Ensuring openness and accountability in EU State aid

The European Commission has sweeping powers in relation to internal market rules that limit the power of EU Member States in how they organise economic affairs. These powers rely on a series of regulations and soft law which constrain the ways in which governments can support their industry through subsidies or State aid.

In 2016, the Commission issued a Draft Notice on the Notion of State Aid which would have considerably increased the powers of the Commission in controlling how Member States spend public money to support their national industries.

This prompted Dr Oana Stefan and Professor Andrea Biondi to combine their expertise on soft law and State aid to critically analyse the Draft Notice and make a targeted, early intervention to improve the overall quality and legality of the draft. Their response was written in collaboration with King’s students. Without this paper, the shortcomings and flaws identified could have gone unchallenged and the Draft Notice could have failed to achieve its full potential.

Through their research, Dr Stefan and Professor Biondi argued that the Commission’s Draft Notice went beyond the interpretation given by the CJEU in its established case law. The misinterpretation of CJEU rulings would have allowed the Commission unjustifiably to extend its powers to control national economic policies. This would have impaired national sovereignty and upset the balance of competences enshrined in the EU Treaties.

As such, King’s researchers offered suggestions to improve the text of the Draft Notice, providing an easier, more transparent and consistent application of EU regulations on public spending. These changes not only ensured the legality of the document and its consistency with CJEU case law, but also reinstated and promoted the Commission’s commitment to legal certainty, openness and accountability, all essential for the EU’s supranational democracy. This improved the legal status of the Notice, which ultimately enhanced rule of law protection in the EU.

Impact of the Notice on administrative and judicial practice in the UK and EU

Following their contribution, the guidance was amended, considerably reducing its remit. The Notice has rapidly become the main instrument relied on in relation to State aid, both at the EU and at the national level. It shapes the decision making of national authorities on public spending, with a direct impact on local communities and industry. It distributes powers between the national and EU levels of governance, enabling better and more accountable public spending.

In France, it is relied on at length in the national rules on State aid and in countries such as Slovenia, the Notice is referred to in around half of the cases dealing with the notion of aid. In the Netherlands, the Notice was instrumental in a case allowing funding for initiatives promoting local culture. The Notice has also been referred to in 15 cases dealing with the notion of State aid before the CJEU. These are landmark judgments, which constitute reference points for subsequent case law. In one such judgment, the CJEU relied on the Notice to enable Spain to introduce supplementary taxation on the large retail sector.

Since the Notice was issued, judges frequently refer to it at the national level. In the UK, the High Court and the Court of Appeal relied on the Notice to determine the conditions under which a City Council could lease a sports ground, thus impacting local communities. The Notice was also used within the Department for Business, Energy & Industrial Strategy (BEIS) as an important source of information and guidance when drafting the 2015 BEIS State Aid Manual, which acts as the UK’s own guide to State aid rules and how they should be interpreted and applied

The Deputy Director, Construction at BEIS stated: “The work of Oana Stefan and Andrea Biondi identified a number of areas where the text of the Notice could be clarified or supplemented to aid comprehension and ensured that the Notice can be more easily understood and applied, and a number of the proposals made have been incorporated into the revised Notice. This is a good example of how academic research can be applied to positively influence the development of public policy and achieve beneficial outcomes within society.”

Assessing the possibility of misuse

Stefan’s previous empirical work examining the influence of notices in EU law [1,5] was the first in the field to combine extensive statistical, doctrinal and theoretical analysis of the case law regarding soft law. She was able to show that Notices fall into a legal ‘no man’s land’ – once published, even if faults are discovered, the Commission cannot depart from the guidance. Stefan argued that whilst there are benefits to such documents, in clarifying expectations and obligations, they lack democratic input and accountability as neither EU nor national courts have, in practice, a sufficient oversight of their use.

After comprehensive quantitative and textual analysis of judgments of the Court of Justice of the EU (CJEU) in the area of economic law, Ștefan showed that there is a risk that the Commission could misuse such guidance documents to add new rules and constraints on public spending while giving itself powers beyond those set out in the relevant treaties.

Biondi’s previous work delved extensively into the criteria used to define a State aid measure. He argued that State aid control should strike a fair balance between the protection of market efficiency and the preservation of national ‘virtuous’ policies that would raise living standards and protect the environment. He contended that making decisions about State aid based solely on economic principles was inconsistent with the role of government in the sustainable, social market economy that the EU embraces.