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EStAL 4 |2016 575The Interplay Between Industrial Policy and State Aid

The Interplay Between Industrial Policy andState Aid: Natural Combination or StrangeBedfellows?

Pim Jansen*

The system of European Union (EU) State aid control aims to strike a careful balance betweenEuropean unity and national sovereignty. This entails that, while decisions to provide aid are inprinciple made by the Member States, the EU legal framework (as interpreted) generates a num-ber of systemic obstacles that can preclude or limit the adoption and application of nationalindustrial policy measures that entail monetary support, in particular, those that are based onthe interpretation of industrial policy in a purely domestic sense, although some (types of) mea-sures that are of particular interest from an industrial policy perspective fall outside the scopeof application of Article 107(1) TFEU altogether. However, by inviting Member States to provide“good aid”, as opposed to “bad aid”, as exemplified by the recent State Aid Modernisation (SAM)programme, which, in turn, has been informed by the Europe 2020 Strategy, the EU increasing-ly aims to impact on the economic policy of its Member States. Combined with the creation ofmultiple supranational funding possibilities which aim to positively contribute to the objectivesof said Europe 2020 Strategy, the proposition in this paper is that this enables the Commissionto use State aid policy as a public governance instrument to advance positive European indus-trial policy in the absence of (full) harmonisation. Although this is arguably in line with whatArticle 173 TFEU on industry prescribes, the Commission’s interventionist use of its discretionarypowers under Article 107(3) TFEU raises some doubts as to the assigned distribution betweenthe Member States and the supranational level within the system of State aid control.

Keywords: Industrial Policy; State aid; Balancing Public Interests; Discretion; Division ofCompetences.

I. Introduction

The central objective of the European Union (EU)rules on State aid is to prevent competition in the in-ternal market from being distorted by undue Stateintervention directed towards strengthening the po-

sition of one or more undertaking (in)directly com-peting in intra-EU trade.1 Such State intervention isbelieved to prevent or delay market forces from re-warding the most competitive firms in the market,and which in turn decreases Europe’s overall com-petitiveness.2Another key objective is that of further-

* Pim Jansen is a PhD Researcher and PhD fellow at the Institute forConsumer, Competition & Market of the Economic Law Depart-ment, Faculty of Law, Catholic University Leuven (KU Leuven),Belgium.DOI: 10.21552/estal/2016/4/8

1 P Nicolaides and S Schoenmakers, ‘The Concept of ‘Advantage’in State Aid and Public Procurement and the Application ofPublic Procurement Rules to Minimise Advantage in the NewGBER’ (2015) 1 European State Aid Law Quarterly 143, 143;speech J Almunia ‘Competition, State aid and Subsidies in the

European Union’ (2010) 9th Global Forum on Competition(SPEECH/10/29); Commission Communication, ‘EU State AidModernisation’, COM(2012) 209 final, para. 2; Study of theEuropean Parliament, ‘The Contribution of Competition Policy toGrowth and the EU 2020 Stategy’, IP/A/ECON/ST/2012-25, June2013, page 15.

2 T Oppermann, C Classen and M Nettesheim, Europarecht: einStudienbuch (Beck 2014), 353; A Strohm, ‘Competition policy atwar with industrial policy?’ (2006) 11 EIB paper 2, 47. See alsothe Twelfth Report on Competition Policy (1982), para. 158.

EStAL 4 |2016576 The Interplay Between Industrial Policy and State Aid

ing the single market objective and addressing theissue ofmacro-economic competition betweenMem-ber States.3Yet, in the context of renewed (supra-)na-tional focus on industrial policy, and efforts to findnew means of economic growth and innovation aspart of the ‘Europe 2020 Strategy’, State aid is con-sidered to play an important role by acting as a ‘cat-alyst’ for the adjustment of industry to structuralchanges, by preserving the prerequisites of the com-petitive system but also for the achievement of con-crete goals.4 This raises the question of whether andunder which conditions the safeguarding of (supra-)national industrial policy considerations can out-weigh the basic premise of State aid control.

The European integration project does not as suchcontradict the interests of the Member States; quitethe contrary. In its pursuit for legitimate governancethat on balance is considered to be more valuablethan the mere safeguarding of purely nation-Stateinterests, European integration represents an at-tempt to provide for both unity and diversity, thepreservation of which is allocated both to suprana-tional institutions and Member State authorities.5

This integration process requires ‘unity’ because ofthe real need to address external and internal chal-lenges, but must also accommodate ‘diversity’ inview of Member States’ diverging (non-) economicneeds, preferences and traditions.6 In particular tothe extent that unity also implies a need for unifor-mity, and thus has an impact on Member States’scope for variation, the legal framework that the EUembodies must strike a careful balance between thetwo concepts. It is inherent to this balancing act, thatthe objective of an ever closer Union may not at alltimes coincide with Member States public policy in-terests.

The semi-economic domain of industrial policy,which has already been in the spotlight for severalyears now, constitutes a clear illustration of this.Point of departure is that national and supranation-al competences and interests cannot be treated asdifferent spheres in this domain. This is inter aliamade explicit in the first paragraph of Article 173TFEU on industry, which defines the specific objec-tives of the industrial policy at a relatively high lev-el of generality (i.e. both the ‘Union and the MemberStates shall ensure that the conditions necessary forthe competitiveness7 of the Union's industry exist’, byachieving the specific objectives listed in Article173(1), second sentence, TFEU), is directed towards

both the EU and theMember States. Thismeans thatthe actions of the Member States are to be directedand oriented consistently with the aims of the inte-gration project, and must be treated as an issue ofcommon interest.8

Accordingly, the objectives of European industri-al policy constitute a common responsibility of theEU and the Member States, irrespective of the actu-al distribution of legislative competences. This focuson a shared interest and common destiny is also re-flected in EU’s policy practice, most notably in thecontext of the recent Europe 2020 Strategy of theCommission, which is addressed to both the Mem-ber States and the EU institutions. In this context, itcan be added that Member States’ practices and per-spectives are very much intertwined with the policyformulation process at the supranational level. In itsattempt to develop policies that really contribute tocreating the necessary conditions for competitive-ness in which private undertakings can gain a glob-al competitive advantage, the Commission reflectsonbest practices in thedifferentMemberStates. This

3 See e.g. A Biondi, ‘The Rationale of State Aid Control: A Return toOrthodoxy’ in C Barnard and O Odudu (eds), Cambridge year-book of European legal studies (Hart Pub. 2009), 43 and refer-ences made to J Buendía Sierra and B Smulders, ‘The LimitedRole of the “Refined Economic Approach”’ in Achieving theObjectives of State Aid Control: Time for Some Realism in ECState Aid Law: Liber Amicorum Francisco Santaolalla (Kluwer LawInternational 2008), 18. State aids are inter alia considered tohave serious implications as regards the economic convergencewithin the EU. See Commission Communication on “IndustrialPolicy in an Open and Competitive Environment” COM(90) 556,8.

4 The Europe 2020 communication noted that State aid policy can‘actively and positively contribute […] by prompting and support-ing initiatives for more innovative, efficient and greener technolo-gies, while facilitating access to public support for investment, riskcapital and funding for research and development’, see Commu-nication from the Commission, Europe 2020: A strategy for smart,sustainable and inclusive growth, COM(2010) 2020, 19. Seemore generally C Talbot, ‘Ordoliberalism and Balancing Competi-tion Goals in the Development of the European Union’ (2016)61(2) The Antitrust Bulletin 264, 267.

5 Quite fittingly this is reflected in the motto of the failed Constitu-tional Treaty, which is ‘united in diversity’. See more generally: CJoerges, ‘Unity in Diversity as Europe’s Vocation and ConflictsLaw as Europe’s Constitutional Form’, LSE ‘Europe in Question’(2010) 28 Discussion Paper Series, LEQS Paper 1, 8.

6 This is not unique to the EU, e.g. federal countries face similarissues. See in respect of the United States the report AdvisoryCommission on Intergovernmental Relations, ‘State Constitutionsin the Federal System: Selected Issues and Opportunities for StateInitiatives’, (Washington 1989), 119 and further.

7 In the Dutch and German versions of the TFEU, more clearlyreferred to as ‘concurrentievermogen’ and ‘Wettbewerbsfähigkeit’respectively, which literally means ‘the ability to compete’.

8 R Geiger, D Khan and M. Kotzur (eds), European Union Treaties:A Commentary (Beck 2015), 205.

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allows it to take into account the (types of) policiesthat have already been considered effective. More-over,MemberStates provide regular input in the con-text of the Competiveness Council,9 whereby rele-vant Commission representatives also participate inits meetings. The same applies to the High LevelWorking Group on Competitiveness and Growth.10

However, to the extentMember States consider in-dustrial policy measures that are based on the inter-pretation of industrial policy in a specific, domesticsense, the protection of public interests at the nation-al and supranational levels are not necessarilyaligned. In particular in times of economic crises,there may be an increased demand for ex post actionto safeguard national industry – and hence also na-tional interests.11 At other times also, governmentsmay take the perceived interest of domestic firmsand the strengthening of the national industrial baseinto consideration, even if clear market failures areabsent and policies are directed more towards equi-ty objectives than the achievement of structural eco-nomic adjustment.12 But, this may interfere with themarket mechanism, in which, as a result of competi-tion, inefficient enterprises exit and efficient enter-prises survive in the market.13

The EU’s definition of public interest in the con-text of State aid is typically geared towards eithermaintaining undistorted market or remedying mar-ket failures, or further to non-economic aims,14

whereby the overall European common interest asperceived at the supranational level is the primaryobjective,15 not merely the national interest of aMember State or the benefits obtained by the recip-ient of aid in contributing to the national interest ofa Member State.16 When compared to the Treaty ex-ceptions and overriding reasons in the public inter-est in the context of the economic production fac-tors, State aid control has been held to be distinct be-cause it clearly defines the derogation grounds as Eu-ropean concepts, i.e. ‘where the proposed aid schemesmay have a beneficial impact in overall Unionterms’;17 thus, it is up to the Member States to provethat providing aid for certain activities will be bene-ficial for a pan-European aim.18 Most clearly, ‘aid tofacilitate the development of certain economic activ-ities or of certain economic areas’, listed in Article107(3)(c) TFEU, ‘where such aid does not adversely af-fect trading conditions to an extent contrary to thecommon interest’ involves the balancing of two Eu-ropean values: preserving good competitive condi-

9 The Competiveness Council is a special configuration of theCouncil of the European Union (Council). Depending on theagenda, the Competitiveness Council brings together ministersresponsible for trade, economy, industry, research and innova-tion, and space from all Member States. See <http://www.consilium.europa.eu/en/council-eu/configurations/compet/> Lastaccessed on 13 November 2016.

10 The High Level Working Group on Competitiveness and Growthis a Council preparatory body that handles work relating to non-legislative tasks in the field of competitiveness. The workinggroup meets at the level of high representatives designated byMember States. A high representative of the Commission alsoparticipates in the meetings. See <http://www.consilium.europa.eu/en/council-eu/preparatory-bodies/high-level-working-group-competitiveness-growth/> Last accessed on 13 November 2016.

11 As the most recent financial and economic crisis demonstrates,EU Member States are at those times under great pressure toprovide more interventionist forms of support to struggling firmsin order to defend national interests. See Communication fromthe Commission to the European Parliament, the Council, theEuropean Economic and Social Committee and the Committee ofthe Regions on EU State Aid Modernisation, COM(2012) 209,para. 3. See also e.g. B Clift, ‘Economic Patriotism, the Clash ofCapitalisms, and State Aid in the European Union’ (2013) 13 JICT101, 106; J Derenne, M Merola and J Rivas, Competition Law intimes of Economic Crisis; in Need of Adjustment? (Bruylant2013). See more generally: W Sauter, Competition Law andIndustrial Policy in the EU, (Oxford University Press 1997), 62-66.In reaction, the Commission approved specific crisis-relatednational State aid measures under exceptional temporary rulesadopted in October 2008 in accordance with Article 107(3)(b)TFEU, with a view to remedying a ‘serious disturbance in theeconomy of a Member State’. See European CompetivenessReport (2011), 205.

12 See already: Commission Communication on Industrial Policy inan Open and Competitive Environment COM(90) 556, 6. See BClift, ‘Economic Patriotism, the Clash of Capitalisms, and StateAid in the European Union’ (2013) 13 JICT 101, 102. See for thedifferent types of market failures J Pelkmans, ‘The Economics ofSingle Market Regulation’ (2012) 25 Bruges European EconomicPolicy Briefings 1, 3. As Sánchez Graells notes ‘[a]ccording toclassical economic theory, regulation – or, more generally, govern-mental intervention in the market is justified where market failure(or market imperfection) arises and where governmental interven-tion constitutes an effective (and, arguably, efficient) instrumentto remedy that failure’, see A Sánchez Graells, Public Procure-ment and the EU Competition Rules (3rd edition, Hart 2015), 81,and the references made.

13 See in a similar sense the guidelines of the Japan Fair Trade Com-mission, ‘Release of “Guidelines of the Concept of Public Supportfor Revitalization view of Competition Policy”, 31 March 2016.

14 Public interests are thus not only determined on the basis ofpossible inefficient market outcomes.

15 Commission staff working paper accompanying the Report onCompetition Policy [2014] 4.

16 Communication from the Commission to the European Parlia-ment, the Council, the European Economic and Social Committeeand the Committee of the Regions on EU State Aid Modernisa-tion, COM(2012) 209. Commission, Tenth Report on CompetitionPolicy (OOPEC Luxembourg 1981), para. 216.

17 Commission State aid action plan - Less and better targeted stateaid: a roadmap for state aid reform 2005-2009 (Consultationdocument), COM/2005/0107 final, par. 10.

18 See A Biondi, ‘The Rationale of State Aid Control: A Return toOrthodoxy’ in C Barnard and O Odudu (eds), Cambridge year-book of European legal studies (Hart Pub. 2009), 38.


tions in the markets and some specific beneficial ef-fect for particular European policies.19 By contrast,the EU is firmly set against resorting to protection-ist measures to solve temporary and structural prob-lems, which have been emphasised by the most re-cent crisis.20

This raises the question as towhat extent State aidcontrol and policy represent an attempt to strike abalance between unity and diversity. This touches ondelicate issues concerning the balance of compe-tences between the EU and its Member States on theone hand, and the balancing between European val-ues of preventing competition from being distortedin the internal market and the safeguarding of otherpublic interests on the other hand.21

The EU legal framework on State aid appears toestablish an unambiguous division of compe-tences between the EU and its Member States.22

Member States are competent to design and to exe-cute aid policies provided they do not violate Stateaid rules.23 The Commission (and occasionally theCouncil)24 has been accorded the role of a ‘watchdog’to monitor the use of State aid, subject to review bythe Court of Justice of the European Union (here-inafter ‘Court of Justice’).25 The Commission cannotforce a Member State to pay State aid; it is empow-

ered only to order a Member State not to pay any aidit considers incompatible with the internal market.26

In the context of the Europe 2020 Strategy, the EUwould therefore seem to depend primarily on theMember States to deliver.27

This division of powers between the two28 levelsof government is, however, not as clear-cut as itwouldseem.29While theCommissionhas always had to bal-ance the general prohibition on State aid against pos-sible exceptions in Article 107(3) TFEU, and has, forexample, pursued clear policies in sectors such as thesteel, coal and shipbuilding industry, the EU evermore actively impacts on the economic policy of itsMember States; it increasingly coordinates nationaleconomicpolicies or supplements themwithEUpoli-cies. First, by inviting Member States to provide“good aid”, as opposed to “bad aid”, as exemplified bythe recent State aid modernisation (SAM) pro-gramme,30 which, in turn, has been informed by theEurope 2020 Strategy, the EU ever more policy gov-erns the way structural industrial change by the na-tional authorities takes place.31 Second, the EU hascreates a rangeof fundingpossibilities out of theEU’sand/or the Member State’s coffers, such as e.g. theHorizon 2020 Framework Programme for Researchand Innovation (2014-2020) (Horizon 2020) or the

19 See A Biondi, ‘The Rationale of State Aid Control: A Return toOrthodoxy’ in C Barnard and O Odudu (eds), Cambridge year-book of European legal studies (Hart Pub. 2009), 38. Of course,at the same time, this provision can have a national, and notmerely an EU, dimension.

20 See very similarly with regard to the 1973 (and onwards) crisis:The industrial policy of the European Community. Speech by EDavignon (Member of Commission responsible for IndustrialAffairs). Brussels, 31 March 1981.

21 See in respect of the latter, A Biondi, ‘The Rationale of State AidControl: A Return to Orthodoxy’ in C Barnard and O Odudu(eds), Cambridge yearbook of European legal studies (Hart Pub.2009), 38.

22 M Blauberger, ‘From Negative to Positive Integration? EuropeanState Aid Control through Soft and Hard Law’, (2008) 4 MPIfGDiscussion Paper 1, 6.

23 M Blauberger, ‘From Negative to Positive Integration? EuropeanState Aid Control through Soft and Hard Law’, (2008) 4 MPIfGDiscussion Paper 1, 6. No EU legislation has been adopted aimedat harmonising national rules in respect of the award of aid. See CQuigley, European State aid law and policy, (Hart 2015), 256. Ofcourse, pursuant to Article 4(3) TEU, Member States have to act inthe EU’s interest even when they are exercising their own compe-tences, and Article 121(1) TFEU requires that they regard theireconomic policies as a matter of common concern.

24 The Council can take a unanimous decision to declare an aidmeasure compatible with the internal market in derogation fromthe EU provisions on State aid if such a decision is justified byexceptional circumstances (Article 108(2), subparagraph 3 TFEU).Moreover, the Council can, on a proposal from the Commissionand after consulting the European Parliament, adopt regulations

for the application of Articles 107 and 108 TFEU, determining theconditions under which aid shall be regarded as compatiblepursuant to Article 108(3) TFEU and what aid categories shall beexempted from the notification obligation - Article 109 TFEU.

