Edited by Josef Drexl and Vicente Bagnoli
Chapter 13: Distinguishing state and private subsidies: a closer look at the state character test
Approaching the area of state subsidies to private businesses from a fundamental perspective, three questions may be posed. This chapter will answer only one – the last one. First of all, do we have subsidies at all, are subsidies a prevalent phenomenon? The answer is simply and flatly: yes of course. Virtually all states subsidize their economies and economic operators in one form or another. This is not new: governments have always granted subsidies as a matter of steering economic policies. Subsidization is an age-old phenomenon. What is handed out to whom, when and in what form is a question of sovereign policy choice. Subsidies are a means of economic and competition regulation just like the enactment of laws and other regulatory measures. A second question, different from the first one (whether subsidies as a steering instrument exist at all) is whether we want subsidies. Are subsidies a good thing or do we prefer subsidy-free competition dynamics? Clearly, subsidies will in most cases (that is, unless they exceptionally compensate for disadvantages suffered by an operator in the public interest) run counter to the logic of competition on the merits. Competition on the merits is, however, something that states typically want to protect on their domestic markets, while they do not care much about it in external trade vis-à-vis economic operators in third countries.
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