State aid: Commission opens investigation into proposed public support for Peugeot plant in Spain

This article is brought to you in association with the European Commission.

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The European Commission has opened an in-depth investigation to assess whether Spain’s plan to grant €20.7 million of public support to PSA for investing in its existing car plant in Vigo (Spain) is in line with EU rules on regional State aid. Commissioner Margrethe Vestager, in charge of competition policy, said: “Public investment is important to foster economic growth in disadvantaged regions in Europe. However, we need to avoid harmful subsidy races between Member States. The Commission will carefully investigate if Spain’s planned support is really necessary for Peugeot to invest in genuinely innovative production processes in Vigo and if it will further develop the region without unduly distorting competition or harming cohesion in the EU.” PSA is a large industrial group active in the automotive sector. PSA is investing around €500 million in new production lines for the launch of new vehicles, as well as in process improvements in the existing plant of Peugeot Citroën Automobiles España in Vigo, Spain. The work on the new production lines and processes started in April 2015. In November 2017, Spain notified the Commission of its plans to grant €20.7 million of public support for the project. EU State aid rules, in particular the Commission’s 2014 Regional State Aid Guidelines enable Member States to support economic development and employment in the EU’s disadvantaged regions and to foster regional cohesion in the Single Market. In order to be approved, the measures need to fulfil certain conditions to make sure that they have the intended positive effect. This includes that the support must incentivise private investment, be kept to a minimum necessary and must not lure away investment from a region in another Member State, which is as or more disadvantaged (“anti-cohesion effect”). The Commission has doubts at this stage that the planned aid support of €20.7 million in Vigo complies with all criteria of the Regional State Aid Guidelines:

• the Commission has concerns that the Spanish public support might have attracted the investment project away from an economically more disadvantaged region in another Member State, or that PSA would have carried out the investment in any event in Vigo, even without public support from Spain;
• under the applicable rules on regional aid, investments by large companies in existing production facilities are generally not eligible to receive regional investment aid, except if the investments enable fundamental, innovative changes in the production process that are applied for the first time in the sector concerned in the European Economic Area (EEA). At this stage, the Commission has doubts on whether the planned production process is sufficiently innovative to qualify for this exception;
• the Commission also has doubts in relation to the public support’s contribution to regional development and on its appropriateness and proportionality; and
• the Commission cannot, at this stage, exclude that the aid would have negative effects on competition in certain segments of the passenger car market targeted by the investment.

The Commission will now investigate further to determine whether or not these initial concerns are confirmed. The opening of an in-depth investigation provides Spain and interested third parties with an opportunity to comment on the measure. It does not prejudge in any way the outcome of the investigation.   Background Evidence shows that large companies take decisions to invest in a given region not just by State aid but based on numerous factors, including the cost and availability of labour and land, tax legislation, their existing operations in the given region and the business environment. Granting aid in a context where a large company would have invested in any event would merely reduce the company’s ordinary operating costs, which its (local) competitors have to meet without aid. This leads to competition distortions at the expense of taxpayers. The Commission’s 2014 Guidelines on Regional State Aid allow Member States to support regional investment to support economic development and employment in the EU’s less developed regions and to foster cohesion in the Single market, if the measure respects a number of conditions:

• The aid must have a real “incentive effect”, in other words, it must effectively encourage the beneficiary to invest in a specific region;
• The aid must be kept to the minimum necessary to attract the investment to the disadvantaged region;
• The aid must not have undue negative effects, such as the creation of excess capacity in a declining market;
• The aid must not exceed the regional aid ceiling applicable to the region in question;
• The aid must not directly cause the relocation of existing or closed down activities from elsewhere in the EU to the aided establishment; and
• The aid must not divert investment away from another region in the EU, which are as or more economically disadvantaged than the region where the aided investment takes place.

The non-confidential version of the decision will be made available under the case number SA.49579 in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.