"Local" State Aid Press Release

We commented last year on a European Commission press release that considered the impact of aid on cross-border trade.  It implied that there might be more scope than previously thought for arguing that a measure was not aid on the basis that it only had a local impact.  A recent press release appears to reinforce the possibility of using this approach, and suggests that more attention should be given to the last two limbs of the test commonly used when considering if aid is present.  By way of reminder, the test comprises four limbs, each of which must be met for aid to exist.

1. Is the assistance granted by the State or through State resources?
2. Does it must favour a certain undertaking / group of undertakings or the production of certain goods?
3. Does it distort or threaten to distort competition?
4. Does it affect trade between Member States or is it capable of having an effect on cross-border trade?

The press release considers a number of recent decisions where aid was found not to be present because of the failure to meet conditions 3 and 4.  For example, support to renovate and modernise a port in Germany did not involve aid because it was "…almost exclusively used to connect to the German mainland, [was] likely unattractive for international shipping and [had] no local competition." 

Two other decisions concerned support for minority languages used by people based in geographically confined areas (Basque and Valencian).  In both, it was held unlikely that the scheme could have more than a marginal impact on cross-border investment.

So although as a starting point it was in the past prudent to assume that conditions 3 and 4 would be met, this is perhaps no longer the case and more attention should instead be given to the facts of a case.  To quote the Commission's Notice on the notion of State aid (bold emphasis added):

"…an effect on trade between Member States cannot be merely hypothetical or presumed.  It must be established why the measure distorts or threatens to distort competition and is liable to have an effect on trade between Member States, based on the foreseeable effects of the measure." (para.195)

The following questions might help in reaching a decision on this issue or in preparing your own list.

1. Where will those who use the supported activity come from? For example, will a tourist attraction built with the support of a grant only attract local people? Is it being built near national borders?
2. What is the precise nature of the activity being supported? For example, people are less likely to travel to receive standard health care, but may do so for more specialist health services.
3. Why isn't the supported activity already being provided?
4. Is there cross-border investment in the activity, or might there be save for the effect of the support in question?
5. Can you obtain any independent evidence to justify your conclusions?

We hope that you have found this helpful when considering how to ensure any potential aid complies with the rules. Please get in touch with Edward Reynolds if you would like to discuss any part of it in more detail.