Op-Ed: “The New Regional Aid Guidelines: First reactions” by Maria Segura and Marianne Clayton
In times of turmoil like the present, we often forget the principles at the heart of the European Union. One of them, laid down in Article 3 TEU and Article 174 TFEU, concerns territorial cohesion. To achieve it, actions are required not only at the EU level but also at the Member States level.
The Regional Aid Guidelines (RAGs) set out the conditions under which Member States may grant State aid which pursues an objective of regional development and cohesion. This type of aid must either promote the economic development of areas where the standard of living is low or there is serious underemployment, or facilitate the development of certain economic areas (paragraph 1). For this reason, the RAGs are based on Article 107(3)(a) as well as on Article 107(3)(c) of the TFEU.
The RAGs were the first set of guidelines to be amended in the context of the State Aid Modernisation. They are now the first set of guidelines to be revised as part of the current revision exercise.
The first notable change in the new RAGs concerns their sectoral scope. The lignite and coal sectors are now expressly excluded from the Guidelines (paragraph 10). Does this double exclusion mean that specific rules will be adopted for these sectors? Or is it another way of promoting environmental protection considerations in line with the Green Deal?
Regional aid can only play an effective role if it is used sparingly and proportionately and is focused on assisted areas (paragraph 5). Therefore, before granting any regional aid, Member States must draw regional aid maps identifying the areas and the maximum aid intensities allowed. These maps must be notified to the Commission for approval.
Defining the assisted areas within a national map is not a straightforward exercise. The procedure foreseen under the new rules to determine the eligible areas has not been fundamentally modified with respect to the previous guidelines and requires complex evaluations. In addition, as a principle, given that the award of regional aid derogates from the general prohibition of State aid laid down in Article 107(1) TFEU, the Commission limits the coverage of the regional aid maps in terms of population to less than half of the EU27’s population. For the new period, following the departure of the UK, and based on Eurostat data, the coverage of the assisted areas has been set at 48% of the population.
In paragraph 7 of the new RAGs, the Commission acknowledges that the rules concerning regional aid work well but require improvements to reflect economic developments. One of the as of yet unknown economic developments is the mid- to long-term impact of the COVID-19 pandemic and the effects of the various measures adopted by the different Member States. A mid-term review of the regional aid maps has thus been foreseen for 2023.
Several policy instruments adopted by the European institutions will drive economic developments in the EU. The ‘European Green Deal’, ‘A new industrial strategy for Europe’, and ‘Shaping Europe’s digital future’ are at the core of the EU’s effort to transform its economy towards a more sustainable, digital and carbon free future. In paragraph 7, the Commission explains that these instruments ‘may’ be taken into account for the assessment of the impact of regional aid. How exactly these policy instruments will be considered in the regional aid assessment has not been elaborated upon in the new rules.
In order to assess whether a regional aid measure is compatible, a series of cumulative conditions must be met including inter alia that the aid must have an incentive effect, be necessary, appropriate and proportionate. In addition, the public intervention must pass the balancing test. This requires that the positive effects of the measure must not be outweighed by potential negative effects on competition.
The revised RAGs include a new section regarding how this balancing exercise must be carried out. In addition to the objective of regional development and cohesion, the Commission may take into account whether the aid contributes substantially in particular to the digital transition or transition towards environmentally sustainable activities, including low carbon, climate neutral or climate-resilient activities (paragraph 105). These ‘additional’ objectives have been limited to the competition analysis in the avoidance of negative effects on the competition test and not included as a general requirement. The way this weighing up will be implemented will deserve close monitoring in the years to come, in particular in light of the recent judgment of the Court of Justice regarding aid for Hinkley Point C (C-594/18 P).
Beyond the concrete provisions of the RAGs, it could be questioned whether decarbonisation/environmental objectives are best addressed by being included in all State aid instruments or whether they are more efficiently dealt with by way of dedicated instruments. Would the objective of territorial cohesion and regional development be better targeted in the form of top ups or more favourable conditions in the framework of such dedicated instruments? Would such an approach enable a level playing field throughout the EU/EEA and give less developed areas a fair chance in the new green/digital economy?
The new rules have indeed addressed this concern when acknowledging the specific difficult situation of territories identified for support from the Just Transition Fund in a territorial just transition plan of a Member State on the condition that those territories are located in assisted areas according to Article 107(3)(a) TFEU. They allow for a 10% aid intensity bonus, which – one must however note – is conditional upon the adoption of the Regulation establishing the Just Transition Fund and tight conditions that will significantly limit its scope.
In addition to those more innovative or novel elements incorporated into the new RAGs, the Commission has clarified key concepts and introduced the definition of new ones. One may refer here to the notions of the date of award of the aid, the ‘initial investment that creates a new economic activity’, the definition of ‘relocation’ or the concept of ‘maximum aid intensity’. Additional clarifications have been included regarding eligible costs and investment conditions, notably, regarding vendor tooling assets that can now be considered eligible provided they are used over the full minimum maintenance period of five years for large undertakings or three for SMEs. These welcome amendments provide for greater clarity in the terminology. Other pertinent and awaited amendments include inter alia clarifications regarding eligible costs for operating aid schemes or the conditions under which aid may be granted in the context of relocations.
The aid intensity levels have generally been increased, but the limitation in the duration of approved schemes that may be re-notified for prolongation has been kept. This limitation has proven to be a very good practice that could be replicated in other guidelines.
Member States must notify regional aid under Article 108(3) TFEU with the exception of measures that fulfil the conditions laid down in the Block Exemption Regulation (GBER, Section 1). Section 9 of the new RAGs clarifies that all notifiable regional aid awarded or intended to be awarded after 31 December 2021 will be assessed on the basis of the new RAGs. Furthermore, the validity of all existing regional aid schemes must be limited to 31 December 2021. It must be noted that aid measures put into effect under the GBER do not qualify as existing aid schemes (footnote 91). This is an important clarification since a substantial part of regional aid is block-exempted.
The GBER being currently under review, the section regarding regional aid will be aligned with the provisions of the RAGs. How key EU policy objectives, notably those related to the Green Deal, will be incorporated into the revised GBER is therefore still open.
It must be praised that the new RAGs have incorporated the principle that objectives related to the digital transition or environmental sustainability may be taken into account in the assessment of the positive and negative effects of an aid measure. Only time and the decision-making practice will tell whether this ‘principle approach’ will suffice for a consistent implementation of these key policies into the State aid discipline.
Maria Segura and Marianne Clayton are lawyers specialised in State aid matters and regularly participate at conferences and publish articles in specialised legal publications.