Public Services and Related Concepts in the European Union 2019042872, 2019042873, 9781536164220, 9781536164237

Table of contents :
Contents
Table of Cited Treaties with Protocols, and the Charter
Table of Cited European Union Directives and Regulations
Table of Cited Cases before the Court of Justice of the European Union
Foreword
Preface
Acknowledgements
List of Acronyms
Chapter 1
European Union Law Toolkit: Selected Fundamental Principles and Concepts of European Union Law and Their Impact on Public Services
1. Introduction
2. Unique Features of the European Union
3. Values and Aims of the European Union
3.1. General Overview
3.2. Variety of Values and Aims: The Clash of the Titans
3.3. Catalogue of Values and Aims
3.4. The EU’s Aim to Ensure the Effective Provision of Services of General Economic Interest
4. Competences of the European Union
4.1. Limits to the Competences of the European Union
4.1.1. Principle of Conferral of Competences: The “Empty Box” Principle
4.1.2. Exclusive, Shared and Supporting Competences of the EU
4.2. Use of Competences of the European Union
4.2.1. Principle of Subsidiarity
4.2.2. Principle of Proportionality
4.3. (Internal) Division of Powers: The Institutional Aspect
5. European Union Legal System
5.1. General Overview
5.2. Primary Legal Sources
5.3. Secondary Legal Sources
6. Enforcement of European Union Law
6.1. Principle of Primacy
6.2. Principle of Direct Effect (and Beyond)
6.3. Principle of Procedural Autonomy
Chapter 2
Setting the Scene: The Socio-Economic and Political Background of Public Services in the European Union and Beyond
1. Introduction
2. The Socio-Economic and Political Background of Public Services in the European Union
2.1. The Welfare State and the European Social Model: The Importance of Public Services or Services of General Economic Interest
2.2. Public Services and Competitive Markets: The Limits of Competition Law
2.3. The Liberalization of Certain Infrastructure Sectors and Its Effects on Public Services or Services of General Economic Interest
2.3.1. Conceptual Explanation of the Liberalization of Certain Infrastructure Sectors and Related Processes
2.3.1.1. Regulation
2.3.1.2. Deregulation
2.3.1.3. Privatization
2.3.1.4. (Total) Commercialization
2.3.2. The New Paradigm in the Organization of Certain Infrastructure Sectors
3. Public Services and Related National and Supranational Concepts
3.1. Public Services Concepts as Developed in Various Member States
3.2. Services of General Economic Interest
3.3. Services of General Interest
3.4. Social Services of General Interest
3.5. Universal Services
Chapter 3
The European Union’s Legal Framework for Services of General Economic Interest
1. Introduction
2. Overview of Relevant Sources of EU Law
2.1. TEU
2.2. TFEU
2.2.1. TFEU's Provisions on Competences of the EU
2.2.2. TFEU's Provisions on Non-Discrimination and Citizenship of the EU
2.2.3. TFEU's Provisions on the Internal Market (Free Movement)
2.2.4. TFEU's Provisions on Competition
2.2.5. TFEU's Provisions on Specific Economic Sectors and Trans-European Networks
2.2.6. TFEU's Provision on the System of Property Ownership
2.2.7. TFEU’s Provisions on the Enforcement of European Union Rules
2.2.8. Protocols
2.3. CFREU
2.4. Acts of EU Institutions
2.5. Generally Applicable Acts of the EU
2.5.1. Sector-Specific Acts of the EU
2.5.1.1. Services of General Economic Interest in the Electronic Communications (Telecommunications) Sector
2.5.1.2. Services of General Economic Interest in the Postal Services Sector
2.5.1.3. Services of General Economic Interest in the Energy Sector
2.5.1.4. Services of General Economic Interest in the Transport Sector
2.5.1.5. Services of General Economic Interest in Other Economic Sectors
3. Services of General Economic Interest and the Related Roles of the Member States and the European Union
3.1. From Rome to Lisbon: Services of General Economic Interest in a Changed Socio-Economic, Political and Legal Environment
3.2. Changed Role of the EU in the Field of Services of General Economic Interest?
4. Services of General Economic Interest and Fundamental Rights
5. Services of General Economic Interest and Market Competition: A Balanced Approach to Resolving Tensions
5.1. Competition Rules, Their Fundamental Characteristics and Impact on Services of General Economic Interest
5.1.1. Coordination of Business Activities: Agreements, Decisions and Concerted Practices
5.1.1.1. Prohibition of Coordinated Business Activities
5.1.1.2. Legal Consequences of Breaches
5.1.1.3. Exceptions: Restrictions of Market Competition That Are Compatible with the Internal Market
5.1.1.4. Art. 101 TFEU and Services of General Economic Interest
5.1.2. Abuse of Dominant Position
5.1.2.1. Dominant Position
5.1.2.2. Abuse (of Dominant Position)
5.1.3. Market Concentration
5.1.4. Market Regulation
5.1.4.1. Public Undertakings
5.1.4.2. Special and Exclusive Rights
5.1.4.2.1. Special Rights
5.1.4.2.2. Exclusive Rights
5.1.4.3. Measures Contrary to the Rules Contained in the Treaties
5.1.4.3.1. Measures Contrary to Provisions Addressed to Undertakings
5.1.4.3.2. Measures Contrary to Provisions Addressed to Member States
5.1.5. State Aid
5.1.5.1. The Concept of State Aid: Conditions for the Existence of State Aid
5.1.5.1.1. Member State Origin
5.1.5.1.2. Advantage
Advantage Assessment in the Case of Classical Market Transactions: The Market Economy Operator Principle
Advantage Assessment in the Public Financing of Services of General Economic Interest: The Altmark Principle
5.1.5.1.3. Selectivity
5.1.5.1.4. Distortion of Market Competition
5.1.5.1.5. Effect on Trade between Member States
5.1.5.2. Additional Steps in the Application of the Rules on State Aid in the Event of a State Aid Measure in the Sense of Art. 107(1) TFEU
5.1.5.2.1. The Incompatibility of State Aid with the Internal Market and Exceptions
5.1.5.2.2. Notification and Standstill Obligation
5.1.5.2.3. Main Legal Consequences of Breaches of Obligations Relating to State Aid
5.2. Exceptional Non-Application of Competition Rules and of Other Internal Market Rules in Order to Achieve the Politically Desired Provision of Services of General Economic Interest: An Analysis of Art. 106(2) TFEU
5.2.1. Introduction to Art. 106(2) TFEU
5.2.2. Genesis of Art. 106(2) TFEU
5.2.3. Function of Art. 106(2) TFEU
5.2.4. Beneficiaries of Art. 106(2) TFEU
5.2.5. Direct Effect of Art. 106(2) TFEU
5.2.6. Elements of Art. 106(2) TFEU
5.2.6.1. Undertaking Entrusted with the Operation of Services of General Economic Interest
5.2.6.2. Undertaking Having the Character of a Revenue-Producing Monopoly
5.2.6.3. The Rule: The Duty to Apply the Rules Contained in the Treaties
5.2.6.4. The Limited Exception: The “Right” or Authorization to Disapply the Rules Contained in the Treaties and Its Limits
5.2.6.4.1. Elements of the Limited Exception
5.2.6.4.2. The Balancing or Proportionality Test: Preventing Failure by Using the Strict(est) Approach?
5.2.7. Burden of Proof Regarding Art. 106(2) TFEU
Conclusion
References
About the Author
Index
Blank Page

Citation preview

LAWS AND LEGISLATION

PUBLIC SERVICES AND RELATED CONCEPTS IN THE EUROPEAN UNION UNDERSTANDING THE EUROPEAN UNION’S LEGAL FRAMEWORK FOR SERVICES OF GENERAL ECONOMIC INTEREST

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LAWS AND LEGISLATION Additional books and e-books in this series can be found on Nova’s website under the Series tab.

