State subsidies in the EU and US

At the 2009 Fordham Antitrust conference, there was a long session on EU and US approaches to the control of state aid (state subsidies), in the context of the financial and economic crisis. The EU has an extensive State aid control regime, which requires notification to the European Commission of any aid that may distort competition and that affects inter-state trade.

One of the US panelists indicated that there was no mechanism under US law to enforce a similar control over state aid by US states, and nor could there be.

I had understood that the US commerce clause (whereby Congress shall have power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes;”) to be an equivalent of the EU principle that – in this case – the competition rules, including the State aid rules, apply where trade between Member States is affected.

To determine whether a law violates this so-called “dormant” aspect of the Commerce Clause, we first ask whether it discriminates on its face against interstate commerce. American Trucking Assns., Inc. v. Michigan Pub. Serv. Comm’n, 545 U.S. 429, 433 (2005); Fort Gratiot Sanitary Landfill, Inc. v. Michigan Dept. of Natural Resources, 504 U.S. 353(1992). In this context, ” ‘discrimination’ simply means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” Oregon Waste Systems, Inc. v. Department of Environmental Quality of Ore., 511 U.S. 93 (1994); New Energy Co. of Ind. v. Limbach, 486 U.S. 269(1988).
United Haulers Association, Inc. v. Oneida-Herkimer Solid Waste Management Authority 127 S.Ct. 1786 (2007)

This reference to “burden” could limit the application of the rule to those state laws that decrease inter-state trade, and do not simply distort it. But the following suggests a broader interpretation:

“The central rationale for the rule against discrimination is to prohibit state or municipal laws whose object is local economic protectionism, laws that would excite those jealousies and retaliatory measures the Constitution was designed to prevent”); Toomer v. Witsell, 334 U. S. 385, 403–404 (1948)

(In addition, in Gonzalez v Raich, the Supreme Court held that Congress can lawfully regulate a non-economic intra-state practice, where that was part of an overall system of regulation of inter-state commerce. There is similar jurisprudence in the EU which provides that every instance of conduct caught by an EU law does not have to affect inter-state trade, provided that the law covers a practice which as a whole would have that effect. (See eg Case C-101/01, Lindqvist, 2003 ECR I-12971.))

Unless I’ve missed something, EU and US law do not appear to be as far apart as the commentator suggested.