What is State Aid?
State aid is essentially about the impact on competition and trade of subsidies, tax breaks and other forms of government concessions, which benefit some firms and, therefore, can impact negatively on other firms.
Within EU the concept of “aid” has been developed during the years throughout the process of European integration. Besides the provisions in the Treaty on the Functioning of the European Union Article 107(1) rule on State aid has become more transparent and predictable due to a body of soft law and regulation created mainly by the European Commission and the European Courts judgement. The Treatyon the Functioning of the European Union does not define what an “aid” actually is. Article 107(1) of the Treaty indicates only that the aid in question must be granted by a Member State or through State resources and may be in any form whatsoever. In order for Article 107(1) to apply the aid must distort or threaten to distort competition by favouring certain undertakings or the production of certain goods, in so far as it affects trade between Member States.
This notion is broadly comparable, but not identical with that of subsidies under WTO rules.
What is the regulation of SA system in Ukraine?
On 1st July 2014 the Parliament of Ukraine adopted the Law of Ukraine “On State aid to Undertakings”, which sets specific and modern legislation on State aid control and monitoring.
The broad economic purpose of the Law on State Aid to Undertakings is to avoid any undue distortions of competition and harmful impact on trade between Ukraine and EU Member States due to State aid granted to undertakings in Ukraine. Accordingly, the Law sets out a general prohibition on State aid. Recognizing that, in some circumstances, government interventions are necessary for a well-functioning and equitable economy, the Law leaves room for a number of policy objectives for which State aid can be considered compatible. The Law requires the prior approval of the Anti-Monopoly Committee of Ukraine for new State aid to be put into effect; while allowing for the development of block exemption procedures which would eventually obviate the need for notification in certain pre-defined cases. Moreover, the Law provides the Anti-Monopoly committee of Ukraine with the power to demand recovery of incompatible State aid.
The most important feature of the Draft Law, however, is that it is a framework law which will require a substantial body of secondary legislation to detail the actual rights and duties of State aid providers, State aid beneficiaries and the limitations on State aid in Ukraine that will be enforced by the Anti-Monopoly Committee as the Ukrainian regulator. To allow for this to develop, the Draft Law provides for a reasonable transition before it comes into force.
Moreover, thereare a numberoflegalactswhichregulateatleastsomeaspectsofthegrantingofStateaid:e.g. theBudgetary1 , Tax2 and Commercial Codes3 of Ukraine, the Law on the Protection of Competition in Ukraine4 and a number of Conceptson the development of different industries.
How much SA is going on in Ukraine? (the numbers)
The effective nessof budget expendituresis a cornerstone of sustainable economic development in any country and this is possible only in free and open economies. Ukraine’s public finance management problems include unregulated budget spending on state support for certain undertaking sorsectors of the economy. According to different estimates, Stateaid in Ukraine amount sto between 4 and 10% ofgrossdomestic product (GDP) . This compare stoan EU benchmarkof 1% of GDP.
Why is it important to reform the SA system of Ukraine?
State aid legislation in Ukraine will bring an entirely new type of legal regulation to Ukraine. While driven by international Treaty commitments and developed as a new arm of competition policy, this new field of regulation can be expected to increase transparency and reduce any latent corruption in the use of public funds to support business firms. This will benefit public finance management in Ukraine and every Ukrainian taxpayer. In regard to competition and trade, the Ukrainian State aid regulatory system will help to remove arbitrariness and selectivity, at a minimum in more significant cases likely to distort markets.
Furthermore, by insisting on a pre-examination of the impacts and effects of proposed State aid measures, approved State supports to businesses in Ukraine will be more likely to achieve their purposes and to bring best practices to industrial, regional and business development policies and initiatives in Ukraine.
What are the benefits from SA reform?
The main benefits of the Law “On State Aid to Undertakings” are:
• transparency of State aid granting
• monitoring and control by the independent state Authorised Body (Anti-Monopoly Committee of Ukraine)
• the increase of the level of competition on the market
• fair rules on the market
• the establishment of such control will attract foreign investors and will encourage Ukrainian SMEs to develop
• State aid control becomes one of the instruments to fight corruption schemes as the State aid providers will have to notify of a new granted State aid to the Anti-Monopoly Committee of Ukraine, which in its turn will take a decision on the compatibility of such State aid with the competition
• will increase the effectiveness of budget spending
• will improve in general the effectiveness of public finance management.
What is Public Procurement?
Public Procurement is the activity of co-ordinating public sector purchases and supplies so that the public sector gets best quality at lowest price, in other words value for money. An important means for this is to organise competitive procedures for especially larger contracts.
Public Procurement legislation is normally focused on prescribing specific procedures for different types of contracts and to provide safeguards to ensure that participating enterprises are treated equally as regards access to these procedures and the manner that they are evaluated during these procedures.
Why is it important to reform the PP system of Ukraine?
A reform will make procedures for small and standard contracts easier and in general introduce more openness and predictability. This will make the public procurement market more attractive for enterprises as well as the public sector.
What are the benefits from PP reform?
Public expenditures are reduced as a result of growing procurement skills in the public sector and the enterprises increase their competitiveness.