LAWS AND LEGISLATION

PUBLIC SERVICES AND RELATED CONCEPTS IN THE EUROPEAN UNION UNDERSTANDING THE EUROPEAN UNION’S LEGAL FRAMEWORK FOR SERVICES OF GENERAL ECONOMIC INTEREST ALEŠ FERČIČ

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Library of Congress Cataloging-in-Publication Data Names: Ferčič, Aleš, author. Title: Public services and related concepts in the European Union : understanding the European Union's legal framework for services of general economic interest / Aleš Ferčič. Description: Hauppauge : Nova Science Publishers, 2020. | Series: Laws and legislation | Includes bibliographical references and index. | Identifiers: LCCN 2019042872 (print) | LCCN 2019042873 (ebook) | ISBN 9781536164220 (hardcover) | ISBN 9781536164237 (adobe pdf) Subjects: LCSH: Municipal services--Law and legislation--European Union countries. | Economic assistance, Domestic--Law and legislation--European Union countries. | Subsidies--Law and legislation--European Union countries. | European Union countries--Economic integration. Classification: LCC KJE6848 .F47 2020 (print) | LCC KJE6848 (ebook) | DDC 344.24/06--dc23 LC record available at https://lccn.loc.gov/2019042872 LC ebook record available at https://lccn.loc.gov/2019042873

Published by Nova Science Publishers, Inc. † New York

CONTENTS Table of Cited Treaties with Protocols, and the Charter

xi

Table of Cited European Union Directives and Regulations

xiii

Table of Cited Cases before the Court of Justice of the European Union

xix

Foreword

xxvii Peter Grilc

Preface

xxxi

Acknowledgements

xxxvii

List of Acronyms

xxxix

Chapter 1

European Union Law Toolkit: Selected Fundamental Principles and Concepts of European Union Law and Their Impact on Public Services 1. Introduction 2. Unique Features of the European Union 3. Values and Aims of the European Union 3.1. General Overview 3.2. Variety of Values and Aims: The Clash of the Titans

1 1 2 4 4 6

vi

Contents 3.3. Catalogue of Values and Aims 3.4. The EU’s Aim to Ensure the Effective Provision of Services of General Economic Interest 4. Competences of the European Union 4.1. Limits to the Competences of the European Union 4.2. Use of Competences of the European Union 4.3. (Internal) Division of Powers: The Institutional Aspect 5. European Union Legal System 5.1. General Overview 5.2. Primary Legal Sources 5.3. Secondary Legal Sources 6. Enforcement of European Union Law 6.1. Principle of Primacy 6.2. Principle of Direct Effect (and Beyond) 6.3. Principle of Procedural Autonomy

Chapter 2

Setting the Scene: The Socio-Economic and Political Background of Public Services in the European Union and Beyond 1. Introduction 2. The Socio-Economic and Political Background of Public Services in the European Union 2.1. The Welfare State and the European Social Model: The Importance of Public Services or Services of General Economic Interest 2.2. Public Services and Competitive Markets: The Limits of Competition Law 2.3. The Liberalization of Certain Infrastructure Sectors and Its Effects on Public Services or Services of General Economic Interest

8

9 10 11 13 15 17 18 19 22 23 24 26 29

31 31

32

32

36

39

Contents 3. Public Services and Related National and Supranational Concepts 3.1. Public Services Concepts as Developed in Various Member States 3.2. Services of General Economic Interest 3.3. Services of General Interest 3.4. Social Services of General Interest 3.5. Universal Services Chapter 3

The European Union’s Legal Framework for Services of General Economic Interest 1. Introduction 2. Overview of Relevant Sources of EU Law 2.1. TEU 2.2. TFEU 2.3. CFREU 2.4. Acts of EU Institutions 2.5. Generally Applicable Acts of the EU 3. Services of General Economic Interest and the Related Roles of the Member States and the European Union 3.1. From Rome to Lisbon: Services of General Economic Interest in a Changed Socio-Economic, Political and Legal Environment 3.2. Changed Role of the EU in the Field of Services of General Economic Interest? 4. Services of General Economic Interest and Fundamental Rights 5. Services of General Economic Interest and Market Competition: A Balanced Approach to Resolving Tensions

vii

53 54 57 63 64 65 67 67 69 69 70 81 82 83

95

97

99 101

102

viii

Contents 5.1. Competition Rules, Their Fundamental Characteristics and Impact on Services of General Economic Interest 5.2. Exceptional Non-Application of Competition Rules and of Other Internal Market Rules in Order to Achieve the Politically Desired Provision of Services of General Economic Interest: An Analysis of Art. 106(2) TFEU

103

145

Conclusion

167

References

173

About the Author

185

Index

187

Related Nova Publications

191

This book is dedicated to my beloved son, Jurij.

TABLE OF CITED TREATIES WITH PROTOCOLS, AND THE CHARTER the Amsterdam Treaty

the Lisbon Treaty

the Maastricht Treaty the Nice Treaty

the Paris Treaty the Rome Treaties

the Charter

1

-

Treaty of Amsterdam amending the Treaty on European Union, the Treaties establishing the European Communities and certain related acts UL C 340, 10. 11. 1997, 1–44 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community1 OJ C 306, 17. 12. 2007, 1–271 Treaty of Maastricht on European Union OJ C 191, 29. 7. 1992, 1–112 Treaty of Nice amending the Treaty on European Union, the Treaties establishing the European Communities and certain related acts OJ C 80, 10. 3. 2001, 1–87 Treaty establishing the European Coal and Steel Community 1951 Treaty establishing the European Economic Community and related instruments, and Treaty establishing the European Atomic Energy Community (Euratom) 1957 Charter of Fundamental Rights of the European Union OJ C 326, 26. 10. 2012, 391–407

See also the consolidated versions of: the Treaty on European Union, OJ C 326, 26. 10. 2012, 1–46; the Treaty on the Functioning of the European Union, OJ C 326, 26/10/2012, 47–390.

TABLE OF CITED EUROPEAN UNION DIRECTIVES AND REGULATIONS Directive (EU) 2019/944

Directive (EU) 2018/2002

Directive (EU) 2018/2001

Directive (EU) 2018/844

Directive 2014/25/EU

Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU OJ L 158, 14.6.2019, 125–199 Directive (EU) 2018/2002 of the European Parliament and of the Council of 11 December 2018 amending Directive 2012/27/EU on energy efficiency OJ L 328, 21.12.2018, 210–230 Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources OJ L 328, 21.12.2018, 82–209 Directive (EU) 2018/844 of the European Parliament and of the Council of 30 May 2018 amending Directive 2010/31/EU on the energy performance of buildings and Directive 2012/27/EU on energy efficiency OJ UL L 156, 19.6.2018, 75–91 Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC OJ L 94, 28. 3. 2014, 243–374

xiv

Table of Cited European Union Directives and Regulations

Directive 2014/24/EU

Directive 2014/23/EU

Directive 2009/136/EC

Directive 2009/73/EC

Directive 2009/72/EC

Directive 2008/63/EC

Directive 2008/6/EC

Directive 2006/123/EC

Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC OJ L 94, 28. 3. 2014, 65–242 Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the award of concession contracts OJ L 94, 28. 3. 2014, 1–64 Directive 2009/136/EC of the European Parliament and of the Council of 25 November 2009 amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws OJ L 337, 18. 12. 2009, 11–36 Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC OJ L 211, 14. 8. 2009, 94–136 Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC OJ L 211, 14. 8. 2009, 55–93 Commission Directive 2008/63/EC of 20 June 2008 on competition in the markets in telecommunications terminal equipment OJ L 162, 21. 6. 2008, 20–26 Directive 2008/6/EC of the European Parliament and of the Council of 20 February 2008 amending Directive 97/67/EC with regard to the full accomplishment of the internal market of Community postal services OJ L 52, 27. 2. 2008, 3–20 Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market OJ L 376, 27. 12. 2006, 36–68

