Brussels, 12 July 2006Brussels, 12 July 2006

Klaus-Otto JUNGINGER-DITTELKlaus-Otto JUNGINGER-DITTEL

State aid rules and programming of Structural Fund’s programs for 2007-2013

Market Economy and EEC TreatyMarket Economy and EEC Treaty

Main idea:Main idea:

Market economy is efficientMarket economy is efficient Improves standards of livingImproves standards of livingStrengthens European competitivenessStrengthens European competitiveness

STATE AID RULES TO PROTECT STATE AID RULES TO PROTECT INTERNAL MARKETINTERNAL MARKET

Objective of state aid control:Objective of state aid control: Protection of the internal market against state Protection of the internal market against state

interventions, and resulting negative effects on interventions, and resulting negative effects on trade and distortions of competition trade and distortions of competition

General ban on state aid (Art. 87(1) EC)General ban on state aid (Art. 87(1) EC)

WHY STATE AID ?WHY STATE AID ?

Market mechanism Market mechanism Pareto-Optimum Pareto-Optimum

But:But:

Market failure Market failure Inefficiencies, sub-optimal Inefficiencies, sub-optimal allocation of resourcesallocation of resources

No equitable distribution No equitable distribution Necessity of state interventionNecessity of state interventionExceptions to the general ban of state aidExceptions to the general ban of state aid

(Art. 87(2) and (3) EC)(Art. 87(2) and (3) EC)

CONTROL OF STATE AIDCONTROL OF STATE AID

Member States have to submit plans to Member States have to submit plans to grant aid to Commission (Notification grant aid to Commission (Notification requirement, Art. 88(3) ECT) requirement, Art. 88(3) ECT)

Declaration of compatibility of aid: normally Declaration of compatibility of aid: normally exclusive responsibility of European exclusive responsibility of European Commission (Art. 88 ECT)Commission (Art. 88 ECT)

Compliance of SF operations with Compliance of SF operations with State aid rules State aid rules

« The Commission and Member States shall « The Commission and Member States shall ensure that assistance from the Funds is ensure that assistance from the Funds is consistent with the … policies …of the Community consistent with the … policies …of the Community … » Art. 9(2) SF Council Reg. … » Art. 9(2) SF Council Reg.

« Operations financed by the Funds shall comply « Operations financed by the Funds shall comply with the provisions of the Treaty and of acts with the provisions of the Treaty and of acts adopted under it. » Art. 9.6 SF Council Reg.adopted under it. » Art. 9.6 SF Council Reg.

Lawfullness of State aidLawfullness of State aid

Under State aid rules, State aid has to be lawfull:Under State aid rules, State aid has to be lawfull: Either approved by the Commission following a Either approved by the Commission following a

notification pursuant to Art. 88(3) ECT;notification pursuant to Art. 88(3) ECT; Or exempted from the notification requirement of Or exempted from the notification requirement of

Art. 88(3) ECT on the basis of a block exemption Art. 88(3) ECT on the basis of a block exemption regulation adopted pursuant to Art. 89 ECTregulation adopted pursuant to Art. 89 ECT

Or constitute other existing aid Or constitute other existing aid

Existing aid in new Member StatesExisting aid in new Member States

Three possibilities*, **: Three possibilities*, **: Aid under schemes put into place before December 1994;Aid under schemes put into place before December 1994; Aid under schemes listed in Accession TreatyAid under schemes listed in Accession Treaty Aid accepted under « interim mechanism », established by Aid accepted under « interim mechanism », established by

Accession TreatyAccession Treaty

*amendments to existing schemes *amendments to existing schemes new aid new aid

** Poland accepted appropriate measures pursuant to Art. ** Poland accepted appropriate measures pursuant to Art. 88(1) ECT to phase out all existing regional investment and 88(1) ECT to phase out all existing regional investment and operating aid schemes by end 2006 operating aid schemes by end 2006

Managing Authority and compliance Managing Authority and compliance with State aid ruleswith State aid rules

« The Managing Authority shall be responsible « The Managing Authority shall be responsible for managing and implementing the for managing and implementing the operational programme … in particular for: operational programme … in particular for:

(a) ensuring that operations … comply with (a) ensuring that operations … comply with applicable Community and national rules for applicable Community and national rules for the whole of their implementation period. » the whole of their implementation period. » (Art. 60, SF Council Reg.) (Art. 60, SF Council Reg.)

