A. Purpose

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On its face, the phrase, “in so far as it affects trade between Member States” would appear to serve the same function as similar words fulfill in Articles 101 and 102 TFEU, namely the demarcation of the boundary between Union or Member State jurisdiction. In practice however, the extent to which said qualification actually defines the jurisdictional boundary must be seen as purely formalistic.

There are four reasons for this:

1. Technology and the ever-increasing interconnection of MS economies has removed most traditional technical, geographic and legal barriers which in the past segregated the EU into distinct national and regional markets.
2. For at least 30 years, both the Commission and EU Courts have, correctly, conflated the notion of ‘effect on trade’ with the concept of ‘distortion of completion’ in their jurisprudence and practice.

   

3. Because the aim of State Aid law is to control competition, not between individual undertakings, but between the MS governments.
4. Because the aim of most State Aid is to affect/distort interstate trade/competition.

   

The practical result of the second reason is that it is difficult to draw distinctions in the case law, between cases where the aid has been found compatible because a lack of effect on trade as opposed to a lack of a distortive effect on competition. The examples commonly cited in the literature tend to ascribe an outcome as resulting from a failure to find the former, primarily in cases involving narrow geographic markets, but fundamentally, any distinction is in point of fact, purely arbitrary as in all these cases it was found that there was similarly no distortion of competition.

B. Definition of 'Trade Between Member States' under Art. 107 para. 1

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From the case-law of the Courts and the corpus of Commission decisions and notices, it would appear that concept of trade in Art. 107 encompasses the production, provision and procurement of goods and services which can either themselves cross boarders or cause those undertakings involved in said activities to cross national frontiers.

I. Relationship with Free Movement Jurisprudence

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As the control of State Aids is a powerful tool for realising an internal market characterised by a system of undistorted competition and harmonized national standards, one might suppose the tests and definitions used by the Courts and Commission in their free movement jurisprudence to be applicable to Art. 107. This is however, not the case.

In Iannelli v Meroni, the ECJ held that as a general principle of EU law it was not possible "the obstacles to trade" test applied in one section of the Treaty and not to apply it to another.The Court's reasoning rested on three grounds:

1. Unlike the free movement rules, Art. 107 TFEU is not mandatory in nature for although Art. 107 para. 1 TFEU sets out a general prohibition, Art. 107 para. 2 and 3 list many exceptions which when combined with the powers conferred under Art. 108 offer a broad discretion to the Commission as to whether or not to find a State Aid lies within a derogation.
2. Unlike the free movement rules, in the realm of State aid, the Commission enjoys full responsibility for carrying out an analysis of whether a national measure is incompatible with the internal market.
3. If the same definition were used the State Aid rules would be subsumed into the free movement rules, and this would interfere with the system adopted by the Treaty for the supervision of State Aids.

II. Relationship with Art 101 and 102 TFEU Jurisprudence

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Unlike Art. 107, each of the MS have their own competition authorities who are responsible for the enforcement of national laws which largely mirror Art. 101 and 102, making questions of jurisdiction of great import in the areas of control of anticompetitive agreements and abuse of dominance. While neither the Commission nor the Courts have ever expressly indicated that the tests and definitions developed for the concept of ‘effect on trade’ under Art. 101 and 102 are not applicable to Art. 107 their conduct makes this clear.

For example, all Commission communications and notices concerning the concept of ‘effect on trade’ have expressly stated that they apply only to the Commission’s understanding of Art. 101 and 102 while the ECJ has never cited an Art. 101 judgement in a case involving the meaning of this term in relation to Art. 107. This is likely because the role of exact market definition and the calculation of market shares are central to the finding of incompatibility under Art. 101 and 102 while, not such analysis is required for Art. 107.

C. Standard of Proof

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The case-law makes it clear that the Commission need not prove the actual effects of a State aid on interstate trade only that, principle, that a measure is liable to produce some, even very minor effect, although the Commission is obligated to provide at least some reasoning in this regard in its decision.There is however, no need for the detailed market analyses of Article 101 or even to provide any economic analysis of the actual situation.

