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Regional State aid Review of the regional aid guidelines 2007-2013

This article explores the main policy objectives, current rules, and the impact of enlargement on regional state aid. It also discusses the context of the revision, conclusions of European Councils, and questions about the effectiveness of aid. Additionally, it presents a new approach to regional policy and the different classes of regions post-2006.

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Regional State aid Review of the regional aid guidelines 2007-2013

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  1. Regional State aid Review of the regional aid guidelines 2007-2013

  2. Main policy objectives • Concentration of regional aid to investment in the least favoured regions • Competitiveness and growth of all European regions, including flexibility for Member States and regions to pursue local regional policy • Continuity; a smooth transition from the current rules

  3. Current rules: RAG 2000-2006 • Basic principle: exceptional nature of regional aid • Overall coverage of 42.7% of Community population (EU-15) • Criteria for allocating the Community ceiling between Member States • Criteria for selection of regions: • Article 87(3)(a) less than 75% EU GDP/cap. Broad coherence with objective 1. • Article 87(3)(c) based on indicators chosen by MS. No coherence with Objective 2.

  4. Impact of enlargement • Overall coverage increased from 42.7% (EU-15) to 52.2% (EU-25) • (a) regions from 22.0% to 34.2% • (c) regions from 20.7% to 18.0% • Coverage would rise to 55.1% in EU 27

  5. The context of the revision • The current maps expire on 31.12.2006 • DG COMP made use of • Conclusions of European Councils • Comments submitted by Member States • Consultations with EP and CoR • Experience with the present RAG, aid maps and aid schemes • Literature (surveys, studies and academic papers) on the economics and effectiveness of regional aid • The Third Cohesion report

  6. Conclusions of European Councils • The Lisbon, Gothenburg, Stockholm and Barcelona European Councils: “less and better-targeted State aid” • Questions • Is the award of aid for initial investment and linked job creation really the most effective way of promoting cohesion? • Can the aid levels allowed under the present guidelines be reduced without decreasing the effectiveness of such aid?

  7. The Third Cohesion report • Three main objectives: convergence, regional competitiveness and employment, and European territorial co-operation • Convergence will be promoted by supporting growth and job creation in the least developed Member States and regions • Regional competitiveness and employment will be promoted by supporting a limited number of domains of intervention: innovation and the knowledge economy, environment and risk prevention, accessibility and services of general economic interest • The choice of a thematic approach rather than one based on selected geographic areas (map-based approach) allows for coherence between regional and competition policies

  8. A new approach to regional policy • Shifting from subsidies that temporarily compensate for regional disadvantages to the provision of public goods and incentives permanently increasing the potential of regions to growth • Regional investment aid to the poorest regions • Operating aid in limited cases • Phasing out of regions that lose eligibility to Article 87(3)(a) • [Possibility for Member States to designate a limited proportion of their territory for Art 87(3)(c) coverage??] • Horizontal thematic approach for the rest of the territory

  9. The different classes of regions post 2006 • Article 87(3)(a) regions ie less than 75% average EU- 25 GDP/cap • Statistical effect regions(‘phasing out’ regions)ie less than 75% average EU-15 GDP/cap (82.2% EU-25 GDP/cap) • Economic development regions (ex (a) regions with more than 75% average EU-15 GDP/cap • Low population density regionsless than 12.5 inhabitants km² • Possibly other Art 87(3)(c) regions • Non-assisted regions

  10. December 2004 proposal • Population coverage proposed 35.29% • Article 3a areas: 27.26%, of which • GDP below 45%, 40% aid: 7.37% • GDP below 60%, 35% aid: 6.03% • GDP below 75%, 30% aid: 13.86% • Statistical effect regions: 4.01% • Economic growth regions: 3.53% • Other low population density areas: 0.49% • Bonuses • Small companies + 20% • Medium companies + 10%

  11. Proposed standard aid intensities (GGE)

  12. Aid in non-assisted regions • No regional investment aid for large enterprises • Greater flexibility ‘pro-Lisbon’ activities of large enterprises; R&D, innovation, environmental investments, training etc • Significantly more flexible regime for SMEs

  13. Reaction of Member States • Four key groups of Member States • EU 10 – want aid concentrated on them and highest possible intensities • The ‘current cohesion countries’ (ESP, GR, Port) want to keep existing advantages • The ‘nationalists’ (Fr, De, Ös, UK+Lux) want scope for a national regional aid policy • The less-aid group, (Dk, Nl, Sv + It) basically support COM

  14. From the July 2005 Proposal to the final guidelines Proposed coverage EU 25 43.1%42% + 50% safety net • Article 87(3)(a) 27.7% • Statistical effect 3.6% • Economic development+ low population density 4.0% • Additional (c) allocation 6.7% • 50% Safety Net 1.1%

  15. The amended proposal for Areas eligible for Article 87(3)(a) • Aid for large companies in NUTS II regions with GDP/cap below 75% of the EU-25 average • GDP below 45%: 50% gross • GDP below 60%: 40% gross • GDP below 75%: 30% gross • Bonuses • Small companies + 20% • Medium-sized companies + 10%