25 See e.g. C-505/14Klausner Holz Niedersachsen [2015] ECLI-742,[21]; Joined cases Case C-352/14 and Case C-353/14 IglesiasGutiérrez, judgment of 15 October 2015, ECLI-691, [26]; CaseC-387/92 Banco Exterior de España v Ayuntamiento de Valencia[1994] ECLI-100, [16]. The Directorate-General (DG) for Compe-tition has the lead responsibility for the management of EU com-petition policy.

26 It is the Member State which provides the funds for the aid,designs the scheme and notifies it to the Commission. See Opin-ion A-G Mazák, Case C-390/06 Nuova Agricast [2007] ECLI-712,[62].

27 See more generally: C Barnard and O Odudu, ‘Outer Limits ofEuropean Union Law: Introduction’ in C Barnard and O Odudu(eds), The Outer Limits of European Union Law, (Hart Publishing2009), 2.

28 Depending on the institutional framework within the MemberState in question, more levels of government are involved.

29 M Blauberger, ‘From Negative to Positive Integration? EuropeanState Aid Control through Soft and Hard Law’ (2008) 4 MPIfGDiscussion Paper 1, 6-7.

30 Communication from the Commission to the European Parlia-ment, the Council, the European Economic and Social Committeeand the Committee of the Regions on EU State Aid Modernisa-tion, COM(2012) 209.

31 Of course it needs the effective support of Member States in thisregard.


programme for the Competitiveness of Enterprisesand Small and Medium-sized Enterprises (COSME),to support the implementation of the Europe 2020Strategy and other EU policies.

The analysis in this paper consists of three parts.First, a number of national monetary mechanismswill bediscussed, followedbyanoverviewof theEU’sapproach to, and the legal framework in respect of,government support for industry. Second, it will setout where the EU legal system strikes a balance be-tween potentially competing notions of public inter-est at the national and supranational level as well asbetween different European values. This second partis divided into two sections, and focusses on the sys-tem of State aid control. In the first section a few ob-servations are made concerning the conditions un-der which the provision of (supra-) national govern-ment support for industry constitutes aid within themeaning of Article 107(1) TFEU that is prima facieincompatible with the internal market. Second, theconditions under which State aid may be regardedas compatible with the internal market will be dis-cussed. In the last part, the summarised results of thepaper will be discussed.

II. National Monetary Mechanisms

Apart from the funding opportunities created by theEU, it is in principle to up the Member States to de-sign and execute aid policies within the State aid sys-tem. In that context a wide range ofmonetary instru-ments may be used to provide support for industry.Twobroad categories can be distinguished: subsidiesand public procurement – of which only the first willthe theme of this contribution.32

State subsidies fall into at least seven, partiallyoverlapping, categories:

- cash subsidies: (in)direct33 grants to producersor consumers;

- credit subsidies: government guarantees, inter-est subsidies to undertakings, ‘soft loans’, failure tocollect or enforce debt;

- tax subsidies: tax waivers or deferrals;- equity subsidies: investment by acquisition of

share capital in a company or of any assets;- in-kindsubsidies: governmentprovisionofgoods

and services at below market price (e.g. by State-owned enterprises) or e.g. by providing dedicated in-frastructure below market price;

- procurement subsidies: government purchasesof goods and services at above market prices; and

- regulatory subsidies: implicit payments throughgovernment regulatory actions that alter marketprices or access.34

Publicprocurement, on theotherhandcanbeusedto promote innovation and development via the de-mand side, as opposed to subsidies.35 By guarantee-ing a certain level of demand to particular undertak-ings, the State may for example help them supportthe cost of sometimes risky research and innova-tion.36Most notably in the defence sector, public con-tracts are an important market for the firms con-cerned.

III. The EU Approach

It has often been claimed that industrial policy andcompetition policy are incompatible with each other,because there would be an inherent contradiction inmaintaining competition within the EU whilst at thesame time preserving and encouraging the com-petiveness of EU’s industry vis-à-vis the rest of theworld.37TheCommission,bycontrast,maintains thatcompetition policy and industrial policy are consid-

32 P Buigues and K Sekkat, Industrial policy in Europe, Japan and theUSA: Amounts, Mechanisms and Effectiveness, (Palgrave Macmil-lan 2009), 6-9.

33 As an example of indirect aid, reference can e.g. be made to aidthrough consumers in the context of scrapping schemes to incen-tivise people to buy new cars during the crisis.

34 These seven categories have been distinguished by G. Schwartz;B. Clements, ‘Government subsidies’ (1999) 13 JES 2, 120, andlater used and further developed by other academics, see mostnotably P Buigues and K Sekkat, Industrial policy in Europe, Japanand the USA: Amounts, Mechanisms and Effectiveness, (PalgraveMacmillan 2009), 7.

35 See European Competitiveness Report 2013, 127; Commissionmemorandum to the Council. COM (70) 100 final, 18 March1970. Bulletin of the European Communities, Supplement 4/70; PBuigues and K Sekkat, Industrial policy in Europe, Japan and theUSA: Amounts, Mechanisms and Effectiveness, (Palgrave Macmil-lan 2009), 8 and references made. See also e.g. V Lember, RKattel and T Kalvet (eds), Public Procurement, Innovation andPolicy: International Perspectives (Springer Berlin Heidelberg2014), 1; B Clift and C Woll ‘Economic patriotism: Reinventingcontrol over open markets’ (2012) 19 Journal of European PublicPolicy, 307, 308; S Morettini, ‘Public Procurement and SecondaryPolicies in EU and Global Administrative Law’ in E Chiti and BMattarella (eds), Global Administrative Law and EU AdministrativeLaw (Springer-Verlag Berlin Heidelberg 2011), 187.

36 See e.g. P Buigues and K Sekkat, Industrial policy in Europe,Japan and the USA: Amounts, Mechanisms and Effectiveness,(Palgrave Macmillan 2009), 8 and references made.

37 See for a discussion of this ‘traditional’ view e.g. W Sauter,Competition Law and Industrial Policy in the EU, (Oxford Univer-sity Press 1997), 3. See also R Lane, ‘New Community Compe-tences under the Maastricht Treaty’ (1993) 30(5) Common MarketLaw Review 939, 966.


ered different but closely related features of one idea;both would make European firmsmore efficient andprepare them for EU-wide competition and therebyequip them for global competition.38

The EU’s main industrial policy objective, as re-flected in the TFEU, is to create the right conditionsto improve the industry’s ability to compete at theinternational level by remedying structural deficien-cies and addressing areas where the market mecha-nism alone fails to provide the conditions necessaryfor success in the private sector.39 The analytical casefor Article 173 TFEU on industry thus seems to befounded on the notion that there is a market failurethat prevents Europe’s industry from becoming suf-ficiently competitive at the global level, and so a formof public intervention is necessary to correct that fail-ure.40 By focussing, inter alia, on the objectives ofcreating an internal market, of pursuing an opentrade policy, of facilitating and encouraging the adap-tation of enterprises to the EU-scale market, of stim-ulating in particular small and medium-sized enter-prises (SMEs) and of promoting research, develop-ment and innovation,41 this objective is ‘centred ona competitive and open internal market as a spring-board for the global success of EU businesses’.42

This is reflected in Article 173 TFEU on industrywhich establishes competitivenesspolicy as themainpillar of EU’s industrial policy.43 ‘Competitiveness’ is

associated with the ability of EU’s industry to createvalue-added employment or to improve living stan-dards (i.e. the EU’s macroeconomic performance),44

with a strong focus on the comparative internation-al perspective.45 Although the Commission is themain driving force behind EU’s industrial policies,theCompetivenessCouncil initiates andsupports thenecessary actions in this context.46 Also in the fieldof research and technological development, Article179(1) TFEU refers explicitly to the objective of com-petitiveness, and similar reference to competi-tive(ness) can be found in a number of other provi-sions.47 This is also reinforced by the fact that interms of economic governance, the relevant Treatyprovisions systematically refer to the principle thattheEUand theMemberStatesmust act inaccordancewith the principles of an openmarket economywithfree competition.48

Various strategies have been adopted by the Com-mission in order to ensure better framework condi-tions for Europe’s industry, themost recent being de-scribed in the communication ‘For a European In-dustrial Renaissance’.49 The different policies, pro-grammes and initiatives developed in these strate-gies are manifold and cover a wide variety of do-mains. Still very much in line with the original‘Bangemann Report’,50 in which the Commissionpresented a number of principles that were later re-

38 Report on Competition Policy 2014, 12.

39 See Article 173(1) TFEU. See Twenty-first Report on CompetitionPolicy (1991) para. 45.

40 S Devarajan, ‘Three reasons why industrial policy fails’, availableat <https://www.brookings.edu/blog/future-development/2016/01/14/three-reasons-why-industrial-policy-fails/> Last accessed on 13November 2016.

41 See already: The industrial policy of the European Community.Speech by E Davignon (Member of Commission responsible forIndustrial Affairs). Brussels, 31 March 1981.

42 Report on Competition Policy 2014, 2. A central element of this isthat the EU does not advocate the transfer of State-centred nation-alism and protectionism to the supranational level.

43 See European Competitiveness Report 2011, 209.

44 K Aiginger, S Bärenthaler-Sieber and J Vogel, ‘Competitivenessunder New Perspectives’ (2013) IDEAS Working Paper Sereiesfrom RePEc 1, 6, 12-13.

45 European competitiveness report 2013, Commission Staff WorkingDocument, SWD (2013)347 final; European Commission, ‘Prod-uct Market Review 2010-2011’, European Economy 8. Direc-torate-General for Economic and Financial Affairs, page 115. Awell-known criticism of placing excessive focus on the compara-tive international perspective in the context is found in P Krug-man, ‘Competitiveness: a dangerous obsession’ (1994) 73(2) 28.

46 See <http://www.consilium.europa.eu/en/topics/enterprise-industry/> Last accessed on 13 November 2016.

47 Articles 32(b) TFEU on customs union; 151 TFEU on socialpolicy; 170(2) TFEU on trans-European networks; 189(1) TFEU onspace policy; 195(1) TFEU on tourism; and in Declaration No. 30on Article 126 of the TFEU.

48 Article 119(1) TFEU and Article 120 TFEU. See B Van de Wallede Ghelcke and S Pilsbury, ‘Relationship between State Aid Rulesand Competiveness’ in J Derenne, M Merola and J. Rivas, Compe-tition Law in Times of Economic Crisis; in Need of Adjustment?,(Bruylant 2013) 385-386.

49 Communication from the Commission to the European Parlia-ment, the Council, the European Economic and Social Committeeand the Committee of the Region, For a European IndustrialRenaissance /* COM/2014/014 final.

50 Commission Communication on “Industrial Policy in an Openand Competitive Environment” COM(90) 556. The philosophy ofthe Bangemann Report was clearly summarised in its introduc-tion: ‘[i]nside the Community a consensus – at least implicitly –has developed on the type of policy to lay down the conditionsfor a strong and competitive industry […]. The main question isnot whether an industrial policy is opportune, as governments areincreasingly recognized to have, in advanced economies, animportant influence on industrial development and performance.On the contrary, the main issue is which conditions need to bepresent in order to strengthen the optimal allocation of resourcesby market forces, towards accelerating structural adjustment andtowards improving industrial competitiveness and the industrialand particularly technological long term framework. The role ofpublic authorities is above all as a catalyst and pathbreaker forinnovation’.


flected in (now)Article 173 TFEU, these strategies ex-press theneed foranoutward-lookingglobalperspec-tive with competitiveness as the central theme.51

While the Commission’s strategies involve the useof regulatory powers in some areas, in addition,many of them entail the provision of monetary sup-port.52

In setting up andmanaging ‘Horizon 2020’;53 thetwo satellite programmes, Galileo54 and Coperni-cus,55 which provide funds for research and devel-opment activities that complement the funds avail-able for space research within Horizon 2020;COSME56; the European Structural and Investment

Funds (ESI Funds)57 inter alia comprising of the Eu-ropean Regional Development fund (ERDF)58, Euro-pean Social Fund (ESF)59, Cohesion Fund (CF)60 andthe European Agricultural Fund for Rural Develop-ment (EAFRD)61 and including the overarching Reg-ulation (EU) No 1303/2013, known as the CommonProvisions Regulation (CPR)62; the European Fundfor Strategic Investment (EFSI)63; and the Connect-ing Europe Facility (CEF)64, the EU has become animportant contributor of EU funds and coordinatorof Member State funds in its own right by givingsubstance to the cascade of legislative competencesscattered throughout theTreaties.65The competence

51 European Competitiveness Report 2011, 210. The Council’seconomic policy guidelines for Europe 2020 also put emphasison the key importance of competitiveness. See the Conclusions ofthe European Council of 17 June 2010, para 12.

52 ‘EU industrial policy: assessment of recent developments andrecommendations for future policies’, study for the ITRE Commit-tee, February 2015, page. 24.

53 Primarily based on Articles 173(3), 182(1)-(4), 183, 185 and 187,188(2) TFEU. See inter alia Regulation (EU) No 1291/2013establishing Horizon 2020 - the Framework Programme forResearch and Innovation (2014-2020); Regulation (EU) No1290/2013 laying down the rules for participation and dissemi-nation in Horizon 2020; Decision establishing the specific pro-gramme implementing Horizon 2020; Regulation (EU) No1292/2013 establishing the European Institute of Innovation andTechnology; Decision No 1312/2013/EU on the strategic innova-tion agenda of the European Institute of Innovation and Technol-ogy (EIT): the contribution of the EIT to a more innovative Eu-rope.

54 Regulation (EU) No 1285/2013 of the European Parliament and ofthe Council of 11 December 2013 on the implementation andexploitation of European satellite navigation systems and repeal-ing Council Regulation (EC) No 876/2002 and Regulation (EC)No 683/2008 of the European Parliament and of the Council, OJ L347, 20.12.2013, p. 1–24, see recital 9 of the preamble.

55 Regulation (EU) No 377/2014 of the European Parliament and ofthe Council of 3 April 2014 establishing the Copernicus Pro-gramme and repealing Regulation (EU) No 911/2010 Text withEEA relevance OJ L 122, 24.4.2014, p. 44–66.

56 Primarily based on Articles 173 and 195 TFEU. This includes theLoan Guarantee Facility (LGF) and the Equity Facility for Growth(EFG)). See Regulation (EU) No 1287/2013 of the EuropeanParliament and of the Council of 11 December 2013 establishinga Programme for the Competitiveness of Enterprises and smalland medium-sized enterprises (COSME) (2014 - 2020) OJ L 347,20.12.2013, p. 33.

57 Of which the general rules are based on Article 177(1) TFEU forstructural funds and 177(2) TFEU for Cohesion Funds. With abudget of €454 billion for 2014-20, the ESI Funds are the EU’smain investment policy tool. The purpose of the CPR is to estab-lish a clear link with the Europe 2020 Strategy. General Article4(1) CPR provides that the ESI Funds shall provide support,through multi-annual programmes, which complements national,regional and local intervention, to deliver the EU strategy forsmart, sustainable and inclusive growth, as well as the Fund-specific missions pursuant to their Treaty-based objectives,including economic, social and territorial cohesion inter aliataking account of the relevant Europe 2020 Strategy objectivesand relevant country-specific recommendations. General Article9(1) CPR provides that each ESI Fund shall support a number ofthematic objectives relevant in the context of the Europe 2020

Strategy, including (but not limited to): strengthening research,technological development and innovation; enhancing access to,and use and quality of, ICT; enhancing the competiveness ofSMEs; supporting the shift towards a low-carbon economy in allsectors; promoting sustainable transport and removing bottle-necks in key networks infrastructures; and investing in education,training and vocational training.

58 Primarily based on Article 178 TFEU and 349 TFEU. See Regula-tion (EU) No 1301/2013 on the ERDF.

59 Primarily based on Article 164 TFEU. See Regulation (EU) No1304/2013 on the ESF.

60 Primarily based on Article 177 TFEU. See Regulation (EU) No1300/2013 on the Cohesion Fund.

61 Primarily based on Articles 42 and 42(2) TFEU.

62 Regulation (EU) No 1303/2013 of the European Parliament and ofthe Council of 17 December 2013 laying down common provi-sions on the European Regional Development Fund, the EuropeanSocial Fund, the Cohesion Fund, the European Agricultural Fundfor Rural Development and the European Maritime and FisheriesFund and laying down general provisions on the European Re-gional Development Fund, the European Social Fund, the Cohe-sion Fund and the European Maritime and Fisheries Fund andrepealing Council Regulation (EC) No 1083/2006, PB L 347 van20.12.2013, pages 320-469, which has Article 177 TFEU as itslegal basis.

63 Primarily based on Articles 172, 173(3), 175 and 182 TFEU.Regulation (EU) 2015/1017 of the European Parliament and of theCouncil of 25 June 2015 on the European Fund for StrategicInvestments, the European Investment Advisory Hub and theEuropean Investment Project Portal and amending Regulations(EU) No 1291/2013 and (EU) No 1316/2013 — the EuropeanFund for Strategic Investments. EFSI has been launched by theEuropean Commission and the European Investment Bank (EIB)Group to help overcome the investment gap in the EU by mobilis-ing private financing for strategic investments. See also: <http://europa.eu/rapid/press-release_MEMO-15-5419_en.htm> Last ac-cessed on 13 November 2016.

64 Through Article 172 TFEU. Regulation (EU) No 1316/2013 of theEuropean Parliament and of the Council of 11 December 2013establishing the Connecting Europe Facility, amending Regulation(EU) No 913/2010 and repealing Regulations (EC) No 680/2007and (EC) No 67/2010.