Certifying Authority and verification Certifying Authority and verification of compliance with state aid rulesof compliance with state aid rules

« The Certifying Authority … shall be responsible « The Certifying Authority … shall be responsible in particular for …in particular for …

(b) certifying that …(b) certifying that …

(ii) the expenditure declared … has been incurred in (ii) the expenditure declared … has been incurred in respect of operations … selected for funding in respect of operations … selected for funding in accordance with the criteria applicable to the accordance with the criteria applicable to the programme and complying with Community and programme and complying with Community and national rules. »national rules. »(Art. 61 (b) SF Council Reg.) (Art. 61 (b) SF Council Reg.)

Audit authority and State aid rulesAudit authority and State aid rules

« The audit authority … shall be responsible in particular « The audit authority … shall be responsible in particular for …for …

(d) by 31 December each year from 2008-2013(d) by 31 December each year from 2008-2013

(i)(i) Submitting to the Commission an annual control Submitting to the Commission an annual control report …report …

(ii)(ii) Issuing an opinion, … , as to whether the Issuing an opinion, … , as to whether the management and control system functions effectively, management and control system functions effectively, so as to provide … reasonable assurance that the so as to provide … reasonable assurance that the underlying transactions are legal and regular… »underlying transactions are legal and regular… »

(Art. 62 SF Council Reg.)(Art. 62 SF Council Reg.)

Responsibilities of Member StatesResponsibilities of Member States

MS are responsible for setting up the MS are responsible for setting up the management and control systems (Art. 70)management and control systems (Art. 70)

MS are to submit within twelve months a MS are to submit within twelve months a description of the systems (Art. 71(1).description of the systems (Art. 71(1).

This description shall be accompanied by a This description shall be accompanied by a report by an independent body setting out report by an independent body setting out the results of an assessment of the systems the results of an assessment of the systems and giving an opinion on their compliance and giving an opinion on their compliance (Art. 71(2).(Art. 71(2).

Respect of State aid rules: Respect of State aid rules: conclusionsconclusions

It is the responsibility of Member States to respect It is the responsibility of Member States to respect State aid rulesState aid rules

This also applies to interventions co-financed by This also applies to interventions co-financed by Structural FundsStructural Funds

Managing authority has to ensure lawfullness of Managing authority has to ensure lawfullness of operations, i.e. to ensure that aid operations, i.e. to ensure that aid – is granted in compliance with block exemption is granted in compliance with block exemption

regulations, regulations, – or notified and approved by Commission, or notified and approved by Commission, – or constitutes other existing aid. or constitutes other existing aid.

DG Competition and Structural DG Competition and Structural Funds’ Programming for 2007-2013Funds’ Programming for 2007-2013

DG Competiton shifts its approach from ex-ante to DG Competiton shifts its approach from ex-ante to ex-post controlex-post control

DG CompetitionDG Competition will will limitlimit itself in the itself in the programming programming exerciseexercise to ensure that the Member States and the to ensure that the Member States and the Managing and Certifying Authorities are Managing and Certifying Authorities are awareaware of their of their responsibilities under the Council Regulation and responsibilities under the Council Regulation and take take the appropriate measures.the appropriate measures.

DG Competition DG Competition will not assesswill not assess the the legality or legality or compatibilitycompatibility of individual SF operations or of individual SF operations or measures, contained in the operational programmes. measures, contained in the operational programmes.

DG Competition in the Structural DG Competition in the Structural Funds’implementation phaseFunds’implementation phase

DG Competition will become active if DG Competition will become active if the the MS MS fails to set up and ensure the proper functioning fails to set up and ensure the proper functioning

of the management/control system for state-aid aspects, of the management/control system for state-aid aspects, in particular where the in particular where the “compliance assessment “compliance assessment report”report” raises reservations, raises reservations,

the the Managing AuthorityManaging Authority fails to ensure compliance with fails to ensure compliance with state aid rules, in particular where the state aid rules, in particular where the Certifying Certifying Authority Authority refuses to certify compliance with Community refuses to certify compliance with Community policiespolicies

the the Auditing AuthorityAuditing Authority raises doubts as to the raises doubts as to the effectivenesseffectiveness of the management and control system, or of the management and control system, or as to the as to the legality legality of operations,of operations,

in case of in case of complaintscomplaints by third parties. by third parties.