At the outset, it is necessary to make some introductory remarks so that the following analysis can be put, read and grasped within an appropriate and well-defined legal context. First, it should be stressed that there exist two homonymous severability criteria which were shaped in the course of EU law practice. As a result, it is expedient to explain the decisive difference between them and finally turn our attention to the severability test whose application the present article attempts to elaborate on, with a view to describe its systematic role. The severability criterion which is not relevant for the present analysis relates to a case law principle laying down that partial annulment of a European Union act is possible only if the elements the annulment of which is sought may be severed from the remainder of the act and that the requirement of severability is not satisfied where the partial annulment would have the effect of altering the substance of that act. As is immediately understood, this principle is of neat procedural nature and comes to govern typical issues of admissibility of actions. It is applicable to all kind of litigation, even disputes falling out of the State aid field. Rather, the severability test which is going to be examined thereafter is of a more substantive character and applies only in genuine State aid litigation. In particular, the severability test at stake reads as follows: those aspects of aid which contravene specific provisions of the Treaty other than Articles 92 and 93 may be so indissolubly linked to the object of the aid that it is impossible to evaluate them separately so that their effect on the compatibility or incompatibility of the aid viewed as a whole must therefore of necessity be determined in the light of the procedure prescribed in Article 93. Consequently, one could claim that the initial impression of the above case law principle is that State aid provisions could “overrule” to a certain extent fundamental freedoms rules, since even if it is obvious that internal market concerns are inherent to a state aid measure, those concerns should first be shown to be separable from the aid as such, in order to admit the applicability for free movement rules. However, the future streamline of case law came to overturn the presumed ‘prevalence’ of State aid rules over internal market rules in case of regulatory conflict between them. Thereinafter, the Court, where the issue of the relationship of State aid rules and free movement rules were raised, was steadily deciding that a particular contested aspect of an aid could be separated and assessed under internal market provisions. In addition, in case C-21/88 Du Pont de Nemours Italiana SpA, the Court stated that Article 92 may in no case be used to frustrate the rules of the Treaty on the free movement of goods and that the fact that a national measure might be regarded as aid within the meaning of Article 92 is therefore not a sufficient reason to exempt it from the prohibition contained in Article 30. That category of cases represents only the instance of dealing with two distinct Treaty provisions’ violations which eventually is resolved in a disjunctive way by preferring one provision to the exclusion of the other. In addition, there is also another category of cases in which two given Treaty rules may apply cumulatively without having for example freedom of movement rules displacing State aid rules altogether. Only after drawing a distinction between those distinct groups of decisions, one obtains a round idea of the kind of cases over which the precise scope of application of the severability test extends to.
The concept of severability in EU State aid legislation
The main difference in how case law and legislation uses the severability test is a formalistic one. While case law defines the severability test as a positive concept, legislation refers only to ‘non-severable violations of EU law’. In particular, a comparative reading of the relevant State aid legislative instruments governing the rules of compatibility of aids granted by Member States to undertakings results in finding a shared provision among them. That provision is systematically placed under the chapter designating the common assessment principles which the Commission invariably considers in deciding whether a state aid measure can be approved as compatible with EU State aid rules and reads as follows:
If a State aid measure or the conditions attached to it (including its financing method when the financing method forms an integral part of the State aid measure) entail a non-severable violation of EU law, the aid cannot be declared compatible with the internal market.
While most of the State aid legislative texts do not encompass an indication of what non-severable violation of EU law may mean, this is clarified in the recent draft Communication on public financing of important projects of common European interest (IPCEIs). It is mentioned thereinto that a non-severable violation of Union law, may in particular be: a) aid measures where the grant of aid is subject to the obligation for the beneficiary to have its headquarters in the relevant Member State or to be predominantly established in that Member State (local establishment requirements); b) aid measures where the grant of aid is subject to the obligation for the beneficiary to use nationally produced goods or national services (local content requirements); c) aid measures restricting the possibility for the beneficiaries to exploit the research, development and innovation results in other Member States (local exploitation requirement). Moreover, according to general Treaty principles, state aid cannot be considered compatible with the internal market if the aid measure is discriminatory to an extent not justified by its state aid character.