Table of Cited European Union Directives and Regulations Directive 2006/111/EC

Directive 2002/39/EC

Directive 2002/22/EC

Directive 98/10/EC

Directive 97/67/EC

Directive 88/301/EEC

Directive 80/723/EEC

Regulation (EU) 2019/943

xv

Commission Directive 2006/111/EC of 16 November 2006 on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings OJ L 318, 17. 11. 2006, 17–25 Directive 2002/39/EC of the European Parliament and of the Council of 10 June 2002 amending Directive 97/67/EC with regard to the further opening to competition of Community postal services OJ L 176, 5. 7. 2002, 21–25 Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users' rights relating to electronic communications networks and services OJ L 108, 24. 4. 2002, 51–77 Directive 98/10/EC of the European Parliament and of the Council of 26 February 1998 on the application of open network provision (ONP) to voice telephony and on universal service for telecommunications in a competitive environment OJ L 101, 1. 4. 1998, 24–47 Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service OJ L 15, 21. 1. 1998, 14–25 Commission Directive 88/301/EEC of 16 May 1988 on competition in the markets in telecommunications terminal equipment OJ L 131, 27. 5. 1988, 73–77 Commission Directive 80/723/EEC of 25 June 1980 on the transparency of financial relations between Member States and public undertakings OJ L 195, 29. 7. 1980, 35–37 Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity OJ L 158, 14.6.2019, 54–124

xvi

Table of Cited European Union Directives and Regulations

Regulation (EU) 2019/942

Regulation (EU) 2019/941

Regulation (EU) 2018/1999

Regulation (EU) 2018/1139

Regulation (EU) 2016/2338

Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019 establishing a European Union Agency for the Cooperation of Energy Regulators OJ L 158, 14.6.2019, 22–53 Regulation (EU) 2019/941 of the European Parliament and of the Council of 5 June 2019 on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC OJ L 158, 14.6.2019, 1–21 Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action, amending Regulations (EC) No 663/2009 and (EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC, 2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No 525/2013 of the European Parliament and of the Council OJ L 328, 21.12.2018, 1–77 Regulation (EU) 2018/1139 of the European Parliament and of the Council of 4 July 2018 on common rules in the field of civil aviation and establishing a European Union Aviation Safety Agency, and amending Regulations (EC) No 2111/2005, (EC) No 1008/2008, (EU) No 996/2010, (EU) No 376/2014 and Directives 2014/30/EU and 2014/53/EU of the European Parliament and of the Council, and repealing Regulations (EC) No 552/2004 and (EC) No 216/2008 of the European Parliament and of the Council and Council Regulation (EEC) No 3922/91 OJ L 212, 22. 8. 2018, 1–122 Regulation (EU) 2016/2338 of the European Parliament and of the Council of 14 December 2016 amending Regulation (EC) No 1370/2007 concerning the opening of the market for domestic passenger transport services by rail OJ L 354, 23. 12. 2016, 22–31

Table of Cited European Union Directives and Regulations Regulation (EU) 2016/2286

Regulation (EU) 2015/1589

Regulation (EU) 360/2012

Regulation (EC) 1008/2008

Regulation (EC) 1370/2007

Regulation (EC) 802/2004

Regulation (EC) 139/2004

Regulation (EC) 1/2003

xvii

Commission Implementing Regulation (EU) 2016/2286 of 15 December 2016 laying down detailed rules on the application of fair use policy and on the methodology for assessing the sustainability of the abolition of retail roaming surcharges and on the application to be submitted by a roaming provider for the purposes of that assessment OJ L 344, 17. 12. 2016, 46–62 Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union OJ L 248, 24. 9. 2015, 9–29 Regulation (EU) 360/2012 of 25 April 2012 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest OJ L 114, 26. 4. 2012, 8–13 Regulation (EC) No 1008/2008 of the European Parliament and of the Council of 24 September 2008 on common rules for the operation of air services in the Community OJ L 293, 31. 10. 2008, 3–20 Regulation (EC) No 1370/2007 of the European Parliament and of the Council of 23 October 2007 on public passenger transport services by rail and by road and repealing Council Regulations OJ L 315, 3. 12. 2007, 1–13 Regulation (EC) No 802/2004 of 7 April 2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings OJ L 133, 30. 4. 2004, 1–39 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings; OJ L 24, 29. 1. 2004, 1–22 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty OJ L 1, 4. 1. 2003, 1–25

xviii

Table of Cited European Union Directives and Regulations

Regulation (EEC) 3577/92

Council Regulation (EEC) No 3577/92 of 7 December 1992 applying the principle of freedom to provide services to maritime transport within Member States OJ L 364, 12. 12. 1992, 7–10

TABLE OF CITED CASES BEFORE THE COURT OF JUSTICE OF THE EUROPEAN UNION C-3/16 C-105 – 107/12

C-437/09 C-52/09 C-386/08 C-484/08

C‑501, 513, 515 & 519/06 P

Lucio Cesare Aquino v Belgische Staat ECLI:EU:C:2017:209 Staat der Nederlanden v Essent NV (C‑105/12), Essent Nederland BV (C‑105/12), Eneco Holding NV (C‑106/12) and Delta NV (C‑107/12) ECLI:EU:C:2013:677 AG2R Prévoyance v Beaudout Père et Fils SARL ECLI: ECLI:EU:C:2011:112 Konkurrensverket v TeliaSonera Sverige AB ECLI:EU:C:2011:83. Firma Brita GmbH v Hauptzollamt Hamburg-Hafen ECLI:EU:C:2009:326 Caja de Ahorros y Monte de Piedad de Madrid v Asociación de Usuarios de Servicios Bancarios (Ausbanc) ECLI:EU:C:2010:309 GlaxoSmithKline Services Unlimited v Commission of the European Communities (C-501/06 P) and Commission of the European Communities v GlaxoSmithKline Services Unlimited (C-513/06 P) and European Association of Euro Pharmaceutical Companies (EAEPC) v Commission of the European Communities (C-515/06 P) and Asociación de exportadores

xx

Table of Cited Cases before the Court of Justice … (Continued)

C-308/06

C-438/05

C-402 & 415/05 P

C-438/05

C-341/05

C-234/04 C-222/04

C-397 – 403/01

C-198/01

C-280/00

españoles de productos farmacéuticos (Aseprofar) v Commission of the European Communities (C-519/06 P) ECLI:EU:C:2009:610 The Queen, on the application of International Association of Independent Tanker Owners (Intertanko) and Others v Secretary of State for Transport ECLI:EU:C:2008:312 International Transport Workers’ Federation and Finnish Seamen’s Union v Viking Line ABP and OÜ Viking Line Eesti ECLI:EU:C:2007:772 Yassin Abdullah Kadi and Al Barakaat International Foundation v Council of the European Union and Commission of the European Communities ECLI:EU:C:2008:461 International Transport Workers’ Federation and Finnish Seamen’s Union v Viking Line ABP and OÜ Viking Line Eesti ECLI:EU:C:2007:772 Laval un Partneri Ltd v Svenska Byggnadsarbetareförbundet, Svenska Byggnadsarbetareförbundets avdelning 1, Byggettan and Svenska Elektrikerförbundet ECLI:EU:C:2007:809 Rosmarie Kapferer v Schlank & Schick GmbH ECLI:EU:C:2006:178 Ministero dell'Economia e delle Finanze v Cassa di Risparmio di Firenze SpA, Fondazione Cassa di Risparmio di San Miniato and Cassa di Risparmio di San Miniato SpA ECLI:EU:C:2006:8 Bernhard Pfeiffer (C-397/01), Wilhelm Roith (C-398/01), Albert Süß (C-399/01), Michael Winter (C-400/01), Klaus Nestvogel (C-401/01), Roswitha Zeller (C-402/01) and Matthias Döbele (C403/01) v Deutsches Rotes Kreuz, Kreisverband Waldshut eV ECLI:EU:C:2004:584 Consorzio Industrie Fiammiferi (CIF) v Autorità Garante della Concorrenza e del Mercato ECLI:EU:C:2003:430 Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH, and Oberbundesanwalt beim Bundesverwaltungsgericht ECLI:EU:C:2003:415