In practice, the Commission and the Courts have developed a set of de facto per se rules governing this aspect of Art. 107.
Under these rules, interstate trade is presumed to be impacted whenever an strengthens the position of an undertaking in relation to its competitors in the internal market, even if the recipient does not engage in interstate trade itself or the aid relates to something as geographical specific as a community bus service.The presumption of affecting interstate trade would appear to be irrefutable if the economic sector in question has been has been liberalised or regulated at the Union level.

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The ECJ has repeatedly held that there is no de minimis level below which aid will not be considered to affect interstate trade. Whenever the financial position of an undertaking involved in interstate trade is strengthened by State resources, the latter according to the ECJ must be regarded as affected by the former.

I. No Imputable Adverse Effect on Trade

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There are unfortunately few ECJ decisions which have turned conclusively as to whether or not a particular aid was incompatible, based on their effect upon interstate trade. The Commission has however, produced a string of decisions in which aid for such items as community swimming pools.The Commission synthesized the rationale behind these decisions in its "2009 Notice on a simplified procedure for treatment of certain types of State Aid" where it announced that an effect on trade will not normally be found if:

1. The State Aid does not attract further investment in the region concerned
2. The goods/services produced by the beneficiary of the State Aid are for purely local* consumption.
3. The aid does not have more than a marginal effect on consumers from neighboring MSs because, the market share of the aid beneficiary is extremely small, and the beneficiary is not a part of a wider group of undertakings involved in community trade.

Although neiher case-law nor the Commission notice define 'local' in this context, it seems apparent that any effects must be limited to a geographical market comparable with a small town.

II. No Actual Adverse Effect on Trade

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As strange as it may seem, aid which can be shown ex post to have had no actual strengthening effect upon the recipient undertakings position in interstate trade may nonetheless be found incompatible with the internal market. In Holland Malt the Court held that even when an undertaking which had received aid from the state, had experienced a decline in its interstate sales that such aid could still be found incompatible and to have affected trade between the Member States owing to the fact that there was no de minimis principle to found within Art. 107. Of course, on a semantic level trade was indeed affected, as an undertaking involved in interstate trade had seen its sales fall, but not because of the strengthening of a market position through a State Aid!

D. Aid for Exports or Activities Outside the Internal Market

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The EU courts and the Commission have generally held that even if an aid recipient export virtually all, or indeed all of their production to non EU states that trade within the internal market may be effected.

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For a long time it seemed as though the monies transferred to undertakings via the state or through its resources were viewed as fungible within said undertaking.Undertakings, it was supposed could just as easily use monies intended to be used abroad or fund exports/ extra-EU expansion or market penetration could be used to strengthen their position on the internal market.

E. Further Reading

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The paucity of attention in both the academic and practical literature on State aids afforded to the concept of 'effect on trade’ while hardly surprising, does present certain challenges for the student of this area of law. Most of the larger texts on EU competition law in general set aside only a few paragraphs for its discussion and the specialist texts do not go much farther. As always, the preferred point of departure (in English) for any further reading should be Peter Roth and Vivien Rose eds Bellamy and Child: European Community Law of Competition (6th ed Oxford University Press 2008) which has been brought up-to-date with a second supplementary package in 2011 and is the most comprehensive English practitioners' text for competition law.

Erika Szyszczak ed Reasearch Handbook on European State Aid Law (Edward Elgar 2011) presents a number of papers authored by leading UK and EU practitioners and academics and is fully TFEU reference compliant.
Conor Quigley’s European State Aid Law and Policy( 2nd ed Hart 2009) while not TFEU compliant and missing a few of the more recent cases, is nonetheless and excellent work offering insightful analysis from an active practitioner in the field of State Aid.

European Community Law of State Aid (Oxford University Press 2009) by Kelyn Bacon (one of Europe’s most experienced State aid practioners) is aimed mostly at practitioners, and so is the most practical and least doctrinaire volume devloted exclusively to state aid on the market.

Martin Heidenhain’s European State Aid Law Handbook (C.H. Beck 2010) offers a very expansive treatment of the subject, although it is perhaps lacking in serious economic and sociological analysis compared to Szyszczak’s or Quigley’s works. Heidenhain’s book is not TFEU compliant so readers will need to note the changes in Article numbering and wording and although Heidenhain is a former practitioner, his work is not a practical guide for practicing lawyers.

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