4 Regional aid guidelines
| (25751)
0432/04
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| Commission review of the Regional Aid Guidelines — a first consultation paper for experts in Member States
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| Legal base | — |
| Deposited in Parliament | 17 June 2004
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| Department | Trade and Industry
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| Basis of consideration | EM of 12 July 2004
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested
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Background
4.1 The current list of regions eligible for state aids will expire
at the end of 2006. The Commission's consultation paper invites
Member States' views on proposals for the new Regional Aid Guidelines
for 2007-13.
4.2 Article 87(1) of the Treaty establishing the
European Community (the EC Treaty) provides that, except as otherwise
provided in the Treaty, any aid from Member States which distorts
or may distort competition is, so far as it affects trade between
Member States, incompatible with the common market.
4.3 Article 87(2) and (3) specifies aids which are
compatible with the common market.
4.4 In particular, Article 87(3)(a) provides that
aid granted "to promote the economic development of areas
where the standard of living is abnormally low or where there
is serious unemployment" is compatible with the common market.
Also compatible, under Article 87(3)(c), is "aid to facilitate
the development of certain economic activities or of certain economic
areas, where such aid does not adversely affect trading conditions
to an extent contrary to the common interest".
4.5 The Commission sets Guidelines for regional aid
provided under Article 87. Among other things, the Guidelines
include an Assisted Areas map and specify ceilings for the proportion
of the cost of projects which Member States may contribute.
4.6 In 2002, the Barcelona European Council called
on Member States:
"to reduce the overall level of State aid as
a percentage of GDP by 2003, and onwards, and to redirect such
aid towards horizontal objectives of common interest, including
economic and social [inclusion], and target it to identified market
failures. Less and better-targeted State aid is a key part of
effective competition."[9]
"Horizontal objectives" are related not
to a particular enterprise but to improving an area's general
competitiveness by, for example, investing in vocational training
or environmental improvements.
4.7 In February the Commission published its Third
Cohesion Report. The report sets out the Commission's proposals
for the Community's regional and cohesion policies for 2007-13.[10]
It proposes that, from 2007, there should be three priorities
for the European Regional Development Fund (ERDF), the European
Social Fund (ESF) and the Community's Cohesion Fund:
- Convergence
— the promotion of economic growth and job creation in the
least favoured regions of the European Union. Regions with a
per capita GDP of less than 75% of the average of the 25 Member
States (the EU 25) would be eligible for funding from the ERDF
and the ESF. Regions of the older Member States which have per
capita GDP of less than 75% of the average of the EU 15 but more
than 75% of the average of the EU 25 would be eligible for transitional
funding to recognise the "statistical effect" of the
accession of the ten new Member States.
- Regional competitiveness and employment —
funding from the ERDF to help regions deal with industrial or
urban decline and to help rural areas with a highly dispersed
or ageing population; and funding for national programmes to assist
labour market reforms and strengthen social inclusion.
- European territorial cooperation —
support for inter-regional, cross-border and transnational cooperation
to promote joint solutions to common problems.
The document
4.8 The Commission says that its review of the Regional
Aid Guidelines (RAG) provides the opportunity to align the Guidelines
with the proposals in the Third Cohesion Report and to give effect
to the Barcelona European Council's call for state aids to be
"less and better-targeted". The Commission proposes
that the new RAG should be consistent with the three priorities
for funding from the ERDF and ESF after 2006: namely, convergence,
regional competitiveness and employment, and European territorial
cooperation.
4.9 The Commission proposes that the following areas
should be eligible for state aids under Article 87(3)(a) or (c):
- Regions[11]
with a per capita GDP of less than 75% of the average of the EU
25;
- Regions which had received State aids because
they had per capita GDP of less than 75% of the average of the
EU 15 but, after the end of 2006, will have per capita GDP of
more than 75% of the average of the EU 25 ("statistical effect"
regions);
- Regions which had per capita GDP of less than
75% of the EU 15 average but have more than 75% of the EU 25 average
after the end of 2006 because of economic growth; and
- "Outermost regions" with per capita
GDP of more than 75% of the EU 25 average after 2006 for either
"statistical effect" or economic reasons.[12]
4.10 Moreover, the Commission proposes reductions
in some aid ceilings and that ceilings for state aids under Article
87(3)(a) should be set in GDP bands. The proposed ceilings are
summarised in the following Table.