Table of Cited Cases before the Court of Justice … C-62/00 C-53/00

C-482/99 C-475/99 C-340/99 C-309/99

C-9/99 C-443/98 C-379/98

C-188/98 C-180 – 184/98

C-10 – 22/97

C-326/96 C-266/96

C-149/96

xxi

Marks & Spencer plc v Commissioners of Customs & Excise ECLI:EU:C:2002:435 Ferring SA v Agence centrale des organismes de sécurité sociale (ACOSS) ECLI:EU:C:2001:627 French Republic v Commission of the European Communities ECLI:EU:C:2002:294 Firma Ambulanz Glöckner v Landkreis Südwestpfalz ECLI:EU:C:201:577 TNT Traco SpA v Poste Italiane SpA and Others ECLI:EU:C:2001:281 J. C. J. Wouters, J. W. Savelbergh in Price Waterhouse Belastingadviseurs BV proti Algemene Raad van de Nederlandse Orde van Advocaten, ob udeležbi Raad van de Balies van de Europese Gemeenschap ECLI:EU:C:2002:98 Echirolles Distribution SA v Association du Dauphiné and Others ECLI:EU:C:2000:532 Unilever Italia SpA v Central Food SpA ECLI:EU:C:2000:496 PreussenElektra AG v Schhleswag AG, in the presence of Windpark Reußenköge III GmbH and Land Schleswig-Holstein ECLI:EU:C:2001:160. A. Foster and others v British Gas plc ECLI:EU:C:1990:313 Pavel Pavlov and Others v Stichting Pensioenfonds Medische Specialisten ECLI:EU:C:2000:428 Ministero delle Finanze proti IN.CO.GE.'90 Srl, Idelgard Srl, Iris'90 Srl, Camed Srl, Pomezia Progetti Appalti Srl (PPA), Edilcam Srl, A. Cecchini & C. Srl, EMO Srl, Emoda Srl, Sappesi Srl, Ing. Luigi Martini Srl, Giacomo Srl in Mafar Srl ECLI:EU:C:1998:498 B.S. Levez v T.H. Jennings (Harlow Pools) Ltd ECLI:EU:C:1998:577 Corsica Ferries France SA v Gruppo Antichi Ormeggiatori del porto di Genova Coop. arl, Gruppo Ormeggiatori del Golfo di La Spezia Coop. arl and Ministero dei Trasporti e della Navigazione ECLI:EU:C:1998:306 Portuguese Republic v Council of the European Union ECLI:EU:C:1999:574

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Table of Cited Cases before the Court of Justice … (Continued)

C-194/94

C-160/94 C-159/94 C-158/94 C-157/94

C-55/94

C-39/94

C-323/93

C-46/93

C-19/93 P

C-393/92 C-91/92 C-320/91 C-271, 281 & 289/90

CIA Security International SA v Signalson SA and Securitel SPRL ECLI:EU:C:1996:172 Commission of the European Communities v Kingdom of Spain ECLI:EU:C:1997:502 Commission of the European Communities v French Republic ECLI:EU:C:1997:501 Commission of the European Communities v Italian Republic ECLI:EU:C:1997:500 Commission of the European Communities v Kingdom of the Netherlands ECLI:EU:C:1997:499 Einhard Gebhard v Consiglio dell'Ordine degli Avvocati e Procuratori di Milano ECLI:EU:C:1995:194 Syndicat français de l'Express international (SFEI) and others v La Poste and others ECLI:EU:C:1996:285 Société Civile Agricole du Centre d'Insémination de la Crespelle v Coopérative d'Elevage et d'Insémination Artificielle du Département de la Mayenne ECLI:EU:C:1994:368 Brasserie du Pêcheur SA v Bundesrepublik Deutschland and The Queen v Secretary of State for Transport ECLI:EU:C:1996:79 Rendo NV, Centraal Overijsselse Nutsbedrijven NV and Regionaal Energiebedrijf Salland NV v Commission of the European Communities ECLI:EU:C:1995:339 Municipality of Almelo and others v NV Energiebedrijf Ijsselmij ECLI:EU:C:1994:171 Paola Faccini Dori v Recreb Srl ECLI:EU:C:1994:292 Criminal proceedings against Paul Corbeau ECLI:EU:C:1993:198 Kingdom of Spain, Kingdom of Belgium and Italian Republic v Commission of the European Communities, ECLI:EU:C:1992:440

Table of Cited Cases before the Court of Justice … C-179/90

C-48 & 66/90

C-41/90 C-6 & 9/90

C-260/89

C-213/89 C-106/89

C-202/88 C-17/88 30/87 66/86

35/86

152/84

72/83

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Merci convenzionali porto di Genova SpA v Siderurgica Gabrielli SpA ECLI:EU:C:1991:464 Kingdom of the Netherlands, Koninklijke PTT Nederland NV and PTT Post BV v Commission of the European Communities ECLI:EU:C:1992:63 Klaus Höfner and Fritz Elser v Macrotron GmbH ECLI:EU:C:1998:306 Andrea Francovich and Danila Bonifaci and others v Italian Republic ECLI:EU:C:1991:428 Elliniki Radiophonia Tiléorassi AE and Panellinia Omospondia Syllogon Prossopikou v Dimotiki Etairia Pliroforissis and Sotirios Kouvelas and Nicolaos Avdellas and others ECLI:EU:C:1991:254 The Queen v Secretary of State for Transport ECLI:EU:C:1990:257 Marleasing SA v La Comercial Internacional de Alimentacion SA ECLI:EU:C:1990:395 French Republic v Commission of the European Communities ECLI: ECLI:EU:C:1991:120 Régie des télégraphes et des téléphones v GB-Inno-BM SA ECLI:EU:C:1991:474 Corinne Bodson v SA Pompes funèbres des régions libérées ECLI:EU:C:1988:225 Ahmed Saeed Flugreisen and Silver Line Reisebüro GmbH v Zentrale zur Bekämpfung unlauteren Wettbewerbs e.V. ECLI:EU:C:1989:140 Levantina Agricola Industrial SA (LAISA) and CPC España SA v Council of the European Communities, ECLI:EU:C:1988:211 M. H. Marshall v Southampton and South-West Hampshire Area Health Authority (Teaching) ECLI:EU:C:1986:84 Campus Oil Limited and others v Minister for Industry and Energy and others ECLI:EU:C:1984:256

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Table of Cited Cases before the Court of Justice … (Continued)

