Policy Competition and Foreign Direct Investment in Europe by Philip Raines Ross Brown

Author:Philip Raines, Ross Brown [Philip Raines, Ross Brown]
Language: eng
Format: epub
ISBN: 9781138328006
Barnesnoble:
Publisher: Taylor & Francis
Published: 2018-07-30T00:00:00+00:00

Conclusions

The first part of this chapter outlined an apparently formidable array of powers for controlling subsidies in the EU. So-called State aids are outlawed by the founding Treaty of the EEC, subject to certain exceptions; the definition of those exceptions is the exclusive preserve of the European Commission. All aids must be notified to the Commission in advance and approved before implementation; unnotified aid is illegal and may have to be repaid (with interest), regardless of national laws on legitimate expectation and irrespective of whether it puts the firm in jeopardy. The Commission can propose changes to aid schemes and can render a scheme illegal if the Member State refuses to co-operate. It monitors the press for reports of subsidies paid and investigates claims from governments and aggrieved competitors; in so doing, it can require governments to provide information. Its decisions can be challenged in the Court of First Instance (by firms) or in the European Court of Justice (by Member States), but successful challenges on the substance of decisions are rare.

The second part discussed subsidy control policy with respect to mobile projects. Although such projects are not explicitly targeted by Commission policy, the risks of competitive outbidding for mobile investments have been the main motivation behind the control of general investment aid. This is reflected in two factors: first, that regional aid policies were the first to be disciplined within a framework of rules; and second, that the Commission has, in parallel, progressively tightened the circumstances in which general investment can be subsidised. This means that the Community's rules virtually exclude the possibility of providing general investment subsidies to large firms, unless they are located in designated regional development areas approved as such by the Commission. In consequence, the regional incentive policies of the Member States have been subject to close scrutiny and regulation over the past 25 years or so. In this context, the Commission has not only constrained the spatial coverage of regional policy, but also set ceilings on the incentives that countries can offer.

On paper, then, the Community approach to disciplining subsidies contains the key elements needed to ensure effective control of incentives. Moreover, the Commission claims success in having reduced levels of spending on subsidies in the EU18. There are, however, a number of significant weaknesses that actually or potentially undermine this system of control.

Of particular relevance to mobile projects, the discussion above suggested that control of award values under regional aid programmes has little rational basis and is relatively ineffective in terms of curbing the volume of subsidy. As a result, high levels of assistance can be offered quite legitimately in many locations. In consequence, there would appear to be a strong case for revisiting the aid ceilings currently in force, as well as giving serious consideration to other options for controlling award values.

A further issue of relevance to support for mobile projects concerns economic development policy trends within EU countries. The past decade has seen the growing involvement of regional and local governments and development agencies in the attraction of inward investment.

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