Revised regional aid in Europe: active reduction in states’ disparities

Cohesion policy is one of the main Union’s strategic integration directions: it is aimed at reducing significant regional disparities among the member states in terms of socio-economic growth, well-being, income, unemployment, etc. European regional aid aims to support progressive growth in disadvantaged member states’ areas while ensuring a level playing integration field among the states. Granting regional aid to a highly developed EU state (Denmark) has shown the Union regional aid’s practical application. 

Regional aid guidelines (RAG) contain rules on the basis of which the member states can draw up regional aid maps to identify “supporting areas”. In addition the Commission’s reviewed competition rules in the RAG to ensure they are fit for the changing market environment.
In January 2019, the Commission undertook the evaluation of the member states’ geographical areas in which big and small companies can receive regional state aid (so-called assisted areas) and at what level (aid intensity).
One of the resent 2019-assessment provided a “fitness check” of the state aid rules adopted as part of the 2012 State Aid Modernisation package, which aimed at evaluating the applicability of current rules to present challenges.
On state aid modernisation in: https://competition-policy.ec.europa.eu/state-aid/legislation/modernisation_en.

Note: common principles for regional aid can be seen in the following websites: = Rescue and Restructuring aid; = Regional aid; = Research, Development and Innovation; = Important Projects of Common European Interest (IPCEI); = Revision of the State aid Regulations; = Sector-Specific Rules; = Guidance on the Notion of State aid; and = Transparency and Evaluation legislation

Progressive steps in RAG’s development
At the end of October 2020, the Commission summarized the ongoing evaluations and made a general conclusion that the state aid control system and rules were “fit for purpose”. However, individual rules, such as the Regional Aid Guidelines, needed some adaptation, also in the light of the recent European Green Deal, the EU’s Industrial and Digital Strategies (see *) below).
State aid rules have become a vital part in the Union’s green transition; the Commission reviewed relevant State aid guidelines at the end of 2021. The reviews included the Regional Aid Guidelines, IPCEI Communication, Research-Development-Innovation-Framework, as well as Risk Finance, Environmental and Energy Guidelines (with the relevant provisions of GBER).
In March 2020, the Commission formulated foundations for an industrial strategy aimed to support the twin green and digital economy’s transition to make the member states industries more competitive globally, and enhancing the EU’s open strategic autonomy.
European 14 industrial “ecosystems” include: aerospace and defense, agro-food sectors and construction, cultural and creative industries, digital, electronics and energy intensive industries, energy-renewables, health and mobility (with automotive transport), social economy spheres and civil security, as well as retail trade, textile and tourism.

*) The EU-2020 Industrial Strategy included a list of actions to support the green and digital transitions in the states; many of which have already been adopted and/or launched. The pandemic has however drastically affected the speed and scale of this transformation; however, companies pursuing sustainability and digitalisation are able to get needed support to become regional and global leaders.
On industrial strategy: https://ec.europa.eu/commission/presscorner/detail/en/IP_21_1825

*) The Digital Europe Program provides strategic funding for resolving challenges and supporting projects in five key capacity areas: in super-computing, artificial intelligence, cybersecurity, advanced digital skills, as well as ensuring a wide use of digital technologies across the economy and society, including through Digital Innovation Hubs.
With a EU budget of €7.5 billion, the Union aims to accelerate the economic recovery and shape national digital transformation in society and economy, bringing benefits to business and, in particular to SMEs.
On digital strategy: https://digital-strategy.ec.europa.eu/en/activities/digital-programme.

Legal background
In the Regional Aid Guidelines (RAG) 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 fulfill the conditions of Article 107(3a, c of the Treaty on the Functioning of the European Union (see +) below).
Annexes to the Guidelines identify the most disadvantaged regions, so-called ‘a-regions’, which include the outermost regions and regions whose GDP per capita is below or equal to 75 percent of the EU average, and the ‘pre-defined c-regions’, representing former ‘a-areas’ and sparsely populated areas.

