European Commission publishes results of Bird & Bird study on effectiveness of EU rules on state aid for research, development and innovation

The study, which was commissioned by the Commission's Directorate-General for Research and Innovation and conducted by Bird & Bird, is the most comprehensive analysis of the EU state aid rules on research, development and innovation (RDI) support ever undertaken by the European Commission. It was triggered by concerns that these rules may be hampering the competitiveness of European industry.

Bird & Bird's Of Counsel Serge Durande, formerly a high-ranking official in the Commission's Directorate-General for Competition, acted as project leader. During his time in DG Competition, Serge headed the unit in charge of state aid for research, development and innovation (RDI) for many years.

Bird & Bird was supported by the Spanish consultancy F. Iniciativas (a specialist in the area of innovation funding), Professor Michele Cincera of the Solvay School of Economics and Arthur D. Little. In addition, a high-level expert group, which included representatives of major companies, universities and industry associations with a focus on RDI, provided input at various stages of the project.

The study, which ran over two years, involved in particular a comparison of public RDI support in the EU and in 9 non-EU countries (Australia, Brazil, Canada, China, India, Japan, Russia, South Korea and US), a detailed analysis of real-life cases regarding RDI investments of European companies outside the EU and of non-European companies in the EU as well as a comprehensive review of the EU state aid rules and their application in the period 2008 to 2015.

The study concludes that the existing EU state aid rules on RDI support are overly restrictive and do not take sufficient account of the particular nature of RDI activities. In particular the study finds that:

• Public RDI support in the EU is less effective than in Japan, South Korea and the US due to the complexity of the EU rules, the way they are being implemented and the long duration of the EU approval process.
• The EU state aid rules on RDI support do not take into account the particular challenges and needs of SMEs and provide insufficient incentives for collaboration between SMEs and universities/ research centres.
• The transparency requirement (which does not exist in the 9 non-EU countries) harms beneficiaries of RDI support since it provides competitors with detailed information on the research undertaken by the beneficiary.
• The presumption that aid threatens to distort competition may not be appropriate for RDI support.
• The "matching clause" (which allows RDI aid to be approved if competitors outside the EU receive similar aid) has never been applied.

Based on these findings, the report makes a number of policy proposals, which include:

• Increasing the thresholds triggering an obligation to notify RDI aid to the European Commission;
• Reducing the number of permitted aid intensities from 30+ to 2;
• Limiting the scope of the transparency requirement;
• Expanding the notion of 'Important Programmes of Common European Interest';
• Shortening and simplifying the approval process (e.g. limiting the review process for cases raising serious issues to 5 months); and
• Transferring the power to approve support for RDI under the EU state aid rules from DG Competition to DG Research & Innovation.

When Bird & Bird presented the report to the Council of Ministers in March 2017, the report's conclusions generated significant interest. It will be very interesting to see to what extent the Commission will follow these proposals.