Lesser amounts of State aid (LASA) and State aid with limited effects on trade (LET); comments and questions from The Ministry of Trade and Industry.

1 Introduction & general comments.

1. Reference is made to the Commission’s letter of 16 December 2003 with two possible models to identify aid measures that are unlikely to have significant effects on competition and to envisage simplified notification and approval procedures for such aid measures.

2. The Ministry of Trade and Industry takes note of the initiative for a more flexible approach to the assessment of lesser amounts of state aid and aid with limited effects on trade. In general, we welcome the approach to make a clearer distinction between aid that may create significant distortions of competition and aid with limit effect on competition on the Community/EEA –level. A more rigorous attitude to the former category may be combined with a more flexible attitude to aid with limited trade effects. More flexible rules to the latter category will be in conformity of the principle of subsidiary. Further to this the Ministry is of the view that neither LASA nor LET should open up for an overall increase in State aid.

3. The Ministry also find it difficult at this stage to se the full reach of the guidelines and will also have to return to the issue at a later stage. It is important to keep in mind that that only aids that has limited or no effect on trade should be subject to approval.

4. The Ministry also takes note of the notification requirement procedures in the guidelines. We believe it is necessary to retain sufficient notification procedures, which ensures that only LASA or LET with limited trade effects will be subject to prior approval.

5. Both draft guidelines includes the specific condition that aid must explicitly promote Community objectives such as of research and development, protection of the environment, creation of new and better employment, promotion of training, risk capital, development of SMEs and regional development. These are all horizontal objectives, which are regulated by their own specific guidelines with clear definitions of the economic activities that might receive aid. The Commission is asked to clarify if relevant definitions from those guidelines are also meant to apply in the context of the suggested guidelines, or if there are any other definitions of types of aid that might receive aid as long as it is within the limitations suggested for both LASA and LET? The Ministry believes that in order to ensure equal treatment and predictable rules, specific definitions of what types of economic activities that might receive aid should be included, or referred to.

6. Both suggested guidelines may open for higher aid intensities for e.g. SMEs and pre competitive development according to the R&D guidelines than in existing guidelines. Could the Commission clarify how possible evasions of the guidelines for aid to e.g. SMEs and R&D might be avoided? The general high aid intensity allowed, may lead to an increase in the overall state aid, especially in central areas. This may also undermine the effectiveness of both Community and national regional policy efforts in outlying and peripheral regions. Could the Commission clarify how this could be avoided and how the suggested new guidelines are coordinated with the present and future guidelines for national regional aid?

7. The cost concept is also defined more broadly than in other guidelines, using the terms “ costs incurred to achieve Community objectives; this limit is defined in terms of project costs” and “ costs incurred for the development of the aided activity; this limit is defined in terms of project costs” in LASA and LET correspondingly. In some cases the very strict division between operating aid and investment aid in the existing Community guidelines on state aid may not be rational from an economic point of view. We therefore believe that a more flexible interpretation of eligible costs may be considered in certain cases. However, in order to avoid misuse of aid, the cost concept could be clarified further, with clear definitions of what economic activities that should be eligible for aid.

8. It is clearly stated in both draft guidelines that aid may not be awarded to firms in financial difficulty within the meaning of the guidelines on aid for rescue and restructuring. Does this imply that firms in financial difficulty are excluded from receiving aid to horizontal objectives such as R&D for SMEs, environmental purposes etc under either of these guidelines or from other general schemes open to all companies willing to carry out a certain activity? Could the Commission perhaps offer any guidance on this issue?

2 Comments to Lesser Amounts of State aid (LASA)

9. Regarding point 27 of the suggested LASA guidelines, the Ministry would like to express its agreement that ad hoc aid in any case, may only be awarded under strict conditions. It should as a minimum be clearly explained why this type of measure is appropriate to meet horizontal objectives of EEA interest.

10. Regarding point 33 the Ministry agrees with the Commission that LASA may not be cumulated with other sources of aid in the same project or for the same purpose. This should also apply to aid from Structural funds.

11. Regarding point 3.4 of the suggested guidelines, the Ministry agrees that the upper threshold of LASA aid relative to GDP should not be increased unless there is a reorientation away from other and potentially more distortive aid measures.

3 Comments to State aid with limited effects on intra- Community trade (LET)

12. The Ministry of Trade and Industry would like to point out that we believe that aid awarded to purely local activities in certain sectors have limited effects on competition. Still, it is clear that even small amounts of aid may affect trade in sectors that are strongly exposed to competition and careful consideration should be made to avoid distortive aid for these sectors.

