What will happen to state aid in Croatia aft er EU accession?

Abstract

As Croatia is less than a year away from EU accession, it is interesting to analyse what has been negotiated in the area of state aid, i.e. what adjustments the country will have to make with in this respect. An analysis of state aid development in the EU-12 Member States, which joined the EU in 2004 and 2007 (Jovic, 2012), allows us to draw some parallels with Croatia, and indicates that we are obviously confronted with numerous reforms in this area. This is also suggested by the long-time stagnation in state aid in the country. Hence, urgent reforms are called for. The main findings of the analysis of state aid in Croatia are the following: • There were no significant changes in Croatian state aid during the 2002-10 period: the share of state aid in GDP continued to be among the largest in Europe, and the structure of aid remained almost unchanged throughout the period, with a dominant share of sectoral aid, notably aid to the shipbuilding and transport sectors, which only suggests that no major structural economic reforms have taken place. • Following its uneven movements over the 2002-10 period, total state aid in Croatia is still 2.4 times higher than that in EU-12 (1.2% vs. 0.5% of GDP). • Since 2002, aid to agriculture and fisheries has continually increased from HRK 1.7 billion to HRK 4 billion (in 2010), while sectoral aid reached record highs during election years. • Shipbuilding was the absolute record holder, with HRK 13 billion of aid received from 2002 to 2010, followed by transport with HRK 10.4 billion, the bulk of which went to Croatian Railways. • Under the Treaty Concerning the Accession of the Republic of Croatia to the EU (hereinafter: Accession Treaty), the following has been agreed with regard to state aid: - if shipyards are not restructured and privatised before EU accession, i.e. in case the conditions agreed upon under the Accession Treaty are not met, the European Commission may order Croatia to recover any rescue and restructuring aid (plus compound interest), granted to them since 1 March 2006 ; - if Sisak Ironworks fails to reimburse state aid in the amount of HRK 19 million, it will be obliged to reimburse any rescue and restructuring aid (plus compound interest), granted to it since 1 March 2006 ; - seven aid measures constitute „existing aid “, which the Commission can examine, but cannot order their reimbursement ; Croatia has applied for another four aid measures to be included in this list. • The approaching of the accession date has accelerated the restructuring of the shipbuilding, steel and railway sectors, because state aid reforms in future member states have been in the forefront of the EU's attention. • Upon Croatia's accession, state aid will be transferred to the jurisdiction of the European Commission, which will grant and supervise aid according to the same procedure as the one applicable in all other Member States. State aid will continue to be granted in Croatia according to the same rules as those currently followed by the Croatian Competition Agency (CCA).