Welcome CALMAC Structural Funds Town Centre Regeneration Fund SGEI Guidance Local Trade National Courts Recovery Forthcoming Events

In this latest newsletter, the Scottish Government State Aid Unit take a look at the European Commission’s
decision on CALMAC, guidance on Services of General Economic Interest, Local Trade and recovery in the National Courts. We also have an update on scope available through EC Structural Fund schemes which benefit aid providers in Scotland and a forward look at events planned by the unit.

As always, if you have any questions on these or any other State aid issues, you can check our informative website or contact us by email.

The European Commission has declared that subsidies worth tens of millions of pounds annually paid to Scotland’s state-owned ferry operator Caledonian MacBrayne and sister company NorthLink are compatible with EU rules on State aid.

   The decision was made after an 18-month investigation. The Commission
   considered that the State aid provided to CalMac for the provision of the
   Clyde and Hebrides ferry services (with the exception of Gourock-
   Dunoon is an existing aid which is compatible with Article 86(2) of the
   EC Treaty. As regards the Gourock-Dunoon route, the Commission
   considered that existing aid is incompatible with Article 86(2). 

However, and subject to the correct implementation of appropriate tendering procedures, the existing aid
will be compatible with Article 86(2).  The Commission required Scottish Government to launch a public tender for this route before the end of 2009, and for the subsequent public service contract to take effect before the end of June 2011. 
 
The Commission has accepted that there is a sound economic and social justification for 
public subsidy for a town centre to town centre passenger service and is content for the 
Scottish Government to launch an open transparent and non-discriminatory public tender
for a 6-year public service contract with the subsidy to cover only passenger traffic, with
current timetable restrictions being removed. The winning bidder will be allowed an unrestricted commercial vehicle transport service, subject to appropriate accountancy measures and audit monitoring to prevent cross subsidisation from the passenger service to the commercial vehicle service. 

No financial penalties have been imposed and the Scottish Government has welcomed the overall findings of the European Commission’s investigation into Scotland’s ferry services as it allows Scotland to maintain the support which ferries receive at present while also allowing the Government to look at what further improvements can be made to these lifeline services as part of the ferries review.

New State aid approvals for elements of Scottish European Structural Funds.
European Structural Funds (ESFs) awarded by EU Member States, like other forms of public funding, are subject to the EC’s State aid ‘tests’ (that is, the aid criteria set down in Article 87(1) of the EC Treaty).  Where ESFs meet all of the ‘tests’ they must be awarded compliantly.  That is, they must be notified to the EC under one or more of its State aid instruments and must conform to the terms of the notification, or be awarded as de minimis funding.

  The State Aid Unit has recently assisted with the summary notification under
  the EC’s General Block Exemption Regulation of ESFs managed by the Scottish
  Government and we now have EC approvals for   State aid elements of the
  European Social Fund, Priority 2, and the European Regional Development Fund,
  Priorities 1&2.  Specifically:

EC State aid approval X664/2009:
European Social Fund Scotland 2009-2013 Programme -
Priority 2

This permits the Scottish Government, as the Managing Authority of European Structural Funds in Scotland, to award - directly or via ESEP or HIPP - discretionary funding under ESF Priority 2 for the benefit of undertakings in respect of certain training costs or costs of recruiting and employing disabled or disadvantaged workers, in line with the scope provided within the EC’s General Block Exemption Regulation (No 800/2008). 

EC State aid approval X654/2009:
ERDF Priorities 1&2 Support Scheme Scotland

This permits the Scottish Government, as the Managing Authority of European Structural Funds in Scotland, to award - directly or via ESEP or HIPP - discretionary funding under ERDF Priorities 1&2 for the benefit of undertakings for a variety of R&D&I activities, in line with certain scope provided by the EC’s General Block Exemption Regulation, No 800/2008.  Specifically aid to SMEs for non routine consultancy services; aid for R&D&I projects and technical feasibility studies; aid to young, innovative enterprises, and aid for innovation advisory and innovation support services.