+) Note: Legal background; citations from the art.107, TFEU
1. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.
2. The following shall be compatible with the internal market:
(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;
(b) aid to make good the damage caused by natural disasters or exceptional occurrences;
3. The following may be considered to be compatible with the internal market:
(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, … in view of their structural, economic and social situation;
(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;
(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;
(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;
(e) such other categories of aid as may be specified by decision of the Council on a proposal from the Commission.
Source: https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E107&from=EN

Revised guidelines
The revised Regional Aid Guidelines include a number of targeted adjustments to simplify and reflect experience gained from the application of the previous rules, as well as to reflect new policy priorities related to the European Green Deal and the European Industrial and Digital Strategies.
Key elements of the revised Guidelines are:
= Increased overall regional aid coverage to 48% of the EU population and updated list of assisted “a-areas” and predefined “c-areas” based on the latest available Eurostat statistics on GDP and unemployment. The assignment criteria for assisted areas, which have proven to work well in the previous period, have remained unchanged.
At the same time, the states will have increased flexibility to assign so-called “non-predefined c-areas” on the maps: in addition to the criteria which were already in place, the Commission introduced a simplification to allow the states to easily assign the non-predefined “c-area qualification to so-called “just transition areas”, which are facing particular transition challenges.
= Increased maximum aid intensities to support the European Green Deal and Digital Strategy objectives by enabling additional incentives for investments in the states’ disadvantaged areas. In addition, the RAGs include several aid intensity bonuses: a) for outermost regions, b) for border areas, c) for “Just Transition Areas” in the most disadvantaged areas, and d) for areas experiencing a population loss; SMEs maintain higher maximum aid intensities than large enterprises.
= Validity of regional aid maps for the period 2022-2027, with a mid-term review envisaged for 2023 based on updated statistics reflecting the recent economic developments and enabling regions to recovery and resilience.
= A general simplification of the RAGs structure, a clarification of some of the definitions and terminology, and some targeted changes in light of the European Green Deal and the EU’s Industrial and Digital Strategies. For example, the RAG’s sectorial scope was updated, as well as the criteria used for balancing the positive impact of the aid against its negative effect on competition and trade. Assessments may now also take account of positive and negative effects: e.g. substantial contribution to the green and digital transition or related negative externalities.

The revised Regional Aid Guidelines entered into force in January 2022, allowing for sufficient time for the states to prepare their regional aid maps; the states can now notify their future regional aid maps to the Commission being subject to individual decisions.
Source: https://ec.europa.eu/commission/presscorner/detail/en/IP_21_1825

Danish example
In the beginning of August 2022, the European Commission approved (under the EU State aid rules) Denmark’s map for granting regional aid from 1 January 2022 to 31 December 2027 within the framework of the revised Regional aid Guidelines, RAGs.
Denmark’s regional map defines the Danish regions eligible for regional investment aid; the map also establishes the maximum aid intensities in the eligible regions. The aid intensity is the maximum amount of State aid that can be granted per beneficiary, expressed as a percentage of eligible investment costs.
Under the revised RAG, regions covering 7.5% of the population of Denmark will be eligible for regional investment aid under the derogation of Article 107(3)(c) of the Treaty on the Functioning of the European Union (‘TFEU’) (so-called “c-areas”):
= In order to address regional disparities, Denmark has designated as so-called non-predefined “c-areas” parts of capital’s city, North-West-South and East Zealand, Fyn, South-West-East and North Jutland and the entire region of Bornholm. In these areas, the maximum aid intensities for large enterprises vary between 10% and 15%, depending on their GDP per capita.
= Denmark has the possibility to designate further so-called non-predefined ‘c’ areas, up to a maximum of 0.19% of the national population. The specific designation of these areas can take place in the future and would result in one or more amendments to the regional aid map approved today.
In all the above areas, the maximum aid intensities can be increased by 10 percentage points for investments made by medium-sized enterprises and by 20 percentage points for investments made by small enterprises, for their initial investments with eligible costs up to €50 million.
Commission’s non-confidential version of Danish decision is available under the case number SA.102201 (in the State Aid Register) on the DG Competition website.
New publications of state aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.
More in: https://ec.europa.eu/commission/presscorner/detail/en/ip_22_4826

Conclusion
The revised RAGs, adopted by the Commission in April 2021 and in force since January 2022, enable the member states to support the least favored regions in catching up and to reduce disparities in terms of economic well-being, income and unemployment; these are the European cohesion policy’s objectives, which are at the heart of the Union’s socio-economic integration. The revised RAGs also provide increased possibilities for member states to support regions facing transition or structural challenges such as depopulation, to contribute fully to the green and digital transitions.
EU member states can designate the so-called non-predefined ‘c’ areas, up to a maximum pre-defined ‘c’ coverage (for which figures are also available in Annexes I and II to the revised RAGs) and in line with certain criteria. The EU member states just need to notify their proposal for regional aid maps to the Commission for approval.

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