All major cases, in which the Court decided the specific disputes applying exclusively the free movement rules and, accordingly, dismissed allegations by the parties claiming that the measure at hand was actually a state aid measure and that it should be assessed only under article 107 TFEU et seq., have a common trait: the concerned aid measure had not been notified at all. The natural reaction would be to query: could the notification of an aid measure, made as a strategic manoeuver of a Member State in order to avoid the applicability of free movement rules, be a cure-all solution? The answer appears to be negative. Even if the above alleged aid measures had been notified, the notification in itself would be de facto incapable of stripping those measures off their aspects entailing a detrimental impact on the ever-going procedure of market integration whose effectiveness the free movement rules are designed to safeguard. In other words, the severability test would continue to apply with the result that the problematic aspects of the aid measure would keep on being severable from the aid itself, thereby triggering application of free movement provisions. Therefore, Member States are overwhelmingly restricted when designing their State aid policies. National competent authorities should formulate their aid schemes having in mind two fundamental concerns: first, to ensure their public funding schemes are not a priori incompatible with State aid rules by reason of certain aspects of the aid measure which could be deemed as non-severable violations of EU law and, secondly, not to undermine the effectiveness of other Treaty provisions while exercising their right to intervene in the market and grant subsidies to beneficiaries to address market failures or generate incentives for private investments.
Local content requirements as the soft spot of a State aid measure & counter-arguments
The question of embedding local content requirements in state aid schemes could be of special legal interest to be examined a little more thoroughly than other aspects of state aid measures which are liable for bringing about a non-severable violation of EU rules and a failure of the underlying aid schemes to pass the State aid compatibility test. In this case, the term ‘local content requirement’ is interchangeably used to express the obligation for the beneficiary to use nationally produced goods or national services as a precondition to receive State support. In particular, as set out above, local content requirements constitute non-severable violations of EU law where the grant of aid is subject to the obligation for the beneficiary to use nationally produced goods or national services. Originally, the way this provision is formulated raises two interpretative gaps. Still, before we tackle the way that provision is worded, it is appropriate to have recourse to one of the most representative cases combining State aid and local content requirement elements. In Commission v Italy, the Court decided that Italy breached article 30 of the EEC Treaty because the grant of certain subsidies to municipal transport undertakings was subject to the purchase of green vehicles of Italian origin. The crux of that litigation consisted in whether the contested measure constituted a measure having equivalent effects to a quantitative restriction (article 30 EEC) and whether the defendant could rebut this assumption by invoking that the correct legal basis for the state measure to be examined is State aid rules instead of article 30 EEC. The Court finally ruled that the measure constituted a measure having an effect equivalent to a quantitative restriction on imports and dismissed the applicability of State aid rules altogether. As explained above, its reasoning for reaching such a conclusion was its invariably followed practice that State aid rules cannot prevent the effectiveness of article 30 EEC. However, the distinct value of this judgment also lies in another excerpt therein. As a preliminary comment before assessing the substance of the case, the Court stated that:
The Commission considers that Article 13 of Law No308 must be regarded as a measure having an effect equivalent to a quantitative restriction on imports because it encourages the purchase of vehicles of national manufacture. Undertakings operating regional transport services may only be granted aid if they purchase vehicles manufactured in Italy. Thus, vehicles not originating in Italy are the subject of discrimination. The Commission also draws attention in this connection to Directive 70/50 of 22 December 1969 (Official Journal, English Special Edition 1970 (I), p. 17) which provides in Article 2(3)(k) that measures having an effect equivalent to quantitative restrictions on imports include those which 'hinder the purchase by private individuals of imported products only, or encourage, require or give preference to the purchase of domestic products only'.
