State Aid Control: Substance and Procedure in the Europe Agreements and the Stabilisation and Association Agreements

• Author: Marise Cremona
• Date: 01 July 2003
• DOI: http://doi.org/10.1111/1468-0386.00178
• Published date: 01 July 2003

* Professor of European Commercial Law, Centre for Commercial Law Studies, Queen Mary, University

of London.

State Aid Control: Substance and

Procedure in the Europe Agreements and

the Stabilisation and Association

Agreements

Marise Cremona*

Abstract: Community agreements with third countries frequently contain provisions on

State aids. These provisions are designed to achieve a range of different objectives, related

both to developing trade between the contracting parties and to economic and legal/

regulatory development within the partner State. This paper takes a particular model of

State aid clause—those found in the Europe Agreements (EAs) and the Stabilisation and

Association Agreements (SAAs)—in order to explore the implications of a harmonisation

obligation applied within the context of accession to the EU. In these agreements the State

aid rules—and in particular those relating to the application of Community-based crite-

ria—are intended to contribute to the pre-accession adoption of the acquis communau-

taire by the associate States (including those who are not yet candidates). These clauses

are striking in their emphasis on the full adoption of Community-based standards for the

approval of aids, including large quantities of ‘soft law’, while saying very little as to the

appropriate procedures for enforcement. The experience of implementing these clauses

illustrates the practical diff‌iculties of applying Community norms and standards outside

the procedural structures, integration mechanisms and single market objectives of actual

EU membership. The associate States are required to demonstrate their capacity for

applying and enforcing the Community-derived rules while balancing the needs of their

own economic development against an undef‌ined ‘common interest’.

IState Aid in the Association Agreements

It has become standard for the Community to include provisions on competition policy,

including State aid, in both its trade and association agreements. These provisions are

designed to achieve a range of different objectives, related not only to developing trade

between the contracting parties but also to economic and legal/regulatory development

within the partner State. Thus, they may include provisions on cooperation between

European Law Journal, Vol.9, No. 3, July 2003, pp. 265–287.

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competition authorities, support for trade liberalisation measures, development of

domestic competition law within the partner State, standard setting and harmonisa-

tion.1In this paper we will take a particular model of State aid clause—those found in

the Europe Agreements (EAs)2and the Stabilisation and Association Agreements

(SAAs)3—in order to explore the implications of a harmonisation obligation applied

within the context of accession to the EU. The provisions on State aid within these

agreements illustrate both the phenomenon of pre-accession harmonisation and the

practical diff‌iculties of applying Community norms and standards outside the proce-

dural structures, integration mechanisms and single market objectives of actual EU

membership.

These agreements all adapt a two-part approach to State aid control. On the one

hand there is a commitment to harmonise national legislation with that of the Com-

munity, including competition policy.4On the other, the agreement links State aid to

the effective functioning of the agreement itself and the liberalisation oftrade between

the parties:

The following are incompatible with the proper functioning of the Agreement, in so far as they may

affect trade between the Community and [the associate State]...

(iii) any State aid which distorts or threatens to distort competition by favouring certain undertakings

or certain products.5

Unlike earlier free trade agreements, these agreements contain specif‌ic provision for the

implementation of the State aid commitments and the interpretation of concepts such

as ‘State aid’, incompatibility and distortion of competition. These provisions, by

closely tying the implementation of the State aid clause to the harmonisation obliga-

tion, illustrate that the agreements are about more than trade liberalisation, and have

as one of their key objectives the closer integration of the associate State with the Com-

munity. Indeed, we can go further and characterise these agreements, including their

State aid obligations, as forming the contractual dimension to a pre-accession process.6

Not all the countries of south-east Europe with whom SAAs have been concluded have

not yet applied for membership, but the SAAs are explicit in their Preambles as to the

European Law JournalVolume 9

266 © Blackwell Publishing Ltd. 2003

1M. Cremona, ‘Multilateral and Bilateral Approaches to the Internationalisation of Competition Law: An

EU Perspective’, in M. Cremona, I. F. Fletcher and L. Mistelis (eds), Foundations and Perspectives of Inter-

national Trade Law (Sweet & Maxwell, 2001).

2Association Agreements known as Europe Agreements have been concluded with Bulgaria, Czech Repub-

lic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. Texts available on:

http://europa.eu.int/comm/enlargement/pas/europe_agr.htm

3Stabilisation and Association Agreements have been concluded with the Former Yugoslav Republic of

Macedonia (FYROM) and Croatia;SAAa are envisaged with other countries of the Western Balkans once

the conditions have been met (Albania, Bosnia-Herzegovina and Federal Republic of Yugoslavia); see

Commission Communication of 26 May 1999 on the Stabilisation and Association Process COM(99) 235;

Commission’s First Annual Report on The Stabilisation and Association process for South East Europe,

4 April 2002, COM(2002) 163. At the time of writing these SAAs are not yet in force; however, Interim

Agreements which incorporate the State aid provisions have been concluded and are in force. In what

follows Article numbers refer to the SAA itself. Croatia formally applied for EU membership in

February 2003.

4See for example,Art 69, Europe Agreement with Poland, OJ 1993 L 348/2; Art 68, Stabilisation and Asso-

ciation Agreement with Former Yugoslav Republic of Macedonia (FYROM), COM (2001) 90 f‌inal; Art

69, Stabilisation and Association Agreement with Croatia, COM (2001) 371 f‌inal.

5See for example, Art 63(1), Europe Agreement with Poland (which uses the term ‘public aid’); Art 69(1),

Stabilisation and Association Agreement with FYROM; Art 70(1), Stabilisation and Association Agree-

ment with Croatia.

6P. Schutterle, ‘State Aid Control—An Accession Criterion’(2002) 39 CMLR at 577.