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State aid control in Serbia: between national sovereignty and European integration requirements

The Republic of Serbia is one of the EU candidate countries. This fact substantially influences the shaping of the Serbian legal system. Given its relevance in the European Union structure, the effective competition policy represents an important element of the EU pre-accession agenda. Under the Stabilization and Association Agreement (hereinafter, the SAA) signed in 2008, Serbia is required to harmonize its competition rules with that of the EU, as well as to demonstrate a credible enforcement record. The EU also requires that the national competition rules are enforced by operationally independent authorities. The duty to introduce EU-modeled national competition regime does not stem only from the SAA. In fact, the Central Europe Free Trade Agreement (hereinafter, the CEFTA) and the Energy Community Treaty (hereinafter, the EnCT) also prescribe that anti-competitive agreements, abuse of a dominant position and state aid are incompatible with the proper functioning of these international agreements. Both CEFTA and EnCT require that any such practice is assessed on the basis of the principles of the competition rules applicable in the European Union.


Harmonization of laws


State aid control is indeed an important aspect of competition policy since the preferential treatment of certain market players may seriously distort competition in the relevant market. The Republic of Serbia adopted its first State Aid Control Act (Official Journal 51/2009) and established the Commission for State Aid Control in 2009. Ten years later, the National Assembly adopted the new State Aid Control Act (Official Journal 73/2019), which is still in force. The Serbian state aid rules are broadly in line with EU law. The notion of state aid relies on four elements:

  1. state origin;

  2. advantage;

  3. selectivity;

  4. effect on trade and competition.

The state origin requirement involves two elements: first, advantages must be granted directly or indirectly through state resources; and second, measures under challenge must ultimately be imputable to the state. Both of these requirements ensure that measures subject to state aid disciplines are measures which have a public, as opposed to private, origin. Next, a measure must confer an advantage on an undertaking before it can be treated as a measure which grants state aid. For these purposes, an ’advantage’ is any economic benefit which an undertaking could not have obtained under normal market conditions. In order to constitute state aid a measure must be selective in the sense that it must favour certain undertakings or the production of certain goods. This selectivity requirement implies that general measures taken by a state will not be caught by state aid rules. Finally, a measure will only be treated as state aid if it distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods.

While the State Aid Control Act is generally in line with EU law, the differences between two legal systems pertain as to the by-laws, which are either not fully aligned or not yet adopted in Serbia. A major step towards a more substantial alignement with EU state aid rules was taken in 2021, when the Government of Serbia adopted the Regulation on regional aid (Official Journal 23/21). Under Serbian state aid rules, regional aid may be compatible when granted to promote the economic development of areas with abnormally low standard of living or high level of unemployment, or to facilitate the development of certain economic activities or certain economic areas in Serbia. In addition to undertakings in difficulty, and undertakings active in sectors of coal, steel, and synthetic fibres, which were already excluded pursuant to pre-existing state aid rules, the Regulation on regional aid also excludes from its application the undertakings active in the sectors of transport, energy, finance, insurance, management, and consulting. Under EU rules, seven assessment principles must be satisfied in order for regional aid to be compatible:

  • contribution to a well-defined objective of common interest,

  • need for state intervention, (iii) appropriateness of the aid measure,

  • incentive effect,

  • proportionality of the aid (aid to the minimum),

  • avoidance of undue negative effects on competition and trade between Member States, and (vii) transparency of aid.

However, under Serbian state aid rules, only transparency and incentive effect of aid on the investment are defined as general criteria for all types of regional state aid, while regional investment aid and regional operating aid are subject to specific criteria and conditions which include eligible investments and eligible costs, conditions related to tangible and intangible assets and wages, beneficiary contribution and size of the company.