65 Finally, although the ECSC Treaty itself expired in 2002, theResearch Fund for Coal and Steel remains under the control of theEU. See Review of the balance of competences between theUnited Kingdom and the European Union: Government Responseto the Call for Evidence, Department for Business, Innovation &Skills and Foreign & Commonwealth Office, BIS/14/592, 13February 2014, para 1.1.


on which these initiatives to provide monetary sup-port are based, are mainly to be found in the titlesin the TFEU on ‘Industry’, ‘Economic, social and ter-ritorial cohesion’, ‘Research and technological devel-opment and space’ and ‘Trans-European net-works’.66 Their overarching aim is to overcome cur-rent market failures by supporting strategic invest-ments including in areas as research and innovation,‘high-value areas’ (such as Key Enabling Technolo-gies (KETs)), risk finance for small businesses, infra-structure, sustainability issues as well as by stimu-lating the economy in less-developed regions of theEU.

These initiatives demonstrate that the EU is notonly focussing on horizontal industrial policies to al-leviate economic market failure, but, further to a po-litical willingness in the context of the Europe 2020Strategy, also willing to adopt a more ‘invasive’ ap-proach to industrial adjustment by taking recourseto policies which are expected to accelerate theprocess.67 This is clearly at odds with classical ordo-liberal economic thinking, which does not allow anyselective intervention by government, even on a veryexceptional basis.68

In addition to the multiple funding possibilitiescreated by the EU that aim to contribute to the Eu-rope 2020 Strategy objectives, it can be observed thatthe objectives of national spending policies are ever

more set at the European level to be aligned withthese objectives.69 In its flagship initiative called “Anindustrial policy for the globalisation era”, the Com-mission has addressed the issue as follows: ‘State Aidcontrol is essential role to avoid distortion in the Sin-gle Market; moreover, the design of State aid rulescontributes to promote the competitiveness of indus-try in Europe. State Aid rules provide a framework thatdirects Member States' investments to address identi-fied market failures’.70

Unlike industry, a domainwhere supranational ac-tion serves to support, coordinate or supplementMember State action,71 establishing the competitionrules necessary for the functioning of the internalmarket is listed in the TFEU as an exclusive compe-tence.72 Point of departure of the system of State aidcontrol73 is that aid that distorts competition and af-fects trade betweenMember States is, at least in prin-ciple, incompatible with the internal market.74 Con-sidered one of themain areas of negative integration,this system of negative surveillance serves as an im-portant mechanism for strengthening the unity ofthe internal market.75 In this context, one can regardthe rules on State aid as an industrial policy instru-ment aimed at the effective adaptation of industryto structural change and the prevention of unprof-itable economic activities. Protectionism and sector-specific measures, by contrast, are generally seen as

66 Particular relevant legal bases for EU action are Articles 164, 172,173, 177, 178, 182, 183, 184, 185, 187 and 188 TFEU.

67 The latter would seem to be based on new growth and technolog-ical capability development or institutionalist neo-Schumpeterianevolutionary systems-based economic rationales. See EuropeanParliament, Industry, Research and Energy (ITRE), Study on "Indus-try 4.0", February 2016, IP/A/ITRE/2015-02, 69. Traditional eco-nomic protectionism does not seem to play a role in this context,however, the EU (coordinated) funds are primarily aimed atfuture-oriented investments, such as SMEs and R&D&I, not atsafeguarding or artificially creating national champions. See fore.g. Regulation (EU) No 1291/2013 establishing Horizon 2020 -the Framework Programme for Research and Innovation(2014-2020), recital 3. ‘EU industrial policy: assessment of recentdevelopments and recommendations for future policies’, study forthe ITRE Committee, February 2015, 26. In Europe 2020 fourflagship initiatives have been launched, have strong links toresearch and innovation: innovation, digital economy, industrialpolicy and resource efficiency. Innovation Union is the mostrelevant of these. For example, the three first objectives of theESIF, defined in the Regulation laying down common provisionsfor all the funds, are: (i) strengthening research, technologicaldevelopment and innovation; (ii) enhancing access to, and theuse and quality of, ICT; and (iii) enhancing the competiveness ofSMEs.

68 C Talbot, ‘Ordoliberalism and Balancing Competition Goals inthe Development of the European Union’ (2016) 61(2) The An-titrust Bulletin 264, 267.

69 Speech by M Vestager, 13 October 2015, ‘The values of competi-tion policy’, Keynote speech at CEPS Corporate breakfast. See (inthe context of the 2005 State aid action plan) M Blauberger,‘From Negative to Positive Integration? European State Aid Con-trol through Soft and Hard Law’ (2008) 4 MPIfG DiscussionPaper 1, 5.

70 European Commission, ‘An Integrated Industrial Policy for theGlobalisation Era Putting Competitiveness and Sustainability atCentre Stage’, COM(2010) 614 final, page 10.

71 Article 6 TFEU gives EU the competence to support, co-ordinateor supplement the actions of Member States in several areas,including the area of industry (sub (b)), but as provided by Article2(5) TFEU, this category of EU competence does not supersedethe Member States’ competence in this area.

72 Articles 3(1)(b) TFEU, 4(2)(a) TFEU. The effect of EU’s exclusivecompetence is an important limitation on the Member States’ability to act. For Member States to legislate or adopt legallybinding acts in the context of industrial policy, it must first beestablished that they are empowered by the EU or for the imple-mentation of EU action.

73 Which is part of competition law sensu lato.

74 See Eleventh Report on Competition Policy (1981), para 177.

75 M Blauberger, ‘From Negative to Positive Integration? EuropeanState Aid Control through Soft and Hard Law’, MPIfG (2008) 4Discussion Paper 1, 5.


incompatible with this starting point.76 Increasing-ly, however, one can discern European interventionin support of specific targets of Member State aidpolicy.

Aidedby theconsiderable interpretative roomthatArticle 107(3) TFEU offers and the fact that theTreaties do not follow neoliberal theory that wouldput subsidies per se under regulatory provision, theCommission hasmoved beyondmere surveillance toa combination of surveillance and more specific in-dustrial policy guidance.77 This is reflected in howthe Commission describes its own task: ‘[t]he objec-tives of Commission's control of State aid activity areto ensure that aid is growth-enhancing, efficient andeffective, and better targeted in times of budgetaryconstraints and where aid is granted, it does not re-strict competition but addresses market failures to thebenefit of society as a whole’.78 Competition commis-sioner Vestager has acknowledged in this context,that State aid policy relates to wider political priori-ties than competition alone.79

Of course, this is not exactly a new phenomenon.Since at least the 1980s the Commission openly de-manded that State aid would play a key role in a Eu-ropean (as opposed to: national) industrial policy.80

Moreover, in a range of (specific) sectors, such as thesteel, coal and shipbuilding industry, research anddevelopment and regional policy, the Commission

has extensive experiencewith policy-engineering viaa series of State aid regimes. However, with the 2005SAAP81 and the recently completed SAM pro-gramme,82 the linking of competition to wider polit-ical priorities has gainedmomentum. In this context,State aid law has been characterised as becoming ‘anall-purpose tool to camouflage policy making’.83 Al-though the substantive lynchpin in the context of theSAM process is the presence of a ‘market failure’which is well-defined in economic terms, the choiceof which market failures need to be remedied, wouldseem to be largely political. Hence, the aid categoriesin respect ofwhich theCommissionhas issuedguide-lines and frameworks do not following from thewordingofArticle 107(3)TFEU,however, they ‘ratherindicate the evolution of the Commission’s own [S]tateaid priorities’.84

In its SAAP, which was implemented between2005 and 2009, the Commission discussed the needfor strengthening its economic approach to State aidanalysis to ‘better focus and target certain state aidtowards the objectives of the re-launched Lisbon Strat-egy’.85 Moreover, it laid down a number of key prior-ities for national State aid policy.86 The leitmotif wasthe European Council’s call for ‘less and better tar-geted state aid’ and the application of the ‘more eco-nomic approach’.87 Aid should be permitted particu-larly for cases of market failure.88

76 Twentieth Report on Competition Policy (1990) 13.

77 T Oppermann, C Classen and M Nettesheim, Europarecht: einStudienbuch (Beck 2014), 353.

78 See Report on Competition Policy (2014) - Commission staffworking paper, 4.

79 Speech by M Vestager 13 October 2015, ‘The values of competi-tion policy’, Keynote speech at CEPS Corporate breakfast.

80 Tenth Report on Competition Policy, 9. See J J Piernas López,The Concept of State Aid under EU Law: From Internal Market toCompetition and Beyond (Oxford University Press 2015), 52.Subsequently, in its White Paper on ‘Completing the InternalMarket’, the Commission underlined the importance of State aidcontrol for the development of the internal market and forEurope’s competitiveness. See A Biondi and E Righini, ‘AnEvolutionary Theory of State Aid Control’ in A Arnull and DChalmers (eds), The Oxford handbook of European Union law,(Oxford University Press 2015), 685 referring to COM (85)310final, 14 June 1985, paras 19 and 158. Five years later, theCommission acknowledged that the derogations in (now) Article107(3) TFEU ‘are necessary if competition policy is to play itsrole fully, without thwarting other Community policies providedfor in the Treaty with a view to promoting the harmoniousdevelopment of the Community as a whole’. See E DeGhellinck, ‘European Industrial Policy: Between Cooperationand Competition’ in P Coffey (ed.), Main economic policyareas of the EC after 1992 (Kluwer Academic Publishers 1993),38 referring to the Twenty-first Report on Competition Policy(1990) 14.

81 Commission State aid action plan - Less and better targeted stateaid: a roadmap for state aid reform 2005-2009 (Consultationdocument), COM (2005) 107.

82 Communication from the Commission to the European Parlia-ment, the Council, the European Economic and Social Committeeand the Committee of the Regions on EU State Aid Modernisa-tion, COM (2012) 209.

83 Ch Koenig, ‘Where is State Aid Law Heading To’ (2014) 13(4)European State Aid Law Quarterly, 611.

84 M Blauberger, ‘From Negative to Positive Integration? EuropeanState Aid Control through Soft and Hard Law’ (2008) 4 MPIfGDiscussion Paper 1, 15.

85 Commission State aid action plan - Less and better targeted stateaid: a roadmap for state aid reform 2005-2009 (Consultationdocument), COM/2005/0107 final, para 21.

86 That means, ‘Targeting Innovation and R&D to strengthen theknowledge society’; ‘Creating a better business climate andstimulating entrepreneurship’; ‘Investing in Human Capital’;‘High quality Services of General Economic Interest’, ‘Betterprioritization through simplification and consolidation’, ‘A fo-cused regional aid policy’, ‘Encouraging an environmentallysustainable future’ and ‘Setting up modern transport, energy andinformation and communication technology infrastructures’.

87 Lisbon European Council in March 2000.

88 German Monopolkommission, ‘The “More Economic Approach”in European State aid Control’ (2008) Chapter VI of the BiennialReport 2006/2007, par. 162.


In the SAM programme, the most recent reformof State aid policy which further develops and ex-pands upon the strategy adopted in the context oftheSAAP, andhasbeendescribed as ‘the biggest over-haul of our rules in more than 50 years of State aidcontrol’,89 the Commission states that ‘Europe’sgrowth potential can be increased by better focussingon public expenditure and by creating appropriateconditions for recovery to take off at last. In particu-lar, public spending should become more efficient, ef-fective and targeted at growth-promoting policiesthat fulfil common European objectives’.90 To this ef-fect, public support must concentrate on so-called“good aid”, as opposed to “bad aid”. Good aid is de-fined as aid that is ‘well-designed, targeted at identi-fied market failures and objectives of common inter-est, and least distortive’.91 It should be directed to-wards ensuring that ‘public support stimulates inno-vation, green technologies, human capital develop-ment, avoids environmental harm and ultimately pro-motes growth, employment and EU competitive-ness’.92

The SAM process, on the basis of which the Com-mission launchedawider reviewof theState aid rulesandwhich resulted innumerous changes inboth sub-stantive and procedural rules93, can be seen as beingintegrated into the broader goal of a ‘sustainable,smart, and inclusive growth’ under the Europe 2020Strategy,94 a follow-up to the Lisbon Strategy.95 Thisstrategy,whichput forwardsevenflagship initiatives,

four of which are especially relevant to EU’s goal ofmaking the its industrymorecompetitive,96acknowl-edges the role of State aid for growth and its capaci-ty ‘to actively and positively contribute to the Europe2020 Strategy objectives by prompting and support-ing initiatives for more innovative, efficient and green-er technologies, while facilitating access to public sup-port for investment, risk capital and funding for re-search and development’.97

IV. Step 1: State Aid in the Sense ofArticle 107 TFEU

As the Court of Justice aptly considered in Amminis-trazione delle finanze dello Stato v Denkavit italiana,(now) Article 107 TFEU ‘refers to the decisions ofMember States by which the latter, in pursuit of theirown economic and social objectives, give, by unilater-al and autonomous decisions, undertakings or otherpersons resources or procure for them advantages in-tended to encourage the attainment of the economicor social objectives sought’.98 Article 107(1) TFEU,which prohibits State aid that is not duly authorisedby theCommission, applieswhere the following fourrelevant conditions are satisfied: the financing ofthatmeasure by the State or through State resources;the existence of a benefit for an undertaking; the se-lective nature of the said measure; and its effect ontrade between Member States and the distortion of

89 Speech by competition commissioner Vestager at the HighLevel Forum of Member States, 18 December 2014.

90 Communication from the Commission to the European Parlia-ment, the Council, the European Economic and Social Committeeand the Committee of the Regions on EU State Aid Modernisa-tion, COM(2012) 209, para 4.

91 Communication from the Commission to the European Parlia-ment, the Council, the European Economic and Social Committeeand the Committee of the Regions on EU State Aid Modernisa-tion, COM(2012) 209, para 12. The basis for this notion of goodaid can already be found in the White Paper on ‘Completing theInternal Market’, in which the Commission asserted: ‘[a]s thephysical and technical barriers inside the Community are re-moved, the Commission will see to it that a rigorous policy ispursued in regard to state aids so that public resources are notused to confer artificial advantage to some firms over others. Aneffective Community discipline will make it possible to ensure thatavailable resources are directed away from non-viable activitiestowards competitive and job creating industries of the future’. SeeCOM (85)310 final, 14 June 1985, para 158.


93 See <http://ec.europa.eu/competition/state_aid/modernisation/index_en.html> Last accessed on 13 November 2016.

94 Commission Communication ‘Europe 2020 – a strategy for smart,sustainable and inclusive growth’, COM (2010) 2020 final. Theflagship initiative, ‘An industrial policy for the globalisation era’focuses on ten actions to promote European industrial competi-tiveness, thus placing more emphasis on factors such as thegrowth of SMEs and the supply and management of raw materials.

95 A Biondi and E Righini, ‘An Evolutionary Theory of State AidControl’ in A Arnull and D Chalmers (eds), The Oxford handbookof European Union law, (Oxford University Press 2015), 686.

96 Namely: ‘Innovation Union’ (COM(2010) 0546), ‘A digital agendafor Europe’ (COM(2010) 0245), ‘An industrial policy for theglobalisation era’ (COM(2010) 0614) and ‘New Skills for NewJobs’ (COM(2008) 0868).

97 Commission Communication ‘Europe 2020 – a strategy for smart,sustainable and inclusive growth’, COM (2010) 2020 final,3.3.2010, 20.

98 Case C-61/79 Amministrazione delle finanze dello Stato vDenkavit italiana [1980] ECLI-100, [31] referred to in A Biondi,‘The Rationale of State Aid Control: A Return to Orthodoxy’ in CBarnard and O Odudu (eds), Cambridge yearbook of Europeanlegal studies (Hart Pub. 2009), 38-39.


competition resulting therefrom.99 Classification asState aid requires that all of the conditions are ful-filled.100

Importantly, on the basis of these conditions,State aid is broadly interpreted.101 This entails that,unless they fall under the de minimis Regulation,102

many national industrial policy measures on the ba-sis of which monetary support is provided fall with-in the scope of Article 107(1) TFEU, and are in prin-ciple prohibited.103 Such measures must thereforebe carefully assessed by the Commission to deter-minewhether, in viewofArticle 107(2) and (3) TFEU,they are nonetheless compatible with the internalmarket. This has important consequences for thequestion who decides which public interest consid-erations are worthy of protecting. This will be fur-ther elaborated below. The conditions under whicha measure has so far been classified as State aid andsubject to supranational control are well-established

and have been reviewed and analysed on many oc-casions by the Court of Justice, the Commission, andin academic writing.104 In what follows I will there-fore not present and analyse the notion of State aidin detail.

1. Preliminary Remarks

a) Objective Notion

It is settled case-law that Article 107(1) TFEUdoes notdistinguish between measures of Member State in-tervention by reference to their causes or aims, butrather in relation to their effects.105 The concept ofaid is objective, the test beingwhether ameasure con-fers an advantage on one or more particular under-takings.106 The fact that government support which,as part of the Member State’s industrial policy, is

99 See for example, T-399/11 Banco Santander [2014] ECLI-938,[32]; C-399/08 P Commission v Deutsche Post [2010] ECLI-481,[38-39]; Joined cases C-393/04 and C-41/05 Air Liquide IndustriesBelgium, judgment of 15 June 2006, ECLI-403, [28].

100 T-399/11 Banco Santander [2014] ECLI-938, [31]; Case C-280/00Altmark Trans [2003] ECLI-415, [74] and case-law cited; Bellamy& Child, Materials on European Union Law of Competition,(Oxford University Press 2013), 1274, nr. 17.009. Inclusion of acertain category of aid in the Enabling Regulation, or in theGeneral Block Exemption Regulation (GBER), does not predeter-mine the qualification of a measure as State aid.

