EU State Aid System: Competition and Market Integrity

The System of State Aid Under National and Community Law

When economic incentives are addressed to business and productive sectors, the forecasting and granting of aid are subject to effective limits arising directly from Community law. Given its impact on free competition and the proper functioning of the market, supranational interventionism is necessary when creating a single market. Each State granting financial assistance for its productions and companies can erect an insurmountable obstacle to achieving this single market.

ECA Framework and Control

The European Court of Auditors (ECA) established a regulatory framework for national economic and financial aid aimed at preserving the minimum requirement of "negative integration" for the community to operate effectively. This involves the control and monitoring of the impact of such grants on competition and trade.

Purpose and Incompatibility of Aid

The purpose of this regulation is to prevent any aid granted by Member States to companies from distorting competition within the common market. Aid declared as incompatible is governed by Article 87(1). Although certain types of aid are explicitly recognized as compatible, and others may be, the Treaty grants the Commission the power of control over public aid and the power to develop policy for this section.

The prohibition refers to any aid granted:

• Directly by the State.
• By public or private bodies designated or established by the State.

Exceptions and Commission Declaration

A number of aids are declared compatible by Article 87(2). Furthermore, there are aids which, while meeting the characteristics of incompatible aid, may benefit from an exception due to the special consideration the Treaty gives to their object or purpose. The declaration of support requires the Commission's approval under the procedure established in Article 88 TEC.

Direct Effect in National Courts

According to the Court, the Treaty provisions on aid do not have direct effect and therefore cannot typically be invoked in proceedings before national courts. There is an exception to this:

1. When the Treaty provisions have been specified by measures of general application or decisions in particular cases.
2. When the support provided has not been previously notified to the Commission, or over which the Commission has not ruled.

If these conditions are met, the possibility of directly invoking the Treaty before national courts is open.

Council Powers and Regulations

Article 89 EC grants the Council the power to adopt regulations furthering the preceding articles and to determine, in particular, the conditions for applying Article 88(3) and the categories of aid exempted from this procedure.

Regulation 994/98

Under Regulation 994/98, the Council authorized the Commission to adopt certain regulations itself, advised by an advisory committee on state aid. These specific regulations can be directly applied by national courts.