After reading the following abstract of the case and, especially, considering the importance of the highlighted words and expressions, we should shift to the subtle undertaking of determining under which conditions local content requirements comprise non-severable violations of EU law. The ambivalence of the relevant provision’s construction comes into the scene at that point and is outlined above:
a) The first concern arises as to the suitability of the word grant, without any further specification. On one hand, a literal construction of the provision implies that a non-severable violation occurs only when the local content requirement is posed by legislation as the determinant on whether the aid will be granted or not. In simple words, this means that if the beneficiary refuses to comply with the local content requirement, he will not be eligible to receive any State support at all. On the other hand, a more flexible, liberal and teleological interpretation of that provision suggests that a non-severable violation takes place even in case the local content requirement is not posed by legislation as the determinant. In this case, the grant of aid is effected anyways but it is framed by an ‘incentive clause’ to the aid measure that eligible beneficiaries who make use of nationally produced goods or services will be rewarded with a bonus on their total amount of aid. The first interpretation intimates that the granting of aid hinges upon the eventuality of observing a local content requirement while the second interpretation suggests that any local content requirement does not interfere with the decision itself to grant the aid to eligible beneficiaries. What can be inferred from the previous division is that the way this provision is structured seems to validate its literal interpretation. An over-expansive interpretation of that provision should be ruled out for the following reasons. First, the EU legislature would have drafted the clause at hand in a more elaborate way, if it thought it was necessary to do so, in order to address other types of state aid measures. For example, the provision at hand could have been drafted more comprehensively as follows: the grant of the aid or the level of the latter is subject to the obligation for the beneficiary to use nationally produced goods or national service. Secondly, the EU legislator appears to recognize that those two different interpretations do not involve a non-severable violation of EU rules to the same extent or of the same intensity. The literal interpretation put both national granting authorities and aid beneficiaries before a prisoner’s dilemma. They either have to require the adoption (national granting authorities) or adhere to (beneficiaries) a local content requirement for the aid to be actually granted. In that way, they prioritize State aid policies over the incumbent objective of the internal market’s integration, admittedly, in the most flagrant manner. On the contrary, the second interpretation which seems not to be caught by the restriction of a non-severable violation leaves room for parallel integration of the internal market, insofar as State aid policies are again implemented but the beneficiaries are given the latitude to decide whether they are going to use as an input to their production nationally produced products or services and, accordingly, enjoy a higher amount of aid as a bonus or they are going to turn their buying interest to cross border markets because they can find the same goods or services in lower prices and offset in that way the amount of aid they are not entitled to. This kind of discretion left upon the aid beneficiary dilutes the effect of discrimination against imported products (in the form it was met in the Commission v Italy case) which are produced in other Member States. If we use the Court’s language in the abovementioned case we could recast it as follows: local content requirements which do not play the role of the determinant in granting aid but instead function only as an incentive clause for supplementing the basic aid amount may be regarded as not constituting measures having an effect equivalent to quantitative restrictions on imports because, they neither hinder the purchase by private individuals of imported products only, nor they encourage, require or give preference to the purchase of domestic products only (emphasis added on the word only). Neither the overarching principle of market access which prescribes that all undertakings engaged in legitimate economic activity should have unfettered access to the market would be a priori breached. The latter conclusion is drawn from the fact that in order for the local content requirement to be caught by Article 34 TFEU there must be a substantial restriction on market access conditions. In the case of local content requirements, they can be designed in a way that the effect on trade would be only de mininis, thereby falling outside the ambit of article 34 TFEU. In the alternative, local content requirements could be seen as incentives capable to promote competition between domestic and foreign producers - given that they would contest in enhancing their client basis with the aid beneficiaries targeted by the aid measure concerned - rather than as prohibition on the free flow of products or services. Therefore, in the second case, both regional cohesion and market integration are served equally well, thereby, striking the right balance between those policy objectives, which can partly explain why an alleged over-expansive interpretation of the local content provision is not tenable.
b) The other point of ambiguity is spotted in the word obligation. Obligation might be construed twofold. Either as a full obligation to use nationally produced products or services or as a partial obligation to use input stemming from domestic sources. In this case, the likelihood of confirming a non-severable violation of EU law is directly dependent on the percentage of national input required by national legislation. A low percentage would be possible not to pose any threat to the compatibility of aid measure under notification.
