DG Competition June 2004

1. Revision of the regional aid guidelines (RAG) DG Competition June 2004

2. Main policy objectives • Concentration of regional aid to investment in the least favoured regions • Increased flexibility for Member States and regions to pursue local regional policy • Enhancing the long-term competitiveness and growth potential of all European regions

3. Current rules • Basic principle: exceptional nature of regional aid • Overall coverage of 42.7% of Community population • Criteria for allocating the Community ceiling between Member States • Criteria for selection of Article 87(3)(a) and Article 87(3)(c) regions

4. The context of the revision • The current maps expire on 31.12.2006 • DG COMP has made use of • Conclusions of European Councils • Comments submitted by Member States • 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

5. 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?

6. 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

7. 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 (outermost regions and low population density areas) • Phasing out of regions that lose eligibility to Article 87(3)(a) • Horizontal thematic approach for the rest of the territory

8. Areas eligible for Article 87(3)(a) • NUTS II regions with GDP/cap below 75% of the EU-25 average • GDP below 50%: 50% gross for large companies • GDP below 60%: 40% gross for large companies • GDP below 75%: 30% gross for large companies • Operating aid in limited cases • handicaps of outermost regions • additional transport cost in low population density areas

9. Earmarked Article 87(3)(c) regions • Regions losing Article 87(3)(a) status because of the statistical effect of enlargement • Regions losing Article 87(3)(a) status due to economic reasons • Other outermost regions • Other low population density areas

10. Population coverage • Total (provisional) coverage: 34.84% of Community population • Abnormally low standard of living: 27.11% • Statistical effect regions: 4.18% • Economic growth regions: 2.71% • Other outermost regions: 0.43% • Other low population density areas: 0.41%

11. Any other regions • Thematic approach in State aid • Horizontal rules, many of which will be reviewed before 1.1.2007 • New approach for the assessment of lesser amounts of State aid and of certain aids with limited effects on trade (significant impact test) • Increased flexibility for Member States to tackle local problems and to differentiate between regions where this is considered to be necessary

12. Existing horizontal instruments • SMEs: aid for investment, advisory services and participation in trade fairs • R&D: aid for basic and applied research projects • Environment: aid for environmental investment (incl. energy saving, renewables, polluted sites, relocation), and operating aid for recycling and renewables • Training: aid for general and specific training of employees • Employment: aid for net job creation and for employment of disadvantaged and handicapped people • Rescue and restructuring: rescue aid (liquidity injection for 6 months) and restructuring aid • Risk capital: aid for risk capital funds • de minimis: small amounts of aid for anything

13. The significant impact test • Aid with limited spillovers (small distortions of competition and limited effect on trade) to be considered compatible with the common market • Based on economic rationale • Involving clear and easy criteria that require minimal or no assessment • Leading to a reduction in workload • Being transparent

14. Services of general economic interest • Financial support which merely represents compensation for public service obligations imposed by the member states does not have the characteristics of State aid (Altmark ruling) • Definition of public service obligations • Compensation calculated in an objective and transparent manner • Compensation cannot exceed what is necessary to cover all or part of the costs incurred • Undertaking is chosen via public procurement, or the level of compensation is determined by comparison with the costs which a typical undertaking would incur

15. Other issues for the revision of the regional aid guidelines • Multisectoral Framework will become part of the regional aid guidelines • Possible block exemption for regional aid • Further differentiation between small and medium-sized enterprises • Consistency with Structural Funds • Net or gross grant equivalents

16. Proposed aid intensities

17. Specific provisions for outermost regions • All outermost regions are entitled to a bonus of 10% in aid intensities, which will place them in a “higher” category • Outermost regions eligible to Article 87(3)(c) are treated as “statistical effect” regions, with maximum aid intensities gradually decreasing from 40% to 30% in the course of the period covered by the aid map