The European Commission has determined that Hungary’s proposed support for constructing a new automotive components plant in Észak Magyarország constitutes incompatible State aid. As a result, Hungary is not permitted to provide the aid.
In October 2022, the Commission initiated a thorough investigation to evaluate Hungary’s intention to provide €43.76 million (approximately HUF 15.9 billion) to GKN Automotive Hungary Kft (previously Rubin NewCo Kft) for the establishment of a new automotive components plant in the northern Hungary region of Észak Magyarország according to EU State aid regulations. Following its initial assessment, the Commission recognised that the investment project contributes to economic development and employment in a less advantaged region of the EU. However, the Commission harboured concerns regarding whether the proposed aid complied with the Commission’s Guidelines on Regional State Aid (‘RAG’). In particular, the Commission investigated whether the Hungarian public support directly prompted the decision to establish the new plant in Hungary or whether it would have occurred in that area even without public support.
“Regional aid must incentivise a company to carry out an additional activity in a disadvantaged area. Our in-depth investigation has revealed that Hungary’s plan to support GKN Automotive Hungary is not in line with EU State aid rules because it would subsidise the costs of an activity that the company would have carried out in Hungary in any event,” explained Margrethe Vestager, Executive Vice-President in charge of competition policy.
The RAG’s rules
The RAG outlines rules for State aid to support investments in new production facilities in less advantaged regions of Europe, ensuring fair competition. Aid measures must meet conditions such as having a natural “incentive effect,” not exceeding regional aid ceilings, and avoiding negative effects like creating excess capacity in a declining market or causing the relocation of existing activities from elsewhere in the EU.
The Commission’s assessment
After a thorough investigation, the Commission found that Hungary did not provide sufficient evidence to prove that the aid was decisive for GKN Automotive Hungary to choose Hungary as the investment location. The available evidence indicated that the beneficiary had already decided to invest in Hungary, regardless of the public support. As a result, the aid did not have a real ‘incentive effect’ and was deemed incompatible with EU State Aid rules, thus cannot be granted by Hungary.
