DG Competition 1

Regional State aid

Review of the regional aid guidelines 2007-2013

DG Competition 2

Main policy objectives

Concentration of regional aid to investment in the least favoured regions

Competitiveness and growth of all European regions, including flexibility for Member States and regions to pursue local regional policy

Continuity; a smooth transition from the current rules

DG Competition 3

Current rules: RAG 2000-2006

Basic principle: exceptional nature of regional aid

Overall coverage of 42.7% of Community population (EU-15)

Criteria for allocating the Community ceiling between Member States

Criteria for selection of regions:Article 87(3)(a) less than 75% EU GDP/cap. Broad coherence with objective 1.

Article 87(3)(c) based on indicators chosen by MS. No coherence with Objective 2.

DG Competition 4

Impact of enlargement

Overall coverage increased from 42.7% (EU-15) to 52.2% (EU-25)

(a) regions from 22.0% to 34.2%

(c) regions from 20.7% to 18.0%

Coverage would rise to 55.1% in EU 27

DG Competition 5

The context of the revision

The current maps expire on 31.12.2006

DG COMP made use of Conclusions of European Councils Comments submitted by Member States Consultations with EP and CoR Experience with the present RAG, aid

maps and aid schemes Literature (surveys, studies and academic

papers) on the economics and effectiveness of regional aid

The Third Cohesion report

DG Competition 6

Conclusions of European Councils

The Lisbon, Gothenburg, Stockholm and Barcelona European Councils: “less and better-targeted State aid”

Questions

Is the award of aid for initial investment and linked job creation really the most effective way of promoting cohesion?

Can the aid levels allowed under the present guidelines be reduced without decreasing the effectiveness of such aid?

DG Competition 7

The Third Cohesion report

Three main objectives: convergence, regional competitiveness and employment, and European territorial co-operation

Convergence will be promoted by supporting growth and job creation in the least developed Member States and regions

Regional competitiveness and employment will be promoted by supporting a limited number of domains of intervention: innovation and the knowledge economy, environment and risk prevention, accessibility and services of general economic interest

The choice of a thematic approach rather than one based on selected geographic areas (map-based approach) allows for coherence between regional and competition policies

DG Competition 8

A new approach to regional policy

Shifting from subsidies that temporarily compensate for regional disadvantages to the provision of public goods and incentives permanently increasing the potential of regions to growth

Regional investment aid to the poorest regions Operating aid in limited cases Phasing out of regions that lose eligibility to

Article 87(3)(a) [Possibility for Member States to designate a

limited proportion of their territory for Art 87(3)(c) coverage??]

Horizontal thematic approach for the rest of the territory

DG Competition 9

The different classes of regions post 2006

Article 87(3)(a) regions ie less than 75% average EU- 25 GDP/cap

Statistical effect regions(‘phasing out’ regions)ie less than 75% average EU-15 GDP/cap (82.2% EU-25 GDP/cap)

Economic development regions (ex (a) regions with more than 75% average EU-15 GDP/cap

Low population density regionsless than 12.5 inhabitants km²

Possibly other Art 87(3)(c) regions

Non-assisted regions

DG Competition 10

DG Competition 11

December 2004 proposal

Population coverage proposed 35.29% Article 3a areas: 27.26%, of which

GDP below 45%, 40% aid: 7.37% GDP below 60%, 35% aid: 6.03% GDP below 75%, 30% aid: 13.86%

Statistical effect regions: 4.01% Economic growth regions: 3.53% Other low population density areas: 0.49%

Bonuses Small companies + 20% Medium companies + 10%

DG Competition 12

Proposed standard aid intensities (GGE)

Large Medium Small

87(3)(a) ≤ 45% GDP 40% 50% 60%

87(3)(a) ≤ 60% GDP 35% 45% 55%

87(3)(a) ≤ 75% GDP 30% 40% 50%

87(3)(c) ‘statistical’ 30%→15% 40%→25% 50%→35%

87(3)(c) low pop 20% 30% 40%

87(3)(c) ‘ec dvlpt’ 15% 25% 35%

Non-assisted areas - 10% 20%

DG Competition 13

Aid in non-assisted regions

No regional investment aid for large enterprises

Greater flexibility ‘pro-Lisbon’ activities of large enterprises; R&D, innovation, environmental investments, training etc

Significantly more flexible regime for SMEs

DG Competition 14

Reaction of Member States

Four key groups of Member States

EU 10 – want aid concentrated on them and highest possible intensities

The ‘current cohesion countries’ (ESP, GR, Port) want to keep existing advantages

The ‘nationalists’ (Fr, De, Ös, UK+Lux) want scope for a national regional aid policy

The less-aid group, (Dk, Nl, Sv + It) basically support COM

DG Competition 15

From the July 2005 Proposal to the final guidelines

Proposed coverage EU 25 43.1%42% + 50% safety net

Article 87(3)(a) 27.7%

Statistical effect 3.6%

Economic development+ low population density 4.0%

Additional (c) allocation 6.7%

50% Safety Net 1.1%

DG Competition 16

The amended proposal for Areas eligible for Article 87(3)(a)

Aid for large companies in NUTS II regions with GDP/cap below 75% of the EU-25 average

