EU TFEU: State aid

Undistorted competition in the internal market starts with the assumption that state aid (including aid in any form by national public authorities) is prohibited. The EU Treaty of Lisbon then lists the exceptions to the main rule, as in the current EC Treaty, but adds the possibility to repeal the special regime based on the negative effects of the division of Germany. In the third category, aid potentially compatible with the internal market, the outermost regions of the European Union (certain territories belonging to France, Portugal and Spain) are specifically referred to, which strengthens their position, although they have benefited from state aid under current practices.


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Article 107 of the Treaty on the Functioning of the European Union (TFEU) is found in the consolidated version of the Treaty on European Union and the Treaty on the Functioning of the European Union, published in the Official Journal of the European Union, OJ 9.5.2008 C 115/91–92:

Part Three ‘Policies and internal actions of the Union’

Title VII Common rules on competition, taxation and approximation of laws

Chapter 1 Rules on competition

Section 2 Aids granted by states

Article 107 TFEU
(ex Article 87 TEC)

1. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.

2. The following shall be compatible with the internal market:

(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;

(b) aid to make good the damage caused by natural disasters or exceptional occurrences;

(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point.

3. The following may be considered to be compatible with the internal market:
(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation;

(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;

(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;

(e) such other categories of aid as may be specified by decision of the Council on a proposal from the Commission.

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In Article 2, point 77 of the Treaty of Lisbon (ToL) the intergovernmental conference (IGC 2007) amended Article 87 TEC (OJ 17.12.2007 C 306/69):

77) Article 87 shall be amended as follows:

(a) in paragraph 2, the following sentence shall be added at the end of point (c):

‘Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point.’;

(b) in paragraph 3, the following words shall be added at the end of point (a): ‘, and of the regions referred to in Article 299, in view of their structural, economic and social situation;’.

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The TFEU table of equivalences tells us that Article 87 TEC first became Article 87 TFEU (ToL) in the original Treaty of Lisbon, but later renumbered Article 107 TFEU in the consolidated version (OJ 17.12.2007 C 306/211).

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The current Article 87 of the Treaty establishing the European Community (TEC) is found under Title VI ‘Common rules on competition, taxation and approximation of laws’, Chapter 1 ‘Rules on competition’, Section 2 ‘Aids granted by states’, in the latest consolidated version of the treaties in force (OJ 29.12.2006 C 321 E/76–77).

Readers, who need the current Article 87 TEC or want to compare the TEC and TFEU texts, notice that there are two different kinds of amendments in Article 107 TFEU.

First, there are the specific amendments (mentioned above), which offer the possibility to repeal the special provision on the negative effects of the division of Germany and there is the express possibility to offer aid to the regions referred to in Article 349 TFEU, Article 299 TFEU (ToL), namely Guadeloupe, French Guiana, Martinique, Réunion, Saint-Barthélemy, Saint-Martin, the Azores, Madeira and the Canary Islands.

Second, there are the horizontal amendments mentioned in Article 2 of the Treaty of Lisbon. According to horizontal amendment 2(b) ‘this Treaty’ became ‘the Treaties’, and in line with horizontal amendment 2(g) ‘common market’ was replaced by ‘internal market’, ‘Union’ replaced the word ‘Community’ as indicated in horizontal amendment 2(a), and pursuant to horizontal amendment 2(d) the words ‘acting by a qualified majority’ were deleted. Cf. OJ 17.12.2007 C 306/41.

Article 87 TEC

1. Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.

2. The following shall be compatible with the common market:

(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;

(b) aid to make good the damage caused by natural disasters or exceptional occurrences;

(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division.

3. The following may be considered to be compatible with the common market:

(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment;

(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;

(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Community to an extent that is contrary to the common interest;

(e) such other categories of aid as may be specified by decision of the Council acting by a qualified majority on a proposal from the Commission.

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For the sake of a systematic comparison, we look at the Article during the previous treaty reform stages.

