OFT response to EC State aid action plan

OFT response (12 pages, PDF) to the European Commission's State aid action plan. The document promotes recent studies commissioned by the OFT from London-based economics consultancies, and argues that the system should be reformed so as "to ensure that aid that poses a significant risk to competition are [sic] prohibited and aid that does not pose a risk is approved".

The OFT's proposal would represent a significant change from the approach specified in Article 87 of the Treaty whereby aid that "distorts or threatens to distort competition" is prohibited unless it is necessary (proportionate) for the achievement of legitimate purposes specified in Article 87(3), Article 86(2) or other Treaty provisions. The OFT does not provide reasons for its advocacy of such a change, or evidence that a threshold can be defined for an acceptable level of distortion to competition; but is promising to present its proposals "in more detail in a forthcoming report" (which was published on 23 November 2005). The OFT also asks "how state aid controls will be changed to permit aid targeted at market failure", implying that it believes that the "market failures" discussed in the Commission's document represent new justifications for State aid, rather than merely a re-formulation of established purposes such as economic regeneration or the protection of the environment.

Section 3 of the document is a bid by the OFT to "provide support for state aid control in an advisory capacity", citing its experience in advising UK Government bodies on regulatory impact assessments. But the OFT does not want a role in monitoring or enforcement.

Update, April 2007: The original document (14 pages, PDF) seems to have disappeared from the OFT website. Our link now points to the faxed version on DG Competition's site.

For further information or advice please contact Franck Latrémolière.

Filed under OFT, State aid.

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