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European Commission publishes CRA Report on methods to analyse the impact of State aid on competition

At least since the launch of the State Aid Action Plan (SAAP) by EU Competition Commissioner Neelie Kroes in 2005, it is clear that State aid control in Europe will be subject to significant change. As in other areas of competition policy, the European Commission, with support from Professor Lars-Hendrik Röller, the Chief Economist, Directorate General for Competition, is aiming to introduce an economics-based approach and as such, one that is effects-based rather than form-based.

The CRA study, which has been commissioned by the Directorate General for Economic and Financial Affairs, develops an economic methodology to assess state aid and provides a number of recommendations of immediate and practical relevance:

• Moving from an "effect on rivals" standard to a social welfare standard, which also considers the impact of aid on consumers.
• Requiring Member States to show significant market failure and to demonstrate that the instrument is targeted to address this market failure.
• Tailoring of screening to the market failure concern. In particular, low amounts of aid or low aid intensities should not be used as a general screening device.
• Focusing the analysis of the effects on rivals and consumers on dynamic incentive and market structure effects.

The report tests the methodology in the area of R&D aid and Rescue and Restructuring aid and develops a number of specific recommendations for these two policy areas. Moreover, it discusses alternative screening mechanisms that will allow the European Commission to focus its resources on those cases where harm to consumers is most likely.

Click on the following link to download the Report

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