Prior to the adoption of the Regulation on regional aid, the maximum aid intensity for large investments has been set for the entire country at the level of 50% of eligible costs up to EUR 50 million, 25% of eligible costs for the amount of investment which exceeded EUR 50 million, and 17% of eligible costs for the amount of investment which exceeded EUR 100 million. The Regulation on regional aid now provides that the aid intensity for eligible costs of investment must not exceed:

  • 50% of eligible costs in NUTS II regions (NUTS represents the Nomenclature of Territorial Units for Statistics) whose GDP per capita is below or equal to 45% of the EU-27 average;

  • 35% of eligible costs in NUTS II regions whose GDP per capita is between or equal to 45% and 60% of the EU-27 average;

  • 25% of eligible costs in NUTS II regions with a GDP per capita above 60% of the EU-27 average.

The intensity for medium-sized enterprises may be increased for 10% and for small and micro companies for 20%. However, there will be no immediate changes since the entire territory of the Republic of Serbia will be considered one region whose GDP per capita is below or equal to 45% of the EU-27 average, until the adoption of a regional aid map.


Interpretation of state aid rules


Further to the harmonization of laws requirement, the SAA (see Art. 73) and other international treaties signed by Serbia require that the national state aid rules are interpreted on the basis of criteria arising from the application of the competition rules applicable in the EU, in particular from Art. 107 TFEU and interpretative instruments adopted by EU institutions. In other words, the associate countries, although not Member States of the European Union, have to assess the state aid schemes on the basis of the criteria arising from the application of the secondary legislation, frameworks, guidelines and other relevant administrative acts in force in the EU, and those that will be adopted following the entry into force of the SAA, as well as on the basis of the criteria developed in the case law of the General Court and the Court of Justice of the European Union, and from any decision taken by the Association Council. This is not a simple task for the national state aid authorities, since Art. 107 TFEU is interpreted broadly by the CJEU and the criteria have been subject to constant change. The requirement to interpret national state aid rules in line with criteria arising from EU law is directed to all cases involving the trade between the Union and Serbia. However, even in purely internal cases, the former may be used as an additional interpretative instrument, provided there is a legal gap in national competition law that needs to be filled. For example, the same position was taken by the Constitutional Court of Croatia when interpreting the identical provision of the Stabilization and Association Agreement that this country signed with the Union (see: case no. U-III-1410/2007 of 13 February 2008).


Temporary institutional framework


Countries that aim at joining the European Union are required to establish an operationally independent authority for state aid control. However, such national state aid authority is of a temporary nature; once the country joins the Union, state aid control is exercised exclusively by the European Commission. The Serbian Commission for State Aid Control (hereinafter, the CSAC) was established under the first State Aid Control Act in 2009. Its institutional design was criticised for lack of independence from the executive power. The CSAC was established under the auspices of the Ministry of finance. The members of the CSAC were appointed by the Government among persons who possess expert knowledge in the field of state aid, competition, and/or EU legislation, under the proposal of the ministries of finance, economy, infrastructure and environmental protection, as well as under proposal of the Competition Authority. The member appointed under proposal of the Ministry of finance was a chairperson of the CSAC, while the representative of the Competition Authority was sitting as a deputy chairperson. The guarantees of CSAC independence were significantly improved with the adoption of the new State Aid Control Act in 2019. The CSAC’s institutional design is now very similar to that of the Competition Authority. The CSAC Council members, including the President, are appointed by the National Assembly for a period of five years. The CSAC Council is supported by professional case handlers. The CSAS submits its yearly report to the National Assembly, which is at the same time the only authority empowered to dismiss the CSAC Council member, on grounds prescribed by the State Aid Control Act. The new institutional design positively influenced the CSAC track record. According to the available statistics, the CSAC significantly increased the number of negative decisions to 6 in 2022, from 1 in 2021. The number of conditional decisions increased to 3 in 2022, from 1 in 2021.


Serbia’s duty to harmonise its state aid control system with the European counterpart is a gradual one. The European state aid control system cannot be duplicated in a short period of time. As the country advances in the process of European integration, the possibility to recourse to specific national concepts will decrease. Paradoxically, once the national state aid control system becomes fully aligned with that of the EU, it will be abolished.

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