Revision of the Regional Aid Guidelines - Comments from Norway

Revision of the Regional Aid Guidelines - Comments from Norway

Reference is made to DG Competition’s first consultation paper on the review of the Regional Aid Guidelines.

General comments

Regional policy is of great importance for maintaining equal living conditions throughout Norway. The Norwegian authorities also believes that a coherent regional policy is an important means of ensuring more equal and balanced socio-economic development in the EEA as a whole. It is aslo of considerable significance for reaching a more balanced development in Europe as a whole. We are therefore very pleased to be participating in the ongoing revision of the regional aid guidelines and the general debate in this field. It is therefore with interest that we are participating in the ongoing debate in this field.

Cohesion policy and sstate aid policy are complementary policies. Both are intended to contribute to the aims of the Lisbon and Gothenburg agenda, that which are growth, competitiveness and sustainable development. Realisation of the Lisbon agenda will inevitably pose a greater challenge in less developed regions than elsewhere. Hence there may be need for higher volumes of spublic tate aid and higher aid intensities in these regions.

The outline of the revised regional guidelines presented by DG Competition seems in the main to take this into account. Regional policy should establish a framework in which Member States and regions, with appropriate levels of support from the EU, can develop and implement effective strategies for growth and competitiveness, without either producing negetive negative impacts on each other’s development and on the EEAU as whole or provoking wasteful misallocation of scarce budgetary resources.

We welcome the Commission’s objective of reducing the overall level of sstateaid. The Norwegian Government also considers it very important to target aid better. We support the goal of maintaining strict control of the investment aid granted to large companies enterprises outside the least favoured regions. Norway further agrees to differentiation between the categories of the least favoured regions as regards aid ceilings and to the introduction of clear distinctions between the maximum aid intensities allowed for large, medium-sized and small firms within eligible regions. It is important to ensure that an the new regional aid guidelines provide for greater flexibility. Flexibility is also needed in relation to horizontal aid schemes to reflect the trends in economic development at the national, regional and loval local levels. Finally, Norway agrees with the proposal to base measurements of aid intensities on gross grant equivalent and with the principle of block exemption for regional aid.

However, it is well known that the existing regional aid guidelines do not deal adequately with the challenges relating to depopulation and decreasing economic activity that are facing us in certain areas of Norway today. We would therefore like to address some aspects of regional aid that are of special importance to the Norwegian Government.

Operating aid in arctic areas

The aim of Norwegian regional policy is to maintain the principal features of the country’s settlement patterns. Until 2004, a system of regionally differentiated social security contribution rates has been an essential instrument for preventing and reducing depopulation in sparsely populated areas in Norway.

However, the existing guidelines on national regional aid do not permit this regional measure, which is considered by Norwegian economic experts, among others, to be the most clearly targeted and cost-effective means of stimulating employment and preventing depopulation problems in sparsely populated areas, cf. our letter of 3 July 2003. As you know, this has caused serious concern in Norway.

In its outline of the new regional guidelines, DG Competition proposes that other types of operating aid than transport aid should be authorised in cases where this is necessary to stop depopulation, provided that the aid does not adversely affect trading conditions to an extent contrary to the common interest. The Norwegian Government welcomes this proposal, which addresses problems that are specific to peripheral regions of the Nordic countries.

DG Competition proposes that what it calls “arctic areas” in regions with low population density should be eligible for such operating aid. The concept “arctic areas” is not defined in the consultation paper.

Depopulation is a potential problem in most of the areas of low population density (regions with less than 12.5 inhabitants per square kilometre) eligible under Article 87(3)c. The low population density makes these areas more vulnerable to any negative population trend. In most of these areas a measure directly linked to the cost of employing people would stimulate employment and prevent or reduce depopulation.

In our view, a measure of this kind with the aim of preventing depopulation should be permitted in all low population density areas eligible under Article 87(3)c. As an alternative, we suggest the following stricter population density criterion for defining the areas in which operating aid designed to prevent or reduce depopulation should be allowed: regions with 8 inhabitants or less per square kilometre and where NUTS level II is used as the basis for delimiting the regional area. In addition, smaller adjacent and contiguous areas that meet the same population density criterion should be eligible for such operating aid.

