State aid for afforestation of agricultural land: Czech Republic shows it is possible

According to a decree of July 8th, 2016, the European Commission (Commission) concluded that the Czech subsidy grants for afforestation of agricultural land can be considered as state aid. Nevertheless, the Commission argues that the subsidies are compatible with the internal market and therefore allowed.

The aid

The Czech Republic started a subsidy program to stimulate the afforestation of agricultural land. By doing so, the Czech Republic aims to reduce the effects of climate chance and extreme weather conditions. Both public and private owners of agricultural land can apply for these subsidies. Subsidies can be granted for (1) the cost of creating the forest, (2) the cost of maintenance for a period of five years and (3) lost income for a period of ten years. The subsidy will be granted through fixed amount per hectare.

Evaluation by the Commission

As usual in state aid rulings, the Commission evaluates first whether the subsidy program can be classified as state aid. Subsidies are considered state aid if (1) one or more undertakings, (2) have selectively received an advantage (3) that was financed by the Member State or financed through State resources (4) which distorts or threatens to distort competition (5) in so far as it affects trade between Member States.

In the present case, all these criteria were met according to the Commission. Only owners of agricultural land can apply for the subsidies. It concerns undertakings that have selectively received an advantage from the Czech government, as other undertakings did not receive such advantage. This distorts competition. Considering the fact that the owners of agricultural land are present in a market that is open to trade between member states, trade has been affected as well.

Additionally, the Commission verifies whether the subsidies are compatible with the internal market. The Commission evaluates the subsidy using the Guidelines for State aid in the agricultural and forestry sectors (Guidelines).

Specified conditions

The specified conditions for “aid for afforestation and creation of woodland” are stated in §2.1.1 of the Guidelines. The Commission considers the beneficiaries of the aid in accordance with recitals 505 and 506 of the Guidelines. The eligible costs for which the subsidy applies have to be in accordance with recitals 507 until 511 of the Guidelines. At last, the aid intensity should not exceed the maximum as mentioned in recital 512. Taking this into account, the Commission has reached the conclusion that these specified conditions were met.

Common Assessment Principles

The common assessment principles can be found in Chapter 3 of Part 1 of the Guidelines. These principles will be evaluated one by one. The aid has a clear environmental requirement that eventually contributes to the Union’s existing policies and activities regarding the environment. Furthermore, the subsidy is necessary. Without government intervention, agricultural land will not be afforested. Considering the fact that the specified conditions of “aid for afforestation and creation of woodland” are met, the aid is accepted. The program also has a stimulating effect. The activity for which the subsidy is applied can only be executed after one has applied for the subsidy. Furthermore, the program is proportional and distorting effects on the competition and trade between Member States is avoided as the maximum of the state aid is not exceeded. At last, the Czech Republic has committed itself to publishing the individual state aid on their national state aid website as required for cases mentioned in recital 128 of the Guidelines. Concluding, the Commission also agrees that the aid complies with the common assessment principles.

Comments

The present decree contains certain elements that are worth mentioning. First, without mentioning it too extensively, the Commission considers that trade between member states is being distorted. Owners of agricultural land are present on a market that is open to trade between member states. Within agricultural cases, this is a common practice. However, in the past years, the Commission has made multiple explicit statements that limited aid to local initiatives does not have a cross-border effect. What’s the difference in this case?

The decree is also worth a read due to the fact that the Commission evaluates the subsidy strictly according to the Guidelines. That was not too hard. The Czech Republic was clearly inspired by the Guidelines when drafting the subsidy program. All specified and general conditions were met. In such case, providing a decree does not take too much time for the Commission. The subsidy was registered on the 16th of February, 2016. The ruling of the Commission was made on the 8th of June, 2016. Taking all aspects into account, the notification procedure took less than four months. We could consider this to be expeditiously.  

In many cases, governments are scared to lodge certain subsidies. Governments would try anything to prevent the fact that a decree would qualify as state aid. But why take the difficult path if there’s an easy solution available? If the aid is drafted according to the evaluation criteria for the designated aid area as set up by the Commission, the subsidy program will pass the evaluation process smoothly and a ruling from Brussels will be given in a foreseeable period of time. This decree shows that clearly.

Eric Janssen, Competition Lawyer