The general task given to the state aid rules of the European Community is to take control of the national subsidy practices of the Member States so as to ensure that the functioning of the Common Market is not distorted. They do not replace the national rules but take affect together. Subsidy practices of Member States are not prohibited from the outset, but are subject to the Community's severe scrutiny. EC State aid rules are, on the other hand, directly applicable in the sense that they are binding on Member States as well as enterprises. We see the same approach in every case of state intervention in the economy. Community law does not even provide a general prohibition as regards state intervention in the economy. On the contrary, it brings greater transparency by defining which kinds of intervention are incompatible with its objectives, which include, in the case of national state aid practices, maintaining the proper functioning of the Common Market. As far as foreign trade is concerned, state aids give unfair ad vantage to domestic producers. When these producers export subsidised products to the markets of other Member States or use subsidy as a tool in competing with imports from other Member States, this will, according to the EC Treaty, lead to distortion of competition and trade within the European Community's inter nal market. That will be the lost of the benefits which the founders of the Community expected from establishing the Common Market. If Member States use aids to compete with other Member States, the successfully abolished customs barriers will be rep laced with non-tariff barries, which in turn will render the customs union meaningless. xvnIn such a case, resources will be directed towards subsidised areas instead of to where they can be used most efficiently, causing on the one hand a fall in the value of total domestic production on the other a distortion of distribution of resources. Conversely, a system which guarantees the effective distribution of resources and prevents adverse intervention in competition, will, at the same time, be the driving force of economic and social development. With this aim, Article 92/1 of the EEC Treaty, provides that (save otherwise provided in the Treaty) all state aids which distort or threaten to distort competition by favouring certain under takings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the Common Market. By this provision, the Treaty first prohibits all such aids, thereby taking control of national practices. The Member States are required by the Treaty to notify the EC Commission, of any plans to introduce new aid schemes or alter existing ones so that the Commission can determine whether or not they are compa tible with the Common Market. The Commission also has a duty under Article 93/1 to keep existing national aid systems under constant review and to issue appropriate recommendations to Member States where the progressive development or functioning of the Common Market so requires. If the aid is not granted from state sources or does not favour certain undertaking, i.e it is available for all undertakings in the country, or does not distort or threaten to distort competition and above all, does not affect trade between Member States, it will not be considered incompatible with the Common Market. xvi nThe latter condition is a must for the application of the prohibition provided under Article 92/1 of the Treaty. That is to say, if the effects of a state aid granted in one Member State is limited with that Member State's domestic economy, that does not affect trade between this Member State and others and it will not fall under Article 92/1. Secondly, the way is paved by the provision in the same Article, that save as otherwise provided in the Treaty, to introduce exemptions to the general prohibition. Thus when the plans are notified to the Commission, the Commission may also consider whether they fall within one or more of the exemption categori es, mainly which are found in Article 92/2 and 3. These are : - aids having a social character which are granted to individual consumers, and aids to make good the damage caused by natural disasters, - aids to promote the economic development of areas where the standard of living is abnormally low or where there is serious unemployment, aids to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State, aids to facilitate the development of certain economic activities or of certain economic areas where such aids do not adversely affect trading conditions to an extent contrary to the common interest, and such other categories of aid as may be specified by decision of the Council. While the former group of aids are considered unconditionally compatible with the Common Market, the latter may be considered compatible as long as they comply with the conditions determined by the Commission or the Council, regardless of their effect on trade between Member States. In this way, the Community intervenes although indirectly, in the national industrial policies of the Member States. xixAccording to the EC rules, aids can only be granted to industries in difficulty and on the condition that such industries re structure. Indeed, state aids can be instrumental in securing an orderly adjustment to new economic structures in order to render industries viable on a world-wide basis in the long term. If, however, they are used to preserve the status quo this will only serve to hinder the adjustment of such Community industries. Therefore, aids to undertakings in such industries which no longer have a chance to survive, even in the long run, will only serve to maintain the existing structure and therefore will not be permitted. These are considered by the Community as aids that will transfer the cost of problems faced by an industry in one Member State to other Member States. Whereas undertaking that have the prospect of viability in the future are permitted to benefit from state subsidies provided that these aids will not cause an increase in the overall capacity of this industry, will be limited in time and will be given on a decreasing basis. The Community's position on national aids that are granted for restructuring in sun-set industries or to research and develop ment or education is very positive. Another area which enjoys a a positive attitude by state aid rules is that of small and medium-sized companies. Aids granted for regional development purposes is another category of aids where the Community exercises a substantial amount