Eu State Aid System Research

The State Aid Regime of the EU is a fully developed subsidy control system that has lasted for over half a century. By controlling and directing subsidies granted by Member States to undertakings so that they correspond with the Union's interest, the EU aspires to establish and maintain a Common Market in which competition is undistorted. In recent years, particularly through the "EU-China Trade Project" dialogue, the Commision has proposed to its Chinese counterparts that China should establish a State Aid control system similar to that in the EU. This thesis strives to undertand and draw lessons from the European model of State Aid control.Studies in economics indicate that aid granted by the government to undertakings usually elevates the competitive status of those undertakings, which is unfair to other competitors on the market. If the aid itself lacks purpose, then, while adversely affecting competition, it would become a waste of public funding. If aid is not delivered in a reasonable manner and according to the principle of proportionality, competition may be disporportionly affected. Moreover, the recipient of aid is not necessarily the ultimate beneficiary, which means that the government may confer an advantage to certain undertakings by granting subsidies to individuals.State Aid is not the only type of state acts that may affect competition and alter market conditions, such as general economic policies. Why is it that an act of state is governed by the rules on competition in the EU? This is because the EU is a supra-national polity with unique economic and cultural characteristics. During its integration, the EU strives to achieve economic solidarity, harmonizes laws of Member States, and coordinates efforts via various policy instruments in developing the economy. Therefore, it is unlikely for a Member State to unilaterally develop general economic policies against the interests of the Union, to unilaterally harm the Union's solidarity, and to unilaterally cause a serious disturbance in the economy by restricting competition via legislation. It is under this context that State Aid may prove to be a valuable instrument in maintaining the cohesion of the Common Market, and heavily influence the coordinated development of Europe's economy and society. Nevertheless, State Aid control does not necessarily probihit all State Aids. The EU is not a state, but a conglomeration of states with competencies in economic, social and cultural development according to the Principle of Subsidiarity. Member States possess the financial power to provide State Aid. On the one hand, without State Aid control, competition shall be unduly damaged in the Union, and the integration efforts shall be in vain. On the other hand, State Aid in general is a rational act of state that addresses market failure, which must be subject to scrutiny before reaching a conclusion of incompatibility with the Common Market, and should not be treated the same as state acts in violation of the "four freedoms". Moreover, compatibility is largely determined by economic indicators relating to competition. It is therefore quite plausible for State Aid to be regulated by EU competition law.According to Article107-109TFEU, Member States must apply for clearance to the Commission before issuing State Aid. This begs two questions:What constitutes State Aid? And what constitutes lawful State Aid? In order for a government action to become State Aid, it must satisfy4criteria: Aid to be granted by the State, to undertakings, conferring a competitive advantage, that which is specific. This portion of the analysis involves the application of the Imputability Test, the Market Economy Investor Test, public undertaking's financial relations with governments, as well as taxation and regional autonomy.The rules on lawful State Aid are divided into two categories:aid deemed to be compatible with the Common Market and aid which may be compatible with the Common Market. The latter type of aid governed by Article107(3) TFEU is explained in further detail by regulations, directives, guidelines, and communications made by the Commission and the Council.The State Aid Regime of the EU is developed in a unique social, economic, cultural and legal environment, and has little in common with AML's provision on administrative monopoly and the laws relating to public finance. Therefore, in order to introduce a similar system, and able to enforce such a system, China would have to make too many changes in the legal system to make it worthwhile.The State Aid Regime of the EU, however, does provide insight to China's competition law enforcement. The reason is that, for many years, China has turned a blind eye to anti-competitive effects of government subsides in the market, and there is nearly no sign of "competition" in official documents relating to public finance. This results in inapproate and intransparent handling of aid in China without analyses of the aid's impact on competition. One should keep in mind that the European model is established under the rule of law and a sound auditing system of undertakings and public finance. Therefore, it is necessary for China to focus on establishing the rule of law and reforming the laws on public finance, while cultivating a culture for competition.