Call for revamp of state aid rule book

Date: 17/10/1996

By Tim Jones

THE Irish presidency and the European Commission are calling for the most fundamental shake-up in decades of the EU's rules governing state aid.

In the wake of the acrimony over diverted subsidies at German shipbuilder Bremer Vulkan and illegal hand-outs to Volkswagen, the Irish government has circulated draft proposals to tighten up the EU's increasingly antiquated state aid rule book.

“The changed context of state aid control, the increased penalties facing non-compliance and the central imperatives of growth, competitiveness and employment require new thinking on the control of state aid,” concludes the paper which will be considered by industry ministers at a meeting next month.

Even with the advent of the single market and liberalisation of key parts of the economy, old-fashioned public subsidies to industry persist, accounting for 35 billion ecu per year to manufacturing alone.

Intensifying competition and the increasingly desperate struggle against unemployment threaten to plunge the EU into a subsidy war if big firms and governments are seen to get away with flouting rules made nearly 40 years ago - as Competition Commissioner Karel van Miert warned after German authorities went ahead with the payment of 48 million ecu to VW even after he had vetoed it.

The presidency paper has been well received both by diplomats and the employers' organisation UNICE.

“The Irish are taking us a major step forward,” said Dirk Hudig, chairman of UNICE's state aid working group. “A lot of the paper is extremely good although, in some areas, we do wonder whether it goes far enough.”

Dublin sees the issue as vital to the cohesion of the EU. “Some larger member states are continuing to pour huge amounts of aid into industry while the poorer states cannot afford it, so the presidency is very keen to get an agreement,” said Peter Brennan, director of the Irish Business Bureau.

To make state aid control more transparent, the presidency is calling for a Commission register of rulings setting out clearly how decisions were reached, as well as national registers to improve the monitoring of commitments made by firms.

Its paper says member states should also push for a “single, integrated, user-friendly” subsidy rule book. Only if decisions on aid are seen to be predictable and legally watertight will the growing number of court challenges be reduced.

To ensure this, the Commission has prepared a reflection document for ministers in which it suggests that Article 94 of the Treaty of Rome should be activated to bolster state aid control.

This allows for extra regulations to be drafted to tighten up the current rules suspending subsidies until the Commission has completed its investigation.

The diversion of approved aid at Bremer Vulkan appears to have had a catalysing effect on member states. The company was allowed 400 million ecu when it took over three eastern German shipyards but, as losses mounted in its engineering subsidiary, some of the cash was illegally filtered into it.

“Recent experience has shown the importance of a strict retrospective monitoring of the use of aid approved by the Commission,” says the Irish paper.

To address this problem, member states should ensure that reports on aid schemes are submitted promptly and regularly to the Commission which, in turn, could consider financing the creation of efficient aid monitoring systems in national capitals.

As the Commission's state aid policing workload spirals, the presidency suggests a radical solution: DGIV (competition) could “free itself” of small-scale cases and “concentrate its resources on major distortions of competition and speed up procedures for those important cases”.

Once ministers have debated the paper in November, the presidency hopes to draw up a state aid action programme.