14/83

199/82

270/81

730/79

148/78 106/77 1/77 85/76

73/76

27/76

41/74 2/74 155/73 127/73

Sabine von Colson and Elisabeth Kamann v Land NordrheinWestfalen ECLI:EU:C:1984:153 Amministrazione Delle Finanze Dello Stato v proti SpA San Giorgio ECLI:EU:C:1983:318 Felicitas Rickmers-Linie KG & Co. v Finanzamt für Verkehrsteuern, Hambourg ECLI:EU:C:1982:281 Philip Morris Holland BV v Commission of the European Communities ECLI:EU:C:1980:209 Criminal proceedings against Tullio Ratti ECLI:EU:C:1979:110 Amministrazione delle Finanze dello Stato v Simmenthal SpA ECLI:EU:C:1978:49 Robert Bosch GmbH v Hauptzollamt Hildesheim ECLI:EU:C:1977:130 Hoffmann-La Roche & Co. AG v Commission of the European Communities ECLI:EU:C:1979:36 Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer für das Saarland ECLI:EU:C:1973:105 United Brands Company and United Brands Continentaal BV v Commission of the European Communities ECLI:EU:C:1978:22 Yvonne van Duyn v Home Office ECLI:EU:C:1974:133 Jean Reyners v Belgian State ECLI:EU:C:1974:68 Guiseppe Sacchi ECLI:EU:C:1974:40. Belgische Radio en Televisie in société belge des auteurs, compositeurs et éditeurs proti SV SABAM in NV Fonior ECLI:EU:C:1974:25

Table of Cited Cases before the Court of Justice … 21 – 24/72

11/70

14/68 7/68 6/64 26/62

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International Fruit Company NV and others v Produktschap voor Groenten en Fruit ECLI:EU:C:1972:115 Internationale Handelsgesellschaft mbH v Einfuhr- und Vorratsstelle für Getreide und Futtermittel ECLI:EU:C:1970:114 Walt Wilhelm and others v Bundeskartellamt ECLI:EU:C:1969:4 Commission of the European Communities v Italian Republic ECLI:EU:C:1968:51 Flaminio Costa v E.N.E.L. ECLI:EU:C:1964:66. NV Algemene Transport- en Expeditie Onderneming van Gend & Loos proti Nederlandse administratie der belastingen ECLI:EU:C:1963:1

FOREWORD Aleš Ferčič is, in my opinion, one of the leading legal scholars in the field of public services or services of general economic interest. I have been observing his scientific work since he was my doctoral student. In his doctoral thesis he has dealt with the complex process of liberalization and application of competition law for services of general economic interest. Also his later publications in the field of European Union’s public economic law (and more broadly in the fields of constitutional and classical administrative law as well as competition law and energy law) have been oriented towards services of general economic interest. The book’s title reveals the essence of the book and draws its methodological and content arch, namely, a fairly comprehensive analysis of the European Union’s legal framework for services of general economic interest. To me, this is par excellence topic of the European Union (law). It demands, inter alia, understanding of the European Union’s values and aims, its competences and way of functioning, fundamental legal principles and concepts (Chapter 1, European Union Law Toolkit: Selected Fundamental Principles and Concepts of European Union Law and Their Impact on Public Services) as well as understanding of special legal rules which are discussed in the last chapter. Moreover, it demands understanding of the past and present social, economic and political background since the law and policy form a logical unit (Chapter 2, Setting the Scene: The Socio-Political

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Background of Public Services in the European Union and Beyond). For this reason, the author has wisely decided to shed some light on these issues before turning to the very core of the book, even more since it will be published outside the Europe. This way the book is more user-friendly to readers who are interested in legal issues relating public services but are not experts in the European Union law, and also to those who are not familiar with the political background which triggered both, new interpretations in the case law and adoption of the new hard law. The core of the book offers an insight into relevant legal sources which build the supranational legal framework for services of general economic interest (Chapter 3, European Union’s Legal Framework for Services of General Economic Interest). In addition to the current general and sector-specific hard law it includes most relevant case law and soft law. The main emphasis is, however, on the primary law, predominantly on the part relating market competition and services of general economic interest. In this regard, the author pays special attention to “the new context” after the Lisbon Treaty. The author rightly points out that the Lisbon Treaty not only introduced numerous non-economic aims which are related to services of general economic interest but it further strengthened their legal status by underlining joint responsibility of the European Union and Member States for effective provision of those services. In this context, the author is convincingly advocating the thesis that in the eyes of the European Union and its institutions services of general economic interest are not or should not be considered as a “persistent irritant” anymore but rather as an important building block of the so-called European model of society and at the end of the day, it seems, also of the Internal market. He is right when claiming that this change in perception of the services of general economic interest did not come overnight but it rather started parallel with the liberalization process, partly to calm down the relative strong opposition to it in some Member States and partly due to the sincere desire to overcome shortcomings of competitive markets in this fairly sensitive area. Moreover, the author is convincingly advocating the departure from some “patterns” which dominated for decades. In the discussed field, the European Union is no longer limited only to its prohibitory role and it is not merely focused on

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economic aims in the center of which is the Internal market. Nowadays, it has to follow both, economic and non-economic aims which have to be considered when defining supranational interests. In this regard, the author declares the traditional perception, according to which in relation to services of general economic interest Member States follow non-economic aims while the European Union follows economic aims (relating Internal market), as being obsolete. The new situation is not black and white but far more complex. The book is a classical scientific monograph which is excellent in terms of methodology, systematical and analytical approach and merits. It offers insight into the discussed multilayered legal framework but it keeps the focus on the primary law which draws its outer limits, so that the reader can see the whole picture. On one hand, it offers an insight into the state of play in the field of services of general economic interest by systematical and accurate discussion of the relevant hard law, case law and soft law as well as by using relevant literature, and on the other, it offers original theses, interpretations and their argumentation. This way it can be considered as a comprehensive text based on complete and wide knowledge of law and more than just basic economic knowledge. It demonstrates that complex social, economic and legal issues can be discussed in a sufficiently user-friendly way. It is also worthy to point out the structure of the book which enables its reading through different “optics,” namely, as a functional unit as well as stand-alone chapters relating the discussed services. The main text is supported by numerous footnotes which either refer to relevant legal sources and theory or provide a reader with additional pieces of information without burdening the main text which is therefore throughout very transparent. Moreover, the main text is supported with the preface, table of contents, table of acronyms, tables of cited hard law and case law, list of cited literature, and index. By taking into consideration all the above mentioned findings, I believe, the book can be labelled as value added book which will be of great importance in theory and practice. In (non-European) legal environments where the discussed topic is relatively unknown or underdeveloped it can be used as a core book, while in those (European) legal environments where

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this topic is highly important and discussed in detail it can equally compete with existing high quality books. Peter Grilc Doctor of juridical science and Professor of European Union law at the University of Ljubljana, Faculty of law

PREFACE In Europe, public services or their equivalents have traditionally played a vital role in the normal functioning of society, and as such they had and still have a significant public interest aspect.2 In fact, they form an area of public policy. Even though the basic idea behind public services is in principle the same in each EU Member State, each of them has developed its own approach to their organization and financing, corresponding to its historical development, culture, natural and socioeconomic conditions and, of course, its legal tradition. These different approaches to and different natures of public services are, however, capable of jeopardizing the internal 2

The perception or understanding of a modern state and its corresponding role varies across the globe, and the same is true for public services, which form an important piece of the neverending debate about the (ideal) relationship between the modern state and the market. Since this book discusses public services and related concepts in the EU, a brief introductory note could be useful for non-European readers to better understand this book and its core ideas. In European legal theory, a modern state is inter alia predominantly perceived to be a service for the people (rather than a few privileged individuals). In this concept, one can recognize a principal–agent relationship; the people play the role of the principal while the people’s representatives, i.e., politicians, play the role of the agent. The latter should always bear in mind that serving the people is the main reason for the existence of a modern state, and that this kind of a state draws its legitimacy from it. This logic sooner or later leads to an “active state,” i.e., to a social or welfare state. There is no consensus on what exactly this concept means and how it should be approached, but this is not to deny the EU’s orientation towards a social market economy, which differs from a pure market economy and even more from a command (or state planned) economy. In general, in a social market economy market interventions are more likely to be allowed as compared with a pure market economy or with mixed models which gravitate more intensively towards the latter than towards a social market economy.