First, we turn to the European Convention, the nearest thing we as EU citizens have had to a constituent assembly, which located the provisions on state aid in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 5 ‘Rules on competition’, with Subsection 2 ‘Aids granted by Member States’.

The attentive reader notices that the terms ‘internal market’ and ‘Union’ are already in use, as well as certain terms abandoned later such as ‘Constitution’ and ‘European regulations or decisions’ and ‘Council of Ministers’, while ‘insofar’ was written as one word in the draft Constitution. But Article III-56 of the draft Constitution proposed no substantive changes (OJ 18.7.2003 C 169/36–37):

Article III-56 Draft Constitution

1. Save as otherwise provided in the Constitution, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the internal market.

2. The following shall be compatible with the internal market:

(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;

(b) aid to make good the damage caused by natural disasters or exceptional occurrences;

(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, insofar as such aid is required in order to compensate for the economic disadvantages caused by that division.

3. The following may be considered to be compatible with the internal market:

(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment;

(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;

(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;

(e) such other categories of aid as may be specified by European regulations or decisions adopted by the Council of Ministers on a proposal from the Commission.

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In the Treaty establishing a Constitution for Europe the provisions on state aid were located in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 5 ‘Rules on competition’, with Subsection 2 ‘Aid granted by Member States’.

In Article III-167 of the Constitutional Treaty the IGC 2004 introduced two material changes, which became stalled as ‘collateral damage’ following the failed referendums in France and the Netherlands.

Article III-167(2)(c) provided for the possibility to repeal the provision on aid to certain regions of the Federal Republic of Germany because of the disadvantages caused by the division of Germany. (For those interested in curiosity value, here was an example of treaty change without Convention, IGC or even separate ratification.)

Article III-167(3)(a) strengthened the position of the French, Portuguese and Spanish ‘outermost regions’ referred to in Article III-424 by mentioning them at the treaty level in the context of state aid as regions where state aid may be considered to be compatible with the internal market. State aid and other measures were to be adopted – as the Constitutional Treaty eloquently put it – taking account of the structural economic and social situation of Guadeloupe, French Guiana, Martinique, Réunion, the Azores, Madeira and the Canary Islands, which is compounded by their remoteness, insularity, small size, difficult topography and climate, economic dependence on a few products, the permanence and combination of which severely restrain their development.

Article III-167 as agreed by the IGC 2004 (OJ 16.12.2004 C 310/71–72):

Article III-167 Constitution

1. Save as otherwise provided in the Constitution, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the internal market.

2. The following shall be compatible with the internal market:

(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;

(b) aid to make good the damage caused by natural disasters or exceptional occurrences;

(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, insofar as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty establishing a Constitution for Europe, the Council, acting on a proposal from the Commission, may adopt a European decision repealing this point.

3. The following may be considered to be compatible with the internal market:

(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article III-424, in view of their structural, economic and social situation;

(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;

(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;

(e) such other categories of aid as may be specified by European regulations or decisions adopted by the Council on a proposal from the Commission.

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We have seen that Article 107 TFEU took over the two substantive amendments agreed by the previous intergovernmental conference.

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What has been said about Article 107 TFEU?


United Kingdom

Professor Steve Peers covered the Treaty of Lisbon in a number of Statewatch Analyses. ‘EU Reform Treaty Analysis no. 3.3: Revised text of Part Three, Titles I to VI of the Treaty establishing the European Community (TEC): Internal Market and competition’ (Version 2, 23 October 2007) includes the current Title VI Common rules on competition, taxation and approximation of laws.

Peers highlighted the amendments to Article 87 TEC by Article 87 TFEU (ToL), to be renumbered Article 107 TFEU in the consolidated version, with the following comment (page 27):

“The first amendment allows for repeal of a part of the Treaty by QMV. The second amendment was added in the October draft of the Reform Treaty.”

