The EU Commission adopts a Temporary Framework for the assessment of State aid granted to assist firms from entering into difficulties due to the COVID-19 outbreak

In response to the COVID-19 crisis, European Union (EU) President von der Leyen has formed a team led by eight Commissioners to coordinate the EU response to the crisis. This team of Commissioners is advised by a new advisory panel of epidemiologists and virologists. The European Commission (EC) is also coordinating daily contacts with European Health Ministers and Ministers of the Interior.

An initial package of measures was announced on March 13, 2020, and further initiatives are being announced almost daily. The EU response includes a combination of direct EU-level financial aid, new legislation, and increased flexibility in the enforcement of EU State aid rules to facilitate the adoption of local Member State measures. Increased flexibility in EU antitrust enforcement is also expected in key sectors.

The measures taken so far, and EU State aid and antitrust aspects, are summarized below. New developments are posted on a dedicated EC webpage, in this rapidly evolving situation.

I. EU Financial Assistance

The EU can provide financial assistance under a number of existing programmes, and changes have been proposed to increase the resources available. Initiatives so far envisaged include:

II. EU Legislative Response

The EU legislative response to the crisis includes a variety of specific and general measures, including:

  • A temporary framework for assessment of State aid (discussed below);
  • Restrictions on non-essential travel to the EU and guidelines for border management;
  • A proposed regulation on a COVID-19 Response Investment Initiative to mobilise existing EU budget resources to provide financial support for Member States, including advancing payments, redirecting cohesion funds and channelling money where it is most needed;
  • A proposed regulation on airport slots to prevent airlines losing slots when they are forced to cancel flights;
  • A proposed regulation on financial assistance to Member States and countries negotiating accession to the EU;
  • Consultation and conformity assessment procedures to ensure supplies of medical and personal protective equipment such as face masks; and
  • Accelerating preparation of proposed legislation on a European Unemployment Reinsurance Scheme to support Member State policies.

III. EU State Aid Approach

Unlike financial assistance granted directly by the EU, financial assistance granted by EU Member States is subject to the EU State aid rules under Article 107 of the Treaty on the Functioning of the EU (the TFEU). Article 107 generally prohibits “State aid,” which is interpreted broadly to include many types of financial assistance, unless the aid is covered by a general approval under EU rules or specifically appr oved by the EC. Article 107(3)(b) TFEU provides for flexibility to address serious disturbances across the EU economy.

On Thursday, March 19, the EC adopted a temporary framework (the Temporary Framework) for the assessment of State aid granted to assist firms entering into difficulties as from December 31, 2020.

The new framework will enable four types of aid: (i) direct grants and selective tax advantages up to €500,000; (ii) State guarantees for loans for investment and working capital at subsidised premiums, subject to maximum loan amounts based on companies’ wage bills or liquidity needs; (iii) public loans to companies at subsidised interest rates for investment and working capital needs, also subject to maximum loan amounts; and (iv) safeguards for banks channelling public support to companies, which is treated as aid to the banks’ customers rather than to the banks themselves.

Within three days after approval of the Temporary Framework, the EC had already approved several national aid measures:

  • TwoGerman support measures to allow the German promotional bank Kreditanstalt für Wiederaufbau to provide subsidized loans to companies affected by COVID-19 in close cooperation with commercial banks, the first for loans of up to five years and up to €1 billion per company, and the second for larger loans up to 50% of the total debt of a company;;
  • AnItalian support scheme of €50 million for the production and supply of medical equipment and masks;
  • Four Portuguese guarantee schemes totalling €3 billion for small and medium-sized enterprises (SMEs) and midcaps in the tourism; restaurant; extractive and manufacturing industry; and travel agency activities, touristic animation, event organisation sectors;
  • A €130 million Danish guarantee scheme for SMEs; and
  • Three French aid schemes, two enabling the French public investment bank Bpifrance to guarantee commercial loans and credit lines for companies with up to 5,000 employees and a third to guarantee portfolios of new loans to all types of companies. These schemes are expected to mobilize more than €300 billion of liquidity support.

The Temporary Framework complements, rather than superseding, other legal criteria allowing for State aid under EU law. These include:

  • De minimis aid that does not exceed EUR 200 000 for a single undertaking per Member State over any period of three years; and
  • Rescue and restructuring aid under Article 107(3)(c) TFEU, such as loans or guarantees covering cash-flow shortfalls for up to six months. New State aid measures are sure to be announced and approved in the coming days and weeks. The EC can be expected to continue approving such aid very rapidly to avoid standing in the way of national efforts to mitigate the crisis’ effects. On the other hand, the current structure will limit the ability of third parties, such as competitors, to participate and comment in State aid approvals.

IV. Other EU Antitrust Implications

While the EU’s responses to the COVID-19 crisis will be welcomed by companies and citizens across the EU, many companies will also need to explore other measures to address the crisis. Some measures, such as “crisis cartels” (debated in an OECD roundtable in 2011), are and remain illegal and may attract high fines.

