EU Introduces State Aid Lex Specialis: Direct Applicability to EU Association Countries?

Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak adopted with immediate effect (available here).

Earlier this evening, March 19, 2020, the European Commission adopted special State aid legislation, in the word of EU’s competition head, Margrethe Vestager, with the aim “to act fast to manage the [COVID 19 economic] impact as much as we can, which “enables Member States to use the full flexibility foreseen under State aid rules to support the economy at this difficult time” [emphasis added] (video available here).

The new Temporary Framework is based on Article 107(3)(b) of the Treaty on the Functioning of the European Union (aid ‘to remedy a serious disturbance in the economy of a Member State’).  It envisages for five types of aid to be provided to undertakings facing a sudden liquidity shortage:

  • Direct grants, selective tax advantages and repayable advances: national governments are allowed to set up new schemes to grant up to EUR 800,000 to an individual company to shore up liquidity;
  • State guarantees for bank loans granted to individual companies again to address urgent liquidity needs. Said aid will be regarded as compatible under a number of detailed conditions in case of both SMEs and large enterprises;
  • Subsidized public loans to individual companies: states are now allowed to grant public loans directly to companies under favorable interest rates and other terms. The aim is to secure liquidity, working capital and investment for the economy;
  • Safeguards for banks and other financial institutions when used as funnels for the real economy, in particular SMEs. The Framework introduces a legal fiction that such aid is direct aid to a bank’s customers and not the bank itself;
  • Short-term export credit insurance: while under Commission STEC rules marketable risks cannot be covered by export-credit insurance with the support of Member States, it is highly likely that in certain countries, thanks to the COVID-19 crisis, cover for marketable risk might be unattainable. Consequently, states may demonstrate the lack of market by providing sufficient evidence of the unavailability of cover for the risk in the private insurance market.

Eligibility for most of the above special aid packages applies to companies that were not in difficulty on December 31, 2019, while any such aid can be granted by no later than December 31, 2020.  Difficulties need to be caused by the COVID-19 outbreak.

The Framework also provides for robust monitoring and reporting obligations on states, including publication on the comprehensive State aid website, annual reporting to the Commission, provision of a final list of measures by December 31, 2020 and responding to any follow-up Commission RFIs.

The Framework starts to apply immediately, as of March 19, 2020 until December 31, 2020, and will be applied to all notified measures even if they were notified before March 19, 2020.

Direct Applicability to EU Association Countries

The EU competition acquis has been a longstanding core element of EU association agreements, including today with Turkey, the Western Balkans and Ukraine.  For example, in the case of Serbia, Article 73(2) its EU Stabilisation and Association Agreement (available here) reads as follows:

Any practices contrary to this Article shall be assessed on the basis of criteria arising from the application of the competition rules applicable in the [Union], in particular from Articles [101, 102, 106 and 107] of the [TFEU] and interpretative instruments adopted by the [Union] institutions“ [emphasis added].

Consequently, by operation of Article 73(2) of the SAA, Article 107(3)(b) of TFEU applies also to aid granted in Serbia.  Moreover, the Temporary Framework unequivocally falls under an ‘interpretative instrument’ adopted by the Commission, a Union institution.

The above stated follows from both previous Commission practice and that of the local State aid authority (Serb. Komisija za kontrolu državne pomoći – KKDP).   The latter confirmed as much on March 17, 2020, when KKDP adopted a formal notice on COVID-19 aid rules (available in Serbian) (KKDP Notice), which is in most part a translation of Commission Communication on Coordinated economic response to the COVID-19 Outbreak of March 13, 2020 (Annex 3) (available here).

The KKDP Notice explicitly invokes the application of Article 73(2) of the SAA, which as a ratified international treaty, supersedes the local State aid statute.

While most measures and provisions under the new Temporary Framework are directly applicable, others may require tweaking and approximation, in particular the reporting and monitoring duties.  We can expect, thus, further guidance from the competent Directorate-General for Neighbourhood and Enlargement Negotiations (DG NEAR).

In the meantime, it remains to be seen how the various EU association and candidate states will decide to use their newly regained freedom to grant aid due to the COVID-19 outbreak.

For more information, please contact us via covid19@geciclaw.com