  16. The amended proposal for Areas eligible for Article 87(3)(a) • Outermost regions • GDP below 45%: n/a • GDP below 60%: 40% + 20% grossGuyane • GDP below 75%: 30% + 20% grossAçores, Guadeloupe, Martinique, Réunion • GDP above 75%: 30% + 10% grossCanaries, Madeira • Plus SME Bonuses

  17. Statistical effect regions • Retain (a) status until 31.12.2009 (2010) aid intensity 30% gross + SME bonuses • Review in 2009 (2010) based on most recent data • Regions < 75% EU-25 GDP retain (a) status until 2013 • Other regions move to (c) status • aid intensity 20% gross + SME bonuses • Operating aid to be phased out by 31.12.2011

  18. Article 87(3)(c) regions • Flexibility for Member States to select (c) regions, subject to: • Respect of overall allocation • Conditions of eligibility • Economic development and lpd regions no longer ‘earmarked’

  19. Article 87(3)(c) regions - allocation • Economic development regions • Low population density regions • 6.7% allocated to Member States by method used in 1998 based on disparity within Member States, using data available in April 2005 • 2000-2002 GDP data • 2001-2003 unemployment data • Additional allocation to ensure no Member State looses more than 50% of its 1998 coverage

  20. Article 87(3)(c) regions - eligibility • Economic development regions: • Low population density regions • Less prosperous areas: • GDP < 100% GDP, or • Unemployment > 115% national average • Regions adjacent to an (a) region, or 3rd country • Regions of 50,000 + undergoing major structural change or in relative decline • Small islands (less than 5000 inhabitants) • ‘Pockets of deprivation’ (SME aid only) • Minimum population 20,000

  21. Article 87(3)(c) regions – aid intensities • Statistical effect (c) regions 20% • Other regions, normally 15% gross • Reduced to 10% gross for less prosperous areas with: • GDP > 100% GDP, and • Unemployment < 100% EU-25 average • May exceptionally be increased in regions adjacent to (a) regions or third countries to ensure disparity does not exceed 20% • Transitional rules for ‘economic development’ regions

  22. Transitional provisions • Phasing in of reductions in aid intensity, for: • (a) regions > 15% reduction • economic development regions • Transitional safety net; 66% of current (c) coverage for 2 years • Two years to phase out operating aid

  23. RAG, scope and sensitive sectors • No major changes to scope:RAG apply to all sectors except: • Coal, Fisheries, Production of agricultural products • Prohibitions on regional investment aid: • Steel (except SMEs), Synthetic fibres • Apply subject to special rules to • Transport, shipbuilding, agricultural processing and marketing • No other sensitive sectors for investment aid

  24. Conditions for granting regional investment aid – main changes • Clarification of definition of initial investment • Rules on incentive effect • Maintenance of the investment for at least 5 years (reduced to 3 years for SMEs) • Member States may impose longer periods • Rules on discounting

  25. Eligible expenses for investment aid – main changes • Land, buildings, plant and machineryno ‘standard base’ • Clarification of rules on leasing • ‘Moveable’ assets should be newexceptions; SMEs and takeovers • Consultancy costs for SMEs • More generous treatment of intangible assets: up to 50% of eligible costs for large firms

  26. Large investment projects • Integration of MSF into RAG • Automatic scaling down mechanism for eligible expenses over € 50m • € 50 -100m - 50% of normal aid intensity • > € 100m - 34% of normal aid intensity • Transparency mechanism for eligible expenses > € 50m • Notification threshold – aid exceeds maximum allowed for a project with € 100 m eligible expenses • In depth assessment of investment aid where; • Beneficiary has more than 25% market share or • Capacity increase >5% in a declining market

  27. Transparency • Obligation to publish all regional aid schemes on the internet Possibility to exclude costs incurred before publication of the scheme from eligible costs

  28. Operating aid • Permanent handicaps of the outermost areas • Possibility of a ‘safe-harbour’ for operating aid in outermost regions, up to 10% of turnover. • Permanent transport aid in the outermost and low population density areas • Permanent aid to offset depopulation in the least densely populated areas • Temporary and degressive operating aid to offset bottlenecks in 3(a) areas • Exclusion of operating aid to financial services sector • Transitional phasing out of operating aid in areas loosing 3(a) status over 2 years

  29. Enterprise aid • New form of aid to encourage business start-ups in the assisted areas • Widely defined eligible expenses in first five years of start-up • Maximum € 3m per enterprise in (a), € 2m per enterprise in (c) • € 1m bonus for (a) regions < 50% EU-GDP, low population density regions and islands • Intensities years 1-3 years 4-5 (a) 35% 25% (c) 25% 15%

  30. Next steps • Adopted by Commission, end 2005 • Proposals for appropriate measures • Maps approved by COM, 1st semester 2006 • Exemption regulation for transparent regional investment aid, Oct 2006 • Examination of regional aid schemes 2nd semester 2006

  31. Aid outside the assisted areas • The State aid action plan

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