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Controlling
State Aids Pressure from
the European Union is beginning to persuade the countries of Central and
Eastern Europe to devote more attention to a hitherto neglected area of
competition policy, namely the control of state aids to industry. This
was the view expressed by Paul
Seabright (Churchill College, Cambridge, and CEPR) at a lunchtime
meeting in Warsaw on 16 February 1998. The meeting was organized jointly
by CEPR and IEWS under the auspices of the Economic
Policy Initiative. Seabright also argued, however, that the EU's
own internal policy in this area was in a state of some confusion. He
recommended that both the EU and the Central and East European countries
needed to distinguish aid that creates identifiable cross-border
distortions to competition from aid that is merely irritating to
competitors or a waste of taxpayers' money. Seabright concluded that
this distinction, though essential, was a long way from being
implemented either inside or outside the EU. According to
Seabright, the difficulties faced by the EU's internal policy on control
of state aids were three-fold. First, there had been no coherent
application of the principles of subsidiarity to this domain of policy.
The EU hesitated between considering that control of state aid was
important – to prevent member states from inflicting damage on each
other – and treating it as a kind of medicine that should be taken for
member states' own good. This meant that the principles used to analyse
cases were often conflicting, sometimes emphasizing the damage caused by
state aid to other firms, and sometimes the uneconomic use of the
resources concerned. In the application of state aid policy to the new German Länder, for example, there had been no attempt to focus attention on the cases that had cross-border effects. Although the waste of taxpayers' funds was certainly a matter of concern, there were domestic political mechanisms for the expression of such concern. Sometimes democratically elected governments choose to use state aids in a way that is foolish, but causes little damage outside their own borders. For the Commission to seek to restrain them was not only legally doubtful, but put at risk the admirable efforts the Commission had made in recent years to accommodate the fears expressed in many members states about the pace of European integration and the possible loss of local autonomy. Second, the
EU had a large and growing case-load of state aid notifications to deal
with. Its ability to control aid levels, however, was limited. The
proportion of cases that culminated in a negative decision had fallen
from between 2% and 5% in the late 1980s to under 1.5% since 1991. Yet
there were some benefits from this growing workload: in particular, as a
result of the Commission's efforts, there was now much better and
clearer information available to member states themselves about the
levels of state aid granted. This information revealed major differences
among member states and went some way towards creating pressures to
justify this expenditure to the taxpayers that finance it. Because of
the overload on the Commission's staff, however, it was doubtful whether
the cases to which they objected were necessarily the ones that were
most damaging, either to member states or to the single market as a
whole. Third, the
lack of clear principles behind the Commission's involvement in the
control of state aid was an invitation to lobbying and to the use of the
judicial process as a strategic tool against competitors. Since the
firms that were the most important recipients of state aid usually had
powerful political connections (which is often why they received the aid
in the first place), state aid decisions by the Commission were among
the most controversial of all, and created powerful incentives for the
exercise of pressure by member states themselves. This pressure was not
only in the direction of allowing aid: member states were also using the
procedure to bring pressure to bear on competitors to their own firms.
The process was leading increasingly to litigation. In 1996, around 80
cases were pending before the Court of Justice and the Court of First
Instance. In Seabright's opinion, in its efforts to reduce the flow of
money into the pockets of industrialists, the Commission should not be
provoking large flows of money into the pockets of lawyers. How, then,
should the countries of Central and Eastern Europe react to these
developments? Overall, a better control of the allocation of state aid
to industry was indeed in these countries' interests. They should
therefore welcome EU attention to the issue, if only because it provided
an inducement to improving both the transparency of their procedures and
their ability to direct scarce tax resources to the most important uses.
They should also be aware, however, of the risks that the state aid
rules might be used by EU firms – as anti-dumping procedures had
certainly been used – merely to stifle competition from firms in
Central and Eastern Europe. |