The analysis 3.3 and other useful Statewatch analyses are available through:

http://www.statewatch.org/euconstitution.htm

My comment: The second amendment is based on the IGC 2004 agreement, as shown above.

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The Foreign and Commonwealth Office (FCO) offers a convenient source of brief annotations on Lisbon Treaty amendments in ‘A comparative table of the current EC and EU treaties as amended by the Treaty of Lisbon’ (Command Paper 7311, published 21 January 2008). It offers the following comment on Article 107 TFEU, Article 87 TFEU (ToL) in the original Lisbon Treaty (page 11):

“Draws on Article 87 TEC. The provision allowing the repeal, by QMV, of paragraph 2(c) is new, as is the reference to the regions in paragraph 3(a).”

The FCO comparative table is available at:

http://www.official-documents.gov.uk/document/cm73/7311/7311.asp

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The UK House of Commons Library Research Paper 07/86 ‘The Treaty of Lisbon: amendments to the Treaty establishing the European Community’ (published 6 December 2007) discussed competition on pages 57 to 60.

It commented on the state aid provisions on page 58:

“Articles 87– 89 (Constitution Articles III-167 – III-169) concern state aids. The provisions
are as at present, except that 87(2)(c) on aid granted to Germany after unification being
compatible with the internal market now provides for the possibility of a decision to
repeal that point five years after implementation of the Lisbon Treaty. A Declaration
annexed to the Treaty notes that the provisions will be interpreted in accordance with
ECJ case law. (Similar wording is included in amended Article 78 on transport).

“Regions” are added to 87(3) as possible qualifiers for aid “in view of their structural,
economic and social situation”. Amended Article 88 (Constitution Article III-168) adds a
new paragraph (4) on categories of aid considered exempt from the conditions set out in
paragraph (3) on compatibility with the internal market.”

The Library Research Paper 07/86 is available at:

http://www.parliament.uk/commons/lib/research/rp2007/rp07-086.pdf

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The House of Lords European Union Committee report ‘The Treaty of Lisbon: an impact assessment, Volume I: Report’ (HL Paper 62-I, published 13 March 2008) discussed the internal market and competition on pages 218 and 219, but I found no reference to Article 107 TFEU (Article 87 TEC and ToL) in this context.

The report is accessible at:

http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeucom/62/62.pdf

In case anyone wants to dig deeper, state aid is discussed ‘passim’ in Volume II of the report ‘Evidence’.


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Sweden

After the consultation paper ‘Lissabonfördraget; Statsrådsberedningen, Departementsserien (Ds), Ds 2007:48’ published 20 December 2007, the government of Sweden has advance one step in its snail’s pace management of the ratification process concerning the Treaty of Lisbon.

The consultation paper ’Lissabonfördraget’ is still valuable as a description of the Lisbon Treaty amendments, and it is available at:

http://www.regeringen.se/content/1/c6/09/49/81/107aa077.pdf

‘Lagrådsremiss – Lissabonfördraget’ is the Swedish government’s draft ratification bill, published 29 May 2008, and sent to the Council on Legislation (Lagrådet), an expert body mandated to scrutinise the compatibility of proposals with the Constitution and other acts as well as the legal consistency of planned government bills.

The 283 page draft proposal offers the Swedish government an opportunity to take notice of remarks received during the wide-ranging consultation exercise, which ended in March. The draft bill deals with the EU’s internal policy areas in Chapter 23 ‘Unionens interna åtgärder’, and section 23.1 presents the internal market (Inre marknaden), on pages 175 to 181.

The relevant remarks on competition explain the additions on the division of Germany and the referral to the outermost regions (page 178). Notice that the Swedish government uses the original Treaty of Lisbon numbers, not the ones of the renumbered consolidated TFEU:

”I artikel 87.2c i EUF-fördraget, som rör statligt stöd med anledning av Tysklands tidigare delning, anges att beslut kan fattas om att upphäva bestämmelserna tidigast fem år efter det att Lissabonfördraget trätt i kraft. I en gemensam förklaring (29) till artikel 87.2c i fördraget om Europeiska unionens funktionssätt noteras att artikeln ska tolkas i enlighet med EU-domstolens praxis.