This is identical to the definition of areas covered by Objective 6 in the previous framework of the Structural Fund, see also Protocol 6, Article 2, to the Treaty concerning the accession of the Kingdom of Norway, the Republic of Austria, the Republic of Finland and the Kingdom of Sweden to the European Union. It is simple, transparent and limited to the Nordic areas with the most acute depopulation problems. It should also be noted that under this criterion, the eligible region in Norway would largely coincide with the area defined as arctic in Nordregio report 2004:1 Mountain areas in Europe commissioned by DG Regional Policy.

In addition, we think that the wording “to prevent or reduce depopulation” would be a better expression to use in the revised guidelines than “to stop depopulation”.

Low population density area eligible for regional investment aid

The Norwegian Government welcomes the proposal from the Commission to continue to include low population density areas with less than 12.5 inhabitants per square kilometre in the regional aid map. We are strongly in favour of using NUTS level III level as the basis for the delimitation of low population density areas. However, some flexibility is needed in the selection of these aid areas. Norway needs to be able to meet the regional challenges which Norwegian regions are facing because of their sparse population and topographic and climatic conditions. According to the Nordregio report Mountain areas in Europe, mountain areas cover 93 per cent of Norwegian territory and have 63 per cent of the population. These areas are largely extremely peripheral and access is difficult. according and some of them Several of the mountainous regions have very low population density if considered at NUTS level IV or NUTS level Vlevel, but not necessarily at NUTS level III level. Individual counties in Norway are very heterogeneous. Some regions in the central part of the counties have high population density and are performing well as measured by economic activity, while most parts of the same counties are showing low population density and depopulation. Thus, a regional aid map based strictly on the NUTS III (counties) delimitation would not reflect the real situation in Norway as regards regional challenges and economic disadvantages. Using NUTS level II as the basis for delimitation of eligible areas would create a regional aid map that reflected the real regional challenges even more poorly.even more do not reflect the regional challenges.

Moreover, there are economically strong regions in counties with less than 12.5 inhabitants per square kilometre and economically weak regions in counties with more than 12.5 inhabitants per square kilometre. The aim of a more flexible approach to the delimitation process is not to increase the overall number of inhabitants in the eligible area, but to target aid more precisely to regions that suffer economic disadvantages and natural handicaps because of a sparse population, difficult transport infrastructure and long distances to markets. This would be similar to the approach in the current guidelines for transport aid, where a certain flexibility is allowed if the NUTS III parts have a population density less than 12.5 inhabitants per square kilometre and the flexibility does not result in an increase in the total population coverage.

Island communities

Islands without a direct connection to the mainland face specific challenges as regards low accessibility due to natural handicaps and also hence face problems that can be comparedsimilar to those of low low-density population areas. Low accessibility tells us something about a region’s relative peripherality and also about the poor quality of transport infrastructure with regard to connectivity, capacity, travel speeds, waiting times etc., and thus indicates the competitive disadvantages of location for these regions. As a result of these factors, island communities incur extra transport costs, distribution costs and production costs. The small size of island companies and their local markets also generates additional costs. In the Norwegian Government’s opinion island municipalities should be included in the transport aid map because of the extra transport costs they incur, even if they do not meet the population density criteria.

Aid intensities

The regions that are entitled to aid are those where population density is low. The local markets in these areas are extremely small and suffer from the lack of a well functioning economic sector. Their peripheral location results in high transport and marketing costs, lack of qualified labour etc. These handicaps are common to the Nordic low population density regions and the outermost overseas territories (such as the Canary Islands and Madeira). These regions face severe challenges because of their remote location, harsh climate and the continuing depopulation, which are all factors that weaken their economic and social development. These disadvantages also tend to have a cumulative effect, which puts these areas in a unique and particularly difficult situation.

In order to stimulate economic growth in the weakest regions, the Norwegian Government therefore considers that aid intensities should be increased by 10 per cent compared to the levels proposed by the Commission. Thus, the aid intensities proposed by the Norwegian Government are 30 per cent for large enterprises, 40 per cent for medium-sized enterprises and 50 per cent for small enterprises.

Conclusions

The Norwegian Government greatly welcomes DG Competition’s proposal to permit other types of operating aid in arctic areas to prevent and reduce depopulation. We would also like to underline the importance of a flexible approach to the delimitation of areas that eligible for regional state aid in low population density areas, to ensure that regional investment aid can be given to regions where such aid is most needed.

We would be pleased to provide any further information that may be needed.

Yours sincerely,

Jan Sandal
Director General
Ministry of Local Government and Regional Development