Finland may suffer from the EU’s new state aid policy, says researcher

European the union is once again at a new turning point, which has major implications for Finnish companies. For Finland’s leading competition law researcher Petri Kuoppamäki the setting is ticklish.

“From a jurist’s point of view, the issue is a major change in state aid policy and competition law. The EU is like an old person who has fallen off the sled.”

The US and China provide generous funding to companies to ensure their success in international competition. On the other hand, in the EU, state subsidies are basically prohibited.

“It is more and more about industrial policy, which the EU must respond to as dictated by necessity. Most recently, the coronavirus pandemic showed the vulnerability of EU state aid regulation,” says Kuoppamäki.

Pandemian during the period, state aid regulations were deviated from so that states could provide companies with emergency financing to prevent bankruptcies. The heightened trade policy tensions between the world’s two largest economies, the United States and China, have changed the situation.

Restrictions on the granting of state subsidies have been continued in the EU after the pandemic. Small open economies like Finland can still be left behind. The pockets of large member states are significantly deeper when competing for large investments.

“France has traditionally had a more positive attitude towards state subsidies than more market liberal countries. As a member state, Britain was market liberal, but when it left the EU, France’s economic political influence increased. Germany has also started to have a more positive attitude towards state subsidies.”

Question is hundreds of billions of euros.

Combating climate change and new technologies require investments that are unlikely to materialize without public funding. The market is international, but the rules of the game vary.

“At least in the initial stages, it is difficult for less polluting investments to compete on the market, because more polluting ones are cheaper and more attractive to many. The promotion of green investments requires that state support can be given.”

The sometimes very strict state aid control was a European specialty for a long time. The World Trade Organization (WTO) also has supervisory responsibility, but according to Kuoppamäki, it has not functioned effectively for a long time.

In his opinion, the European Commission has played a major role in loosening the interpretation of prohibited state aid.

“I think this is a justified change, as long as it doesn’t go too far. The fact is, however, that in the future it will be difficult for small states to compete for the largest investments.”

Because of the Commission’s broader interpretation, state aid issues end up being examined by the Court of Justice of the European Union less often. The legislation has not been changed in the EU.

Previously In Kuoppamäki’s opinion, the EU followed the basic principles of the market economy too literally. State aid was prohibited because it distorted competition and prevented the common market from functioning effectively.

For example, steel produced with strong funding from the Chinese state and polluting methods was still allowed to be imported into the EU for years, because the market economy was not wanted to be undermined.

“It was maintained that no company in the EU’s common market received a competitive advantage from the state in relation to other companies. In recent years, it has been understood that it is a matter of global industrial policy, where the EU can no longer remain at the feet of the United States and China.”

Kuoppamäki in my opinion, the problem of EU state aid regulation from the perspective of international competition is its uniqueness.

Cartels and abuse of a dominant position are prohibited in all industrialized countries. Large business deals must be approved in advance by the competition authorities in about a hundred countries. On the other hand, most European companies’ competitor countries do not have effective state aid control.

“When industrial policy aspects have become more prominent, the EU has softened its interpretation of state subsidies. At the same time, in 2023, a regulation was introduced that aims to combat state subsidies granted by third countries when they distort competition in the EU.”

Based on the new regulation, companies from non-EU countries that received state support have been excluded from tenders in Europe this year.

”

“At least in the initial stages, it is difficult for less polluting investments to compete on the market, because more polluting ones are cheaper and more attractive to many. The promotion of green investments requires that state support can be given.”

The aim is to respond to international competition by allowing more subsidies for EU companies than before, for example in projects supporting sustainable development, but also by interfering with subsidies granted by third countries.

“International competition takes place not only between companies but also through regulatory means.”

Second a significant issue regarding state aid is taxation, which can be used to guide the operations of companies. If states don’t want to invest in more environmentally friendly technology, they can of course impose negative taxes.

“Another option is to attract green investments by reducing taxation, but you have to be careful about that. Tax breaks that are too large can be prohibited state aid because they distort competition.”

Although Kuoppamäki has a positive attitude towards the relaxation of the Commission’s state aid regulation, one thing surprises him.

“No one monitors the funding that the commission gives to various projects and companies. In terms of competition law, this is an interesting detail, because the Commission’s funding is quite large.”