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market, the functioning of which is one of the primary aims of the EU. This is because the variety of national approaches to public services can be an obstacle to the free movement of the basic means of production, e.g., services, goods, persons and capital, and to market competition. Moreover, the values and aims which have traditionally driven public services are not fully compatible with the imperative of economic efficiency and with the push to establish highly competitive markets which can be also found among the aims of the EU. This indicates a conflict or at least a significant potential for what became particularly obvious when the EU initiated the liberalization process, and more generally when the so-called European economic constitution was progressively interpreted according to a more economic approach, and as a consequence the EU Member States lost some of their prerogatives in this fairly sensitive area. This, however, is not to say that the EU is not at all concerned with public services. On the contrary, it is widely accepted nowadays that public services are part of the values shared by all European societies and that they form an essential element of the European social model (and more generally, of the European model of society) as safeguarded by EU law. Moreover, public services are considered to be among the most important building blocks of the internal market. In principle, they can be organized and financed in a way which is compatible with the internal market. And even when this is not the case, non-economic aims which are supported by public services can under certain conditions outweigh the imperative of the internal market and competition and its related economic aims. In this regard one can see that the search for a balance between economic and non-economic aims is neverending.3 Nowadays, public services are an integral part of several EU policies. Yet, the main responsibility still lies with the EU Member States, which are expected to ensure, either directly or indirectly by entrusting capable

3

In this context it is probably easier to understand the position of Mario Monti, the former European Commissioner in charge of internal market and competition, who considers public services to be the building blocks for reconciling the single [internal] market and the social and citizenship dimensions as components of a highly competitive economy, while at the same time he admits that the place of public services within the single [internal] market has been a “persistent irritant” in the European public debate since the nineties; see Monti 2010, 68 and 73.

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undertakings, the effective provision of public services.4 On the other hand, the EU does not provide public services to users, but merely sets out the relevant rules. In this regard it is worth mentioning, however, that while EU law does impose specific obligations on the EU Member States and public services providers, these obligations are of a predominantly prohibitory nature,5 while supranational rules of a commendatory nature are rare. In other words, in the field of public services, the EU is mainly focused on “negative” rather than “positive” integration. All this shows that the field of public services is far from being unified at the EU level. The existing EU legal principles and rules can rather be considered a dynamic multilayered legal framework for public services, or services of general economic interest. Bearing the above in mind, this book discusses the legal aspects of public services and related concepts in the EU, with a focus on primary EU law, which has a constitutional character and forms an umbrella legal framework which is in principle applicable to all economic sectors.6 At the center of the debate is a tension between the classical public services values, which are for the most part deeply incorporated in the national public services rules, and the use of markets predominantly policed by supranational internal market rules. In this regard, the main emphasis is on competition law, due to its great potential to affect the values of classical public services, and because of the liberalization process, which has introduced a new paradigm in the so-called “infrastructure sectors” such as energy (electricity and natural gas), telecommunications (or more broadly, e-communications), postal services and transportation (air, maritime and rail). These sectors are in the foreground of this book. The book consists of the three interrelated chapters which relate in one way or another to public services of an economic nature, or more precisely,

4

In this regard both market failure and government failure have to be considered as discussed in Chapter 3. 5 This is probably most obvious in the field of financing of public services, where EU State aid rules set significant restrictions. 6 Where appropriate, sector-specific rules are indicated for a greater clarity but are not discussed in detail.

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to use the EU’s terminology, “services of general economic interest,” and to the corresponding EU legal framework. The first chapter, “European Union Law Toolkit: Selected Fundamental Principles and Concepts of European Union Law and Their Impact on Public Services” is designed as a classical introductory chapter which offers an insight into the basic characteristics of the EU and its law in order to shed some light on complex political and legal environment, of which the discussed legal framework is an integral part. This way it makes easier for the reader to understand the unique interplay between the supranational and national laws that are applicable to public services or services of general economic interest, their enforcement, and the competent bodies. All these issues are discussed with respect to the relevant fundamental legal concepts and principles of EU law in such a way that they are linked, as much as possible, to services of general economic interest. This is intended to make the book user-friendly, in particular for non-European readers or those who lack basic knowledge of EU and its law. The second chapter, “Setting the Scene: The Socio-Economic and Political Background of Public Services in the European Union and Beyond” discusses, as the title indicates, the socio-political background of public services, which is of particular importance, since the law never exists in a vacuum but always in the specific society and its socio-political environment. The second chapter also contains the core terms and definitions which are essential for a proper understanding of the EU’s legal framework for services of general economic interest. The third chapter, “The European Union’s Legal Framework for Services of General Economic Interest” forms the core of this book. It first offers an overview of various sources of EU law relevant to the field of public services or services of general economic interest, which allows us to identify the legal rules that are directly or indirectly applicable to those services or that have some impact on them. In this regard, various primary and secondary legal rules that have both a general and a sector-specific scope of application are discussed in this section. Some of the relevant legal rules are discussed in greater detail in this chapter, with an emphasis on competition rules but in particular on State aid rules, i.e., Art. 107–109

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TFEU, on the position of services of general economic interest in the EU law, i.e., Art. 14 TFEU, and on the rule which sets out the conditions for the limited application of the TFEU provision for services of general economic interest, i.e., Art. 106(2) TFEU. These are the rules that seems to have the greatest impact on the organization, provision and financing of public services in EU Member States in daily practice. Due to spatial limitations, this book was not designed to be a “one stop shop.”7 However, all of the major issues are considered in the book, which therefore gives both an overview of the main public policy challenges in the field of public services and an insight into the EU’s legal framework for services of general economic interest.8 As such, the book is primarily intended for lawyers and law students, but may be also of interest to those who would like to understand the European social model or even the European model of society, the interplay between and balancing of economic and non-economic public policy aims, and the impact of the transformation of previously closed and non-competitive markets into open and (more) competitive markets in public services in the EU and its Member States. Aleš Ferčič Author

7

However, where issues are indicated but not discussed in detail, the book usually provides the reader with references to the relevant sources. 8 From here on, the term “public services” will be used for public services of an economic nature, or more precisely, for services of general economic interest when they are discussed in the context of the EU’s legal framework for such services. Terminology and definitions are discussed in Chapter 2.

ACKNOWLEDGEMENTS I would like to express my thanks to the publisher, Nova Science Publishers, Inc., especially to Nadya Gotsiridze-Columbus for her kind invitation to write this book, which was, together with my belief that I am able to contribute something of value to legal theory in the field of public services, a decisive factor to accept the invitation at a time when my schedule was already full, and to Christy Ciota, Donna Dennis, Carra Feagaiga, Theresa McKenna, Sarah Kearns and Stella Rosa for their technical support and patience. Many thanks as well to Nina Ambrož Šušnik and Peter Altshul of Amidas, d.o.o., for language services. Furthermore, the writing of this book has been facilitated by valuable discussions and suggestions from my academic colleagues from the home university, and by support of the Erasmus+ program (Jean Monnet actions) as managed by the EACEA. Thank you for that. Of course, special gratitude goes to my family, starting from my early years; I would like to express my deep gratitude to my parents for my wonderful childhood and all the support I received, and to my wife and son for the unforgettable moments as well as for their love, understanding and patience. The latter must be particularly challenging for my six-year-old son, my greatest teacher of all, who gives me the best life lessons since he shows me what really matters on a daily basis. Well, my dear Jurij, I hope someday you will be of the opinion that the time when I was writing this book and

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when I was with you but not always fully present was not totally wasted, even though this book does not contain any entertaining illustrations. And I hope you will retain or even increase your inspiring passion for books.

