In a speech held on 25 September 2012 Joaquin Almunia, Vice President of the European Commission responsible for competition policy, made clear that the Commission is considering to introduce sector inquiries as a new tool in European State aid law.
What is State Aid?
When a company receives government support it obtains an advantage over its competitors which could result in a distortion of competition. For that reason, the EU Treaty prohibits State aid unless it is justified by reasons of general economic development. The Commission is in charge of watching over the compliance of State aid with EU rules.
The definition of State aid stems form Article 107(1) TFEU. This article translates into 5 criteria, all 5 of which must be met for State aid to be present:
- aid is granted by a member state or through state resources;
- aid confers an advantage on the recipient;
- it favours certain commercial undertakings or the production of certain goods (i.e. it must be selective in its nature);
- it distorts or has the potential to distort competition;
- it affects trade between Member States or has the potential to do so.
State Aid Reform Programme
On 8 May 2012, the Commission set out an ambitious State aid reform programme. The modernisation has three main, closely linked objectives:
- foster growth in a strengthened, dynamic and competitive internal market;
- focus enforcement on cases with the biggest impact on the internal market;
- streamlined rules and faster decisions.
The idea to introduce state aid sector inquiries is part of the modernisation process. The main elements of the modernisation package, including revised guidelines, are expected to be in place at the end of 2013.
What are sector inquiries?
Sector inquiries are investigations that the Commission carries out into sectors of the economy, when it believes that a market is not working as well as it should, and also believes that breaches of the competition rules might be a contributory factor. Sector inquiries are already successfully employed by the Commission to detect cartels.
Why does the European Commission consider state aid sector inquiries?
In order to detect illegal state aid the Commission currently has to rely on information it receives from third party complainants, or publicly available sources. By means of a sector inquiry the Commission can proactively investigate whole sectors for illegal state aid. The information obtained in an inquiry helps the Commission to better understand a particular market from the point of view of competition policy. If it finds grounds for doing so, the Commission may subsequently decide to open specific investigations to ensure the respect of EU state aid rules.
Possible impact for your business
Since we are awaiting the outcome of the state aid reform programme is it too early to tell the exact scope of the proposed state aid sector inquiries. It is clear however that with the introduction of this new tool the Commission will have the right to ask companies to provide (incriminating) information on public funding they receive. Sector inquiries can put severe demands on firms and put their future performance and freedom of action at risk. Companies that do business with the public sector should be aware of this.
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