European Commission Considers Sector Inquiries as a New Procedural Tool in State Aid Law
The European Commission eyes sector inquiries as a new tool in European State aid law. In European antitrust law Sector inquiries are already successfully employed to detect cartelist activities. This could allow the European Commission to proactively investigate whole sectors for illegal subsidies and to subsequently open new cases.
In its drive to modernise its approach to reviewing EU Member State support to companies (State aid), the European Commission (Commission) is considering launching sector inquiries. On 25 September 2012, the Commissioner for Competition, Vice President of the European Commission Joaquin Almunia, expressed his wish to use sector inquiries as a tool in the enforcement of EU State aid law in a speech to Members of the European Parliament. He believes this would give the Commission a better understanding of the problems inherent in a particular industry. In a communication on State aid modernisation released on 8 May 2012 the Commission already stressed the need to be equipped with the relevant “market information tools” that would allow it to obtain all the relevant information from market participants.
State aid has been at the forefront of the Commission’s agenda since the massive support given to the European banking industry and the State aid measures applied during the financial and economic crisis following 2008. The Commission routinely issues decisions ordering the repayment of €millions of aid granted illegally. Since 2000, the Commission has ordered the recovery of a total €11.5 billion of aid. In 2011 for example, the Commission ordered the repayment by a Greek mining company of €452 million of illegal aid.
EU State aid law prohibits all funding, granted in any form whatsoever, that benefits a selected company or group of companies. Such State aid may, in general, be approved by the Commission only under certain circumstances and after a formal notification by the Member State. The Commission has been broadening the scope of the State aid rules continually, reducing the circumstances in which the State aid rules do not apply. For example, public support for the construction of large infrastructure projects is now considered State aid by the Commission and it has opened a number of investigations into the public funding of such projects.
The Commission must, however, rely on information it receives from third party complainants, such as competitors, or publicly available sources. Some cases of illegal aid may therefore never be discovered by the Commission, and the Commission is so far unable to systematically screen specific sectors for State aid. Another obstacle for the Commission is that, once it has launched its investigation, it may only contact the individual EU Member States for information, and not the undertakings concerned.
The Current Use of Sector Inquiries
The 8 May communication on State aid modernisation states that procedural rules will be enacted to provide the Commission with efficient tools to proactively approach market participants in more ex officio investigations into examples of significant distortions of competition that hamper the internal market. Vice President Almunia seems to suggest that sector inquiries are an appropriate tool to achieve this objective and recent history suggests he might be correct.
Sector inquiries are already a common tool in EU antitrust law. The Commission is empowered to launch a sector inquiry where certain criteria suggest a distortion of competition. In the course of its inquiry, the Commission may request the companies concerned to supply certain information and may carry out inspections on site. These inquiries have proven themselves very effective. For example, in 2008 the Commission launched a sector inquiry in the pharmaceuticals sector and is now following up with individual cases against specific companies for alleged anti-competitive behaviour.
The exact scope of State aid sector inquiries is yet to be determined, although it is reasonable to expect the Commission to aim for a similar scope as in antitrust law. Ex officio sector-wide inquiries would enable the Commission to ask companies to provide incriminating details on the public support they receive. This would then allow the Commission to identify the sectors that are receiving illegal State aid and focus its enforcement on the important cases.
The Commission’s initiatives to introduce sector-wide investigations, plus its drive to get a grip on illegal public support, should be watched by companies that receive public funds or simply do business with the public authorities. The Commission may well focus on sectors that, so far, have attracted few competitor complaints, or investigate sectors that have already felt intense scrutiny, such as the aviation sector. We will be providing updates as developments occur.