LIST OF ACRONYMS CFREU CJEU EAEC EC ECJ ECHR ECtHR EEC ECSC EU NSGI OECD SSGI TECSC TEEC TEC TCE TEU TFEU UN WTO

Charter of Fundamental Rights of the European Union Court of Justice of the European Union European Atomic Energy Community European Community European Court of Justice European Convention on Human Rights European Court of Human Rights European Economic Community European Coal and Steel Community European Union Non-economic services of general interest Organization for Economic Co-operation and Development Social services of general interest Treaty establishing the European Coal and Steel Community Treaty establishing the European Economic Community Treaty establishing the European Community Treaty establishing the Constitution for Europe Treaty on European Union Treaty on the Functioning of the European Union United Nations World Trade Organization

Chapter 1

EUROPEAN UNION LAW TOOLKIT: SELECTED FUNDAMENTAL PRINCIPLES AND CONCEPTS OF EUROPEAN UNION LAW AND THEIR IMPACT ON PUBLIC SERVICES 1. INTRODUCTION Chapter 1 of this book is designed as a classical introductory chapter which offers an insight into the basic characteristics of the EU and its law in order to shed some light on this complex structural, political and legal environment. It is composed of six sections in which the following issues are discussed: the brief introduction, the unique features of the EU, the values and aims of the EU, the competences of the EU and division of powers, the EU legal system, and the enforcement of EU law at the national level, i.e., in proceedings before the bodies of the individual Member States. The main emphasis is on the values and aims of the EU as well as on fundamental concepts and principles framing the abovementioned topics, which are also very useful tools in the field of public services or more precisely, services of general economic interest, particularly in terms of interpretation of broad TFEU’s provisions, as well as for a proper

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Aleš Ferčič

understanding of the division of competences and powers and the relevant (enforcement) procedures. All of the abovementioned issues are discussed only to the extent and level of complexity needed to offer sufficient insight into the complex EU-related political and legal environment, of which the EU legal framework for services of general economic interest is an integral part.9

2. UNIQUE FEATURES OF THE EUROPEAN UNION The unique features of the EU have their origin in the Treaties, i.e., in the TEU and TFEU, as concluded by the Member States.10 To a lesser extent, they can be attributed to the institutions of the EU, the CJEU11 in particular, which ensures that the law is observed in the interpretation and application of the Treaties.12 For this reason, the CJEU has the supreme power to interpret flexible or broadly worded provisions of the Treaties as well as legal acts derived from the Treaties,13 which allows for a fair amount of latitude. The EU has certain elements of a so-called modern state,14 but it is not a (federal) state. For example, there is no federal state called the United States of the EU, as compared to the Unites States of America from an organizational point of view. On the other hand, the EU is certainly not a classical international or intergovernmental organization like the UN, WTO, 9

For a detailed discussion of the EU and its law which systematically cover (almost) all EU-related issues, see for example Schütze and Tridimas 2018; Schütze 2018; Barnard and Peers, 2017; Craig and de Búrca 2015; Weatherill 2014; Chalmers, Davies and Monti, 2014; Lenaerts and Van Nuffel 2011. 10 The Member States are considered to be the “masters of the Treaties” since they can modify or abolish the Treaties and, therewith, the EU. Yet, this is only possible if they achieve unanimous consent. Therefore, de jure, each Member State can block any modification of the Treaties. 11 Ex European Court of Justice (ECJ). 12 Art. 19(1) TEU. 13 In addition, the CJEU is also empowered to rule on the legality of binding legal acts adopted by the institutions of the EU. 14 According to some scholars, the high degree of constitutional development, supranational components and rule of law features within the organization make it look almost like a federation of states, cf. Bengoetxea 2011, 449.

European Union Law Toolkit

3

or OECD. It’s something in between, an international organization sui generis. The EU is defined by the Treaties and by other (predominantly) supranational legal sources which form the autonomous legal system.15 The Treaties, not the Member States’ constitutions (as one might expect),16 explicitly define the mechanism for how EU legal sources become integral parts of the Member States’ legal systems.17 Furthermore, the Treaties implicitly indicate the position of EU legal sources within the national legal systems, their effects in national proceedings and so forth.18 Moreover, from a substantive point of view, the so-called primary legal sources cover all of the pillars of modern constitutions, i.e., human rights and fundamental freedoms, the organization and exercise of public authority and the legal system. These primary legal sources can be considered to be a constitution in the material sense (due to their substance).19 They define, among other things, the values and aims of the EU (both economic and non-economic), fundamental principles, competences and powers, and the framework for EU policies. Here it is also worth mentioning the unique institutional structure of the EU, which follows the traditional three-branched approach, i.e., legislative, judicial and executive, subject to a system of checks and balances. The powers of certain EU institutions clearly go beyond those of 15

See section 5 of this chapter. For this reason, the Member States’ constitutions must be properly adapted. They usually contain a so-called European provision. 17 For example, regulations are directly applicable according to Art. 288(2) TFEU, which means they penetrate in the Member States' legal systems, i.e., they become integral part of their legal systems, without any intervention of the Member States. In contrast, the directives are not directly applicable according to Art. 288(3) TFEU, which means they are not able to penetrate in the Member States' legal systems without a national implementing act; they are binding as to the result to be achieved, but they leave the choice of form and methods to the national authorities. 18 The then ECJ derived numerous fundamental principles from the Treaties in effect at the very beginning of the European integration process (mostly from the Treaty of Rome establishing the European Economic Community), including the principle of primacy, the principle of direct effect etc. 19 On the other hand, the EU has no constitution in the formal sense. Although the TCE was adopted by the European Council in 2004, signed in Rome later that year and approved by the European Parliament, it has never entered into force since it was not ratified by all Member States. Instead, the Lisbon Treaty was signed in 2007 and entered into force in 2009 after its ratification by all Member States. When Member States achieve a consent regarding the Treaties, they can be considered as “the master of the Treaties” 16

Aleš Ferčič

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classical intergovernmental organizations, and one can also find significant differences in terms of decision making, membership, budget and dispute resolution. All this is probably most evident in the cases of the European Parliament, the European Commission and the CJEU. Of course, one can easily find additional unique features of the EU, for example having its own currency, yet I believe those mentioned above are the most important from the public services perspective, since they relate to basic questions which are, inter alia, of crucial importance for public services or services of general economic interest, namely, who is who, who is competent, which rules have priority, how can they be enforced etc.

3. VALUES AND AIMS OF THE EUROPEAN UNION The values and aims of the EU are defined by the Treaties, which means that they have a constitutional character, which indicates their significant role. This is underlined by the fact that the TEU at the very beginning explicitly defines the values (Art. 2 TEU) and aims (Art. 3) of the EU. Moreover, the TFEU contains the so-called operative objectives (Art. 7–17 TFEU), and one of them is specifically dedicated to services of general economic interest (Art. 14 TFEU).20

3.1. General Overview The values and aims are in principle not capable of imposing legal obligations on the Member States or conferring rights on individuals; they depend on the other provisions of the Treaties, which means they are necessarily applied in combination with the respective provisions of the Treaties intended to give effect to those principles and objectives.21 In other 20

The concept of services of general economic interest is explained in the next chapter. At this point, however, it is sufficient to describe it merely as public services having economic nature. 21 See for example case C-484/08, Caja de Ahorros y Monte de Piedad de Madrid v Asociación de Usuarios de Servicios Bancarios (Ausbanc), ECLI:EU:C:2010:309.