101 While some aids may escape the Commission’s scrutiny becausethey do not fall within the scope of Article 107(1) TFEU, thegeneral rule is that any advantage that an undertaking directly orindirectly receives from the public administration, and which itcannot obtain on normal commercial terms on the market, consti-tutes State aid, irrespective of its purpose and impact. See Bel-lamy & Child, Materials on European Union Law of Competition(Oxford University Press, 2013), 1296, nr. 17.029 and referencesmade.

102 Commission Regulation (EU) No 1407/2013 of 18 December2013 on the application of Articles 107 and 108 of the Treaty onthe Functioning of the European Union to de minimis aid Textwith EEA relevance [2013] OJL 352, 24.12.2013, 1-8.

103 Examples of advantages which have been found to constituteState aid include: investment grants, subsidies to cover operatinglosses, loans at reduced rates of interest, loan guarantees, prefer-ential fiscal treatment, selective reduction of public charges,preferential energy tariffs that are not commercially justified,non-subjection to industrial levies that are imposed on competi-tors, the provision without charges of services for which therecipient undertakings would normally have to pay themselves,the provision of logistical and commercial assistance by a publicundertaking to its subsidiaries on terms that differ from thosethat an undertaking under normal market conditions wouldoffer, cross-subsidy by a public undertaking, debts write-offs,payments of bonuses need to attract workers to a particularindustry, discretionary State financing of an employer’s socialplan, and funding of televisions channels. See Bellamy & Child,Materials on European Union Law of Competition (Oxford

University Press, 2013), 1296, nr. 17.029 and the referencesmade.

104 Most notably, in its recent Notice on the notion of State aidpursuant to Article 107(1) TFEU, the Commission has attemptedto provide an overview of the law as it considers it to be aboutthe different constituent elements of the notion of State aid. SeeCommission Notice on the notion of State aid as referred to inArticle 107(1) of the Treaty on the Functioning of the EuropeanUnion (2016/C 262/01).

105 C-15/14 P Commission v MOL [2015] ECLI-362, [97];T-487/11Banco Privado Português and Massa Insolvente doBanco Privado Português v Commission [2014] ECLI-1077, [46];Joined cases C-399/10 P and Case C-401/10 P Bouygues andBouygues Télécom SA v European Commission and Others,judgment of 19 March 2013, ECLI-175, [102]; C-124/10 P Com-mission v EDF [2012] ECLI-318, [77]; Joined cases CaseC-71/09 P, Case C-73/09 P and Case C-76/09 P, Comitato‘Venezia vuole vivere’ and Others v Commission, judgment of 9June 2011, ECLI-368, [94]; C-487/06 P British Aggregates Associ-ation v Commission [2008] ECLI-757, [85]; C-172/03 Heiser vFinanzamt Innsbruck [2005] ECLI-130, [46]; C-159/01 Nether-lands v Commission [2004] ECLI-246, [51]; C-382/99 Nether-lands v Commission [2002] ECLI-363, [61]; Case C-480/98 Spainv Commission [2000] ECLI-559, [16]; C-75/97 Belgium v Com-mission [1999] ECLI-311, [25]; T-67/94, Ladbroke Racing v Com-mission [1998] ECLI-7, [52]; C-241/94 France v Commission[1996] ECLI-353, [19-20]; C-173/73 Italy v Commission [1974]ECLI-71, [13].

106 T-67/94Ladbroke Racing v Commission [1998] ECLI-7, [52].Nevertheless, as A-G Lenz admitted in Belgium v Commission,the aim of the national measure in question is still taken intoconsideration, at least as evidence, in order to differentiate be-tween State aid and grants to public undertakings by the MemberState in its capacity as a private operator. See Opinion A-G Lenz,C234/84 Belgium v Commission [1986] ECLI-151, [2271] inwhich it was held: the aim ‘may determine in which category aparticular advantage given to public undertakings falls in so far asif the reason is one of economic policy — for example, social orstructural policy — this may make it appear to be an aid, whereasa viable investment which is intended to produce a return is lesslikely to be viewed as an aid’.


aimed at achieving a particular (semi-) economic ob-jective is not sufficient to shield it from the applica-tion of Article 107(1) TFEU. In Associazione italianadel risparmio gestito and Fineco Asset Managementv Commission, for example, the (then) Court of FirstInstance held that: ‘[i]f it were to be considered thata specific measure could escape Article [107(1) TFEU]if it pursued an economic or industrial policy objec-tive, such as the promotion of investment, that provi-sion would have no practical effect’.107 Neither canthe exercise of reserved powers such as tax mattersallow the adoption of measures prohibited by theTFEU.108

b) Undertaking and Economic Activity

Government support for industry can only be con-sidered to be State aid when the recipient is an ‘un-dertaking’. An undertaking is ‘every entity engagedin an economic activity, regardless of the legal sta-tus of the entity and the way in which it is fi-nanced’.109 The Court of Justice has consistentlyheld that an entity is engaged in an economic activ-ity when it offers goods and services in a givenmar-ket.110 An entity that carries out both economic andnon-economic activities is to be regarded as an un-dertaking only with regard to the former.111 Activi-ties that normally fall under the responsibility of

the Statewhere it acts ‘by exercising public power’112

or where public entities act ‘in their capacity as pub-lic authorities’113, are, in principle, not of an eco-nomic nature, and therefore do not fall under theState aid rules.114

2. Does the Industrial Policy MeasureConstitute a Selective Advantage?

Article 107(1) TFEU prohibits aid ‘favouring certainundertakings or the production of certain goods’, gen-erally referred to as ‘selective aid’.115 The essence atthis point is how to identify protectionism; this is thecrux of the matter when governments take the per-ceived interest of domestic firms and the strengthen-ing of the national industrial base into considera-tion.116 In Adria-Wien Pipeline the Court of Justicelaid down the relevant test to be applied: ‘[t]he onlyquestion to be determined is whether, under a partic-ular statutory scheme, a State measure is such as tofavour ‘certain undertakings or the production of cer-tain goods’ within the meaning of [Article 107 TFEU]in comparison with other undertakings which are ina legal and factual situation that is comparable in thelight of the objective pursued by the measure in ques-tion’.117 Hence, to determine selectivity, a compari-son is made with similar undertakings that are in

107 T-445/05 Associazione italiana del risparmio gestito and FinecoAsset Management v Commission [2009] ECLI-50, [170]; Seealso Joined Cases T-92/00 and T-103/00 Diputación Foral deÁlava v Commission, judgmente of 6 March 2002, ECLI-61, [51].

108 See e.g. Joined cases C-6/69 and C-11/69 Commission v France,judgment of 10 December 1969, ECLI-68.

109 C-41/90 Klaus Höfner and Elser v Macrotron [1991] ECLI-161,[21]. See also C-97/08 P Akzo Nobel and Others v Commission[2009] ECLI-536, [54] and the case-law cited. The questionwhether or not an activity is economic in nature does not dependon the private or public status of the entity engaged in it or theprofitability of that activity. See Case C-288/11 P MitteldeutscheFlughafen and Flughafen Leipzig-Halle v Commission, [2012]ECLI.-821, [50]. The classification of an entity as an undertakingis always relative to a specific activity.

110 Case C-288/11 P, Mitteldeutsche Flughafen and FlughafenLeipzig-Halle v Commission [2012] ECLI-821, [40]; C-49/07MOTOE [2008] ECLI-376, [22]; C-172/03 Heiser [2005]ECLI-130, [26]; T-319/99Fenin v Commission [2003] ECLI-50,[36] (confirmed in appeal); C-309/99 Wouters [2002] ECLI-98,[46];C-475/99 Ambulanz Glöckner [2001] ECLI-577, [20-21];Joined cases C-180/98 to Case C-184/98 Pavlov and Others,judgment of 12 September 2000, ECLI-428, [75]; C-35/96 Com-mission v Italy [1998] ECLI-303, [36]; C-118/85 Commission vItaly [1987] ECLI-283, [7]. As Höfner suggests, the Europeannotion of economic activity is, in principle, interpreted uniformlythroughout the EU. See C-41/90Höfner and Elser v Macrotron[1991] ECLI-161. For a more recent decision reference can be

made to T-370/09 GDF Suez v Commission [2012] ECLI-333,[70].

111 Commission Notice on the notion of State aid pursuant to Article107 (1) TFEU, para 10.

112 C-118/85 Commission v Italy [1987] ECLI-283, [7-8].

113 C-30/87Bodson v Pompes funèbres des régions libérées [1988]ECLI-225, [18].

114 See e.g. the Guidelines on State aid to airports and airlines, OJ C99, 4.4.2014, 3, para 35, under reference to C-118/85 Commis-sion v Italy [1987] ECLI-283, [8-9] and C-30/87 Bodson v Pompesfunèbres des régions libérées [1988] ECLI-225, [18].

115 C-690/13 Trapeza Eurobank Ergasias [2015] ECLI-235, [22];C-6/12P Oy [2013] ECLI-525, [19].

116 A Biondi, ‘State Aid Is Falling Down, Falling Down: An Analysisof the Case Law on the Notion of Aid’ (2013) 50(6) CommonMarket Law Review 1719, 1729, referring to J Bousin and J Pier-nas, ‘Developments in the notion of selectivity’ (2008) 4 Euro-pean State Aid Law Quarterly, 634; A Bartosch, ‘Is there a needfor a rule of reason in European State aid law? Or how to arrive ata coherent concept of material selectivity?’ (2010) 47(3) CommonMarket Law Review, 729; J Da Cruz Vilaça, ‘Material and geo-graphic selectivity in State aid - Recent developments’ (2009) 4European State Aid Law Quarterly, 443.

117 C-143/99Adria-Wien Pipeline and Wietersdorfer & PeggauerZementwerke [2001] ECLI-598, [41].


similar circumstances, both legally and factually.118

Advantages resulting from a general measure applic-able without distinction to all economic operators,regardless of their activity, such as the rate of corpo-rate tax or progressive tax systems, cannot thereforeconstitute State aid.119 It should be noted, however,that general measures may still be de facto selec-tive.120

This wide notion of selectivity would make mosttargeted industrial policymeasures selective. By con-trast, industrial competiveness policies that are tru-ly horizontal in nature are not subject to State aidcontrol, as they are not selective.121Most clearly if anaid is granted to all competitors in a market of na-tional dimension, then this should not be consideredto be selective. Two remarks can bemade in this con-text. First, it should be noted that competitivenesspolicies do not always equate horizontal measures.For example, a national measure which answers to awidely-acknowledged market failure may, for bud-getary or other reasons, be limited to a specific un-dertakings or to a specific sector. Hence, the advan-tage answers to a genuinemarket failure but is at thesame time selective.122Second, froman internalmar-ket perspective (as opposed to a competition law per-spective) the application of the ‘selectivity test’ has

been criticised. This is because State aids which areapplied equally to all competitors involvedmay, froma free movement perspective, still constitute a pro-tectionist measure which has to be considered as anobstacle to trade.123

3. Industrial Policy Measures, WhichInvolve an Element of Selectivity, MayStill Not Fall within the Scope ofArticle 107(1) TFEU

Other policies, including those typically categorisedby the Commission as competitiveness policies, butwhich nevertheless involve an element of selectivity,may still not fall within the scope of Article 107(1)TFEU if they do not meet all four criteria for Stateaid.124 In the remainder of this paragraph four select-ed issues will be briefly touched upon that are of par-ticular interest from an industrial policy perspective,as they set limits on State aid control.

a) Subsidies Given by the EU

As set out above, the EU has created various fund-ing possibilities. The answer to the question as to

118 T-399/11 Banco Santander [2014] ECLI-938, [33, 35] and case-law cited; C-6/12P Oy [2013] ECLI-525, [19]. In this context, it isnecessary to discern a correct definition of the market, and inparticular a definition of demand-side and supply-side substi-tutability and then of the geographical market. A Biondi, ‘TheRationale of State Aid Control: A Return to Orthodoxy’ in CBarnard and O Odudu (eds), Cambridge yearbook of Europeanlegal studies (Hart Pub. 2009), 36.

119 See e.g. C-690/13 Trapeza Eurobank Ergasias [2015] ECLI-235,[22]; C-143/99 Adria-Wien Pipeline and Wietersdorfer & PeggauerZementwerke [2001] ECLI-598, [35].

120 See the Commission Notice on the notion of State aid pursuant toArticle 107 (1) TFEU. To shed light on the notion of selectivity, adistinction is usually drawn between ‘material’ and ‘geographical’selectivity. Material selectivity, which entails that a measureonly applies to particular undertakings or sectors, can be eitherexplicit in law, or a consequence of it. The former reserves effectto certain enterprises or sectors. Resultant selectivity concernsmeasures which, even though they are founded on criteria thatare in themselves of a general nature, in practice they discrimi-nate between comparable undertakings. See joined cases CaseC-106/09 P and Case C-107/09 P Commission and Spain v Gov-ernment of Gibraltar and United Kingdom, judgment of 15 No-vember 2011, ECLI-732, [101]. Moreover, where a general mea-sure grants a public body a degree of discretion that enables it tochoose the beneficiaries or the conditions under which theassistance is provided, that assistance is not considered to begeneral in nature. See C-256/97 DM Transport [1999] ECLI-332,[27].

121 See e.g. N Petit and N Neyrinck, ‘Industrial policy and competi-tion enforcement’ in J Derenne, M Merola and J Rivas, Competi-

tion Law in times of Economic Crisis; in Need of Adjustment?(Bruxelles Bruylant 2013), 557-574; A Biondi, ‘The Rationale ofState Aid Control: A Return to Orthodoxy’ in C Barnard and OOdudu (eds), Cambridge yearbook of European legal studies (HartPub. 2009), 48; A Biondi, ‘Some reflections on the notion of‘State resources’ in European Community State aid law’, (2006)30(5) Fordham International Law Journal 1426, 1427.

122 I am grateful to Norman Neyrinck’s input in this matter. Thisexplains why it is possible that competitiveness is extensivelydealt with in the context of the GBER and the revised guidelinesand communications, even though at first sight this might seemcounterintuitive.

123 A Biondi, ‘The Rationale of State Aid Control: A Return to Ortho-doxy’ in C Barnard and O Odudu (eds), Cambridge yearbook ofEuropean legal studies (Hart Pub. 2009), 48.

124 As examples can be mentioned the following: aids to bodieswhich are not involved in any economic activities (e.g. the provi-sion of State education) or support for general infrastructureprojects which are not commercially exploitable and that do notbenefit specific users (e.g. a road for broad, general public use)may not constitute an economic activity; purely regulatory mea-sures that do not affect the public budget or concern EU fundingwhich is centrally managed by the Commission and not directlyor indirectly under the control of the Member State, do not con-stitute State resources; if goods and services purchased or sold atfull market value or support to (public) undertakings satisfies the‘Market Economic Operator Principle’ (MEOP), the State behaveslike a ‘normal player’ on the market (pari passu); and if subsidiesare granted to compensate for ‘services of general economicinterest’ (SGEI), they are not considered to constitute an advan-tage.


how these are to be assessed under the State aidregimecanbe found in the text ofArticle 107(1)TFEUitself. Article 107(1) TFEU refers to aid granted ‘by aMember State or through State resources’. According-ly, only a transfer ofMember State resources, not aidgranted by the EU itself, constitutes State aid.125 Asto resources coming from the EU (or internationalinstitutions), it is Commission practice to considerthem State resources only if national authoritieshave discretion as to their use, and in particular asto the selection of beneficiaries.126 By contrast, EUfunding which is centrally managed by institutions,agencies, joint undertakings or other bodies of theEUwhich arenot directly or indirectly under the con-trol of the Member State does not constitute Stateaid.127 However, in line with Article 173(3), last sen-tence, TFEU, which provides that title XVII on in-dustry does not provide a basis for the introductionby the EU of any measure which could lead to a dis-tortion of competition, here also principles similarto the substantive provisions of State aid law are typ-

ically applicable by virtue of secondary EU legisla-tion.128

b) PreussenElektra et al.: Regulatory Action of theState Not Involving a Burden on PublicFinances

Article 107(1) TFEU mentions ‘any aid granted by aMember State or through State resources’, which sug-gests that any State measure129 may be assessedbased on its compatibility with the internal market.Nonetheless, the notion of State resources has be-come increasingly difficult to apply.130An importantevolution in the case-law has concerned whether ornot the conditions ‘aid granted by a Member State’131

and ‘through State resources’132 are to be jointlymet.133Contrary to its initial stance inVan Tiggele,134

the Court of Justice seemed to treat the conditions asalternatives for a while.135 This allowed the notionof State resources to be interpreted broadly; anymea-sures financed through State resources or in anyway

125 German Monopolkommission, ‘The “More Economic Approach”in European State aid Control’ (2008) Chapter VI of the BiennialReport 2006/2007, par. 3.

126 Commission Notice on the notion of State aid pursuant to Article107 (1) TFEU, referring to an example concerning the structuralfunds; Commission Decision of 22 November 2006 on State aidN 157/06, United Kingdom South Yorkshire Digital Region Broad-band Project, recitals 21 and 29 on a measure partly financed bythe European Regional Development Fund (ERDF), OJ C 80,13.4.2007, 2. For example, funding from ESIF funds are consid-ered to be State resources because it transits through the nationalbudget, and national authorities have discretion in selecting theprojects that require support. See State aid SA.39315 (2015/N0 –Estonia Investment in airside infrastructure at Tallinn airport,C(2015) 7700 final), 36.

