On the basis of Article 107 § 3 (a) and (c) of the Treaty on the functioning of the EU, State aid granted to promote the economic development of certain disadvantaged areas within the European Union may be considered to be compatible with the common market by the Commission. It ensues that the European Commission determines the compatibility or incompatibility of a given national regional aid with the common market. Article 108 (TFEU) states that the Commission shall, in cooperation with the Member States, keep under constant review all systems of aid existing in those States. It must be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. The Member States notify the Commission of proposed levels of regional aid and the latter either approves or amends them, often to lower levels by decisions taken on the basis of Articles 107 and 108 (TFEU). The Member State concerned must not put its proposed measures into effect until the procedure initiated by the Commission has resulted in a final decision. If the State concerned does not comply with this decision within the prescribed time, the Commission or any other interested State may refer the matter to the Court of Justice directly, which happens quite often.
The successive enlargements of the European Community/Union have boosted its regional diversity and accentuated the need for new instruments to control regional aid. This is why Article 174 of the Treaty on the functioning of the EU (ex article 158 TEC) gave fresh impetus to the aim of stronger economic and social cohesion and stipulated that the Union should attempt to close the gap between its regions and help the less-favoured regions to catch up. In fact, by addressing the handicaps of the disadvantaged regions, national regional aid promotes the economic, social and territorial cohesion of Member States and the European Union as a whole. However, the important political and economic developments in the beginning of the 21st century, notably the accelerated process of integration following the introduction of the single currency, the enlargement of the European Union on 1 May 2004 and the 2007 accession of Bulgaria and Romania have created the need for a comprehensive review of the criteria applied by the Commission when examining the compatibility of national regional aid with the common market under Article 107 §§ (3a) and (3c) of the TFEU.
These criteria are codified in the Guidelines on national regional aid for 2014-2020. In these guidelines, the Commission sets out the conditions under which regional aid may be considered to be compatible with the internal market and establishes the criteria for identifying the areas that fulfil the conditions of Article 107(3)(a) and (c) of the Treaty. As a general rule, aid promoting the economic development of areas where the standard of living is abnormally low (Art. 107, 3a) is considered as threatening to distort competition less than aid facilitating the development of certain economic activities which may adversely affect trading conditions within the common market (Article 107 § (3c). Where, exceptionally, it is envisaged to grant individual ad hoc aid to a single firm, or aid confined to one area of activity, it is the responsibility of the Member State to demonstrate that the project contributes towards a coherent regional development strategy and that, having regard to the nature and size of the project, it will not result in unacceptable distortions of competition.
Regional aid for large investment projects, while covered by the regional aid guidelines, is also subject to specific rules, because it might be granted to large firms which are little affected by region-specific problems, but which possess considerable bargaining power vis-à-vis the authorities granting aid and may cause unjustified distortions in competition. For sectors included in the list of sectors with serious structural problems drawn up by the Commission, all regional investment aid to large investment projects (involving eligible expenditure above EUR 25 million) must be individually notified to the Commission for scrutiny. The Commission may authorise investment aid if the Member State can demonstrate that the market for the product concerned is growing fast, even though the sector is deemed to be in decline. The list includes the motor industry and the synthetic fibres industry, but not the steel industry, because all investment aid in this sector is prohibited due to its over-capacity. For investments above EUR 50 million, Member States must notify the Commission a priori of their draft aid programmes. Ex-post, they must inform it on: the aid granted (the scheme, legal basis, net grant equivalent), the beneficiary firm and the investment project (nature, place of implementation, total cost and eligible cost).
Member States do not have to notify national regional aid schemes which fulfil all the conditions laid down in the group exemption Regulations adopted by the Commission pursuant to Regulation 2015/1588 concerning certain categories of horizontal State aid [see section 15.5.1]. However, the Guidelines on national regional aid for 2007-2013 limit regional aid to that which is necessary to allow coverage of the most disadvantaged regions and a limited number of regions which are disadvantaged in relation to the national average in the Member State concerned. Accordingly, the guidelines fix the limit for the overall population coverage by regional aid schemes to 42% of the population of the EU-27.
In applying rules on State aids for regional purposes, the Commission’s objectives are two-fold: ensuring that aid is concentrated in the most disadvantaged regions and maintaining a differential in aid intensity between regions, to enable the poorest ones to compensate for their structural weaknesses. Under Article 87 § 3(a) of the EC Treaty (Article 107 § 3a /TFEU) as interpreted by European legislation, aid for investments in the least developed regions of the Union may be up to 75% of the cost and, under certain conditions, temporary operating aids may also be granted. In practice, however, the 75% ceiling is rarely reached as the countries concerned lack the necessary financial resources.