Book Review: The Concept of State Aid under EU Law
[The ECLR has just published my review of Jorge Piernas’ book on EU State Aid Law, which I reproduce below. I definitely recommend this monograph!]
EU state aid law has become a complex area. It is challenging for practitioners and academics. While publications for the practising lawyers keep growing (there are some excellent monographs and a specialised journal), works of a more theoretical nature remain relatively rare. Volumes approaching the subject from an academic perspective, such as Juan Jorge Piernas Lopez’s, are thus most welcome.
The thesis advanced by the author helps explain why it is difficult to find similar literature on the topic. Piernas argues that the (evolving) policy preferences of the European Commission (the Commission) are a major driver in the evolution of EU state aid law. If this is so, one would expect to find inconsistencies in the case law, as well as fluctuations in the emphasis given to some conditions of art.107(1) TFEU. Trying to develop, against this background, a systematic analytical approach to the case law is unlikely to prove easy.
Piernas’s approach reflects these difficulties. Instead of providing a top-down approach to the topic, and instead of offering a theoretical account capable of explaining the rationale behind the case law, the thrust of the monograph revolves around some of the leading cases in the field, which are presented in the form of short case notes. The absence of theoretical ambition is refreshing. Piernas argues that the policy position of the Commission in each of the cases is a more meaningful way to understand the outcome in each case. Thus, the description of the judgments takes into account the interpretation of art.107(1) TFEU proposed by the Commission. The effort in this sense is welcome and most illuminating.
Following a first part in which the author puts EU state aid law in perspective, he devotes four chapters to the elements of art.107(1) TFEU. The notions of advantage and selectivity are covered in Chs 4 and 5, respectively. The requirement that state aid be granted “by the State or through State resources” is addressed in Ch.6. Finally, the effect on trade and distortion of competition conditions are discussed in Ch.7.
Those interested in the field of state aid will be familiar with the choices made by Piernas. These are classic judgments that are likely to feature in any course devoted to EU state aid law. For instance, Ch.4 covers landmark rulings relating to the notion of advantage, includingSteenkolenmijnen, SFEI, Altmark and EDF. The reader is guided to the introduction of some key notions, including that of aid itself (which is an advantage that comprises measures such as tax breaks or sales below the market price) and the so-called market economy investor principle. Chapter 4 also discusses the conditions under which compensations for public service obligations fall outside the scope of art.107(1) TFEU.
The choices made by the author in Ch.5 are equally unsurprising. Piernas drives the reader through the landmark rulings that have contributed to the controversies around the notion of selectivity. This guide comprises old cases such as Italy v Commission . The Court held in that case that state aid is concerned with the effects of measures and not with their causes or aims. This statement, which was arguably uncontroversial and meaningful in the context in which it was introduced, has become an important source of confusion, as subsequent case law shows. British Aggregates, which is the ruling chosen by Piernas, illustrates this confusion particularly well.
Gibraltar is the last case discussed in Ch.5. It epitomises better than any other ruling how impenetrable the concept of selectivity has become. The judgment of the Court of Justice in this case has notable consequences that are difficult to ponder. It seems clear that all Member States use the tax system in a way that accommodates the economic structure of the country and the policy objectives of governments. It was safe to assume before the judgment, as explained by the Commission in its 1998 Notice on direct business taxation, that not all of these measures were caught by art.107(1) TFEU. For instance, a reduction in the taxation of labour is necessarily a general measure. According to the Notice, the fact that it favours, by definition, labour-intensive industries is not sufficient to trigger the application of art.107(1) TFEU.
It is no longer possible to have any certainty about the scope of the notion of selectivity after Gibraltar. The Court held that the application of art.107(1) TFEU should not depend on the “regulatory technique” chosen by the state, which means that even formally general measures may qualify as state aid insofar as they are designed to favour some undertakings over others. The additional layer of difficulty created by Gibraltar was reflected in the Draft Notice on the notion of state aid, in which the Commission struggled to reconcile the judgment with its general approach to the notion of selectivity.