The utmost mission of each national authority when it designs a state aid measure must be to set local content requirements in a cautious and clever way that would not compromise the overarching principle of the market access. But is it a realistic objective? As an answer it would be sufficient to note the following thoughts. The market access implications of any aid measure involving local content requirements can be viewed from the perspective of both producers and consumers. With regard to the producers of products or services concerned, they would be able to freely offer their goods over the territory of the Member State which sets down the local content requirement and consumers (meaning the aid beneficiaries which would buy the products at hand) would still enjoy the right to choose over domestic and foreign products, if the aid measure provides so, according to their decision to avail themselves on the increased amount of subsidy or not. The Commission v Italy judgment represents an illustrative paradigm of how a state aid measure destined to encompass local content requirements should not be drafted to ensure its accordance with EU law. The present analysis draws useful conclusions from the Italian measure and suggests an alternative approach, on the basis of an alleged interpretative gap, which could eliminate concerns of EU law violations or, at least, render any reservations on local content requirements’ compatibility unfounded as non-quantifiable. Consequently, aid measures containing local content requirements could underplay their likelihood of incurring non-severable violations of EU law and, therefore, their outright incompatibility with EU State aid rules, if they are mildly formulated according to the above directions.
 C‑407/11 P, Government of Gibraltar, not yet published, para.13, C-224/12 P, Commission v Netherlands and ING Groep, not yet published, para.57, C‑295/07, Commission v Département du Loiret,  ECR I-9363, para.105, C‑29/99, Commission v Council  ECR I‑11221, para.45, C‑244/03, France v Parliament and Council  ECR I‑4021, para.12, T‑176/11, Carbunión v Council,  ECR II-434, para.26
 C-74/76, Ianelli v Meroni,  ECR 557, para.14
 Andrea Biondi et al., The law of State aid in the European Union, Oxford University Press 2004, p.109
 C-21/88 - Du Pont de Nemours Italiana v USL di Carrara,  ECR I-889, para.20
 C-156/98, Germany v Commission,  ECR I-6857, C-206/06, Essent Netwerk Noord and Others,  ECR I-5497, C-222/07 - UTECA,  ECR I-01407, C-333/07, Société Régie Networks,  ECR I-10807, Luca Rubini, The Definition of Subsidy and State Aid: WTO and EC Law in Comparative Perspective, Oxford University Press, p.190
 Paper of the Commission Services containing draft Guidelines on environmental and energy aid for 2014-2020, para.36, Communication from the Commission, Guidelines on regional state aid for 2014 – 2020, Brussels, XXX C(2013) 3769 /4, para.28, , Communication from the Commission, EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks (2013/C 25/01), para.47, Paper of the services of DG Competition containing a draft Framework for state aid for research and development and innovation, Brussels, 19.12.2013, para.38,103
 C-73/79, Commission v Italy  ECR 1533, para.11, and C-225/91, Matra v Commission  ECR I-3203, para.41
 Communication from the Commission, Draft Communication from the Commission – Criteria for the analysis of the compatibility with the internal market of State aid to promote the execution of
important projects of common European interest
 The wording of the provision clearly demonstrates that the said enumeration is not exhaustive.
Supra note 9, p.3
 Paper of the services of DG Competition containing a draft Framework for state aid for research and development and innovation, Brussels, 19.12.2013, para.103
 Leigh Hancher, EU State Aids, Sweet & Maxwell, 4th edition, p. 122
 The role of local content requirements appears to be more complicated and challenging to clarify than the respective ones of local establishment requirements and local exploitation requirements. The latter imply more straightforward types of EU law violations and, therefore, lack the intrinsic controversy that the interpretation of local content requirements involves.
 C-103/84, Commission v Italy,  ECR 1759
 Ibid, article 11. Eventually, the Court confirmed that set of arguments to the exclusion of the Italian Republic’s assertions.
 Indeed, that was the case in the abovementioned case. Italian public transport operators had to meet the condition of purchasing Italian made cars in order to receive the aid.
 Paul Craig and Gráinne de Búrca, EU law: Texts, cases, and materials, Oxford University Press 2011, p.664