Subsidies and other government assistance

Subsidies and other government assistance are granted at the EU and member State levels. The latest EU subsidies notification to the WTO, submitted in December 2009, covers both types of subsidies, and contains statistical information at least up to end 2008.¹⁸¹ The EU replied to questions on its notification posed by Australia, Canada, Japan, and the United States.¹⁸² Questions referred to support for agricultural products, fisheries, shipbuilding, mining, civil aircraft research, pharmaceuticals, and support provided in the context of regional schemes.

The Treaty on the Functioning of the EU prohibits "any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods ... in so far as it affects trade between Member States".¹⁸³ State aid that contributes to the achievement of "well-defined objectives of common European interest", including growth, employment, cohesion or environmental protection, may be considered compatible with the EU common market, and therefore, allowed.¹⁸⁴

The authority to determine whether state aid is allowed rests with the European Commission. The Commission's assessment of aid is generally a "balancing of the positive effects of aid (in terms of contributing to the achievement of a well-defined objective of common interest) and its negative effects (namely the resulting distortion of competition and trade)".¹⁸⁵ The principles of the balancing test have been incorporated into "horizontal guidelines" for specific categories of state aid, including research, innovation, environmental protection, regional development, small and medium-sized enterprises, training, employment, and risk capital. The horizontal guidelines, which cover all sectors, define the conditions under which member States may grant particular types of aid.

In general, EU member States must notify the Commission, and obtain its authorization, before granting state aid. State aid eligible under the General Block Exemption Regulation, which entered into force in August 2008, is not subject to prior notification and scrutiny.¹⁸⁶ Neither is de minimis support (€200,000 or less per company over a period of three years).¹⁸⁷ Nearly €11 billion was awarded on the basis of block exemptions in 2009.¹⁸⁸ In general, individual aid awarded under an aid scheme does not need to be notified, provided the Commission has approved the terms and conditions of the particular scheme. If the aid granted to a single beneficiary under an existing scheme exceeds specific statutory thresholds, it is subject to notification and authorization. State aid granted in the absence of Commission approval is automatically classified as "unlawful aid". The Commission must order member States to recover unlawful aid that is found to be incompatible with the EU common market.