamental architecture of state aid control: Member States would remain obliged to notify all state aid to the Commission prior to its implementation, unless the aid fulfilled the applicable conditions of the Regulation. But the Regulation would significantly reduce the bureaucratic burden with respect to those aid measures which, upon notification, would anyhow have been approved by the Commission on an individual basis. This fits both into the Commission's "better regulation and simplification" agenda, and into the Commission's agenda to promote "Less and better targeted aid". The draft GBER would facilitate the possibilities for Member States to grant subsidies that clearly fulfil horizontal objectives in line with the European Union's Lisbon objectives (such as environmental protection, or promotion of research and development).

What is the calendar for adopting the final version of the GBER?

The Commission will, in line with Council Regulation (EC) n° 994/98, convene an Advisory Committee two months after the date of adoption of this draft, to give Member States the opportunity to make their views known. In light of these comments and of comments made by other stakeholders, the Commission can decide to adapt its draft. This revised draft will then be published in the Official Journal of the European Union for comments by all interested parties. A further revised draft will be discussed again with the Member States in a second Advisory Committee, following which the Regulation will be adopted by the Commission. This is expected to happen before July 2008, as the current block exemption Regulations will expire on 30 June 2008 (see Commission Regulation EC No 1976/2006).

The current Commission draft GBER will be published on the website of the Commission at:

http://ec.europa.eu/comm/competition/state_aid/reform/reform.html

Deadline for comments: 3 June 2007.

Interested parties may submit their comments on the draft GBER to the following address:

European Commission
Directorate-General for Competition
State aid Registry
HT 364
B-1049 Brussels
Fax (32-2) 296 12 42
E-mail: stateaidgreffe@ec.europa.eu


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