International cooperation chapter
Author: SigitasCemnolonskis, Senior State Aid Expert at the EU funded Project ‘Harmonisation of Public Procurement System of Ukraine with EU Standards’
Tel: (044) 286 03 13
Creation of the State Aid Monitoring System in Lithuania
SigitasCemnolonskis[1]
Annotation: The Parliament of Ukraine recently adopted the Law on State Aid Control which is an important milestone for the development of Ukraine’s State aid system. The law introduces a mechanism for State aid control coordinated at central level and provides a general legal framework for this mechanism.Ukraine also signed the Association Agreement which requires introduction of state aid control system.
In order to introduce a mechanism for state aid control it is necessary for the associated country first of all to adopt the relevant legislation.In case of Lithuania the Europe Agreement between Lithuania and the EU was signed on 12th of June 1995. It came into force in 1998. Creation of the State aid monitoring system in Lithuania started in the very end of 1990 s. A very relevant step in the legal framework in Lithuania was adoption of the Law on Monitoring of State Aid to Undertakings in 2000.
Key words: state aid, control, monitoring, Lithuania, law, system, international obligations
Creation of the State Aid Monitoring System in Lithuania
The requirements to Lithuania in regard to State aid control were set out in 1990 s in the White paper on the internal market[2] and Articles 33 – 37 of the Agreement on free trade and trade related matters[3]. In 1995 Lithuania and the European Union (EU) signed the Europe Agreement which came into force 1 February 1998.Itcompleted and extended the scope of the Free Trade Agreementbetween Lithuania and the EUthe provisions of which were updated by Article 64 of the Europe Agreement. The latter article stipulated that State aid provided had to be assessed on the basis of the rules effective in the EU. Guidance for dealing with state aid cases was laid down in the Implementing rules for the Application of the Provisions on State aid Referred to in Article 64.
Under the Europe Agreement even prior to the accession to the EU Lithuania was obligated to:
1)Establish an interim State aid monitoring system capable of enforcing the State aid monitoring system approved by the Association Council.
2)Ensure the functioning of the system in accordance with the practice of the European Commission having regard to the fact that Lithuania falled under the definition of a region as was defined in Article 87(3)(a) of the Treaty, i.e. in the provision of aid Lithuania could resort to maximum flexibility which was related to the low level of economic development.
3)Ensure transparency in the field of State aid.Transparency is understood as the preparation and submission of annual State aid reports to the European Commission, register of state aid schemes and individual aid by types thereof.
1996 was the year when the system of State aid monitoring was first started in Lithuaniawhen the State Competition and Consumer Protection Office was commissioned to draft a procedure for the implementation of State aid monitoring and enforce State aid control.The procedure was approved by the Resolution of the Government of Lithuania in 1997[4] which was further supplemented in 1999[5]. One of the interesting features of the first steps introducing a state aid monitoring system was that Lithuania took a maximalistic approach to the problem. Actually, one of the requirements of the Article 64 was ensure the functioning of the State aid monitoring system. However, this requirement did not mean that Lithuania before accession had to introduce and operate a supervision/prohibition system similar to that in the EU. Formally it was required only to establish an institution responsible for State aid control in order to assess State aid and give opinions on State aid. However, from the very beginning of the creation of the interim State aid control system it was decided to take the maximalistic approach – that means to implement and operate the supervision/prohibition system.
The aforementioned Government Resolution of 1999 on State aid control made provisions for establishment of the procedural rules to be observed when granting State aid. The Resolution served as a basis for the Competition Council (CC) to approve the forms of notification on State aid, of annual reports and information to the State aid providers. The latter were obliged to notify new state aid to the CC before implementing them. It was allowed to implement the aid when the decision on compatibility was adopted by the CC.
The Government in 1999 authorised the CC to draft the Law (at that time the name of the competition authority was changed – the State Competition and Consumer Protection Office was transformed into the CC – an independent body). Why was it necessary to develop the existing Government Resolution on State aid control and draft the Law on Monitoring of State Aid to Undertakings? As a matter of fact, the Government Resolution alone could not provide tools efficient enough to ensure sufficient transparency in the area concerned in order to avoid any substantial distortions of competition and impact of such effect on trade. While the Government Resolution on State aid control was in force the State Competition and Consumer Protection Office received a very limited number of State aid notifications. The main drawback of the Resolution was that it did not provide any strict liability in case of violation of the procedure established by the Resolution. Of course, the Resolution provided for a right of court actions to the Competition Office. If a State aid provider did not act according to the requirements of the Resolution, the State Competition and Consumer Protection Office had a right to address the Government or the court with the requirement to stop the providing of State aid or annul State aid provider’s decisions (except the cases adopted by the Government decisions). But this apparently was not enough to ensure a proper control. In fact, The scope of application of the aforementioned Resolution was also very limited. State aid providers were obligated to follow the provisions of the Government Resolution on State aid control only in cases when other legal acts (Government decisions, laws) did not provide otherwise. For local (regional) authorities the Resolution was not applicable at all.
Hence, implementation of the provisions laid down in the Resolution was very complicated and not efficient in practice.
In 2000, the Seimas (Parliament) of the Republic of Lithuania was submitted the draft Law on the Monitoring of State Aid to Undertakings (prepared with an active involvement of the Competition Council) and the Law was approved in the same year[6].Upon the enactment of the Law, the Competition Council was assigned the status of the authority responsible for the monitoring of State aid and approved a number of resolutions concerning the procedures and criteria for the assessment of State aid. According to the procedures set forth by the Law, until the accession of Lithuania into the EU State aid providers were obligated to file notifications with the Competition Council to enable the authority to assess the compliance of the State aid to the requirements stipulated by the Law.
