The new State aid framework for R

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The new State aid framework for RDInnovation
2007-2013

• Seminar 28/02/2007
• Thibaut KLEINER

Disclaimer The views expressed are purely
those of the writer and may not in any
circumstances be regarded as stating an official
position of the European Commission
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reminder

• Art. 87 State aid is in principle incompatible
  with the common market unless it is authorised by
  the Commission
• Treaty criteria for defining State aid
• State resource
• Advantage
• Selectivity
• Distorting or threteaning to distort competition
• Affecting trade
• Compatibility 87.2 automatic 87.3 important
  discretion of the Commission

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Purpose of guidelines

• Support for Member States, by announcing in
  advance which measures will be deemed
  compatible, and under which circumstances
• Self-limitation by the Commission to deliver
  predictability and legal certainty
• Facilitating granting of less and better
  targeted aid

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Context State aid reform Lisbon strategy
innovation

• RD Framework goes back to 1996
• State Aid Action Plan adopted in June 2005.
• Communication on State aid for innovation in
  September 2005
• Draft RDI-framework aims at supporting better
  targeting of State aid
• better targeting RDI within State aid budgets
  (cf. additional aid possibilities, increased
  legal certainty)
• better targeting RDI measures within RDI
  State aid
• Method
• refined economic approach
• improved architecture of rules

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What is new?

• Clarifications regarding art. 87.1 (cf. chapter
  3)
• Public funding of research organisations and
  innovation intermediaries (non-economic and
  economic activities)
• Indirect State aid in case of contract research
  or collaborative research
• Refined economic approach to justify all measures
  on the basis of the balancing test
• New measures on innovation
• New architecture of rules and introduction of a
  detailed assessment for cases including large aid
  amount (for one beneficiary)
• External dimension 87.3b) matching clause

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Art. 87.1

• No State aid for public funding of research
  organisations if
• separation of economic and non economic
  activities to avoid cross-subsidies (cost
  accounting)
• Pass-on of state aid no advantage (for
  intermediaries)
• No indirect State aid for industrial partner if
• Research services are provided at market price
• Results of collaboration reflect the contribution
  of the partners

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Refined economic approach

• State aid for RDI targets economic efficiency
• Positive orientation but no presumption that
  State aid for RDI is always positivegt
  balancing test
• Attempted economic justification of the measures
  (guidelines, memorandum)
• type of eligible costs
• aid intensities
• conditions
• Detailed assessment, looking at the positive and
  negative effects of State aid
• proportionate assessment, does not imply opening
  procedure

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State aid measures

• Aid for RDI projects
• Aid for technical feasibility studies
• Aid for industrial property right costs for SMEs
• Aid for young innovative enterprises
• Aid for process and organisational innovation in
  services
• Aid for innovation advisory and innovation
  support services
• Aid for the loan of highly qualified personnel
• Aid for innovation clusters

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What is new in these measures?

• Measures for RD (in the narrow sense) modified
  in the light of experience with framework and
  regulation 364/2004
• Measures on innovation newly introduced, largely
  following proposals in Communication on
  innovation, taking into account the comments
  received from stakeholders
• For all measures new intensities /bonus
  structure trying to implement the refined
  economic approach of the SAAP
• Regional considerations integrated in the
  measures and/or in the detailed assessment, not
  through a bonus

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The balancing test

• Is the aid measure aimed at a well-defined
  objective of common interest? (ex growth,
  employment, cohesion, environment)
• Is the aid well designed to deliver the objective
  of common interest i.e. does the proposed aid
  address the market failure or other objective?
• i.     is State aid an appropriate policy
  instrument?
• ii.     is there an incentive effect, i.e. does
  the aid change the behaviour of firms?
• iii.     is the aid measure proportional, i.e.
  could the same change in behaviour be obtained
  with less aid?
• Are the distortions of competition and effect on
  trade limited, so that the overall balance is
  positive?

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Measures target market failures

• Aid for projects covering fundamental and
  industrial research and experimental development
• Aid for technical feasibility studies
• Aid for industrial property rights costs for SMEs
  
• Aid for young innovative enterprises
• Aid for process and organisational innovation in
  services
• Aid for advisory services and innovation support
  services
• Aid for the loan of highly qualified personnel
• Aid for innovation clusters

• positive externalities
• public goods and appropriability
• imperfect and asymmetric information
• coordination and network failures

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Rules trying to secure that balancing test is met

• Eligible costs
• Aid intensities, Bonuses
• Maximum amounts
• Duration
• Conditions
• Example aid for process and organisational
  innovation in services
• the rules are however a simplification of what
  may be needed in a specific case (ex lower
  intensities)

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New intensities /bonus structure
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New architecture for State aid instruments in the
field of RDI

• Overall architecture goes beyond draft framework,
  includes general block exemption regulation
  (GBER). GBER should exempt more RD-aid
  (intention already expressed in SAAP)
• Essentials
• Two instruments to exist in parallel GBER and
  framework
• All notifications to be assessed under framework
• Ceiling for individual notification under GBER
  for RDI-aid will trigger assessment under
  framework
• Framework provides for several levels of
  assessment

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differentiated thresholds

• 20 million per undertaking per project for
  projects that are predominantly for fundamental
  research,
• 10 million per undertaking per project for
  projects that are predominantly for industrial
  research
• 7.5 million per undertaking per project for
  projects that are predominantly for experimental
  development.
• 5 million per undertaking for process and
  organisational innovation in services and for
  innovation clusters
• NB Extended reporting obligation above 3
  million aid per undertaking in case not notified

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External dimension

• Matching clause
• already present in the existing RD framework.
• Kept in the draft RDI framework but more
  visible
• Article 87.3b)
• already present in the existing RD framework.
• Conditions are made more explicit in the draft
  RDI

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Highlight aid to young innovative enterprises

• Small enterprise (lt 50 employees) Young (lt 6
  years when the aid is granted)
• innovative
• i) will in the foreseeable future develop
  products, services or processes which are
  technologically new or substantially improved
  compared to the state of the art in its industry
  in the Community, and which carry a risk of
  technological or industrial failure. This
  evaluation must be done by an independent expert,
  notably on the basis of a business plan or
• ii) the RD expenses of the beneficiary represent
  minimum 15 of its total operating expenses, as
  certified by an external auditor.

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aid to young innovative enterprises

• aid up to EUR 1 Million in non-assisted areas
• Aid up to EUR 1.25 Million in 87.3c) regions and
  up to EUR 1.5 Million in 87.3a) regions
• Cumulation with RDI with risk capital aid
• Cumulation with other type of aid only 3 years
  after the granting of YIE aid

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Many possible forms of aid

• Subsidies
• Fiscal incentives
• Repayable advances
• Public procurement
• Guarantees
• Capital injections