127 This might include funding awarded in direct managementunder the Horizon 2020 framework programme or COSME.Where EU funding is combined with State aid, only the latter willbe measured when determining whether notification thresholdsand maximum aid intensities are considered. Commission Noticeon the notion of State aid pursuant to Article 107 (1) TFEU, (n 93);Communication from the Commission - Framework for State aidfor research and development and innovation, OJ C 198,27.6.2014, 1–29, para 9.

128 For example, Regulation (EU) No 1287/2013 of the EuropeanParliament and of the Council of 11 December 2013, establishinga Programme for the Competitiveness of Enterprises, as well assmall and medium-sized enterprises (COSME) (2014 - 2020) OJ L347, 20.12.2013, 33 provides in recital 31: ‘To ensure thatfinancing is limited to tackling market, policy and institutionalfailures, and with a view to avoiding market distortions, fundingfrom the COSME programme should comply with the State aidrules of the Union’. In Article 17(10) on ‘Financial Instruments’ itprovides: ‘The financial instruments shall be implemented incompliance with the relevant State aid rules of the Union’. More-over, Regulation (EU) No 1291/2013 establishing Horizon 2020 -the Framework Programme for Research and Innovation(2014-2020) provides in recital 42: ‘In order to maintain a levelplaying field for all undertakings active in the internal market,funding from Horizon 2020 should be designed in accordance

with State aid rules so as to ensure the effectiveness of publicspending and to prevent market distortions, such as crowding-outof private funding, creating ineffective market structures or pre-serving inefficient businesses’.

129 Of course, in so far as it has the effect of granting aid in any formwhatsoever.

130 M Clayton and M Catalan, ‘The Notion of State Resources: SoNear and Yet so Far’ (2015) 14(2) European State Aid Law Quar-terly, 260.

131 Where a public authority grants aid to a beneficiary or desig-nates a private or public body to administer the measure, thistransfer is imputable to the State, even if the public authorityenjoys autonomy (T-358/94 Air France v Commission [1996]ECLI-194, [62]; C-248/84 Germany v Commission [1987]ECLI-437, [62-68]). Imputability is less evident, however, if theadvantage is granted through one or more intermediate bodies,and in particular through public undertakings. In such a case thetest is whether the State was capable, by exercising its dominantinfluence over such undertakings, of directing the use of theirresources in order to finance specific advantages in favour ofother undertakings (C-482/99France v Commission [2002]ECLI-294, [38]).

132 State resources are funds under the control of and at the disposalof a State, even if the resources do not become the property of thepublic authority. See C-262/12 Vent De Colère and Others [2013]ECLI-851, [27]; C-83/98 France v Ladbroke Racing and Commis-sion [2000] ECLI-248, [50]; CFI -358/94Air France v Commission[1996] ECLI-194, [65-67].

133 M Clayton and M Catalan, ‘The Notion of State Resources: SoNear and Yet so Far’ (2015) 14(2) European State Aid Law Quar-terly, 260.

134 C- 82/77Van Tiggele [1978] ECLI-10, [24-25].

135 See e.g. C-173/73 Italy v Commission [1974] ECLI-71, [16];C-78/76 Steinike & Weinling [1977], ECLI-52, [19-22]; C-290/83Commission v France [1985] ECLI-37, [14]; Joined cases C-67/85,C-68/85 and 70/85 Kwekerij Gebroeder van der Kooy BV a.o.,judgment of 2 February 1988, ECLI-38, paras [32-38].


attributable to the State had to be considered aid.136

However, from Sloman Neptune,137 Viscidox,138 andKirsammer-Hack139 onwards, the Court of Justice hasclearly endorsed the cumulative view.140

As PreussenElektra illustrates, this causes regula-tory action of the State to fall outside the criterion ofState resources, even if it confers an undeniable ad-vantage on particular undertakings, as long as thereisnoburdenonpublic finances.141Within thebound-aries provided for in internal market law, this cumu-lative approach, which would not seem justified byinternal market logic, still allows Member Statesroom for supporting the national industry. Takingthe basic objectives of State aid control into accountitwould seem counterintuitive. Itmay be argued thatfrom a State aid perspective, the only relevant factorshould be whether a particular measure can have theeffect of distorting competition by favouring a par-ticular undertaking;142 whether public or private re-sources are used in conferring an advantage is ar-

guably irrelevant.143 Although more recent caselaw144 at first glance would seem to confirm the ex-isting case law, it has been argued that, in recent yearsand particularly in Association Vent de colère, theCourt of Justice has adopted a more effects-based in-terpretation of State resources.145

c) Aid for Exports to and Investments in ThirdCountries

Rules on State aid do not allow for export subsidiesas they can adversely affect competition. Aid for ex-ports146 to third countries, by contrast, a typical tar-geted industrial policy instrument used to open upnewmarkets abroad, is not necessarily prohibited onthe basis of the State aid rules as long as it does notdistort competition between undertakings in theEU.147 The same logic would seem to apply to theclosely linked domain of State sponsored foreign in-vestment insurance facilities.148

136 A Biondi, ‘Some reflections on the notion of ‘State resources’ inEuropean Community State aid law’, (2006) 30(5) FordhamInternational Law Journal 1426, 1432.

137 Joined Cases C-72/91 and C-73/91Sloman Neptun v Bodo Ziese-mer, judgment of 17 March 1993, ECLI-97, [19-22].

138 Joined Cases Case C-52-54/97 Viscido v. Ente Poste Italiane,judgment of 7 May 1998, ECLI-209, [13-15].

139 C-189/91 Kirsammer-Hack v Sidal [1993] ECLI-907, [16-18].

140 A Biondi, ‘Some reflections on the notion of ‘State resources’ inEuropean Community State aid law’, (2006) 30(5) FordhamInternational Law Journal 1426, 1433. Only advantages which aregranted directly or indirectly through Member State resources,thus involving a charge on the public account, fall within thescope of Article 107(1) TFEU. See M Slotboom, ‘State Aid inCommunity Law: A Broad or Narrow Definition?’ (1995) 20(3)European Law Review 289, 290; M Clayton and M Catalan, ‘TheNotion of State Resources: So Near and Yet so Far’ (2015) 14(2)European State Aid Law Quarterly 260, 262.

141 C-379/98PreussenElektra [2001] ECLI-160, [59-61].



144 Such as Aiscat v Commission (T-182/10Aiscat v Commission [2013]ECLI-9), Doux Élevage and Coopérative agricole UKL-ARREE(C-677/11 Doux Élevage and Coopérative agricole UKL-ARREE[2013] ECLI-348), Association Vent du Colère (C-262/12Vent DeColère and Others [2013] ECLI-851) and Bouygues and BouyguesTélécom v Commission and Others (Joined cases Case C-399/10 Pand Case C-401/10 P Bouygues and Bouygues Télécom v Commis-sion and Others, judgment of 19 March 2013, ECLI-175).

145 See M Clayton and M Catalan, ‘The Notion of State Resources: SoNear and Yet so Far’ (2015) 14(2) European State Aid Law Quar-terly 260, 265. In Association Vent du colère, the referring court

asked whether a mechanism for offsetting in full the additionalcosts imposed on undertakings because of an obligation topurchase wind-generated electricity at a price higher than themarket price that is financed by final consumers, such as thatresulting from Law No 2000-108, must be regarded as an inter-vention by the State or through State resources within the mean-ing of Article 107(1) TFEU. The CJEU held that the sums weremanaged by the Caisse des dépôts et consignations and they hadto be regarded as remaining under public control. SeeC-262/12Vent De Colère and Others [2013] ECLI-851, [14,27-33].

146 Including: export credits, credit insurance or guarantees inrespect of exports.

147 This is in particular the case where it concerns ‘non-marketable’risks or guarantees with medium and long-term cover. The Com-munication from the Commission to the Member States on theapplication of Articles 107 and 108 of the Treaty on the Function-ing of the European Union to short-term export-credit insuranceOJ C 392, 19.12.2012, 1–7 (as amended) only applies to theshort-term export-credit insurance. See A Dimopoulos, ‘ForeignInvestment Insurance and EU Law’, [2012] TILEC DiscussionPaper 1, 18. However, it should be noted that in its judgment inC-142/87 Belgium v Commission [1990] ECLI-125, it was referredto in footnote 7 of the Communication from the Commission tothe Member States on the application of Articles 107 and 108 ofthe Treaty on the Functioning of the European Union, to short-term export-credit insurance, Text with EEA relevance OJ C 392,19.12.2012, 1–7, where the CJEU held that not only the aid forintra-EU exports, but also the aid for exports outside the Union,can influence intra-EU competition and trade. Article 107(1)TFEU only concerns aid that affects trade between MemberStates. See C Quigley, European State aid law and policy, (Hart2015), 277.

148 This is even though investment guarantees are, unlike exportcredit guarantees, not exempted from the scope of the Commis-sion Notice on State Aid in the form of guarantees. See Commis-sion Notice on the application of Articles 87 and 88 of the ECTreaty to State aid in the form of guarantees, PB C 155 van20.6.2008, 10-22. See A Dimopoulos, ‘Foreign Investment In-surance and EU Law’, [2012] TILEC Discussion Paper 1, 8 and18.


It should be noted, however, that aid for exportsdestined for countries outside of the EU falls withinthe scope of application of the EU’s Common Com-mercial Policy (CCP).149 The EU has exclusive com-petence in this area, which covers export policy, andthus systems of aids for exports, including exportcredits, insurance and guarantees.150 As the LisbonTreaty has established an express exclusive compe-tence over foreign direct investment (FDI), Article207 TFEU also covers State sponsored FDI insuranceschemes.151 As a result, in principle only the EU canlegislate and adopt legally binding acts. TheMemberStates can only do so if empowered by the EU or forthe implementation of EU acts.152Moreover, accounthas to be taken of the international context, in par-ticular theWTO Agreement on Subsidies and Coun-tervailingMeasures (the ‘SCMAgreement’), the legal-ly binding international framework for regulatinggovernment subsidies.153

Against this background, in respect of aid for ex-ports the EU has issued Directive 98/29/EC154 on har-monisationof themainprovisionsconcerningexportcredit insurance for transactions with medium andlong-term cover and Regulation 1233/2011155 on theapplication of certain guidelines in the field of offi-cially supported export credits, both of which areadopted on the basis of (now) Article 207 TFEU.These secondary legal acts allow Member States tohave their own national export credit agencies (so-called ECAs), which, in in turn, are regulated by na-tional rules.156 Under the SCM Agreement exportcredit support tocommercialundertakings isnot con-sidered aid if the support is done in compliance withthis OECD Arrangement.157 In view of the absenceof an EU framework for (EU or national) investmentinsuranceschemes,158 theexistenceofMemberState-sponsored investment insurance schemespromotingFDI outflows159 as complemented by Member State

149 See C Quigley, European State aid law and policy, (Hart 2015),277.

150 This was clear from 1970 onwards. When the transitional periodfor the implementation of the CCP ended, the EU issued legisla-tion harmonising national laws concerning credit insurance. SeeCouncil Directive 70/509/EEC on the Adoption of a CommonCredit Insurance Policy for Medium and Long-term Transactionswith Public Buyers OJ L254/1, 23.11.1970, and Council Directive70/510/EEC on the Adoption of a Common Credit InsurancePolicy for Medium and Long‐term Transactions with PrivateBuyers, OJ L254/26, 23.11.1970. A little later, the CJEU renderedOpinion 1/75, in which, it considered that ‘[t]he field of the[CCP], and more particularly that of export policy, necessarilycovers systems of aid for exports and more particularly measuresconcerning credits for the financing of local costs linked to exportoperations’, see Opinion of the CJEU of 11 November 1975,C-1/75, ECLI-145. The CJEU, thus, acknowledged that the Com-mission had exclusive competence to conclude that OECD“Understanding on a Local Cost Standard”, concerning con-cerned export credits. See A Dimopoulos, ‘Foreign InvestmentInsurance and EU Law’, (2012) TILEC Discussion Paper 1, 10; PEeckhout, External Relations of the European Union. Legal andConstitutional Foundations, (Oxford University Press 2011),13-18.

151 M Bungenberg and S Hobe, ‘The Relationship of InternationalInvestment Law and European Union Law’, in M Bungenberg, JGriebel, S Hobe and A Reinisch, International Investment LawBaden-Baden Nomos (2015), 1616; A Dimopoulos, ForeignInvestment Insurance and EU Law (2012) TILEC DiscussionPaper 1; 9-12; Y Devuyst, ‘The European Union’s Competence inInternational Trade After the Treaty of Lisbon’ (2011) 39(3) Geor-gia Journal of International and Comparative Law 639, 645-647.

152 Article 2(1) TFEU. Any other national rules and regulationsrelated to export policy and FDI is by definition incompatiblewith EU law, irrespective of whether and when the EU exercisesits competence. See in the context of FDI insurance, A Dimopou-los, ‘Foreign Investment Insurance and EU Law’, [2012] TILECDiscussion Paper 1, 13.

153 The SCM Agreement creates two basic categories of subsidies:those that are prohibited, and those that are actionable (i.e.,subject to challenge in the WTO or to countervailing measures).The first category consists of subsidies contingent, in law or in

fact, whether wholly or as one of several conditions, on exportperformance (‘export subsidies’), see Article 3 of the SCM Agree-ment. A detailed list of export subsidies is annexed to the SCMAgreement.

154 Council Directive 98/29/EC of 7 May 1998 on harmonisation ofthe main provisions concerning export credit insurance for trans-actions with medium and long-term cover, OJ L 148, 19.5.1998,22–32.

155 Regulation (EU) No 1233/2011 of the European Parliament and ofthe Council of 16 November 2011 on the application of certainguidelines in the field of officially supported export credits, andrepealing Council Decisions 2001/76/EC and 2001/77/EC, OJ L326, 8.12.2011, 45–112 .

156 An example constitutes of the UK Export Credits GuaranteeDepartment, which is regulated in the Export and InvestmentGuarantees Act 1991, see Article 2 Export and Investment Guar-antees Act 1991 (as amended). See A Dimopoulos, ForeignInvestment Insurance and EU Law, (2012) TILEC DiscussionPaper 1, 4-6. See for example the Annual review by the Commis-sion of Member States' Annual Activity Reports on Export Creditsin the sense of Regulation (EU) No 1233/2011 (COM(2015) 130final), 6-7. On page 3 of that document the Commission alsosays: “[t]he applicable regulatory framework […] focusses on rulesfor export credit transactions and programs, but leaves it to theindividual member state to decide whether to run an exportcredit program or not”.

157 SCM Agreement, Annex I(k). There is an assumption that long-term export financing meeting the OECD Arrangement require-ments does not provide an advantage and hence does not consti-tute State aid.

158 However, the EU has established some limited instruments foritself. See the European Investment Bank’s ‘Investment Facility’,which was established under the Cotonou Agreement and Over-seas Association Decision, as well as the Facility for EuroMediter-ranean Investment and Partnership (FEMIP).

159 Dimopoulos notes, as of 2012, nineteen EU Member States haveset up State-sponsored investment insurance schemes, promotingFDI outflows. See A Dimopoulos, ‘Foreign Investment Insuranceand EU Law’ [2012] TILEC Discussion Pape 1, 5 and the refer-ences made.


bilateral investment treaties (BITs), is more contro-versial. The EU’s exclusive competence over FDIwould appear to conflict with such schemes.160 Itwould therefore seem essential for the EU to estab-lishacommonframework forFDI insurancesystems,based on Article 207(2) TFEU.161 However, the exis-tence of exclusive competence onFDI insurance doesnot automatically entail that national NCAs cannotany longer provide investment insurance,162 as theEU seems to acknowledge that a degree of pragma-tism is needed in the exercise of EU’s foreign invest-ment policy.163 Such a pragmatic approach obvious-ly creates huge legal uncertainty.

d) De minimis

The de minimisRegulation,164whichwas revised fur-ther to the SAM process, prescribes that smallamounts of aid of up to €200,000 per undertakingover a three year period,165 and subsidised loans ofup to €1 million (if certain conditions are met), donot constitute aid within the meaning of Article107(1) TFEU,166 and thereby allows Member Statesto provide relatively small amounts ofmonetary sup-port to the industry.167

V. Step 2: Compatibility of IndustrialPolicy Measures with the InternalMarket

Industrial policymeasureswhich constitute State aidare in principle prohibited as incompatible with theinternal market. Such measures must therefore becarefully examined to establish whether a particularaid may, by way of exception, be permitted; the ba-sic prohibition of State aid is ‘neither absolute nor un-conditional’.168

Thus, in addition to Article 107(2) TFEU, whichprovides for three categories of a redistributive na-ture in which aid will automatically be deemed com-patible with the internal market,169 Article 107(3)TFEU confers to the Commission a wide discretionto declare certain aid compatible with the internalmarket by way of derogation from the general pro-hibition laid down in Article 107(1) TFEU; aid whichcomes within one of the categories listed may (as op-posed to: shall) be considered compatible with theinternal market.170 This empowers the Commissionto allow certain aids for economic purposes as wellasmonetary supportwith a social or distribution pol-icy background.171 The wide discretion of the Com-

160 M Bungenberg and S Hobe, ‘The Relationship of InternationalInvestment Law and European Union Law’, in M Bungenberg, JGriebel, S Hobe and A Reinisch, International Investment LawBaden-Baden Nomos (2015), 1616.

161 A Dimopoulos, ‘Foreign Investment Insurance and EU Law’[2012] TILEC Discussion Paper 1, 13.

162 A Dimopoulos, ‘Foreign Investment Insurance and EU Law’[2012] TILEC Discussion Paper 1, 15.

163 In its 2010 Communication Towards a comprehensive Europeaninternational investment policy, the development of a Europeaninternational investment policy will be a ‘gradual and targeted’process. The Commission held that ‘[w]hile it is the Union'sresponsibility to promote the European model and the singlemarket as a destination for foreign investors, it seems neitherfeasible nor desirable to replace the investment promotion effortsof Member States, as long as they fit with the common commer-cial policy and remain consistent with EU law’. CommissionCommunication “Towards a comprehensive European interna-tional investment policy”, COM(2010)343 final, 2. See also PKoutrakos, EU International Relations Law (2nd edition, Hart2015), 48.

