(1)

The Chapter on national regional aid for 2007-13 in the EFTA Surveillance Authority‘檚 Guidelines (hereinafter the ‘楻egional Aid Guidelines‘� clarifies the general approach of the Authority regarding regional State aid (2). In accordance with the conditions laid down in the Regional Aid Guidelines, and notwithstanding the negative effects that regional State aid may have on trade and competition, the EFTA Surveillance Authority (hereinafter the ‘楢uthority‘� may consider State aid compatible with the functioning of the EEA Agreement if it is granted to promote the economic development of certain disadvantaged regions within the EEA.

(2)

In general, the Regional Aid Guidelines take account of the relative seriousness of the problems affecting the development of the regions concerned by introducing specific regional aid ceilings. These maximum aid intensities are graduated between 10 % and 50 % of eligible costs, based primarily on the GDP per capita of the regions concerned, but also allowing EFTA States some flexibility to take account of local conditions. The regional aid maps for each EFTA State are published on the Authority‘檚 website (3). These graduated aid intensities reflect, in essence, the balancing exercise which the Authority must perform between, on the one hand, the positive effects that regional investment aid can have, in particular in terms of promoting cohesion through attracting investment to disadvantaged areas, and, on the other hand, limiting the potential negative effects that can occur when granting such aid to individual undertakings, for example the negative impact for other economic operators and for regions whose relative competitive advantage is correspondingly diminished.

(3)

A large investment project is an initial investment with an eligible expenditure above EUR 50 million (4). Large investment projects are less affected by the handicaps that characterise disadvantaged areas than investment projects of a lesser scale. There is an increased risk that trade will be affected by large investment projects and thus a risk of a stronger distortion effect vis-脿-vis competitors in other regions. Large investments also run the risk of the amount of aid exceeding the minimum necessary to compensate for the regional disadvantages, and there is the risk that State aid for these projects would lead to perverse effects such as inefficient location choices, higher distortion of competition and, since aid is a costly transfer from taxpayers in favour of aid recipients, net welfare losses, i.e. the cost of the aid exceeds the benefits to consumers and producers.

(4)

The Regional Aid Guidelines foresee specific rules for regional aid to large investment projects (5). The Regional Aid Guidelines provide for the automatic, progressive scaling-down of regional aid ceilings for these large investment projects to limit distortions of competition to a level which can generally be assumed to be compensated by their benefits in terms of development of the regions concerned (6).

(5)

Moreover, EFTA States have to notify individually any aid for investment projects if the aid proposed is more than the maximum allowable amount of aid that an investment with eligible expenditure of EUR 100 million can receive under the applicable rules (notification threshold) (7). For these notified cases, the Authority verifies in particular the aid intensities, the compatibility with the general criteria of the Regional Aid Guidelines and whether the notified investment represents a major increase of production capacities, while at the same time addressing an underperforming or even declining market, or benefits firms with high market shares.

(6)

Despite the automatic scaling-down, certain large amounts of regional aid for large investment projects could still have significant effects on trade, and may lead to substantive distortions of competition. For this reason, it was formerly Authority policy not to authorise aid for large investment projects above the following thresholds (8):

(7)

However, under the current Regional Aid Guidelines, the Authority has opted for a more individualised approach, which allows the cohesion and other benefits that can be derived from such projects to be taken into consideration, in as concrete a fashion as possible. Any such benefits must, however, be weighed against the likely negative effects on trade and competition, which should also be identified in as concrete a manner as possible. Therefore, paragraph 57 of the Regional Aid Guidelines foresees that the Authority will conduct a formal investigation procedure pursuant to Article 1(2) in Part I of Protocol 3 of the Surveillance and Court Agreement for cases above the notification threshold and meeting one or both of the conditions set out in points (a) and (b) of paragraph 57 of the Regional Aid Guidelines (the in-depth assessment thresholds which are the same as the thresholds described in paragraph 6 of this chapter). In these cases, the objective of the formal investigation is to carry out a detailed verification ‘that the aid is necessary to provide an incentive effect for the investment and that the benefits of the aid measure outweigh the resulting distortion of competition and effect on trade between Contracting Parties‘�a href="#ntr9-L_2012206EN.01001501-E0009" id="ntc9-L_2012206EN.01001501-E0009" shape="rect"> (9)