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REGIONAL STATE AID: NEW PLAN WOULD OFFER A BETTER DEAL FOR THE REGIONS.

The previous European Commission project dates back to December 2004 (see Europe Information 2932, Section III). The criteria applied then to determine the EU regions eligible for the new regional state aid scheme allowed 35% of the EU population to be covered. The yardsticks in the new project raise the level to 43.1%.

Regional state aid is enshrined in the Treaty's Article 87.3a (the most favourable system for the least-developed regions) and Article 87.3c (less favourable scheme, for other types of regions). Hitherto, the regions have complained about the Commission plan for significant restrictions on the eligibility opportunities under Article 87.3c. The new project meets their expectations on this score: apart from the "phasing-in" regions (former Objective 1 regions of the Structural Funds that are naturally exiting this Objective, as their GDP would have exceeded 75% of the EU average even without enlargement) and low-population regions (less than 12.5 inhabitants per km2), other entities will also qualify on the per capita GDP basis (which has to be less than the Community average) or according to the rate of unemployment (115% in excess of the national average). The member states would also enjoy a degree of flexibility for factoring in specific regional development challenges in entities with over 20,000 inhabitants.

Regions affected by statistical effects (over the 75% GDP mark in the wake of enlargement) will qualify under Article 87.3a, whereas they did so under 87.3c in the earlier project. This means an improved situation. However, their status would be reviewed in 2009, on the per capita basis. With 75% of the average for the 25-member EU, they will continue to be covered by Article 87.3a, above this percentage they will fall in the Article 87.3c net. In other words, virtually all these regions should normally switch to 87.3c in 2009.

The aid levels have also been reviewed relative to the December 2004 project, even though the idea has been retained of dividing Article 87.3a regions into three groups, according to the level of GDP:

- regions whose per capita GDP is 45% or less of the Community average: the aid level will vary between 50% and 70% of the eligible spending in the light of the size of the companies;

- regions whose per capita GDP is between 45 and 60% of the Community average: the aid levels will vary between 40 and 55%;

- regions whose per capita GDP is between 60 and 75% of the Community average: the aid levels will vary between 40 and 55%.

In the case of regions affected by statistical effects, the levels of aid will vary between 20 and 40%, and between 10 and 35% for regions eligible under Article 87 s.3c.

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These figures should nonetheless be treated with caution. A comparison with the current situation could give the impression that the aid ceilings are being raised but a difference of size has to be factored in: the Commission proposals are expressed as "gross grant equivalent" rather than the present "net grant equivalent". This can produce major differences, mindful that the corporate taxation rates vary in the 25-member EU within a range of about 10 to 40%. This change in the computational system will in any event affect the actual aid levels possible in regions that have the same eligibility status but different taxation systems. In a nutshell, the regions themselves will have to make their own comparisons with the current situation on the basis of the corporation taxation rate applied in their individual countries.

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Initial reactions.

The regions should be more pleased with this project than the earlier one because several of their demands have been met. This applies to both eligibility criteria and aid levels. After keeping close tabs on this issue for several months, the Conference of Peripheral Maritime Regions of Europe (CPMR) is quite pleased about this latest initiative, calling it welcome progress. However, it continues to warn about certain items, such as the ceiling computation system on offer being based on the gross grant equivalent. As an example, it warns against taxing grants. It also bemoans what is in store for the islands: they will not enjoy automatic eligibility under the new scheme, whereas the CPMR thinks they should be eligible for Article 87.3c at the very least.

A summary of the new proposals, plus a table summing up the situation for each member state, is available at the following address: www.europa.eu.int/comm/competition/state_aid/regional/rag_summary_june_en.pdf

CRPM tables taking stock of the aid levels are available on our EISnet site: www.eis.be > Advanced search > Reference = EURE;2981;322
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Publication:European Report
Geographic Code:4E
Date:Jul 23, 2005
Words:781
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