Integration in small steps: The european commission and member-state aid to industry

West European Politics

Volumn 19, Issue 3, 1996, Pages 563-582

  Smith, Mitchell P ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

EUROPEAN UNION; INDUSTRIAL POLICY; STATE AID;

EUROPE, (WEST);

EID: 0030423878     PISSN: 01402382     EISSN: None     Source Type: Journal    
DOI: 10.1080/01402389608425151     Document Type: Article

References (60)

1. David J. Gerber, 'The Transformation of European Community Competition Law?', Harvard International Law JnL 35/1 (Winter 1994) p.98. Gerber points out that unlike most national systems of competition policy, EU competition policy has aimed at the objective of 'unifying the European market' rather than protecting consumers or promoting technological progress. However, these latter goals recently have assumed increasing importance.
2. See, e.g. Financial Times [hereafter FT\, 13 Oct. 1994: 'Pressure grows on Brussels for Tighter State Aid Rules'. The piece asserts that 'there is concern among some in the Commission, and certainly within industry that the Commission is treading too softly, and that member states have become adept at getting their own way'.
3. Peter Ludlow makes a similar point, suggesting that 'an "adversarial" model of Commission-Council relations is seriously misleading'. See 'The European Commission', p.87, in Robert O. Keohane and Stanley Hoffman (eds.) The New European Community (Boulder, CO: Westview Press 1991).
4. Walter Hallstein noted in the early 1970s that 'the member-states plainly find it very difficult to surrender their individual authority over the allocation of subsidies and no longer to regard it as a tool of their national policy as a whole'. See Europe in the Making (NY: Norton 1973) p. 115.
5. See Emma Tucker, 'In pursuit of a competitive edge', FT, 30 Aug. 1995. The author argues that the Competition Commissioner 'is caught between liberals who criticise him for not doing enough to make Europe more competitive ... and interventionists who associate liberalisation with job losses the Union can ill afford'.
6. See, inter alia, Claus-Dieter Ehlermann, 'State Aids Under European Community Competition Law'. Fordham Int. Law Jnl (Dec. 1994) p.411.
7. This is true whether measured in absolute terms, as a percentage of value added, in expenditure per person employed, or as a share of total government expenditure. See Table 3.
8. Hallstein (note 4) p.57.
9. See George Ross, Jacques Delors and European Integration (NY: OUP 1995) pp. 31-3.
10. See, inter alia, Laura Cram, 'Rhetoric, Soft Law and Symbolic Politics in the EU Social Policy Process: Has the Commission Become a Victim of its Own Success?', Paper presented at the Annual Meeting of the American Political Science Association, 31 Aug.-3 Sept. 1995. Cram writes (pp.9-10) that 'The Commission does not simply wait passively for an opportunity to take action, but is actively engaged in encouraging the emergence of "policy windows" through which it may push its preferred proposals'.
11. Ibid., p.8.
12. Gerber (note 1) pp.137 and 139.
13. Gerber writes (ibid. p.113) that because of its reluctance to antagonise member states, the Commission 'generally avoided developing and enforcing treaty provisions relating to state aids, governmental monopolies, or government facilitation of private anticompetitive conduct'.
14. European Commission, Growth, Competitiveness, Employment: The Challenges and Ways Forward Into the 21st Century (Luxembourg: Office for Official Publications of the EC 1994) pp.63 and 79.
15. See European Commission, 'Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty', 27 July 1994, para. 1.1.
16. Ludlow (note 3) p.114.
17. European Commission., 'European Community competition policy, 1994', p.36. Table 1. Note that this entire period falls under the tenure of Karel van Miert as Competition Commissioner, and therefore does not simply reflect policy changes associated with the passing of the competition portfolio from Sir Leon Brittan to Van Mien.
18. Personal interview, July 1995.
19. European Commission, XXIVth Report on Competition Policy, p.278.
20. Ehlermann (note 6) 'The prohibition of state aid that distorts competition is neither absolute nor unconditional'.
21. Independent on Sunday, 7 August 1994.
22. See Stephen Wilks and Lee McGowan, 'Disarming the Commission: The Debate Over a European Cartel Office'. Jnl of Common Market Studies 32 (June 1995) pp.259-73.
23. With the accession to the EU of Austria, Finland and Sweden on 1 Jan. 1995, the volume of state-aid cases examined by DG IV, the administrative service for competition policy, increased by about 200, from 500-600 annually. There was no increment in staff to accommodate this increase.
24. Making this same point, Neil Nugent argues that 'there is little the Commission can do against a deliberately recalcitrant state given the range of policy instruments available to governments which wish to assist domestic industries ...' See The Government and Politics of the European Union, 3rd ed. (Durham, NC: Duke UP, 1994) p.108.
25. European Commission, Fourth Survey of State Aid (1995) pp.51-2.
26. Idem, Press Releases, Reuter Textline, 5 April, 1995. Also see the FT, 5 April, 1995, p.2.
27. Handelsblatt, 23 Feb. 1995.
28. Wilks and McGowan (note 22) p.265: note how this promotes politicisation.
29. Personal interview with Commission official, July 1995.
30. For an account of this type of interaction between members of national executives and the Commission, see Mitchell P. Smith, 'The Commission Made Me Do It: European Integration, Policy Preferences and Domestic Political Capacities', paper presented at 4th Biennial Inter. Conference of the EC Studies Assoc., Charleston, SC, 11-14 May 1995.
