Article 87 (State aid rules)
Article 87 EC prohibits specific kinds of aids that might be given by EU member states to enterprises, and gives powers to the European Commission to clear some such aids as "compatible with the common market".
This article is numbered 87 in the 1997 consolidated version of the EC Treaty. It is based on Article 92 of the 1957 Treaty of Rome.
This page contains an overview of the structure of Article 87, some information about its application to transport and operators of public services, and a few links.
Article 88 governs the enforcement of these State aid rules.
Structure of Article 87
Article 87 has three paragraphs.
Article 87(1) sets out a general prohibition as follows:
(1) Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market.
Article 87(2) exempts some categories of aid from this prohibition:
- 87(2)(a) — aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;
- 87(2)(b) — aid to make good the damage caused by natural disasters or exceptional occurrences;
- 87(2)(c) — aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, insofar as such aid is required in order to compensate for the economic disadvantages caused by that division.
Article 87(3) provides a possible justification for State aid that is aimed at the following purposes (subject to some conditions and provisos in each case):
- 87(3)(a) — to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment;
- 87(3)(b) — to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;
- 87(3)(c) — to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;
- 87(3)(d) — to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Community to an extent that is contrary to the common interest.
Article 87(3)(e) allows the Council of Ministers to add to this list of potential justifications:
- 87(3)(e) — such other categories of aid as may be specified by decision of the Council acting by a qualified majority on a proposal from the Commission.
In addition to the justifications listed in Article 87, Article 86(2) of the Treaty provides a further potential justification for State aid that is necessary to achieve public service objectives, with a proviso similar to the "common interest" ones under Article 87(3)(c) and Article 87(3)(d).
Under Article 88(3), any new State aid scheme is subject to prior approval by the Commission, even if they are justified under Article 87(3) or Article 86(2), unless it comes within the scope of a block exemption regulation.
Application to transport and operators of public services
The application of the Article 87(1) definition of State aid to the case of State funding for public services was clarified in 2003 by the Altmark preliminary ruling of the Court of Justice. Following this judgment, the Commission has proposed block exemptions for funding to public services which constitute State aid (i.e. does not comply with the Altmark criteria) but is deemed to be justified under Article 86(2). Such aid will be exempted from the obligation to notify the scheme to the Commission.
In the case of transport, Article 73 provides that "aids shall be compatible with this Treaty if they meet the needs of coordination of transport or if they represent reimbursement for the discharge of certain obligations inherent in the concept of a public service." The European Court of Justice found in Altmark that this provision did not affect the application of Article 87 in a case where a Member State had taken advantage of a right to derogate from the transport-specific rules in Council Regulation 1191/69.
The Commission has proposed new arrangements for local bus and rail transport and some other public services.
Links
Official guidance
- DG Competition guide to the State aid rules (42 pages, PDF)
Articles and case notes on the Reckon site
- The Philip Morris (State aid) case clarifies the concept of effect on trade under Article 87, in particular that there is no need to establish an effect on competition or an actual effect on intra-Community trade.
- The Altmark and Ferring (State aid) cases clarify the definition of State aid in cases where payments are made in exchange for the provision of public services or as compensation for public service obligations.
- The Chronopost case addresses the issue of "leakage", where a publicly-funded public service provider gives State aid to another undertaking, such as a commercial subsidiary.
- Public services and competition law | viewpoint: Franck
Review of how EC competition law, including State aid law, applies to public services.
- Philip Lowe lecture 24 June 2005 | viewpoint: Franck
Notes on a lecture by the Director General of DG Competition.
- State aid law and the BBC
Articles and commentaries on State aid issues involving the BBC.
Reckon guide
- "Unfair competition?"
Reckon's guide to complaining about anti-competitive conduct or regulations, including subsidies.
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Last changed by Franck at 6:05 PM on Tuesday 9 September 2008.