Against this background, the reader is left with the impression that the discussion of Gibraltar is perhaps too brief. The author seems to express sympathy for the outcome of the judgment, but does not fully address its implications. One interesting issue that would have justified a lengthier development relates to the reference by the Court to the “regulatory technique” chosen by the state. The outcome in Gibraltar, which favours substance over form, is at odds with the judgment in PreussenElektra, in which the Court conceded that some “regulatory techniques” fall outside the scope of art.107(1) TFEU, even though they are equivalent in their effects. The reader has to wait until the section devoted to the latter to find a discussion of (only some) of these questions.
There is an omission in Ch.6 that some readers will find controversial. The question of whether aid must be granted by the state and/or through state resources has long been contentious. It says much about the conceptual confusion around the boundaries of the notion of aid. Uncertainty in this regard only disappeared in the early 2000s. The question was only truly settled after AG Jacobs’ magisterial opinion inPreussenElektra. Prior to that ruling, case law suggested that a measure need not involve the use of state resources for it to be caught by art.107(1) TFEU. What Piernas calls the Poor Farmers case is a clear example of this line of case law.
It cannot be disputed that Sloman Neptun and PreussenElektra deserved a lengthy discussion in the monograph. On the other hand, the reader is left with the impression that a full understanding of the evolution of this condition is only possible by expanding the analysis to include the subsequent ruling in Stardust Marine . While it was not possible to dispute after PreussenElektra that the use of state resources is required to trigger the application of art.107(1) TFEU, the scope of that concept remained undefined. In addition, the application of state aid rules to state-owned undertakings was contentious at the time (this is an issue that becomes apparent in the monograph through the discussion of cases like EDF and SFEI).
Stardust Marine is important insofar as it clarified that the concept of state resources comprises all resources that the state can use to achieve its objectives. In this sense, the ruling supported a relatively expansive understanding of art.107(1) TFEU. On the other hand, the Court was unambiguous in holding that a measure must not only be granted through state resources, but must also be “imputable” to the state. In this sense, it narrowed down the potential reach of art.107(1) TFEU.
Stardust Marine is the ruling that “closes the circle” in relation to this condition of art.107(1) TFEU. Piernas is right in suggesting that prior judgments were difficult to reconcile with one another. What is interesting about Stardust Marine is that it shows that the outcome in prior cases like Poor Farmers was not necessarily incorrect. The legal route that the Court would have followed after Stardust Marine , however, would have been markedly different.
In more general terms, it is likely that not all readers will agree with the thesis advanced by the author. The idea that the legal notion of aid has evolved in line with the policy priorities of the Commission is controversial. The cases chosen by Piernas appear to contradict this thesis. For instance, it is difficult to argue that the condition whereby aid must be granted by the state and through state resources results from the policy choices of the Commission. It is apparent that the Commission supported a notion of aid that was more expansive than that endorsed by the Court in PreussenElektra. Similarly, Stardust Marine contradicted the interpretation of art.107(1) TFEU defended by the Commission in the decision that was at the origin of the ruling.
A similar conclusion follows from an analysis of other cases. If one considers the broad context in which SFEI was adopted, it is difficult to argue that the Commission was the driver behind the ruling (given the reluctance of the Commission to intervene in such a case, there would be valid grounds to argue the opposite). Similarly, EDF, Azores and British Aggregates contradicted the policy choices made by the Commission. The monograph gives the impression that other factors (in particular, the liberalisation of major sectors of the economy) have been fundamental drivers in the evolution of the notion of aid, and that these factors have not been given sufficient weight.
In spite of these comments, there should be no doubt that the monograph makes a major contribution to the literature. It will be a lasting reference in the field both from a substantive and a methodological perspective. The author displays a very sophisticated understanding of the field and of the factors at play in the decision-making process. More importantly, he has found an elegant and effective way to introduce these factors in the analysis.