GDP below 45%: 50% gross GDP below 60%: 40% gross GDP below 75%: 30% gross

Bonuses Small companies + 20% Medium-sized companies + 10%

DG Competition 17

The amended proposal for Areas eligible for Article 87(3)(a)

Outermost regions GDP below 45%: n/a GDP below 60%: 40% + 20% gross

Guyane GDP below 75%: 30% + 20% gross

Açores, Guadeloupe, Martinique, Réunion GDP above 75%: 30% + 10% gross

Canaries, Madeira

Plus SME Bonuses

DG Competition 18

Statistical effect regions

Retain (a) status until 31.12.2009 (2010) aid intensity 30% gross + SME bonuses

Review in 2009 (2010) based on most recent data

Regions < 75% EU-25 GDP retain (a) status until 2013

Other regions move to (c) status

aid intensity 20% gross + SME bonuses

Operating aid to be phased out by 31.12.2011

DG Competition 19

Article 87(3)(c) regions

Flexibility for Member States to select (c) regions, subject to:

Respect of overall allocation

Conditions of eligibility

Economic development and lpd regions no longer ‘earmarked’

DG Competition 20

Article 87(3)(c) regions - allocation

Economic development regions

Low population density regions

6.7% allocated to Member States by method used in 1998 based on disparity within Member States, using data available in April 2005

2000-2002 GDP data

2001-2003 unemployment data

Additional allocation to ensure no Member State looses more than 50% of its 1998 coverage

DG Competition 21

Article 87(3)(c) regions - eligibility

Economic development regions:

Low population density regions

Less prosperous areas:

GDP < 100% GDP, or

Unemployment > 115% national average

Regions adjacent to an (a) region, or 3rd country

Regions of 50,000 + undergoing major structural change or in relative decline

Small islands (less than 5000 inhabitants)

‘Pockets of deprivation’ (SME aid only)

Minimum population 20,000

DG Competition 22

Article 87(3)(c) regions – aid intensities

Statistical effect (c) regions 20%

Other regions, normally 15% gross

Reduced to 10% gross for less prosperous areas with:

GDP > 100% GDP, and

Unemployment < 100% EU-25 average

May exceptionally be increased in regions adjacent to (a) regions or third countries to ensure disparity does not exceed 20%

Transitional rules for ‘economic development’ regions

DG Competition 23

Transitional provisions

Phasing in of reductions in aid intensity, for:

(a) regions > 15% reduction

economic development regions

Transitional safety net; 66% of current (c) coverage for 2 years

Two years to phase out operating aid

DG Competition 24

DG Competition 25

RAG, scope and sensitive sectors

No major changes to scope:RAG apply to all sectors except: Coal, Fisheries, Production of agricultural

products

Prohibitions on regional investment aid: Steel (except SMEs), Synthetic fibres

Apply subject to special rules to Transport, shipbuilding, agricultural

processing and marketing

No other sensitive sectors for investment aid

DG Competition 26

Conditions for granting regional investment aid – main changes

Clarification of definition of initial investment

Rules on incentive effect

Maintenance of the investment for at least 5 years (reduced to 3 years for SMEs)

Member States may impose longer periods

Rules on discounting

DG Competition 27

Eligible expenses for investment aid – main changes

Land, buildings, plant and machineryno ‘standard base’

Clarification of rules on leasing

‘Moveable’ assets should be newexceptions; SMEs and takeovers

Consultancy costs for SMEs

More generous treatment of intangible assets: up to 50% of eligible costs for large firms

DG Competition 28

Large investment projects

Integration of MSF into RAG

Automatic scaling down mechanism for eligible expenses over € 50m

€ 50 -100m - 50% of normal aid intensity

> € 100m - 34% of normal aid intensity

Transparency mechanism for eligible expenses > € 50m

Notification threshold – aid exceeds maximum allowed for a project with € 100 m eligible expenses

In depth assessment of investment aid where;

Beneficiary has more than 25% market share or

Capacity increase >5% in a declining market

DG Competition 29

Transparency

Obligation to publish all regional aid schemes on the internet

Possibility to exclude costs incurred before publication of the scheme from eligible costs

DG Competition 30

Operating aid

Permanent handicaps of the outermost areas

Possibility of a ‘safe-harbour’ for operating aid in outermost regions, up to 10% of turnover.

Permanent transport aid in the outermost and low population density areas

Permanent aid to offset depopulation in the least densely populated areas

Temporary and degressive operating aid to offset bottlenecks in 3(a) areas

Exclusion of operating aid to financial services sector

Transitional phasing out of operating aid in areas loosing 3(a) status over 2 years

DG Competition 31

Enterprise aid

New form of aid to encourage business start-ups in the assisted areas

Widely defined eligible expenses in first five years of start-up

Maximum € 3m per enterprise in (a), € 2m per enterprise in (c)

€ 1m bonus for (a) regions < 50% EU-GDP, low population density regions and islands

Intensities

years 1-3 years 4-5

(a) 35% 25%

(c) 25% 15%

DG Competition 32

Next steps

Adopted by Commission, end 2005

Proposals for appropriate measures

Maps approved by COM, 1st semester 2006

Exemption regulation for transparent regional investment aid, Oct 2006

Examination of regional aid schemes 2nd semester 2006

DG Competition 33

The State aid action plan

Aid outside the assisted areas