Ministers reject German bid to ease state aid

A large majority of EU governments has rejected a suggestion from the German presidency to relax controls on state aids to compete with subsidies offered by non-EU countries.

The German presidency suggested to ministers at last weekend’s informal Competitiveness Council in Würzburg, southern Germany that there should be special provision in state aid rules for "exceptional cases" where non-EU countries offered higher levels of public aid to entice companies to invest there. One example that the presidency cited was the case of AMD, the computer chip-maker, which was offered €733 million to open a plant in New York while Germany could offer a maximum of €365m under state aid rules.

But Neelie Kroes, the European competition commissioner, led the charge against the German suggestion. In a speech she gave on Saturday at the meeting, Kroes warned that state aid risked "distorting competition and potentially wasting taxpayers’ money".

The commissioner pointed out that there was already a "matching clause" under state aid rules which permitted research and development aid to match state aid paid to a competitor outside the EU. But no member state had ever asked to use such a clause, she said.

She stressed that relaxing the state aid rules to allow support in areas which did not normally qualify could distort competition within the EU as companies often claimed that they were only considering one investment location within the EU while in fact they were playing one region off against another to get the best deal. Kroes also warned that easing rules could allow richer member states to exploit their wealth to win more economic activity which ran against the spirit of cohesion policy. Allowing matching aid could lead to "damaging subsidy wars" between member states, she warned.

Kroes also stressed that the level of state aid was normally far down the list of factors companies focused on when considering where to invest. Companies were interested in proximity to markets, the quality of the workforce, infrastructure, and the business and taxation environment, she explained.

The commissioner’s arguments won wide backing from EU industry and economics ministers attending the meeting. A report of the German presidency, following the meeting, stated: "Delegations agreed that competition-distorting state aids must definitely be prevented in the global context in order to prevent international races to provide subsidies."

The statement added that efforts should be intensified to develop appropriate standards through negotiations at the World Trade Organi-zation and bilateral free-trade agreements.

Ministers did agree during the Würzburg meeting on the need to review the possibility of extending the matching clause from research and development to other areas.

A large majority of EU governments has rejected a suggestion from the German presidency to relax controls on state aids to compete with subsidies offered by non-EU countries.