The above approvals are for European Structural Funds monies only and separate approvals must be in place for public match funding monies.

Of the five tests used to determine whether state aid is present in a public sector measure, the fifth test (the ability to affect trade between Member State) is generally thought to be met in all cases.  But why?  Well, the test does specify that only the potential to affect trade has to exist, so it is likely that there will always be potential for trade distortion when an undertaking is engaged in economic activity.

  But when is trade purely local and is there any potential to argue that there is
  no aid under these circumstances?  The majority of EC decisions back up the
  proposition that the ability to affect trade is virtually always met and it is well
  known that the EC sets a low threshold on this test.  But that’s not to say there
  are no precedents for showing trade is purely local and the EC has shown a
  willingness to accept well researched arguments backed up with compelling 
  statistical evidence.

One frequently quoted example is State Aid N 546/B/2000 – a decision made by the EC on a UK scheme concerning local regeneration.  The objective of the scheme was to offer support to local communities to engage in local regeneration activities through the provision of services by social enterprises to local residents.  The services concerned primarily community centres and childcare facilities.  The EC determined that, while some of the beneficiaries could be considered undertakings, aid was not present as neither the providers of the services, nor the users of the services had any cross-border activities.  Thus there was no effect on intra Community trade and no aid, although it was also stressed in the notification that no applications would be funded if the activity was tradable within the EU!

Two more recent decisions (N 293/2008, N 357/2007) concerned the funding of
cultural activities in Hungary. In both cases the Commission concluded that funding
for small, localised activities such as mobile libraries, rural youth clubs and community centres in small villages was unlikely to affect intra-Community trade. On the other
hand, the Commission noted that larger cultural and conference centres and festivals
were likely to attract cross border business and tourism, and funding these activities
may involve State aid.

As you can see, the Commission has, on several occasions, made judgements on the ‘effect on trade’ test. It may also be evident that these decisions do not offer any definitive guidance on the nature or scale of activities that can be deemed local trade! A case by case approach must be adopted – as ever, the State Aid Unit can advise.

The Local Trade argument is explored in greater detail in a paper produced by the State Aid Unit. This will be available on the website in the coming weeks, so look out for it.

The Commission Notice on the Enforcement of State Aid Law by National Courts was adopted by the EC in April 2009. It informs national courts and third parties about the remedies available to them in the event of a breach of State aid rules.

   The notice provides guidance on the practical application of these rules,
   describes the role of the national courts in State aid enforcement and the
   support the European Commission can provide. When called upon to apply
   State aid rules to a case pending before it, a national court must respect any
   relevant community rules in the area of State aid and the existing case law of
   the Community courts. In addition, a national court may seek guidance on the
   Commission’s decision-making practice and in the notices and guidelines
   concerning the application of the State aid rules issued by the Commission.

To assist national court judges in this role, the Commission are planning to run training
events for all national court judges in the near future, as Member States all have very
different justice systems.

A summary of the Commission Notice on the Enforcement of State Aid Law by National Courts
will be available on our website shortly.

2009 has, again, been a busy year for the Unit as we continue to deliver presentations and workshops to our stakeholders.  Presentations to Third Sector colleagues and voluntary organisations in the summer have been followed by recent travels to Thurso to carry out a presentation and workshop with the Nuclear Decommissioning Authority and local regeneration bodies.  Recent workshops closer to home have focused on Structural Funds (Scottish Government colleagues and Intermediate Advisory Board members) and the Temporary Framework (local government lawyers at Brodies LLP event “State aid - Rules, Regulation & Results”).  Our range of events continue to emphasise the wide and diverse areas of work which are affected by the State aid rules.  As always, events were well attended and well received by our stakeholders!

   Other forthcoming events include presentations to the Central Law
   Training Unit (with a focus on Procurement) in November and the
   Scottish Government Legal Directorate before the end of the year.