164 Commission Regulation (EU) No 1407/2013 of 18 December2013 on the application of Articles 107 and 108 of the Treaty onthe Functioning of the European Union to de minimis aid, OJ L352, 24.12.2013, p. 1-8.

165 € 100,000 in the case of road freight transport.

166 Compared to its predecessor, in Regulation 1998/2006, under-takings in financial difficulty are no longer excluded from thescope of the regulation, and will, therefore, be allowed to re-ceive this de minimis aid. Commission Regulation 1998/2006, OJ

L379/5. Regulation No 360/2012 sets a limit of € 500,000 forSGEI.

167 It excludes from its scope of application two categories withpotential for targeted industrial policies: export-related activitieswhere the aid is directly linked to the quantities exported, to theestablishment and operation of a distribution network, or othercurrent expenditure linked to the export activity; and activities forwhich the aid is contingent on the use of domestic products.Article 1(d) and (e) Commission Regulation 1407/2013, OJL352/1.

168 C-143/99 Adria-Wien Pipeline and Wietersdorfer & PeggauerZementwerke [2001] ECLI-598, [30]. See also the State AidAction Plan - Less and Better Targeted State Aid: A Roadmapfor State Aid Reform 2005-2009, COM/2005/0107 final, para10.

169 That menas non-discriminatory aid with a social character grant-ed to the individual consumers; in case of natural disasters; and tothe areas suffering from the division of Germany.

170 P Craig and G de Búrca, EU law: text, cases, and materials,(Oxford university press 2015), 1139.

171 Please note in this context, that it is first and foremost up to theMember State to provide the Commission with the grounds forcompatibility. The Court of Justice has held that ‘[a] MemberState which seeks to be allowed to grant aid by way of deroga-tion from the Treaty rules has a duty to collaborate with theCommission. In pursuance of that duty, it must in particularprovide all the information to enable the Commission to verifythat the conditions for the derogation sought are fulfilled’.C-372/97 Italy v Commission [2004] ECLI-234, [81] and refer-ence made.


mission is exercised both through the block exemp-tion, frameworks, guidelines, other communications,and throughdecisions authorising individual aid andaid schemes.172 Article 107(3) TFEU, as interpreted,will now be examined in more detail, in order to as-sess whether, and if so, to what extent, the system ofaid control is inter alia used as a positive industrialpolicy instrument.

1. Article 107(3) TFEU

State aids are considered to be beneficial in helpingundertakings to overcome market failures173 or maybe justified on the basis of equity arguments, such associal and regional cohesion, sustainable develop-ment, and cultural diversity.174 This is reflected inthe fact that Article 107(3) TFEU explicitly enablesthe Commission to clear distortive aid in case the‘common interest’ in overall EU terms shouldbeover-riding or a ‘serious disturbance in the economy of aMember State’ is the reason for aid:175

‘The following may be considered to be compati-ble with the internal market:

(a) aid to promote the economic development ofareas where the standard of living is abnormally lowor where there is serious underemployment, and ofthe regions referred to in Article 349, in view of theirstructural, economic and social situation;

(b) aid to promote the execution of an importantproject of common European interest or to remedya serious disturbance in the economy of a MemberState;

(c) aid to facilitate the development of certain eco-nomic activities or of certain economic areas, wheresuch aid does not adversely affect trading conditionsto an extent contrary to the common interest;

(d) aid to promote culture and heritage conserva-tion where such aid does not affect trading condi-tions and competition in the Union to an extent thatis contrary to the common interest;

(e) such other categories of aid asmay be specifiedby decision of the Council on a proposal from theCommission.’176

With the exception of a decision by the Councilusing the ‘exceptional circumstances’ clause in Arti-cle 108(2) TFEU, the Commission has exclusive com-petence to decide on the compatibility of State aidwith the internal market when reviewing existingaid, when taking decisions on new or altered aid, or

when taking action regarding non-compliance withits decisions orwith the requirement for notification,subject to review by the Court of Justice.177 Throughthis institutional design, Member States are obligedto refrain from ‘opportunistic’ behaviour.178 At thesame time, the competence of the Commission to ap-prove a priori incompatible aid allows it to controlthe details of a State aid measure submitted to it bya Member State.

The Court of Justice has acknowledged that in cas-eswhereArticle 107(3) TFEU is applied, the Commis-sion must rely on complex economic, social, region-al, and sectoral assessments, and that it has a broaddiscretion.179 The discretionary nature of this assess-ment relates both to the assessment of the positiveand negative effects as well as the balancing there-of.180 The Court of Justice, in reviewing whether thatfreedomwas lawfully exercised, cannot substitute its

172 Bellamy & Child, Materials on European Union Law of Competi-tion, (Oxford University Press 2013), 1310, nr. 17.044 and refer-ences made.

173 Market failures cause ‘prices to convey the “wrong” signals, or,prevent the product market from coming into being (publicgoods being undersupplied)’. State aid may be employed to‘improve the allocation of resources and realize higher outputwith greater satisfaction of preferences’. J Pelkmans, Marketintegration in the European Community, (Martinus Nijhoff Pub-lishers 1984), 258.

174 See E De Ghellinck, ‘European Industrial Policy: Between Coop-eration and Competition’ in P Coffey (ed.), Main economic policyareas of the EC after 1992, (Kluwer Academic Publishers 1993),41; State aid action plan - Less and Better Targeted State Aid: ARoadmap for State Aid Reform 2005-2009, COM/2005/0107final, para 10. See also: P Brown, ‘The failure of market failures’(1992) 21(1) The Journal of Socio-Economics.

175 J Pelkmans, Market integration in the European Community,(Martinus Nijhoff Publishers 1984), 259-261; See e.g. C-143/99Adria-Wien Pipeline and Wietersdorfer & Peggauer Zementwerke[2001] ECLI-598, [30]; State Aid Action Plan - Less and BetterTargeted State Aid: A Roadmap for State Aid Reform 2005-2009,COM/2005/0107 final, para 10.

176 In addition to the approval granted under Article 107(2) and (3)TFEU, State aid for services of general economic interest can beapproved by the Commission under Article 106(2) TFEU.

177 See Council Regulation (EU) 2015/1589 of 13 July 2015, layingdown detailed rules for the application of Article 108 of theTreaty on the Functioning of the European Union (Text with EEArelevance) OJ L 248, 24.9.2015, 9–29, recital 2.

178 T Doleys, ‘Managing the Dilemma of Discretion: The EuropeanCommission and the Development of EU State Aid Policy’ (2013)13(1) Journal of Industry, Competition and Trade 23, 27.

179 See e.g. C-290/07 P Commission v Scott [2010] ECLI-480, [64];C-156/98 Germany v Commission [2000] ECLI-467, [67], and thecase-law is cited; T-67/94 Ladbroke Racing v Commission [1998]ECLI-7, [52]; C-169/95Spain v Commission [1997] ECLI-10, [18];C-310/85 Deufil v Commission [1987] ECLI-96, [18]; C-730/79Philip Morris v Commission [1980] ECLI-209, [24].

180 M Peeters, Staatssteun in de Europese Unie: Controle-bevoegdheid van de Europese Commissie, (Die Keure 2012),329.


own assessment in the matter for that of the Com-mission.181 Judicial review by the Court of Justice ofthe way in which that discretion is exercised is con-fined to establishing that the rules of procedure andthe rules relating to the duty to give reasons havebeen complied with, and to verifying the accuracy ofthe facts relied on and that there has been no errorof law, manifest error of assessment in regard to thefacts or misuse of powers.182

2. The Commission Exercising itsDiscretion

a) Preliminary Remarks

The categories listed in Article 107(3) TFEU need tobe interpreted by the Commission to be applica-ble.183 First, this is because they may be subject todivergent interpretation and must be concretised.Second, they do not provide much guidance as tohow to balance the aim of undistorted competitionagainst efficiency and/or equity considerations in aconcrete situation. For example, in respect of Article107(3)(c) TFEU, which has been described as themost important exception as it permits State aid tobe legitimate by reference to the requirements of anindustrial sector and by reference to economic areas,which can have a Member State, and not just an EU,dimension. The Commission is thus caught betweentwo stools; it ‘must not only take account of the legit-imate or understandable concerns of the MemberStates to prevent the deterioration of the situation in

specific sectors (and regions) but must also ensurethat the measures taken to this end do not reintro-duce compartmentalization of the [internal] marketand that firms which are uncompetitive comparedwith non-subsidized competitive firms in other coun-tries of the [Union] are not allowed to continue in busi-ness, since this would prejudice the efficiency of[Union] industry as a whole’.184 To protect itself frompolitical pressure and reduce its workload but alsoto increase transparency and legal certainty forMember States and (potential) beneficiaries, theCommission has set out how it would exercise itsdiscretion by establishing specific criteria for Stateaidmeasures to be compatiblewith the internalmar-ket.185

The criteria thus developed are laid down in twomain types of frameworks and guidelines, namely‘horizontal rules’186 and ‘sector-specific rules’.187Hor-izontal rules, which apply across all industries, albeitasymmetrically, set out the Commission’s positionon particular categories of aid. Sector-specific rules,by contrast, apply only to certain sectors. The Courtof Justice has confirmed that the Commission mayindeed lay down guidance for the exercise of its dis-cretion by adopting guidelines, as long as they do notdepart from the Treaty rules. If this condition is ful-filled, the Commission is in principle bound by theguidelines that it issues.188TheGeneralBlockExemp-tion Regulation (GBER), in turn, also encapsulatesthe Commission’s criteria for assessment.189 It is im-portant to note that this framework is not simply im-posed ‘from above’. Although the EU has exclusivecompetence in the area of competition law, Member

181 See e.g. C-88/03Portugal v Commission [2006] ECLI-511, [99];C-148/04 Unicredito Italiano [2005] ECLI-774, [71].

182 C-372/97 Italy v Commission [2004] ECLI-234, [83] and refer-ences made. See also: M Peeters, Staatssteun in de Eu-ropese Unie: Controlebevoegdheid van de Europese Commissie,(Die Keure 2012), 330.

183 M Blauberger, ‘From Negative to Positive Integration? EuropeanState Aid Control through Soft and Hard Law’ (2008) 4 MPIfGDiscussion Paper 1, 7 (incl. references cited) and 10. T-35/99Keller and Keller Meccanica v Commission [2002] ECLI-19, [77].

184 The European Community's industrial strategy. European Docu-mentation 5/1982, 30; P Craig and G de Búrca, EULaw: Text, Cases, and Materials (Oxford University Press 2015),1141.

185 See (not specifically in the context of industrial policy) on theSAAP, M Blauberger, ‘From Negative to Positive Integration?European State Aid Control through Soft and Hard Law’, (2008) 4MPIfG Discussion Paper 1, 6.

186 See <http://ec.europa.eu/competition/state_aid/legislation/horizontal.html> Last accessed on 13 November 2016.

187 See <http://ec.europa.eu/competition/state_aid/legislation/specific_rules.html> Last accessed on 13 November 2016.

188 See e.g. C-464/09 P Holland Malt v Commission [2010]ECLI-733, [46-47]; Joined cases C-75/05 P and C-80/05 P Ger-many and Others v Kronofrance, judgment of 11 September2008, ECLI-482, [60-61]; C-351/98 Spain v Commission [2002]ECLI-530, [53] and references cited. It is ultimately for the Courtof Justice to verify whether the requirements which the Commis-sion has itself laid down have been observed.

189 Commission Regulation (EU) No 651/2014 of 17 June 2014declaring certain categories of aid compatible with the internalmarket in application of Articles 107 and 108 of the Treaty Textwith EEA relevance, OJ L 187, 26.6.2014, p. 1–78. In the GBER,the Commission has declared specific categories of aid compati-ble with the Treaty if they fulfil certain conditions, thus exemptingthem from the requirement of prior notification and Commissionapproval.


States have been actively involved in its formula-tion.190

Bydefininghow it exercises its discretion, i.e.whatit considers to be “good” State aid and what not, andby codifying this into a framework of soft and hardlaw instruments, as illustrated most recently in thecontext of the SAM process, the Commission usesState aid inter alia as a public governance instru-ment.191 This is by no means a new phenomenon;the systemofState aid controlwas forced todealwith(semi-) economic circumstances well before the eco-nomic conditions that gave rise to the SAAP and theSAM. In various domains, including textiles andclothing, coal, fibres, steel, regional aid, environmen-tal aid, aid for research and development, and thepromotion of SMEs, the Commission has extensiveexperience with policy-engineering via specific Stateaid regimes. In particular in respect of the sector-spe-cific rules adopted in that context, it is important toappreciate the precise rationale for adopting them;it explains, for example, why the, at times, ‘hostility’of State aid law towards a specific sector is not nec-essarily a logical consequence of the sectoral Stateaid rule in question.

For example, until the end of 2010, Council rulesallowed for the subsidisation of coals mines, even ifthey were loss-making.192 This was to guarantee ac-cess to sufficient coal reserves and hence securingsupply of energy in the EU. However, after 2010 theEU level changed its policy: ‘[t]he Union’s policy ofencouraging renewable energy sources and a sustain-

able and safe low-carbon economy does not justify theindefinite support for uncompetitive coal mines’193;the Council adopted a proposal to phase out theseaids and link the granting of aid to the closing downof inefficientmines, thereby collidingwith (some of)the Member States. This change of policy is reflect-ed in the Council Decision on State aid to facilitatethe closure of uncompetitive coal mines.194 Similarconsiderations and patterns related to overcapacitycan be discerned in the context of the steel195 and theshipbuilding industry.196 By contrast, in other sec-tors, such as, the audio-visual sector197 and the pub-lic service broadcasting sector,198 the perceived needto make the granting of aid easier for specific publicinterest purposes, such as the promotion of cultureor to fulfil certain democratic, social and culturalneeds of society, explains the existence of sector-spe-cific rules.

However, with the recently completed SAM pro-gramme, which builds further on the SAAP pro-gramme, the linking of competition to wider politicalpriorities, including industrial policy ones, has gainednew momentum. One of the key goals of the SAMprogramme is to support the Europe 2020 strategyand its flagship initiatives.199Byoverhauling its blockexemption and many of its frameworks and guide-lines, to make them consistent with the principlescontained in the SAM programme, the Commissionhasmade clear that one cannot just look at the prima-ry importance of the undistorted market within theEU without looking at the global competiveness.200

190 E.g. via Member States experts in an Advisory Committee or inthe framework of multilateral meetings.

191 See, more generally, M Blauberger, ‘From Negative to PositiveIntegration? European State Aid Control through Soft and HardLaw’, (2008) 4 MPIfG Discussion Paper 1, 12.

192 Council Regulation (EC) No 1407/2002 of 23 July 2002 on Stateaid to the coal industry, OJ L 205, 2.8.2002, p. 1–8.

193 Council Decision of 10 December 2010 on State aid to facilitatethe closure of uncompetitive coal mines 2010/787/EU, OJ L 336,21.12.2010, p. 24–29, recital 3.

194 Council Decision of 10 December 2010 on State aid to facilitatethe closure of uncompetitive coal mines 2010/787/EU, OJ L 336,21.12.2010, p. 24–29.

195 See the Communication from the Commission - Rescue andrestructuring aid and closure aid for the steel sector (notifiedunder document No C(2002) 315), OJ C 70, 19.3.2002, p. 21-22;Communication from the Commission - Multisectoral frameworkon regional aid for large investment projects (notified underdocument No C(2002) 315), OJ C 70, 19.3.2002, p. 8-20.

196 See the Framework on State aid to shipbuilding, OJ C 364,14.12.2011 incl. the Communication from the Commissionconcerning the prolongation of the application of the Frameworkon State aid to shipbuilding (2013/C 357/01), para 1 provides:

‘[s]ince the early 1970s, State aid to shipbuilding has been subjectto a series of specific State aid regimes, which have been gradual-ly aligned with the horizontal State aid provisions. The currentFramework on State aid to shipbuilding will expire on 31 Decem-ber 2011. In line with its policy to ensure enhanced transparencyand simplification of State aid rules, the Commission aims, to thegreatest extent possible, to eliminate the differences between therules applicable to the shipbuilding industry and to other industri-al sectors, by extending general horizontal provisions to theshipbuilding sector’.

197 Communication from the Commission on State aid for films andother audiovisual works, (2013/C 332/01).

198 Communication from the Commission on the application of Stateaid rules to public service broadcasting, OJ C 257, 27.10.2009, p.1–14.