However, EU competition rules allow multiple types of cooperation that may provide scope for companies to mitigate the effects of the crisis. Potentially relevant forms of cooperation include:

  • Specialisation arrangements, under which companies agree to specialise in complementary activities to benefit from efficiencies (without fixing prices, limiting output or sales or allocating customers). Such agreements may already benefit from an exemption from EU antitrust rules.
  • Joint purchasing arrangements, which may yield significant efficiencies and are often viewed favourably under the EC’s guidelines on horizontal cooperation arrangements.
  • Other forms of cooperation, including sharing of information for pro-competitive purposes, again in accordance with the EC’s horizontal cooperation guidelines. The assessment of cooperation other than hard-core violations (e.g., price fixing and market allocation) involves a weighing of pro-competitive and potentially anticompetitive effects, and the current crisis may result in more arrangements being allowed than would normally be the case, especially short- and medium-term arrangements.

The EC has already committed to providing more informal guidance than has been the case under the so-called “self-assessment” framework.

  • Sectoral arrangements, in particular in the agricultural sector, where a range of cooperative agreements not permitted in other sectors may be allowed.
  • Mergers and joint ventures, which may accelerate as companies seek to adapt to the crisis by consolidating or cooperating with one another in formal joint ventures that may trigger antitrust review. The EC is famously strict in its assessment of notified mergers and has been contemplating even stricter review of certain mergers, particularly in the tech sector. On the other hand, EU merger rules already recognize the some transactions that would otherwise be prohibited may be allowed if one of the parties is a failing or “flailing” firm or division. From a practical perspective, however, the EC’s normal processes for assessing mergers and collecting information may be disrupted.

On March 23, the European Competition Network (the ECN) issued ajoint statement acknowledging that the current situation may require companies to cooperate to ensure the supply and fair distribution of scarce products and stating that the ECN will not actively intervene against necessary and temporary measures put in place to avoid supply shortages. The joint statement noted that such measures would likely not to be problematic in any case, since they would either not restrict competition or generate efficiencies outweighing any such restriction. The joint statement stressed that companies can reach out to the EC, the EFTA Surveillance Authority or the national competition authority concerned for informal guidance.

On the other hand, the ECN’s joint statement stressed the importance of ensuring that products considered essential to protect the health of consumers in the current situation (e.g. face masks and sanitising gel) remain available at competitive prices. The ECN stressed that the EC and participating authorities will not hesitate to take action against companies taking advantage of the current situation by cartelising or abusing dominant positions and reminded companies that manufacturers can set maximum resale prices for their products to limit unjustified price increases at the distribution level.

Indeed, some authorities are stepping up enforcement against other crisis-related behaviour, such as price gouging. Examples include an investigation launched in Greece in relation to medical masks and gloves and an Italian intervention against U.S. crowdfunding site GoFundMe. Authorities in many other jurisdictions, including Brazil, Kenya, Russia, the UK, and the United States, have reportedly issued warnings or taken action in respect of similar behaviour.

The EC may take other creative steps to adapt EU competition policy to the crisis, especially as regards transport, food and pharmaceutical supply chains, and banking. These ideas could take the form of temporary exemptions or interpretative guidelines, for instance to allow temporary cooperative arrangements that would otherwise be prohibited. Indeed, a number of EEA countries have already taken such actions. These include Norway exempting certain cooperation in the transport sector and the UK relaxing rules on cooperation among supermarkets. Similar actions are being taken by global authorities, including Australia and South Africa. Further announcements, in Europe and around the world, can be expected on an almost daily basis in the coming days and weeks.

V. Our Take

Each company’s situation is different and must be assessed on a case-by-case basis. As the COVID- 19 crisis evolves, however, many companies will need to take advantage of a combination of EU and national financial assistance, and legislative relief from restrictions that may become untenable in the current environment. The EC moved rapidly to adopt a special framework for assessing State aid measures responding to the crisis and began issuing approvals within days. Companies may also mitigate the effects of the crisis by entering into a wider range of cooperation arrangements, mergers and joint ventures than they would normally consider. Except in the case of hard-core violations, the EC can be expected to be receptive to arguments that cooperation among competitors and up and down supply chains is pro-competitive or generates consumer benefits, at least for short- and medium-term arrangements. The EC has committed to do more to provide informal guidance, and companies should not hesitate to seek such guidance. Meanwhile, some European authorities have already started to relax competition rules in key sectors such as transport and food supplies.

As the crisis deepens, a number of companies can also be expected to mitigate its effects through consolidation or cooperation. Although EU merger review is famously tough, the EC can also be expected to take current conditions into account in its assessments, and the long-established “failing/flailing firm defense” may lead to transactions that would otherwise not pass muster being approved.

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Author

  • Norton Rose Fulbright (Brussels)

Quotation

Jay Modrall, The EU Commission adopts a Temporary Framework for the assessment of State aid granted to assist firms from entering into difficulties due to the COVID-19 outbreak, 19 March 2020, e-Competitions March 2020, Art. N° 93866

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