Table of proposed ceilings on state aids 2007-13
| Large enterprises
| Medium-sized enterprises |
Small enterprises |
| Article 87(3)(a) aid in regions with per capita GDP of less than 50% of the EU 25 average
| 50% | 60%
| 70% |
| Article 87(3)(a) aid in regions with per capita GDP of less than 60%
| 40% | 50%
| 60% |
| Article 87(3)(a) aid in regions with per capita GDP of less than 75%
| 30% | 40%
| 50% |
| Article 87(3)(c) aid in "statistical effect" regions
| 30% reducing to 20% | 40% reducing to 30%
| 50% reducing to 40% |
| Article 87(3)(c) aid in earmarked regions |
20% | 30%
| 40% |
| Non-assisted areas | 0%
| 10% | 20%
|
The Government's view
4.11 The Minister of State for Industry and the Regions and Deputy
Minister for Women and Equality at the Department of Trade and
Industry (Jacqui Smith) tells us that:
"The Government strongly supports an effective State aid
regime and is committed to the aim agreed at the Lisbon and Barcelona
European Councils to reduce State aid as a percentage of GDP by
2003 and onwards, and to re-direct aid towards horizontal objectives
of common interest, including economic and social cohesion. At
the same time, the Government believes that State aid can play
a positive role in supporting economic development where it is
used to tackle the causes of economic under-performance.
"The Commission proposals on regional aid would
reduce the areas in which regional aid can be provided in nearly
all the longer-standing EU Member States, including the UK. The
Regional Aid Guidelines are only one of several State aid instruments
through which the Government provides business support and most
business support schemes do not depend on the Regional Aid Guidelines.
However, they are the main instrument through which investment
aid to larger firms in the assisted areas is supported. There
are other State aid instruments under which business support can
be approved — the so-called 'horizontal' frameworks and
guidelines. These allow aid to be granted anywhere including
outside the assisted areas and include aid for activities such
as risk and venture capital, environmental support, R&D, SME,
training and employment aid. With the Commission's proposed reduction
of assisted area coverage and regional aid intensities in all
Member States, it will be increasingly important to ensure that
these 'horizontal' guidelines and other available instruments
are flexible enough to allow aid to be granted to correct market
failures and economic underperformance where they occur.
"The Government has argued and will continue
to argue that the Regional Aid Guidelines together with the horizontal
guidelines need to give the UK and other Member States the flexibility
to pursue an effective regional policy while bearing down on distorting
aids. The Government will also be encouraging the Commission
to reform other State aids procedures so that less distorting
aids, intended to correct market failures and economic underperformance
can be granted more simply.
"Regional aid nevertheless remains an important
tool. The Government therefore wants to ensure that under the
new Regional Aid Guidelines, regional aid can still be granted
in the areas where it is most needed to help address regional
disparities and local deprivation. The present proposals from
the Commission do not deliver this effectively as they do not
adequately allow for disparities within regions, given that poor
areas exist side by side with rich areas."
4.12 In June, the Government issued a consultation
paper on the Commission's proposals. It asked for views on other
ways of determining the Assisted Areas; on ceilings on aid; and
on how best to provide flexibility to give aid outside the Assisted
Areas where it is needed. Initial comments were requested by
28 June and final comments by 6 September. The Government will
take account of the comments in the discussions it will be having
with the Commission about the revision of the Regional Aid Guidelines.
4.13 The Government is currently preparing a Regulatory
Impact Assessment of the Commission's proposals and will send
us a copy of it as soon as it has been completed.
Conclusion
4.14 We are grateful to the Minister for her helpful
Explanatory Memorandum. We look forward to receiving the Regulatory
Impact Assessment.
4.15 It appears that the Commission's proposals
require a good deal more discussion with Member States. We ask
the Minister to keep us informed of the progress of the discussions
and of the conclusions the Government reaches after considering
the responses to its own consultation paper. Meanwhile we shall
keep the Commission's document under scrutiny.
9 Barcelona European Council, 15/16 March 2002, Conclusion
18. Back
10
(25423) - ; see HC 42-xv (2003-04), paras 38-69 (24 March 2004). Back
11
These would be defined by reference to NUTS II areas. The Commission's
Nomenclature of Units for Territorial Statistics (NUTS) is a hierarchical
classification of geographical area. NUTS II is an area broadly
equivalent to a county or group of counties in the UK. Back
12
Areas may be classified as "outermost regions" because
of, for example, their remoteness, difficult topography, or dependence
on a few products. Back
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