Almost a decade after the adoption of the previous Law on State Aid (the “Previous Law”), Serbia has significantly updated its state aid framework. A number of reasons influenced the drafting and adoption of the New State Aid Law – especially the need for further alignment of state aid rules, but more importantly, enforcement practice with the broader EU competition acquis. While the rules on antitrust and mergers, as well as the track record of the Commission for Protection of Competition, have been considered broadly aligned with EU practice for quite a while, alignment with the state aid framework has proven to be more challenging in Serbia’s experience and there is still much to be done within the accession process.

Some of the key challenges for Serbia in the process of fulfilling all the requirements that were set out in the numerous status reports by the European Commission and to which the new law needs to contribute include strengthening the capacity and independence of the Serbian Commission for State Aid Control (“CSAC”) as an institution. The CSAC was not considered as an operationally independent authority, since most of its members were appointed by the largest state aid grantors and it was subsumed within the Ministry of Finance. Furthermore, there have been a number of exceptions and divergences with the EU framework, touching upon horizontal aid rules, rules regarding specific aid instruments and exemptions that went against the EU framework. The level of awareness within both the public sector and would-be recipients is still not considered sufficient, with a number of significant state aid measures failing to be properly notified and approved by the CSAC before being granted.

Accordingly, the lawmakers proclaimed that the main purpose of the new Law included updating the framework to allow more efficient implementation in practice, tackling practical challenges and emerging legal issues in the field of state aid. The amendments were also considered necessary for opening Chapter 8 of Serbia’s accession negotiations with the European Union. Finally, harmonization with the updated Law on General Administrative Procedure was also one of the key reasons for adopting the Law.

The main adjustment is that the CSAC is now an independent body that is appointed by and reports to the Parliament, modelled after the Commission for Protection of Competition. The procedure for selection of the new decision-makers is already underway, with stringent qualifications related to their state aid and competition expertise.

From a substantive side, the Law regulates state-aid related instruments in greater detail, including a non-exhaustive list of state aid measures and officially introduces the Market Economy Investor (MEIP) principle in CSAC’s deliberations and more clearly delineates other standards exempting public grants from state aid-related obligations. The CSAC has been authorised to perform on-site inspections by the new Law, allowing it to examine the compatibility of the awarded state aid, somewhat akin to “announced” dawn raids. While the Previous Law allowed any interested party to submit a request for an ex post control of an awarded aid, the Law limits the interested parties’ possibilities on submitting only a complaint to the Commission. The definition of state aid recipients does not include enterprises in privatisation, which will likely address one of the issues raised repeatedly by the European Commission.

Further alignment with the EU-related framework is expected with respect to the corresponding bylaws, which should be adopted within the foreseeable future. However, the new CSAC will need to demonstrate a solid track record in enforcement and application of the relevant rules, if it is to justify its increased standing – it is clear that both the EU and the Serbian Government believe that this field of law has been on cruise control for too long already.