200 It has inter alia done so in respect of rescue and restructuring aid;regional aid, research and development and innovation (R&D&I);environment and energy aid; the promotion of Important Projectsof Common European Interests (IPCEIs); risk finance; broadband;and aviation.


b) General Principles

In Philip Morris, the Court of Justice stressed that theCommission in its evaluation of aid proposals can-not accept that national objectives are sufficient tojustify the use of aid.201 They can only be consideredcompatible with the internal market if they advanceor are in line with EU objectives.202 In seeking to for-mulate its position, the Commission has early on-wards developed the concept of ‘compensatory justi-fication’; if the Commission has to use its discre-tionary power not to raise objection to an aid propos-al, it must contain a compensatory justificationwhich takes the form of a contribution by the bene-ficiary over and above the effects of normal marketforces to the achievement of EU objectives containedin the derogations in Article 107(3) TFEU.203

Initially a ‘balancing test’, as referred to in the2005SAAPandpart of the so-called ‘refined econom-ic approach’, was used by the Commission to assessthe compatibility of aid with the internal market.204

This test was fundamentally about balancing thenegative effects of aid on competition with its posi-tive effects in terms of common interest.205With theSAM programme, the assessment of aid has notchangedmaterially.Applicable criterianowreplicatea number of ‘common principles’ that in essence cor-respond to the balancing test.206 The SAM pro-gramme has called for State aid control to facilitate‘the treatment of aid which is well-designed, targetedat identified market failures and objectives of com-

mon interest, and least distortive (“good aid”)’.207

Building upon the 2005 State Aid Action Plan(SAAP),208 an important element in this is the Com-mission’s strengthened economic approach to Stateaid control; a key element is the analysis of marketfailures.209 It clarified the criteria for finding that anaid measure is compatible and hence can be ap-proved:

- Contribution to a well-defined objective of com-mon interest;

- Need for State intervention, it must be targetedtowards a situation where aid can bring about a ma-terial improvement that themarket cannot deliver it-self, by remedying a market failure or addressing anequity or cohesion concern;

- It must be an appropriate policy instrument toaddress the objective of common interest;

- Incentive effect: the aid must change the behav-iour of the undertaking concerned in such a way thatit engages in additional activity that it would not car-ry out without the aid, or it would carry it out in a re-stricted or different manner or location;

- Proportionality: the aid amount must be limitedto the minimum needed to induce the additional in-vestment or activity;

- Negative effects on competition and trade be-tween Member States must remain sufficiently lim-ited, so that the overall balance of themeasure is pos-itive210; and

- Transparency: the relevant acts and pertinent in-formation about aid awards must be transparent.211

201 C-730/79 Philip Morris v Commission [1980] ECLI-209.

202 Eleventh Report on Competition Policy (1981), para 178.

203 Tenth Report on Competition Policy (1980), para 213.

204 State aid action plan - Less and better targeted State aid: aroadmap for State aid reform 2005-2009, COM/2005/0107final, para 11. The test allowed the Commission to guarantee thatState aid has an incentive effect and induces the beneficiary toundertake activities it would not otherwise have done (e.g.C-730/79 Philip Morris v Commission [1980] ECLI-209, [17];T-187/99 Agrana Zucker und Stärke v Commission [2001]ECLI-149, [74]; C-129/12 Magdeburger Mühlenwerke [2013]ECLI-200, [45]); that it is well targeted and proportional; and thatit has a limited negative effect on competition and trade. Notablyin terms of distortions of allocative and dynamic efficiency,subsidy races and market power, see Communication from theCommission to the European Parliament, the Council, the Euro-pean Economic and Social Committee and the Committee of theRegions on EU State Aid Modernisation, COM(2012) 209, para18(b).

205 State Aid Action Plan - Less and Better Targeted State Aid: ARoadmap for State Aid Reform 2005-2009, COM/2005/0107final, para 11.

206 Transparency was not a balancing test criterion in its own right,but the frameworks provided for reporting provisions that formedpart of the compatibility criteria. See (in the context of R & D & I)B von Wendland, ‘New Rules for State Aid for Research, Devel-opment and Innovation, EStAL 1 (2015), 36.


208 Commission State aid action plan - Less and better targeted stateaid : a roadmap for state aid reform 2005-2009 (Consultationdocument), COM (2005) 107.

209 Such as externalities, imperfect information or coordinationproblems. See T Prosser, ‘Regulation and Social Solidarity’ (2006)33(3) Journal of Law and Society 364, 367.

210 In order to keep the distortions of competition and trade to aminimum, the Commission will put great emphasis on the selec-tion process of the aid beneficiary(ies) which, where possible,should be conducted in a non-discriminatory, transparent andopen manner.

211 See Report on Competition Policy (2014) - Commission staffworking paper, 6.


Further to the SAM process, the Commission hasrevised, streamlined and where possible consolidat-ed State aid guidelines tomake them consistent withthe common principles discussed above.212 In addi-tion, the GBERhas been thoroughly amended.213 Fol-lowing the revision of the Enabling Regulation, thenumber of exceptions provided for in the GBER hasbeen extended in depth as well as breadth in key ar-eas linked to the Europe 2020 industrial policy agen-da.214 As a clear red thread, the market-failuremethodology runs through these guidelines and theGBER. This system is reinforced by the new featureintroduced in the SAM process of ‘ex post evalua-tion’.215 Since 1 July 2014, evaluation is required forlarge GBER schemes in certain aid categories216 aswell as for some schemes notified under the newgen-eration of State aid guidelines.217 The overall objec-tive is to assess the positive and negative effects of ascheme, i.e. the public objective of State aid evalua-tion relative to its impact on competition and tradebetween Member States.218 Based on this assess-ment, the evaluation can confirm whether the as-sumptions underlying the ex ante approval of the aidscheme are still valid and whether there is reason tochange future State aid rules.219

Finally it should be noted that, as a general rule,only aid for specific investment purposes (based onregional, sectoral, environmental, or other criteria)is considered compatible with the internal market.General investment schemes, which are not aimed at

a specific industry or region and which do not ad-vance a specific EU objective, do not qualify for anexemption. Operating aid, that is, aid intended to re-lieve an undertaking of the expenses which it woulditself normallyhavehad tobear in its day-to-dayman-agement or its usual activities, does not generally fallwithin the scope of Article 107(3) TFEU because it isusually deemed as one of themost distortive ones,220

although in some instances even operating aid is al-lowed to maintain the EU’s industry’s competive-ness.

c) Concretising Approval Conditions

The remainder of this chapter will further zoom in-to the interplay between (supra-) national industrialpolicy and State aid policy by focussing on environ-mental and energy aid as well as a limited numberof other domains. It will become apparent that cer-tain elements of the (modernised) State aid policy,i.e. the scope and type of permissible aid and the ap-plicable intensity ceilings, are clearly created as a re-sponse to industrial policy objectives and competi-tiveness challenges.

i. Environmental and Energy Aid

The guidelines in the domain of environmental andenergy aid constitute a very interesting example ofcombining industrial policy, environmental protec-

212 It has inter alia done so in respect of rescue and restructuring aid;regional aid, research and development and innovation (R&D&I);environment and energy aid; the promotion of Important Projectsof Common European Interests (IPCEIs); risk finance; broadband;and aviation.

213 Commission Regulation (EU) No 651/2014 of 17 June 2014,declaring certain categories of aid compatible with the internalmarket, in application of Articles 107 and 108 of the Treaty Textwith EEA relevance, OJ L 187, 26.6.2014, 1–78.

214 First six new categories of aid, previously not covered, wereincluded in the GBER, i.e. innovation aid to large enterprises;certain aid to broadband infrastructures; aid for culture andheritage conservation including audio-visual works; aid for sportand multifunctional recreational infrastructures; aid to make goodthe damage caused by natural disasters; and social aid for trans-port for residents of remote regions; second, new forms of ex-empted aid were introduced for existing categories (including awider concept of risk finance aid; investment aid for researchinfrastructure; a new category of start-up aid; new possibilities forenergy and environmental aid; enlargement of the notion ofdisadvantaged workers for employment aid; and regional aid forouter regions and for urban development schemes;) and third, thenotifications thresholds in key areas linked to the Europe 2020agenda, such as R&D&I and risk finance, were significantlyraised. See Competition Policy Brief, ‘State aid modernisation – amajor revamp of EU State aid control’, Issue 11 November 2014;

Commission staff working paper accompanying the Report onCompetition Policy 2013, 7.

215 Commission staff working document, ‘Common methodology forState aid evaluation’, SWD(2014) 179 final.

216 Schemes with an average annual State aid budget above €150million in the fields of regional aid, aid for SMEs and access tofinance, aid for R&D&I, energy and environmental aid and aid forbroadband infrastructures.

217 Evaluation might apply to notified aid schemes with large bud-gets, containing novel characteristics or when significant market,technology or regulatory changes are foreseen.

218 Commission staff working document, ‘Common methodology forState aid evaluation’, SWD(2014) 179 final, page 4.

219 Commission staff working document, ‘Common methodology forState aid evaluation’, SWD(2014) 179 final, page 4.

220 See e.g. T-459/93 Siemens v Commission [1995] ECLI-100, [48,77]; C-288/96 Germany v Commission (Jadekost) [2000]ECLI-537, [77-79]; T-348/04 SIDE v Commission [2008] ECLI-109,[99]. As the ECJ held in Comitato ‘Venezia vuole vivere’ and Oth-ers v Commission (Joined cases C-71/09 P, C-73/09 P and C-76/09P Comitato ‘Venezia vuole vivere’ and Others v Commission,judgment of 9 June 2011, ECLI-368, [168]) such aid may begranted only in exceptional situations. See See C Quigley, Euro-pean State aid law and policy, (Hart 2015), 274-276.


tion and trade considerations in State aid policy.221

Two main observations can be made in this context.First, inorder toprevent indirect carbon leakage222

andmaintain the competiveness of EU undertakingsvis-à-vis undertakings based in third countries, bothunder the EU emissions trading scheme guidelines(ETSguidelines)223 and the chapter of thenewGuide-lines on State aid for environmental protection andenergy 2014-2020 (EEAG)224 dealing with energy in-tensive users, the Commission allowsMember Statesto provide ‘operating aid’ to certain energy intensiveusers, even though, as discussed above, operating aiddoes not normally fall within the scope of Article107(3) TFEU. On the basis of the ETS guidelines,Member States are permitted to compensate certainelectro-intensive users, such as steel and aluminumproducers, for part of the higher electricity costs dueto the ETS. The objective of this aid has been de-scribed as ‘to prevent a significant risk of carbon leak-age due to [European Union Allowance]225 costspassed on in electricity prices supported by the bene-ficiary, if its competitors from third countries do notface similar CO2 costs in their electricity prices andthe beneficiary is unable to pass on those costs to prod-uct prices without losing significant market share’.226

Under the EEAG, limited support is allowed for en-ergy intensive sectors, such as the manufacturing ofchemicals, paper, ceramics or metals. These sectorscarry a relatively high burden from levies chargedfor renewables support because they are heavy inten-sive users of electricity. Moreover, the exposure ofthese sectors to global trade puts them at a disadvan-tage towards competitors from outside the EUwhere

electricity prices are lower.227By adopting these rulesthe Commission has accepted that in certain casesone cannot look just at the primary importance ofthe undistorted market within the EU without look-ing at global competiveness.

Second, in particular the EEAG demonstrates howthe Commission uses its discretionary powers underArticle 107(3) TFEU to policy-govern and shape thenational authorities’ structural industrial change.Based on a comparatively wide interpretation of Ar-ticle 107(3)(c) TFEU, the EEAG considers State aid forenvironmental protection and energy objectivescompatible with the internal market if it leads to anincreasing contribution to the EU environmental orenergy objectives without adversely affecting trad-ing conditions contrary to the common interest.228

This way, State aid policy is instrumental in further-ing the objectives of the Europe 2020 strategy and its‘Resource efficient Europe’ flagship initiative229 onthe basis of which a number of headline targets havebeen set, including targets for climate change and en-ergy sustainability, and implementing policies havebeen developed to support a shift towards a resource-efficient and low-carbon economy. In view thereof,the EEAG have been appropriately referred to as‘guidelines in the true sense of the word and surelymore than a transparent description of the Commis-sion’s State aid policy They are pointing the way aheadfor the EU's renewable energy regulation by the meansof State aid control, thereby shaping the relevant mar-kets of renewables. Where non harmonised taxationand the partly harmonised renewable energy sectorare subject to extensive State aid control, State aid

221 A Italianer, ‘Between Competition, Regulation and other PublicPolicies - contribution to panel discussion’ in P Lowe and MMarquis, European Competition Law Annual 2012: Competition,Regulation and Public Policies, (Hart Publishing 2014), 41. Seealso G Van Calster, 'Greening the E.C.'s state aid and tax regimes'(2000) 21(6) European Competition Law Review, 294.

222 ‘Carbon leakage’ is defined as ‘the prospect of an increase inglobal greenhouse gas emissions when companies shift produc-tion outside the EU because they cannot pass on the cost increas-es induced by the EU ETS to their customers without significantloss of market share’. See ETS guidelines para 7.

223 Communication from the Commission — Guidelines on certainState aid measures in the context of the greenhouse gas emissionallowance trading scheme post-2012 (SWD(2012) 130 final)(SWD(2012) 131 final), OJ C 158, 5.6.2012, p. 4–22

224 Communication from the Commission — Guidelines on State aidfor environmental protection and energy 2014-2020, OJ C 200,28.6.2014, p. 1–55.

225 ‘European Union Allowance (EUA)’ means a transferable al-lowance to emit one tonne of CO2 equivalent during a specifiedperiod. See ETS guidelines Annex I.

226 ETS guidelines, para 24. Former competition commissionerAlmunia considered that ‘[i]f production shifts from the EU tothird countries with less environmental regulation, this couldundermine our objective of a global reduction of greenhouse gasemissions. There may be such a risk in some sectors, given theexpected impact of the ETS on electricity costs as from 2013. Therules adopted today allow Member States to address this issuewhile maintaining incentives to decarbonise production andconsumption and minimising any distortions of competition’. See<http://europa.eu/rapid/press-release_IP-12-498_en.htm?locale=en> Last accessed on 13 November 2016.

227 Communication from the Commission — Guidelines on State aidfor environmental protection and energy 2014-2020, OJ C 200,28.6.2014, p. 1–55, par. 3.7 and <http://europa.eu/rapid/press-release_MEMO-14-276_en.htm> Last accessed on 13 November2016.

228 EEAG para 23.

229 Communication from the Commission to the European Parlia-ment, the Council, the European Economic and Social Committeeand the Committee of the Regions, Roadmap to a ResourceEfficient Europe, COM (2011) 0571 final.


law has evolved to a regulatory and policy making toolrather than a mere monitoring and law enforcementtool preventing isolated distortive State aid measuresgranted by Member States’.230

ii. Other Domains

In various other domains also, there is a clear link be-tween State aid policy and industrial policy consid-erations. In addition to the examples of the State aidpolicy in respect of the coal mining sector as well assteel and shipbuilding industries discussed above, alimited number of sectors that have seen changes inthe context of the SAM process will be very brieflytouched upon, i.e. aid for research and developmentand innovation (R&D&I); aid for important protec-tions of common European interest (IPCEI); region-al aid; aid to risk finance; and aid in the broadbandsector.

- Research and Development and InnovationPromoting R&D&I is an important EU objective

laid down inArticles 173 and 179 (and further) TFEU.The Europe 2020 Strategy identifies R&D&I as a ‘keydriver’ for achieving its objectives and State aid isconsidered to play a central role in that regard. TheCommission has set out the headline target accord-ing to which 3% of the EU’s GDP should be investedin R&D&I by 2020.231 At the national level, aid forR&D&I is primarily within the scope of Article107(3)(c) TFEU as facilitating the development of cer-tain economic activities, although it may also fallwithin Article 107(3)(b) TFEU if the project is of Eu-

ropean interest.232 The Commission has adopted anew R&D&I framework233 and new provisions forR&D&I aid under the GBER. Under the R&D&Iframework higher aid levels are permissible. Underthe GBER the threshold amounts have been signifi-cantly increased as well. Moreover the scope of aidmeasures for R&D&I projects that can be exemptedfrom notification under the GBER has beenwidened.234 These new rules are designed to go handin hand with EU initiatives aimed at promotingR&D&I activities, including Horizon 2020.235

- Important Projects of CommonEuropean Inter-est

In particular in large-scale, high risk advanced sec-tors with a pan-European dimension it has been heldthat from an economic perspective, a case for partic-ular industrial policy interventions can be made.236

In line with this, pursuant to the first limb of Article107(3)(b) TFEU ‘aid to promote the execution of animportant project of common European interest’ maybe considered tobe compatiblewith the internalmar-ket. As was already demonstrated in Exécutif région-al wallon v Commission,237 the threshold is quitehigh.238 With the adoption of the new IPCEI Com-munication,239 the assessment of public financing ofsuch projects has been updated and consolidated inline with the Europe 2020 Strategy objectives includ-ing the EU’s flagship initiatives.240

- Regional Aid

230 Ch Koenig, ‘Where is State Aid Law Heading To’ (2014) 13(4)European State Aid Law Quarterly 611, 611.

231 Communication of 3 March 2010 from the Commission, Europe2020 A Strategy For Smart, Sustainable And Inclusive Growth,COM(2010) 2020 final. Four flagship initiatives that have beenlaunched have strong links to research and innovation: “Innova-tion Union”, “A digital agenda for Europe”, “Resource efficientEurope” and “An industrial policy for the globalisation era”.

232 See C Quigley, European State aid law and policy, (Hart 2015),261.

233 Communication from the Commission — Framework for StateAid for Research and Development and Innovation, [2014] OJ C198, 1–29.

234 See <http://europa.eu/rapid/press-release_IP-14-586_en.htm> Lastaccessed on 13 November 2016.

235 Commission staff working paper accompanying the Report onCompetition Policy 2014, page 4.

236 J Pelkmans, Market integration in the European Community,(Martinus Nijhoff Publishers 1984), 273.

237 Joined cases C-62/87 and C-72/87 Exécutif régional wallon vCommission, judgment of 8 March 1988, ECLI-132, [21, 23-25].

238 In this case the Court of Justice considered that ‘[t]he Commissionhas based its policy with regard to aid on the view that a projectmay not be described as being of common European interest forthe purposes of Article [107(3)(b)] unless it forms part of atransnational European programme supported jointly by a num-ber of governments of the Member States, or arises from concert-ed action by a number of Member States to combat a commonthreat such as environmental pollution’. Joined cases C-62/87 andC-72/87 Exécutif régional wallon v Commission, judgment of 8March 1988, ECLI-132, [23]. See P Craig and G de Búrca, EULaw: Text, Cases, and Materials (Oxford University Press 2015),1140-1141.

