The new State aid framework for R&D&Innovation 2007-2013

1. The new State aid framework for R&D&Innovation 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 DG Competition, European Commission

2. 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 TKL, DG Competition, European Commission

3. 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’ TKL, DG Competition, European Commission

4. Context: State aid reform; Lisbon strategy; innovation • R&D Framework goes back to 1996 • State Aid Action Plan adopted in June 2005. • Communication on State aid for innovation in September 2005 • Draft R&D&I-framework aims at supporting better targeting of State aid: • better targeting R&D&I within State aid budgets (cf. additional aid possibilities, increased legal certainty) • better targeting R&D&I measures within R&D&I State aid • Method: • refined economic approach • improved architecture of rules TKL, DG Competition, European Commission

5. 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 TKL, DG Competition, European Commission

6. 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 TKL, DG Competition, European Commission

7. Refined economic approach • State aid for R&D&I targets economic efficiency • Positive orientation but no presumption that State aid for R&D&I is always positive=> 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 TKL, DG Competition, European Commission

8. State aid measures • Aid for R&D&I 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 TKL, DG Competition, European Commission

9. What is new in these measures? • Measures for R&D (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 TKL, DG Competition, European Commission

10. 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? TKL, DG Competition, European Commission

11. 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 foradvisory 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 Measures target market failures TKL, DG Competition, European Commission

12. 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) TKL, DG Competition, European Commission

13. New intensities /bonus structure TKL, DG Competition, European Commission

14. New architecture for State aid instruments in the field of R&D&I • Overall architecture goes beyond draft framework, includes general block exemption regulation (GBER). GBER should exempt more R&D-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 R&D&I-aid will trigger assessment under framework • Framework provides for several levels of assessment TKL, DG Competition, European Commission

15. 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] TKL, DG Competition, European Commission

16. External dimension • Matching clause: • already present in the existing R&D framework. • Kept in the draft R&D&I framework but more visible • Article 87.3b): • already present in the existing R&D framework. • Conditions are made more explicit in the draft R&D&I TKL, DG Competition, European Commission

17. Highlight: aid to young innovative enterprises • Small enterprise (< 50 employees) + Young (< 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 R&D expenses of the beneficiary represent minimum 15% of its total operating expenses, as certified by an external auditor. TKL, DG Competition, European Commission

18. 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 R&D&I + with risk capital aid • Cumulation with other type of aid only 3 years after the granting of YIE aid TKL, DG Competition, European Commission

19. Many possible forms of aid • Subsidies • Fiscal incentives • Repayable advances • Public procurement • Guarantees • Capital injections TKL, DG Competition, European Commission