Glossary of competition terms

This Glossary is based on definitions from DG COMP’s Glossary of terms used in EU competition policy (© European Union, 2002) and the OECD’s Glossary of industrial organisation economics and competition law (© OECD, 1993). Each term is enriched with references of national case laws from the e-Competitions Bulletin and Concurrences Review.

State aid

Basic principles for the control of state subsidies and other aids in order to prevent distortion of competition are contained in Articles 107-109 of the Treaty on the Functioning of the European Union. The Commission determines whether aid violates the Treaty standard, and it can order the Member State to end it and order the recipient of illegal aid to return it. The policy motivation for state aid control in the original treaties was to prevent national favouritism and thus promote opportunities for trade and competition among the Member States. DG Competition administers the system for notification and approval and deals with state aid policy and decisions about most sectors. Other directorates-general apply the rules in transport, coal, agriculture and fisheries.

The substantive criterion is whether the aid distorts or threatens to distort competition by favouring some products or enterprises (and affects trade between Member States). Drawing on this text, the elements that define state aid are state resources, advantage to firms or industries, selectivity, distortion of competition and effect on trade. Correct classification has practical consequences. A measure that falls within the formal category “state aid” must be notified and approved by the Commission in advance. Thus the first issue to determine is whether a program or action constitutes aid. To then assess whether aid is compatible with the common market, the Treaty describes permissible purposes for aid. Aid is permitted for redressing underdevelopment and unemployment and for dealing with serious economic disturbances and important projects of common European interest. Aid for other regional development and for promoting culture and preserving heritage is permitted only where it does not adversely affect trading conditions to an extent contrary to the common interest.

© OECD

Glossary