Operational State aid control system in line with EU standards – a tool for healthy economic development

The EU funded project “Support for structured policy dialogue, coordination of the implementation of the Association Agreement and enhancement of the legal approximation process” offered expertise and support to Competition Council in the Republic of Moldova in their efforts to improve practice in the field of State aid in line with the system existing in the European Union. During November 2020 – October 2021, a team of experts from Latvia and Hungary closely worked with the authorities in the Republic of Moldova on respected its obligations arising from Articles 339 – 342 of the Associations Agreement with the European Union and the European Atomic Energy Community and their Member States (Association Agreement) in the field of State aid.

Objectives of the State aid modernisation in the European Union (EU), which started in 2012, encouraged governments of Member States to grant “good aid” which stimulates economic growth, job creation and objectives of common interest.  Good aid means it is targeted to support horizontal objectives under the State aid scheme that may be used for number of companies. Measures providing benefits only to specific companies provides greater risk for distorting competition as there is discrimination between companies that receive assistance and others that do not.

The EU State aid legal framework provides that the same playing field is applied for all Member States irrespective of their wealth, thus avoiding as much as possible subsidy race between different Member States.

In terms of effective State aid, interventions by governments shall compliment market forces and target support to well defined market failures to fix them, for example, by granting support for protecting the environment, encouraging the use of renewable energies, investing in market-oriented research and innovation, and attracting investors to the less developed territories of the country.

It shall be noted that State aid comes at the expense of taxpayers’ money. Therefore, it is important to focus State aid on the types of support that are a key for the growth of economy of the country and to limit government’s interventions to support inefficient companies (companies in difficulties) to keep them on the market, for example, without a proper restructuring plan. Also, where State aid is not having incentive effect, it is, where State aid is paid for activities that the beneficiary company would undertake anyway, granting of State aid is considered as a waste of public resources.

The EU State aid policy is essential tool to ensure better and more efficient use of public resources and it is equally applied for all Member States of the European Union (EU). Hence, to be part of the EU internal market it is vital for Moldova to aligning its legislation with that of the European Union in the area of State aid.

In the EU, general definition of State aid is provided Article 107 of the Treaty on the Functioning of the European Union (TFEU).

By signing the Association Agreement on 27 June 2014, Moldova undertook to set-up fully operational State aid control system by September 2019.

Some of the main achievements of the Republic of Moldova to introduce well-functioning national State aid control system that corresponds to the system of the European Union are summarised below.

State aid legal framework Moldova adopted the Law on State aid (hereinafter also ‘the Law’) in 2012. Changes in the Law have been made in 2014, 2018 and 2020. The Law on State aid is defining main principles that derive from the Treaty of the Functioning of the European as well as from the secondary rules of the European Union in the field of State aid. At the same time, the Law prescribes applicable procedures to perform State aid control functions in the Republic of Moldova. Moreover, Moldova has adopted extensive number of secondary legislations to be used for the State aid compatibility assessment, but majority of Regulations of the Competition Council are outdated if compared to the EU State aid law requirements. Hence it is a continuous process, as the EU law in the field of State aid is not static, it changes with periodic regularity (average within every 5-8 years). This in turn, requires that Moldova follows closely the latest changes in the EU law and adjust or replace Moldovan legal acts with new Regulations of the Competition Council. Considering expected changes in the EU State aid legal framework in 2021 and 2023, it is important to plan substantial revision of the Moldovan State aid related secondary legislation in 2021 – 2024.

Organisation of State aid control The Association Agreement requires Moldova to establish an operationally independent authority entrusted with powers necessary for the control of State aid by September 2016. The Competition Council is the sole authority in Moldova with the competence to decide on State aids compliance with the Law on State aid and consequently to grant permission to implement certain State aid measures, or to prohibit implementation of certain State aid measures, if they harm competition.

The Competition Council is having territorial offices, whose competence is to provide consultations to State aid granting authorities in regions, to identify potential State aid measures, including de minimis State aid, to help in using SIA RAS (State aid registry), to provide support regarding annual reporting, including reporting on granted de minimis State aid, to monitor implementation of the State aid measures in regions that are approved by the Competition Council, to take part in initiated State aid investigation procedures, as well as to organise seminars and roundtables to promote State aid discipline in Moldova.

Furthermore, the team of experts provided support by elaborating an Assessment Report on the ‘Legal, procedural, and institutional aspects of State aid control system in the European Union and in the Republic of Moldova’, which was released to State Aid relevant institutions, containing further improvement recommendations, including awareness raising activities.

The EU-funded project “Support for structured policy dialogue, coordination of the implementation of the Association Agreement and enhancement of the legal approximation process in the Republic of Moldova” aims at increasing the capacities of the Government of the Republic of Moldova and other key national institutions in implementing the EU-Republic of Moldova Association Agreement. The project’s work is arranged into 4 components contributing to the further enhancement of structured policy dialogue with civil society, improving policy development mechanisms for adequate budgeting of strategic documents, supporting the legal approximation process by providing technical expertise and capacity building as well as upgrading the IT systems in public administration supporting the implementation of the Association Agreement. The project is implemented by a consortium led by DAI – Human Dynamics for a five-year implementation period.