Edited by Chris Milner and Robert Read
Chapter 8: Trade Liberalization and State Aid in the European Union
David Collie In contrast to most other trade blocs, such as the North American Free Trade Area (NAFTA), the European Union (EU) has supranational regulations on subsidies or state aid.1 In return for this supranational regulation of state aid, the member states of the EU have relinquished their right to use countervailing duties against the subsidies given by other member states, as permitted by Article IV of the GATT. Article 87(1) of the EC Treaty states that: ‘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, in so far as it aﬀects trade between Member States, be incompatible with the common market.’ Although this appears to be a strong prohibition of state aid, Article 87(2) lists a number of exceptions that are always compatible with the common market while Article 87(3) lists a number of exceptions that may be exempted by the European Commission.2 Responsibility for the implementation of the regulations on state aid in the EC Treaty lies with the Directorate-General for Competition Policy of the European Commission (DG-IV). Under Article 88(3) of the EC Treaty, member states are required to notify DG-IV of any proposed state aid so that they can determine whether it qualiﬁes for exemption. However, DGIV raises no objection in 80–90 per cent of cases and only reaches negative ﬁnal decisions in 1–5...
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