I artikel 87.3a i EUF-fördraget görs ett tillägg om att statligt stöd i de regioner som avses i artikel 299 i EUF-fördraget (Franska Guyana och på Guadeloupe, Martinique, Réunion, Azorerna, Madeira och Kanarieöarna) kan anses vara förenliga med den inre marknaden med hänsyn till dessa regioners strukturella, ekonomiska och sociala situation.”

The government of Sweden has produced a valuable addition to the secondary literature (official or private) on the Treaty of Lisbon. The draft bill ‘Lagrådsremiss – Lissabonfördraget’ can be downloaded via a web page called Lissabonfördraget (Statsrådsberedningen, Lagrådsremiss, 29 maj 2008): Ladda ner Lissabonfördraget (pdf 1,5 MB):

http://www.regeringen.se/sb/d/5676/a/106277


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Finland

The Finnish ratification bill, ‘Hallituksen esitys Eduskunnalle Euroopan unionista tehdyn sopimuksen ja Euroopan yhteisön perustamissopimuksen muuttamisesta tehdyn Lissabonin sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta’ (HE 23/2008 vp), gives a detailed explanation of Article 87 TFEU (ToL), renumbered Article 10 TFEU (pages 207–208):

”2 jakso
Valtion tuki

Määräykset koskevat jäsenvaltion myöntämän tuen soveltumista sisämarkkinoille sekä komission ja neuvoston toimivaltaa tukiasioissa. Määräyksiin on tehty eräitä erityisalueita ja päätöksentekomenettelyjä koskevia muutoksia sekä sanamuotoja koskevia ja teknisiä tarkistuksia.

87 artiklan (uusi 107 artikla) 2 kohta koskee sisämarkkinoille soveltuvia tukia. SEUT 87 artiklan 2 kohdan c alakohdan mukaan sisämarkkinoille soveltuvana pidetään tukea tietyille Saksan liittotasavallan alueille, joihin Saksan jako on vaikuttanut, jos tuki on tarpeen jaosta aiheutuneen taloudellisen haitan korvaamiseksi. Viiden vuoden kuluttua Lissabonin sopimuksen voimaantulosta neuvosto voi komission ehdotuksesta tehdä päätöksen, jolla 87 artiklan 2 kohdan c alakohta kumotaan. Vastaavaa valtuutuslauseketta ei sisälly nykyiseen EY-sopimukseen. Määräys on samansisältöinen kuin perustuslakisopimuksen III-167 artiklan 2 kohdan c alakohta.

SEUT 87 artiklan 3 kohdassa määritellään tuet, joita voidaan pitää sisämarkkinoille soveltuvina. Artiklan 3 kohdan a alakohtaan on lisätty uusi määräys, jonka nojalla sisämarkkinoille soveltuvana voidaan pitää tukea taloudellisen kehityksen edistämiseen SEUT 299 artiklassa mainituilla alueilla ottaen huomioon niiden rakenteellinen, taloudellinen ja sosiaalinen tilanne. SEUT 299 artiklassa mainittuja alueita ovat Guadeloupe, Ranskan Guayana, Martinique, Réunion, Saint Barthélemy, Saint Martin, Azorit, Madeira ja Kanariansaaret. Lissabonin sopimuksessa vahvistetaan näiden alueiden kuuluminen SEUT 87 artiklan 3 kohdan a alakohdan mukaisen tuen piiriin. Kyseisiä alueita ei ole mainittu SEY 87 artiklan 3 kohdan a alakohdassa, mutta käytännössä näiden alueiden on nykyisin katsottu kuuluvan 87 artiklan 3 kohdan a alakohdan mukaisen tuen piiriin. Näiden alueiden kirjaamisella SEUT 87 artiklan 3 kohdan a alakohtaan mahdollistetaan nykyisen käytännön jatkuminen kaikkien kyseisten alueiden osalta myös tulevaisuudessa. Määräys on samansisältöinen perustuslakisopimuksen III-167 artiklan 3 kohdan a alakohdan kanssa.”