The scope of the Law was to regulate the granting of State aid in order to avoid any substantial distortions of competition and impact on trade between Lithuania and EU Member States. Following the requirements of the Europe Agreement, the Law made provisions for the conditions under which authorities could grant State aid. When the Law came into force the previous Government Resolutions on State aid control were abolished. In comparison with the Resolutions of the Government the Law was a very significant step in the legal framework. It contained a concrete definition of the State aid in terms of its nature, its effects. It not only established the detailed procedure for granting aid but also contained major prescriptions on provision of the State aid to meet certain objectives, to satisfy the needs of individual economic activities and to ensure economic development on a regional basis. The Law made provisions for intensity of the State aid operable within permissible limits and imposed the liability on the State aid provider in case of violation of the procedure established by the Law. The Law granted more powers to the CC as regards State aid monitoring procedure. The CC was entitled to demand from the governmental authorities either to change or annul the decision on granting of such aid that had been declined by the CC, also to demand suspension of the State aid and even to demand recovering of the State aid.
From 2000 until 1 of May 2004 the CC approved a number of its’ Resolutions concerning State aid assessment procedures and the rules of providing State aid. These werethe resolutions on the procedure for assessment of State aid, the rules regarding horizontal, regional and sectorial State aid.
Over the period from 2000 until 1 of May 2004 the CC examined a number of cases of the provision of State aid as well as numerous draft regulations. According to the annual reports of the Competition Council in certain cases the CC passed the Decisions on compatibility of aid, in other cases concerning draft regulations which among other support measures could envisage also state aid offered its comments and proposals. During the period from 2000 till 1 of May of 2004 the Decisions of the CC were passed in respect of 27 cases of State aid (on average 6-7 cases per year). The CC in 21 cases approved the aid, in 6 cases – did not authorise the aid. In general the most frequent type of State aid was aid to restructuring of enterprises – 50 percent of all cases (that means 14 cases assessed by the CC was restructuring aid). In 9 cases the CC authorised aid, in 5 cases – refused to authorise it. Other Decisions on compatibility of aid made by the CC were following. The CC authorised 3 schemes of State aid (regional aid, research and development aid and SME aid). The CC also authorised 6 cases of regional (investment) aid, 1 scheme of aid for innovation, 1 scheme of operating aid (compensation of business project expenses). In one case the CC refused to authorise export aid.
Some statistics on State aid volumes and dynamics[7]. Since 1990s CC has been compiling the State Aid Registry. The Registry contains data on State aid provided to undertakings in Lithuania in period from 1996 up to the time being. On the basis of the data collected it is obvious that State aid in Lithuania has been increasing since 1998. From 1998 until 2011 the volumes of State aid have increased approximately by 200 percent. In 2011 the national State aid amounted to 210 MEUR. Regional aid (as part of manufacturing aid and aid to services) during the period of 1998 and 2011has increased from 39,79 MEUR in 1998 to 85 MEUR in 2011 (support from structural, cohesion and other EU funds are not included).
In the year of 2011 State aid accounted for 0.68% of the national GDP, i.e. 130 EUR per one working person on average.
Finally a few words about implementation of a new State aid monitoring system as of 1 of May 2004 the date of Lithuania’s accession to the EU. Until 1 of May all State aid granted in Lithuania was assessed in accordance with the Law on Monitoring of State Aid to Undertakings. Upon Lithuania’s entry into the EU, the Law was repealed. In the EU State aid is controlled by the European Commission. After Lithuania’s accession to the EU some State aid schemes operating in the country became the existing State aid. In such cases no notification on State aid to the European Commission was required under the condition that the existing aid was not subject to any material alterations. In view of any modifications of the requirements set forth by the EU law regulations the existing State aid schemes had to be amended accordingly and brought into line with the modifications concerned.
After Lithuania’s accession the Competition Council faced the task to adapt its activities to the essentially new environment in the area. It should be noted, that after the accession amendments to the Law on Competition providing for the new functions of the Competition Council in State aid area became effective. The amendments to the Law establish the role of the Competition Council as a coordinating authority in the field of State aid. In accordance with the amended Law the Competition Council performs the following functions:
-participates in the submission of the notifications and annual reports (other information) on State aid to the European Commission,
-provides consultations concerning the application of the State aid acquis to the State aid providers,
-accumulates information on State aid provided in Lithuania (including the de minimis aid),
-performs the education and public awareness, as well as other coordination activities, i.e., will act as a moderator between the European Commission and Lithuania, participates in the activities of the Advisory Committee on State Aid established by the European Commission, etc.
[1]SigitasCemnolonskis, is a former Member of the Lithuanian Competition Council, is a Senior State Aid Expert at the EU funded Project: Harmonisation of Public Procurement System in Ukraine with EU Standards. The views expressed here are those of the author and are not to be understood as a specific viewpoint of the Project or as, in any way, reflecting an official opinion of the European Union or any of its constituent or connected organisations.
[2] White Paper from the Commission to the European Council (CannesEuropean Council on 26 and 27June1995)
[3]A Free Trade Agreement between the EU and Lithuania entered into force 1 January 1995, to be followed by the Europe Agreement (also known as Association Agreement
[4]Resolution No 137 of the Government of the Republic of Lithuania of February 18, 1997 on State aid monitoring procedure(Valstybėsžinios, 1997, Nr. 17-373)
[5]Resolution No.505 of the Government of the Republic of Lithuania of April 30, 1999 on State aid monitoring procedure ((Valstybėsžinios, 1997,Nr.17-373; 1999, Nr. 40-1263)
[6] Law on Monitoring of State Aid to UndertakingsNr.VIII - 1689 (Valstybės žinios, 2000, Nr.45-1292)
[7] Annual Reports of the Competition Council of Lithuania (1999-2012)