The EEA state aid rules and the role of the Authority

What is state aid?

State aid is assistance provided by public bodies to entities engaged in economic activities.

The most obvious form of state aid is, for example, governments giving grants to businesses to facilitate capital investment, or providing aid to rescue and restructure ailing companies.

State aid can, however, consist of public support measures in numerous forms, such as tax exemptions, loans on preferential terms, state guarantees and investments in share capital made by public authorities on terms that would not be acceptable to a private investor.

State aid is present when assistance is provided:

• by an EFTA State or through state resources;
• that confers an advantage to a recipient(s);
• that favours certain economic undertakings or the production of certain goods;
• that distorts or has the potential to distort competition; and
• that affects trade across the EEA.

The state aid rules

The state aid rules in the EEA Agreement are broadly equivalent to the state aid rules in the EC Treaty and which apply across the EU. Like the EC Treaty, the EEA Agreement contains a general prohibition on state aid in order to prevent distortions of competition and negative effects on intra-EEA trade. The rules seek to ensure a level playing field for companies across Europe, and to prevent government assistance being used as a form of protectionism in the absence of trade barriers. The prohibition is, however, subject to numerous exceptions, recognising that government intervention can be necessary to correct market failure and for social purposes, for example through regional policy or efforts to reduce unemployment.

• The default position under the EEA Agreement is that state aid is incompatible with the functioning of the internal market and therefore not allowed (Article 61(1)). There are, however, certain exceptions, which mean that state aid can be allowed in some circumstances (Articles 61(2) and (3)).
• The EEA Agreement incorporates the relevant secondary legislation of the European Council of Ministers and European Commission on the definition of aid and compatibility of aid with the functioning of the internal market (Article 63 and Annex XV).
• All state aid must be kept under review; this is done by the Authority in the case of EFTA States party to the EEA Agreement and by the Commission in the case of EU Member States (Article 63).
• State assistance in existence since before the entry into force of the EEA Agreement is protected from being automatically treated as illegal state aid, but must be kept under review.
• There are procedural rules for the approval of state aid by the Authority, including a “stand still” provision which requires aid to be approved before it is implemented (Protocol 3 of the Surveillance and Court Agreement on the functions and powers of the Authority).
• State aid guidelines, explain how the Authority interprets and applies the state aid rules, in particular its assessment of the compatibility of aid.

The role of the Authority

The general prohibition on state aid that applies in Iceland, Liechtenstein and Norway is enforced by the Authority. It is also the Authority's role to decide how the exceptions to the prohibition are to apply. In its enforcement of the rules, the Authority has equivalent powers and similar functions to those of the Commission. The Authority is, like the Commission, independent from the states over which it has jurisdiction.

Plans to grant state aid must be notified to the Authority prior to implementation. The Authority must then assess whether such a plan constitutes state aid and, if it does, examine whether it is eligible for exemption.

The Authority will undertake a preliminary investigation of an aid proposal and will either decide not to raise objections (concluding that there is no state aid involved at all or that the proposed aid is compatible with the functioning of the internal market), or open a formal investigation. As part of such a formal investigation, the Authority will invite comments from the EFTA State seeking to implement the proposals as well as other interested parties, such as a proposed aid recipient or their competitors. The final decision of the Authority will either be positive (approving the measure either as no aid or as compatible aid), negative (prohibiting the aid), or conditional (approving the aid subject to conditions).

The Authority has various powers which enable it to enforce the rules, including powers to require EFTA States to provide relevant information, to carry out on-site inspections and to order repayment of any aid paid in breach of the EEA Agreement, together with interest. The Authority may also take action before the EFTA Court against EFTA States for breaches of the state aid rules.

Examples of state aid assessed by the Authority

The Authority has assessed many high profile and complex cases since it was formed in 1994. Examples include state support to innovative carbon capture and storage projects (test centre Mongstad, Kårstø), tax exemption schemes in the area of environmental protection, the Housing Financing Fund in Iceland, a guarantee in favour of the Liechtenstein Landesbank and reduced rates for social security contributions in Norway, as well as measures regarding the financial crisis.