of interference in national applications. Due to the fact that once coordination and supervision cannot be ensured at Community level, outbidding among Member States to attract investments to their backward regions may well cause a state-aid war. With this in mind, the Community rules on regional aids involve common ceilings for aid intensity, transparency and regional specificity. xxIn addition to this tolerant but at the same time cautious stance towards national state aids the Community also provides aids from the common budget. From Community Structural Funds, every year on average approximately 20 billion ECUs 1s trans ferred as aid to Member States in addition to 80 billion ECUs aid from national budgets, of which about 40 per cent goes to the manufacturing industry. In brief, subsidies are widely used economic policy instruments at the Community. Before commenting on what will Turkey's position be in the case of EC membership in respect of state aid applications we may look at first how are state aids treated today in Turkey-EC re lations. Under Article 43 of the The Additional Protocol to the Association Agreement which lays down the conditions for the transition period, Turkey has been granted a least-developped region status which is identical to that is defined under Article 92/3(a) of the EC Treaty. Turkey will continue to benefit from this preferential status which tolerates aids of up to 100 percent of investment with regional development purposes, until the end of the transition period, that is 1995. But this should not affect trade between Turkey and the Member States and parties to the Association Agreement not being permitted to subsidise their exports to each other. This status of Turkey will most likely be maintained even after Turkey's accession to the EC. State aids given by the government to investments will be under close control of the Commission and Turkey will not be able to subsidize her exports to the other EC Member States. However, there are such facilities as state support for export promotion at the stage of market development, i.e., supplying information about export markets, providing consultancy by expert xxiorganisations, educating export/sales personnel, financing the establishment of a distribution network at export markets or showrooms, financing export fair fees or providing airline tickets bought to attend fairs. The export credit, insurance and guarantee systems are also em ployed extensively in EC and other Western economies, namely within the OECD, but within the limits agreed by consensus. More specifically, in the EC the system works on the basis of transparency. The Member States are obliged to notify other Mem ber States, the Commission and the Council of the EC. So long as the other Member States and the above-stated Community bodies do not object on the basis that the application will damage their industries or affect their trade, Member States may put such schemes into operation. I should again stress that the Community is, as the Treaty provides, is strongly against subsidisation of exports between Member States. Therefore, these systems can be operational only if they do not serve to subsidise exports. After membership, Turkey' s incentive system will come under the control and supervision of EC Commission. As a part of adaptation to ` Acquis Communitaire ` Turkey will not be able to put a state aid or aid plan in force before submitting it for Commission's approval. In this way Turkish incentive system which seems highly complex and far from being directed to well defined goals, will be forced to become more efficient, and have less effect on distribution of resources and income and be directed to more specific goals. This will also help Turkey to integrate into the EC and changing world industrial and market conditions. The current EC state aid rules, however, do not allow for increase in capacity in Community's industrial sectors where Turkey has relative competitive advantage, such as textiles, clothing and xxnshipbuilding. These are the Community sectors in difficulty and the Community approve national aid schemes for these sectors only on condition of restructuring. This will pose a difficulty for Turkey because on the one hand it will not be possible to subsidize capacity increases in these sectors anymore and will necessitate a radical change in states' role in industry as an entrepreneur on the other. But since Community's attitude is positive regarding restructur ing, in my opinion Turkey will be in a better position in the next century to channel her resources to more value-added content segments of such industries and accelerating the adapta tion and privatization process in the public sector. Turkey's membership will restrict her subsidies to industries or undertakings, including those under state ownership, that are in difficulty. The only exception to this will be economic crisis situation. Under Article 92/1 (b) Member States are permitted to use state aids to minimize the negative effect of the crisis, provided that related industries or companies are economically healthy but suffering difficulties because of conjunctural problems. In such cases, this aid may be directed to maintaining employment or preventing dismissals. On the other hand, Turkey will be free, although under certain limitations and Commission's strict control, to subsidise region al development, research and development, vocational training and small and medium sized company development. It will however be more rational to reshape the state's involve ment in industry to limit it to providing consultancy services, high quality education, techno-parks, and enterprise zones, and pooling industrial patents, encouraging common research projects and university-industry cooperation instead of using more mone tary and financial subsidy instruments. xxi 11In respect of external EC trade relations Turkey, will adopt EC commercial policy legi si ati on, including measures against subsi dised imports from third countries. To that end, Turkey has already adopted the Law on Prevention of Unfair Competition ( Law no. 3577 ) in July 1989, which involves measures against subsidised exports which are the same as those provided in the EC legislation and GATT Subsidies Code. In conclusion, since Turkish economy is subject to substan tial government intervention and subsidised in many ways the various schemes now in existence will have to be carefully scrutinised to see whether they can be contained within the EC rules. xxiv