The Finnish ratification bill is available at:

http://www.finlex.fi/fi/esitykset/he/2008/20080023.pdf


The Swedish language version of the ratification bill ‘Regeringens proposition till Riksdagen med förslag om godkännande av Lissabonfördraget om ändring av fördraget om Europeiska unionen och fördraget om upprättandet av Europeiska gemenskapen och till lag om sättande i kraft av de bestämmelser i fördraget som hör till området för lagstiftningen’ (RP 23/2008 rd), offers the same description of Article 87 TFEU (ToL), the future Article 107 TFEU, on page 210:


”AVSNITT 2
STATLIGT STÖD
Bestämmelserna gäller vilka stöd som medlemsstaterna beviljar som är förenliga med den inre marknaden samt kommissionens och rådets befogenheter i stödfrågor. I bestämmelserna har företagits vissa ändringar som gäller specialområden och beslutsförfaranden samt vissa tekniska ändringar som gäller ordalydelsen.

Artikel 87.2 (blivande artikel 107) gäller stöd som är förenliga med den inre marknaden. Förenligt med den inre marknaden är enligt artikel 87.2 punkt c i EUF-fördraget stöd som ges till vissa av de områden i Förbundsrepubliken Tyskland som påverkats genom Tysklands delning i den utsträckning stödet är nödvändigt för att uppväga de ekonomiska nackdelar som uppkommit genom denna delning. Fem år efter ikraftträdandet av Lissabonfördraget får rådet på förslag av kommissionen anta ett beslut genom vilket artikel 87.2 punkt c upphävs. Någon motsvarande fullmaktsklausul ingår inte i det nuvarande EG-fördraget. Bestämmelsen har samma innehåll som artikel III-167.2 punkt c i det konstitutionella fördraget.

I artikel 87.3 i EUF-fördraget anges de stöd som kan anses förenliga med den inre marknaden. Till artikel 87.3 punkt a har fogats en ny bestämmelse enligt vilken stöd för att främja den ekonomiska utvecklingen i de regioner som avses i artikel 299 i EUFfördraget, med hänsyn till deras strukturella, ekonomiska och sociala situation, kan anses förenligt med den inre marknaden. De regioner som nämns i artikel 299 i EUF-fördraget är Guadeloupe, Franska Guyana, Martinique, Réunion, Saint Barthélemy, Saint-Martin, Azorerna, Madeira och Kanarieöarna. I Lissabonfördraget fastställs att dessa regioner omfattas av stöd enligt artikel 87.3 punkt a i EUF-fördraget. Dessa regioner nämns inte i artikel 87.3 punkt a i EG-fördraget, men i praktiken har dessa regioner för närvarande ansetts omfattas av stödet enligt artikel 87.3 punkt a. Att dessa regioner skrivs in i artikel 87.3 punkt a i EUF-fördraget gör det möjligt att fortsätta med nuvarande praxis för alla berörda regioners del även i framtiden. Bestämmelsen har samma innehåll som artikel III-167.3 punkt a i det konstitutionella fördraget.

The ratification bill in Swedish can be accessed at:

http://www.finlex.fi/sv/esitykset/he/2008/20080023.pdf

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One more thing to add to this compilation concerning formal aspects of Article 107 TFEU, viz. the joint declaration (OJ 9.5.2008 C 115/347):

29. Declaration on Article 107(2)(c) of the Treaty on the Functioning of the European Union

The Conference notes that Article 107(2)(c) shall be interpreted in accordance with the existing case law of the Court of Justice of the European Union regarding the applicability of the provisions to aid granted to certain areas of the Federal Republic of Germany affected by the former division of Germany.



Ralf Grahn