239 Communication from the Commission — Criteria for the analysisof the compatibility with the internal market of State aid to pro-mote the execution of important projects of common Europeaninterest, Official Journal C 188, 20.06.2014, 4.

240 See for the application of these guidelines: SA.39078 (2014/N) –Denmark, Financing of the Fehmarn Belt Fixed Link project,C(2015) 5023 final and State aids SA.36558 (2014/NN) andSA.38371 (2014/NN) – Denmark State aid SA.36662 (2014/NN) -Sweden Aid granted to Øresundsbro Konsortiet, C(2014) 7358final the Commission approved State aid on the basis of Article107(3)(b) and the IPCEI Communication.


Further to Article 107(3)(a) and (c) TFEU, the Com-mission may consider compatible with the internalmarket (primarily: investment) aid to undertakingsin order to support the development of disadvan-taged regions in the EU.241 The link with industrialpolicy is, that regional incentives aim to influencethe locationofnew industrial establishmentsbycom-pensating locational disadvantages of a certain area.This shows that subsidies can also be justified by acombination of market failure and redistributivegrounds.242 The Commission’s approach to the au-thorisation of regional aids is set out in its RegionalAid Guidelines243 and in the adoption of the region-al aid provisions in the GBER. Regional aid is consid-ered to contribute to the achievement of the Europe2020Strategydelivering an inclusive and sustainablegrowth.244 At the EU level, reference can, most no-tably, be made to the ESI funds, inter alia compris-ing of the ERDF, ESF, CF and the EAFRD; as well asthe EFSI.

- Aid to Risk FinanceComplementary to the provisions on risk finance

included in the revised GBER, in its revised guide-lines on risk capital based on Article 107(3)(c) TFEUwhich were brought in line with the Europe 2020Strategy,245 the Commission takes the view that thedevelopment of the risk finance market and the im-provement of access to risk finance for SMEs, smallmid-cap and innovative mid-cap is of great impor-tance to the EU economy at large, by including them

in the guidelines’ scope of application and by allow-ing a wider range of financial instruments.246 In linewith this, the EU has designated part of its budget tofacilitate access to financing, first and foremost, ofSMEs.247

- BroadbandWhere State intervention to support broadband

deployment constitutes State aid, its compatibilitywill generally be assessed by the Commission underArticle 107(3)(c) TFEU. Both the Europe 2020 Strate-gy and its flagship initiative the Digital Agenda forEurope underline the importance of the use of broad-band as part of the EU’s growth strategy and set spe-cific targets for broadband development. According-ly, the Commission has adopted revised guidelinesfor the application of EU State aid rules to the broad-band sector.248

VI. Concluding Remarks

This paper has examined the interplay between(supra-) national industrial policy and State aid, todetermine whether they comprise a ‘natural combi-nation’ or constitute ‘strange bedfellows’.

It has been shown that the system of EU State aidcontrol aims to strike a careful balance between Eu-ropean unity and national sovereignty. This entailsthat, while decisions to provide aid are in principlemade by theMember States, the EU legal framework(as interpreted) generates a number of systemic ob-

241 Areas eligible for regional aid under Article 107(3)(a) TFEU,commonly referred to as “a” areas, tend to be the more disadvan-taged within the EU in terms of economic development. Anexample of (failed) application of (now) Article 107(3)(a) is sub-ject of the Case C-730/79Philip Morris v Commission [1980]ECLI-209, [16-19, 24-25]. Areas eligible under Article 107(3)(c)TFEU, referred to as “c” areas, also tend to be disadvantaged butto a lesser extent. Communication from the Commission - Guide-lines on regional State aid for 2014-2020 (2013/C 209/01), paras40-42.

242 J Pelkmans, Market integration in the European Community,(Martinus Nijhoff Publishers 1984), 259.

243 Communication from the Commission - Guidelines on regionalState aid for 2014-2020 (2013/C 209/01).

244 Communication from the Commission - Guidelines on regionalState aid for 2014-2020 (2013/C 209/01), para 30.

245 ‘Access to finance for SMEs is an objective of common interestunderpinning the Europe 2020 strategy. In particular, the ‘Innova-tion Union’ flagship initiative aims to improve framework condi-tions and access to finance for research and innovation so as toensure that innovative ideas can be turned into products andservices that create growth and jobs. In addition, the ‘Industrial

policy for the globalisation era’ flagship initiative is designed toenhance the business environment and to support the develop-ment of a strong and sustainable industrial base able to competeglobally. The Roadmap to a resource-efficient Europe calls forframework conditions to increase investor certainty and ensurebetter access to finance for companies making green investmentsthat are seen as riskier or that have longer payback times. More-over, the Small Business Act sets out a number of guiding princi-ples for a comprehensive policy designed to support the develop-ment of SMEs. One of those principles is to facilitate access tofinance for SMEs. That principle is also reflected in the SingleMarket Act’, see Communication from the Commission — Guide-lines on State aid to promote risk finance investments, OJ C 19,22.1.2014, 4–34 paras 6.

246 Communication from the Commission — Guidelines on State aidto promote risk finance investments, OJ C 19, 22.1.2014, 4–34para 1.

247 Particular reference can be made to Horizon 2020, COSME andEFSI.

248 Communication from the Commission — EU Guidelines for theapplication of State aid rules in relation to the rapid deploymentof broadband networks, OJ C 25, 26.1.2013, 1–26.


stacles that can preclude or limit the adoption andapplication of national industrial policy measuresthat entailmonetary support, in particular, those thatare based on the interpretation of industrial policyin a purely domestic sense, although some (types of)measures that are of particular interest from an in-dustrial policy perspective fall outside the scope ofapplication of Article 107(1) TFEU altogether. TheCommissionmonitors the use of State aid, subject toreview by the Court of Justice.

Unlike the harmonisation of national legislation,State aid control in principle only has a passive in-tegrative function.249 This entails that the Commis-sion cannot force a Member State to pay aid; it iscompetent only to order a Member State not to payany aid it considers incompatible with the internalmarket. However, while the Commission has alwayshad to balance the general prohibition of State aidagainst possible exceptions in Article 107(3) TFEU,by inviting Member States to provide “good aid”, asopposed to “bad aid”, as exemplified by the SAMpro-gramme, which, in turn, has been informed by theEurope 2020 Strategy, the EU ever more policy-gov-erns the structural industrial change of the nationalauthorities. Combined with the creation of multiplesupranational funding possibilities which aim topositively contribute to the objectives of said Europe2020 Strategy, this enables the Commission to in-creasingly use State aid policy measures as a publicgovernance instrument to create positive Europeanindustrial policy in the absence of (full) harmonisa-tion.

As the guidelines in the domain of environmentand energy as well as in a number of other domainsdemonstrate, certain elements of (modernised) Stateaid policy, i.e. the scope and type of permissible aidand the applicable intensity ceilings, are clearly cre-ated as a response to industrial policy objectives andcompetiveness challenges. Contributing to the pro-motion of European industries’ competitiveness viathe design of State aid rules would appear to be whatArticle 173 TFEU on industry prescribes; in whatseems to be in line with a predominantly market-ori-ented approach, the substantive lynchpin in Article173 TFEU is the concept of ‘competitiveness’, whichhas been referred to as a leitmotif shot through thisand various other provisions in the Treaties.250 Arti-cle 173(1) TFEU provides that the EU and the Mem-ber States are required to create and maintain thecompetiveness inducing framework for the EU’s in-

dustry, which is in the Dutch and German versionsof the TFEU more clearly referred to as ‘concurren-tievermogen’ and ‘Wettbewerbsfähigkeit’ respective-ly, which literally means ‘the ability to compete’.

Article 173(3) first sentence, TFEU is a ‘cross-sec-tional clause’ (in German “Querschnittklausel”). Itprovides that the EU ‘shall contribute to the achieve-ment of the objectives set out in paragraph 1 throughthe policies and activities it pursues under other pro-visions of the Treaties’. Thus, instead of creating its‘own’ instrument in specifying the powers, the pro-vision ‘appropriates' instruments from other policyareas to achieve industrial policy goals by prescrib-ing the infusion of industrial policy considerations.This requires the EU institutions to take the objec-tives of Article 173(1) TFEU into account in other ar-eas that may not primarily be informed by industri-al policy considerations.251 By accepting in its hardand soft law rules that, in certain instances, one can-not solely consider theundistortedmarketwithin theEU without looking at global competiveness, the do-main of State aid policy is unmistakably informedby industrial policy considerations.252

The interplay between industrial policy and Stateaid is further reinforced by the fact that a number of

249 M Peeters, Staatssteun in de Europese Unie: Controle-bevoegdheid van de Europese Commissie, (Die Keure 2012), 593.

250 Also in the field of research and technological development,Article 179(1) TFEU refers explicitly to the objective of competi-tiveness, and similar reference to competitive(ness) can be foundin Articles 32(b) TFEU on customs union; Article 151 TFEU onsocial policy; Article 170(2) TFEU on trans-European networks;Article 189(1) TFEU on space policy; Article 195(1) TFEU ontourism; and in Declaration No. 30 on Article 126 of the TFEU.See (in the context of the Maastricht Treaty) R Lane, ‘New Com-munity Competences under the Maastricht Treaty’ (1993)30(5) Common Market Law Review 939, 964.

251 This is consolidated in Article 7 TFEU, a general cross-sectionalclause, which provides that the EU must ensure consistencybetween its policies and activities, taking all of its objectivesinto account and in accordance with the principle of conferral ofpowers, which also shows that this balancing of (possibly diverg-ing) public objectives is therefore not unique to the domain ofindustrial policy. Articles 2 and 3 TEU provide a concise state-ment on the values and objectives of the EU. It has been submit-ted that the fact that Article 7 TFEU can be found at the beginningof the Treaty, whereas the principle of free market economy forother policies has moved ‘backwards’ to the specific chapter oneconomic and monetary policy, so that the link between industri-al policy and the other policies the EU pursues is (or should be)emphasised. L Parret, ‘The multiple personalities of EU competi-tion law: time for a comprehensive debate on its objectives’ in DZimmer (ed.), The Goals of Competition Law (Edward Elgar 2012),80.

252 M Kauppi and A Karpati, ‘TEC, Article 157 On Competiveness ofthe Community Industry’ in H Smit, P Herzog, C Campbell and GZagel (eds), Smit & Herzog on the law of the European Union,(LexisNexis/Matthew Bender 2005), para 249.03.


EU funding opportunities, i.e. Horizon 2020,253

COSME254 and ESFI,255 are founded on the basis of(amongst others) Article 173(3), second sentence,TFEU. On the basis of this provision, the EU has al-so competences to carry out actions to support orcomplement the actions of the Member States. Arti-cle 173(3), second sentence, TFEU provides that the‘[t]he European Parliament and the Council […] maydecide on specific measures in support of action tak-en in the Member States to achieve the objectives setout in paragraph 1’, but excludes ‘any harmonisationof the laws and regulations of the Member States’.256

Finally, and on a more cautionary note, it is sub-mitted that the Commission’s fairly interventionistuse of its discretionary powers under Article 107(3)TFEU raises some doubts as to the assignment dis-tribution between the national and the supranation-al level within the system of State aid control.

While the Commission needs to balance the gen-eral prohibition on State aid against possible excep-tions enshrined in Article 107(3) TFEU, its compe-tence with regard to State aid is limited to the exam-

ination of whether the aid is compatible with the in-ternal market. It is fully up to the Member States touse or ignore the options that are available under thesystemof EUState aid control. Article 107 TFEUdoesnot endow upon the Commission the task to super-vise the ‘right’ use of national resources as such.257

This was confirmed by Advocate-General Mazák inNuova Agricast: ‘[w]hile it is empowered to verify thecompatibility of State aid with the common market,the Commission does not conceive or design aidschemes or attribute the aid. Moreover the Commis-sion cannot force a Member State to pay State aid. Itis empowered only to order a Member State not to payan aid it considers incompatible with the commonmarket. It is the Member State which provides thefunds for the aid, designs the scheme and notifies itto the Commission’.258 In light thereof it could be ar-gued that the requirement of an ‘incentive effect’may, in particular, be problematic.

As set out above, the requirement of incentive ef-fect entails that the State aid in questionmust changethe behaviour of the undertaking concerned in sucha way that it engages in additional activity that itwould not carry out without the aid, or would carryout in a restricted or different manner or location.259

This is consistently incorporated in the GBER as wellas in thevariousupdatedguidelines and frameworks,albeit at various levels of assessment, and reinforcedby the new feature of ‘ex post evaluation’. The Com-mission considers that ‘[S]tate aid evaluation shouldin particular allow the direct incentive effect of theaid on the beneficiary to be assessed (i.e. whether theaid has caused the beneficiary to take a differentcourse of action, and how significant the impact ofthe aid has been)’.260Thisnewobligationon theMem-ber State could have a significant impact on their aidgranting policy and even on future State aid rules. Inthis context, ex post evaluation could be described asa tightening element between industrial policy andState aid policy.

Although this leaves the premise that State aidrules merely constitute a ‘menu card’ in the hands ofnational policy makers untouched, it is a priori un-clear as to whether this is fully in line with the divi-sion of competences between the EU and the Mem-ber States. It is uncertain, for example, whether theCommission has the competence to evaluate the suc-cessofnationalState aidpolicies andchange the rulesaccordingly, as State aid control in principle does notconcern the soundness ofMember States’ (semi-) eco-

253 The Horizon 2020 Framework Programme for Research andInnovation (2014–2020) (see Regulation (EU) No 1291/2013uses Articles 173(3) and 182 TFEU as its legal basis. Horizon2020 is complemented by rules for participation and dissemina-tion through Regulation (EU) No 1290/2013, which has Articles173, 183 and the second paragraph of Article 188 TFEU thereofas its legal basis.

254 COSME (Regulation (EU) No 1287/2013) has Articles 173 and195 TFEU as its legal basis.

255 For EFS see Regulation (EU) 2015/1017 on the EFSI, the EuropeanInvestment Advisory Hub and the European Investment ProjectPortal with Articles 172, 173(3), 175 and 182 TFEU as its legalbasis.

256 In view of Article 2(5) TFEU this prohibition of harmonisationmeasures is unnecessary.

257 German Monopolkommission, ‘The ‘More Economic Approach’in European State aid Control’ (2008) Chapter VI of the BiennialReport 2006/2007, para 63 with reference to A Bartosch, ‘DerMore Economic Approach in Beihilfesachen’ (2007) 53 Recht derInternationalen Wirtschaft, 681-690.

258 Opinion A-G Mazák, C-390/06 Nuova Agricast [2007] ECLI-712,[62].

259 Report on Competition Policy (2014) - Commission staff workingpaper, 6. See also: T-162/06 Kronoply v Commission [2009]ECLI-2. E.g. the GBER provides in this respect that ‘[i]n order toensure that the aid is necessary and acts as an incentive to furtherdevelop activities or projects, this Regulation should not apply toaid for activities in which the beneficiary would in any case engageeven in the absence of the aid’. See Commission Regulation (EU)No 651/2014 of 17 June 2014 declaring certain categories of aidcompatible with the internal market in application of Articles 107and 108 of the Treaty, OJ L 187, 26.6.2014, p. 1-78, recital 18;See (before the completion of the SAM programme) P Nicolaides,‘The Incentive Effect of State Aid: Its Meaning, Measurement,Pitfalls and Application’ (2009) 32(4) World Competition 579.

260 Commission staff working document – Common methodology forState aid evaluation, Brussels, 28.5.2014 SWD(2014) 179 final.


nomic policies. The Commission’s role is arguablylimited to evaluating that the adopted measures donot create an obstacle to the internal market.261 Re-quiring that aid is necessary and acts as an incentiveto further develop activities or projects, moreover,comes fairly close to predetermining the direction ofnational resources or the harmonising of legal andfinancial policies, for which the Member States arecurrently competent. The German federal govern-ment considered along similar lines that ‘[n]ach An-sicht der Bundesregierung ist die Kommission nachder allgemeinen Kompetenzverteilung weder zurRessourcenallokation noch zur Vereinheitlichung derRechts- und Finanzpolitik der Mitgliedstaaten nochzur Evaluierung der einzelstaatlichen Subvention-spolitik berechtigt’.262

Through its State aid policy, the Commission com-bines the functions of a competition and regulatoryauthority in order to ‘pull’ national (semi-) econom-ic policies into a particular direction. For example, inthe context of environmental and energy aid, while

the Member States themselves can determine theconditions for the use of different types of energyand the general structure of their energy supply, theCommission uses its discretionary powers under Ar-ticle 107(3) TFEU to policy-govern the way the struc-tural industrial change induced by the national au-thorities takes place. To some extent, this blurs thetraditional boundary between regulation and compe-tition policy.

261 See along similar lines A Biondi, ‘The Rationale of State AidControl: A Return to Orthodoxy’ in C Barnard and O Odudu(eds), Cambridge yearbook of European legal studies (Hart Pub.2009), 43

262 Stellungnahme der Bundesregierung der BundesrepublikDeutschland zum Fragebogen der Europäischen Kommission zurÜberprüfung des Gemeinschaftsrahmens für staatlicheUmweltschutzbeihilfen, Berlin, 7 November 2005, available at<http://ec.europa.eu/competition/state_aid/reform/comments_environmental_protection_revision/39065_de.pdf> Last ac-cessed on 13 November 2016; see also M Blauberger, ‘FromNegative to Positive Integration? European State Aid Controlthrough Soft and Hard Law’, (2008) 4 MPIfG Discussion Paper 1,16-17.

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