31. For another example of this principle, see Hallstein (note 4) p. 113. He points out that while Art. 57 of the Treaty of Rome codified mutual recognition of diplomas and professional degrees in the Community, the existence of craft guilds and professional bodies created barriers to such recognition in practice.
32. XXIVth Report on Competition Policy, p.8.
33. Ibid. p.9.
34. Ibid, p.236.
35. Ibid. (p.14): 'Such aid is authorized only if it really prepares the ground for the future and minimizes the anti-competitive effects for Community industry ...'
36. See ibid, pp.514-15.
37. This point and parts of the preceding paragraph draw on ibid, p.515.
38. This was the case for a Danish electricity company, which was the sole company meeting the requirements for substantial benefits set out in the Danish Electricity Act. See ibid, p.227. Also see Competition Policy Newsletter 1/4 (Spring 1995) p.49.
39. Bulletin of the EU 3-1995, p.26.
40. Hallstein (note 4) p. 121 noted the nature of the Commission's impact on another aspect of competition policy - monopolies and abuses of market power - in the late 1960s. He implied that decisions by the Commission were no measure of the bite of its enforcement of Art. 86, since: (1) enterprises tended to alter their behaviour once a complaint was lodged against them; and (2) both large and small enterprises had become aware of the circumstances in which the Commission would take action against unfair restraints of competition. 'Experience over the years has shown "that enterprises which have been approached or reproved by the Commission in matters affecting restrictions on competition have increasingly tended to avoid the point where the Commission must give a formal decision...". Hallstein (note 4) p.118.
41. Every member state recorded a reduction in subsidy levels except for Italy and Luxembourg. In the latter case, this is explained by the exceptionally high level of state aid to railways. Fourth Survey on State Aid, Table 3 and p.39.
42. Of course, it is difficult to measure how much of this was due to Commission influence and how much to the Federal Republic's own budget requirements. See ibid. p.5.
43. Ibid. p.21.
44. Sectoral aids remain substantial in Portugal (shipbuilding and tourism), Spain and Denmark (shipbuilding). See ibid. pp.22-6 and Table 6.
45. Ross (note 9, p. 133). Ross writes of one case in the telecommunications industry that '[T]he threat of Commission action was sufficiently serious to bring representatives of the companies armed with proposals to get the EC off their backs'.
46. XXIVth Report on Competition Policy, pp. 591-2.
47. See the FT, 27 July 1995, p.2.
48. The details of this case are drawn from Official Jnl of the EC.
49. The Commission may find an aid incompatible with the internal market even when the aid recipient does not export to other EU states, since domestic production may replace imports from other member states. See Competition Policy Newsletter 1/4 (Spring 1995) p.49.
50. European Commission, Bulletin of the EU, 1/2-1995, para. 1.3.56.
51. The investment totalled 111 bn lire, of which 20 bn was deemed necessary to replace equipment and an additional 6.7 bn excluded by the Commission because of its potential to reduce the firm's production costs.
52. Personal interviews with officials of DG IV, July 1995.
53. An aid amount is an absolute figure: intensity refers to the percentage of the total investment involved that consists of state aid. Thus a fixed amount of aid may represent a less intense aid through an increase in the amount of private investment committed to a project.
54. Wilks and McGowan (note 22) p.261: they agree that although 'The competence to control state aid under Articles 92-94 had scarcely been used prior to the mid-1980s', 'it has been aggressively deployed to construct a regime of notification, scrutiny and limitation which allows the Commission to get a real grip on issues of industrial subsidization'.
55. The Economist Intelligence Unit suggests that 'Coming only three months after the Commission's approval of the Air France refinancing, the decision on Bull fuelled widespread criticism of Brussels' supine approach to state aids'. The Economist Intelligence Unit, EIU European Yearbook, 1994-95, p.73. Also see The Economist, 13 Oct. 1994, pp.67-8, which points out that the Bull aid might be economically justified if the cost to the French state of a one-time subsidy were less than the costs of liquidating the firm. The piece is nonetheless critical of the Commission's softness, for Once you have allowed a subsidy that might have a modicum of economic justification, it is that much harder to stop subsidies that have none. This seems to be happening'.
56. The Economist Intelligence Unit suggests that 'Coming only three months after the Commission's approval of the Air France refinancing, the decision on Bull fuelled widespread criticism of Brussels' supine approach to state aids'. The Economist Intelligence Unit, EIU European Yearbook, 1994-95, p.73. Also see The Economist, 13 Oct. 1994, pp.67-8, which points out that the Bull aid might be economically justified if the cost to the French state of a one-time subsidy were less than the costs of liquidating the firm. The piece is nonetheless critical of the Commission's softness, for Once you have allowed a subsidy that might have a modicum of economic justification, it is that much harder to stop subsidies that have none. This seems to be happening'.
57. XXIVth Report on Competition Policy, pp. 519-20.
58. Personal interview, July 1995.
59. Wolfgang Müller and Vincent Wright, 'Reshaping the State in Western Europe: The Limits to Retreat', West European Politics 17/3 (July 1994) p.6.
60. Altiero Spmelli, The Eurocrats (Baltimore: Johns Hopkins UP 1966) p.70.