The purpose of this paper is to analyze Croatian state aids policy and its transformation with respect to the negotiations with the European Union. The analysis is based upon collected data on public expenditure designated to the state aids measures. The paper also discusses present negotiating positions on state aid and competition policy of both parties with respect to the European Union positive regulation. The authors also analyze the approximation of positive Croatian regulation to the Union's regulation assessing the compliance of Croatian laws to the European standards. This analysis is based upon comparative method. Since the letter of a law does not give a clear insight to its application, the authors also research the practice of Croatian Competition Agency in approving or assessing specific state aids in the form of selective measures undertaken by Croatian Government and local authorities. The conclusion is that Croatian state aids policy is yet to be approximated to the European policy. This conclusion is not aiming to the amount of granted state aids in absolute terms since the Republic of Croatia has shown serious constraints and more fiscal discipline than some Member States over the past years. Croatian state aids policy has to change structurally.