13. Regarding point 8 – 14 of the proposed LET guidelines the Ministry believes that in practice a clear-cut separation between tradable and non-tradable activities is difficult to make. Still, the Ministry agrees to a clear separation between tradable and non-tradable activities as a basis for applying the guidelines, and that tradable economic activity may not receive aid. We would encourage the Commission to assess carefully any economic activity that may become eligible for LET to ensure a minimum of trade distorting effects.

14. At this point, we also take note of the factors described in point 13 and 14, and urge the Commission not to regard this as an exhaustive list of factors that are relevant for the assessments of the effects on trade.

Comments to section 3 of LET

15. Annex I to the LET guidelines contains an illustrative list of activities that may be applicable for receiving aid under the simplified assessment. The concrete evidence that each activity included on the list is exposed to limited trade is not clear. A separation of non-tradable based on NACE three digits level, and independent of the localisation of the firms, as a basis for applying the guidelines for simplified approval, seems to us to be somewhat inaccurate. If a list of activities that are assumed to have limited trade effects is to be adopted, we would encourage the Commission to assess more carefully the economic activity, to ensure a minimum of trade distorting effects. Further on, we assume that a possible list may be subject to revision if it occurs after a some time that support to some of these activities have trade effects. This leads us to ask how and if any revision of Annex I will occur?

17. We also notice that NACE 80 - Education and NACE 85 – Health and social works are included in the list. These services are normally publicly funded. Could the Commission please clarify why these sectors are on the list, and explain what implication this may have for these sectors? If some of these services are subject to ordinary commercial terms, could they perhaps be specified at NACE four digits level, or more detail, to avoid an unnecessary generalisation?

18. Regarding point 22-23 The Ministry would like to point out, that €3 million per individual company is a very large amount of aid, and that careful consideration should be made of this as an appropriate upper threshold.

4 Comments regarding monitoring and transparency for both LASA and LET

19. Regarding monitoring and transparency, the Commission envisages relatively comprehensive arrangements at national levels to meet the demands for control, monitoring, safeguards and mid term review. This could imply a de facto transfer of competence form the Commission and the EFTA Surveillance Authority to the member states and also lead to considerable administrative burdens on part of the member states. This creates an uncertainty weather this actually leads to simplified procedures for case handling and more efficient procedures for the enterprises that would normally be eligible for this kind of aid.

20. It might also blur the division of competence between member states and the surveillance authorities on certain issues as control and monitoring and create unclear divisions of formal competence. Should there be an implementation of LET or LASA the Ministry believes the divisions of competence should be clearly established in the guidelines in order to reach the goal of simplified notification procedures.

21. The establishment of a database in each member state as a prerequisite for awarding LASA and LET appears to be a transparent and necessary approach. We support the idea that each national database should be open and available online to aid awarding authorities in all EEA member states in addition to the surveillance authorities. The Ministry of Trade and Industry would also welcome any initiative from the Commission to ensure a relatively standardised database in all EEA members so as to not cause confusion.

5 Conclusion:

22. The Ministry of Trade and Industry welcomes the Commission approach to make clearer distinctions between aid that might create significant distortions and aid measured that are unlikely to have significant effects on competition and trade. We also appreciate attempts to develop simplified notification procedures for these aid measures. However, we are also of the opinion that the suggested guidelines lack clear and precise definitions of what types of economic activity that may receive aid, and under which circumstances. This, combined with the suggested aid intensities allowed, may lead to an increase in the overall state aid, especially in central areas. If either of the draft guidelines were implemented, we believe they should include precise definitions of when State aid may be granted.

23. In this first round of comments the Ministry find that, of the two approaches, the draft LASA guidelines appear to contain the more detailed requirements for control and monitoring of aid. Taking into account the possible difficulties of defining a list of economic activities exposed to limited trade, based on clear-cut criteria, the LASA draft also appears to be more predictable and transparent. As LASA does not separate between tradable and less tradable activity, this approach appears to offer more flexibility for addressing horizontal EEA objectives in a more local context with limited amounts of aid. At the same time the lower upper ceiling for aid appears to limit the effect this aid may have on competition and trade. We still believe that both drafts have to be improved before either of them can be implemented.

24. Enclosed in Annex I is a schematic overview of the two suggested guidelines and the deminimis rule relative to each other. We have found this overview most useful in considering the guidelines relative to each other.

Yours sincerely,

Copy: EFTA Surveillance Authority

Appendix I: Schematic overview of LET, LASA and deminimis