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words, the Treaty provisions in which the catalogue of the values and aims of the EU is embodied “merely” lay down a program so that the implementation of the given value(s) or aims(s) must be the result of the policies and actions of both the EU and the Member States.22 Thus, the values and aims of the EU are of great importance for public policy and law, in particular when it comes to the interpretation of the flexible provisions of the Treaties and legal acts derived from them.23 Of course, the values and aims of the EU must also be considered when interpreting and applying provisions of the Treaties and other legal sources of the EU specifically relating to services of general economic interest as well as to general provisions which also might play a significant role in terms of the concept under discussion.24 According to Art. 106(2) TFEU, which is paramount for services of general economic interest,25 “undertakings entrusted with the operation of services of general economic interest (or having the character of a revenueproducing monopoly) shall be subject to the rules contained in the Treaties, in particular to the rules on competition,26 in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the EU.” This wording, but in particular the last sentence, which defines the outer limits of the departure from the rules contained in the Treaties, demands respect for EU values and aims.

22

See for example case C-149/96, Portugal v. Council, ECLI:EU:C:1999:574. See for example case C-9/99, Echirolles Distribution, ECLI:EU:C:2000:532. 24 Cf. Joerges 2009, 29–52; Damjanović and De Wite 2009, 53–94; Ross 2009, 81–100; Baquero Cruz 2005, 169–212; Prosser 2005, 1–38, 153–155, 235–236. 25 See infra, Chapter 3 of this book. 26 This part of Art. 106(2) TFEU clearly underlines the (overarching) importance of the competition rules as well as their potential for conflicts with the non-economic dimension of services of general economic interest. Therefore, in the third chapter of this book, which discusses the EU’s legal framework for services of general economic interest, the main emphasis is on the competition rules. 23

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3.2. Variety of Values and Aims: The Clash of the Titans The wide range of values and aims within the EU became particularly evident and challenging after the Lisbon Treaty, in particular in terms of the relationship between economic and non-economic aims.27 This is also important from the public services perspective or more precisely the services of general economic interest perspective, since such services have both a market and a non-market dimension which indicates possible collisions. Namely, on one hand, there is for example an imperative of highly competitive internal market to ensure economic efficiency, and on the other, there are for example equity based social justice and protection, social and territorial cohesion, equality, solidarity etc. As noted above, Art. 106(2) TFEU should also be interpreted with respect to the interests of the EU, which are closely linked to its values and aims.28 Due to the changing list of values and aims of the EU over the last few decades (as well as significant changes in the international community, the economy, the social sphere etc.), the interests of the EU have to be continuously reexamined. This fact must be considered when interpreting the existing rules, Art. 106(2) TFEU in particular. Therefore, the old case law is of limited importance for certain issues; namely, one can recognize at least three approaches to the interpretation of Art. 106(2) TFEU as discussed in Chapter 3. At the beginning of the European integration process, economic aims were predominant. However, non-economic aims have become increasingly important over time. In the case of the diversity of values and aims, it is easy to find examples which are not (fully) compatible. As one might expect, the tensions and conflicts mostly occur between economic and non-economic aims, which is also clear in the case of public services or services of general economic interest. So, how should such conflicts be reconciled?29 27

This is, however, not to say there can be no conflicts between some economic values and aims. In other words, conflicts are possible between values and aims having the same nature, economic or non-economic, however, it is even more likely that conflicts will occur between economic and non-economic values and aims. 28 See more in Chapter 3. 29 This question can be discussed at the abstract level, but at the end of the day it must be discussed within a specific political and legal environment. That is, the answer to this question would be different for a country with a state planned or administrative (command) economy as

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In this regard it must be emphasized right at the beginning that the Treaties do not contain any explicit rule on the relationship between different aims. Nevertheless, there are some indicators which implicitly answer the question at issue, for example the concept of a social market economy. The latter was included in Art. 3(3) TEU by the Lisbon Treaty and it indicates that economic aims cannot be considered as being a priori dominant over non-economic aims. The situation before the Lisbon Treaty was even less clear and, in principle, more favorable to economic aims. Although the then Community law has gradually accepted more and more non-economic aims which were even incorporated in some provisions of the Treaties,30 their vague wording allowed different interpretations what seems to be in favour of economic aims.31 After the Lisbon Treaty introduced numerous new noneconomic aims (where some of them are closely connected with services of general economic interest) and after it explicitly defined the social market

compared with a country with a social market economy. Moreover, one would expect some differences even when comparing two countries with social market economies. Thus, the question at issue is discussed in relation to the EU, considering the European social market economy model, which includes two fundamental pillars: the internal market and the socalled European social model. However, it should be noted that this concept does not have a strict uniform nature but rather the nature of a legal framework, as discussed in Chapter 3, which allows, at least to a certain extent, some differences between Member States. The reason for this is obvious, i.e., that when it comes to delicate questions regarding the role of the state, markets, public services and citizens’ (or even human) rights, it is not possible simply to say one size fits all. Some flexibility is needed and, indeed, permitted (although it has been reduced over time). The Member States have different traditions in this regard (looking more broadly, one can identify the “Anglo-Saxon” approach and numerous variations of the “Continental” approach), but over the decades the differences in approaches have become smaller, mostly due to the EU’s legal framework for services of general economic interest. In fact, the latter has the potential to build the core of the Member States’ common tradition. 30 See for example the Treaty provisions which set out the justifications for the limited application of free movement rules such as Art. 36, 45(3), 65(1)(b) TFEU, and for the limited application of competition rules (and other rules) such as Art. 106(2) TFEU. Moreover, the ECJ (now CJEU) has indicated its preference for a social market economy in several cases. For example, in case C-438/05, Viking, ECLI:EU:C:2007:772, it stated: “Since the Community has thus not only an economic but also a social purpose, the rights under the provisions of the EC Treaty on the free movement of goods, persons, services and capital must be balanced against the objectives pursued by social policy, which include, as is clear from the first paragraph of Article 136 EC, inter alia, improved living and working conditions, so as to make possible their harmonization while improvement is being maintained, proper social protection and dialogue between management and labour.” The same wording can be found in case C-341/05, Laval, ECLI:EU:C:2007:809. 31 Cf. Neergaard 2009a, 201–202.

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economy as the core approach to market organization, the status of noneconomic aims seems to be further strengthened. In this sense the discussed constitutional mechanism has some added value. Namely, even when vague provisions were interpreted according to the concept of a social market economy, they could be interpreted in another way as well. However, it seems that after the Lisbon Treaty there should be no space for any interpretation which is not in line with the concept of a social market economy, except in cases where the Treaty clearly departs from it. To sum up, there is no a priori ranking of the values and aims at the abstract level; all of them should be treated on an equal footing. The ranking of the values and aims should be performed on a case-by-case basis only by taking all the relevant circumstances of a given case into consideration. The implications of such an approach for services of general economic interest are discussed elsewhere in this book.32

3.3. Catalogue of Values and Aims According to Art. 2 TEU, “The EU is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail.” Among the abovementioned values, one can find values which are important, at least indirectly, from the public services or services of general economic interest perspective, but this is even more obvious in the case of the EU’s aims which are listed in Art. 3 TEU. The catalogue of aims is fairly comprehensive, but at this point it is not necessary to point out all of them, but rather those related to the concept at hand. The EU’s aim is, inter alia, to promote the well-being of its people, social justice, equality, economic, social and territorial cohesion, and solidarity between generations. It

32

See infra, Chapter 3.

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combats social exclusion and discrimination. It also aims to establish an internal market, and work towards the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. In addition to the aims as listed in Art. 3 TEU, the EU must also take account of the so-called horizontal or operational objectives as defined in the TFEU, in particular those with a general scope of application, i.e., Art. 7–17 TFEU. Here, special attention should be given to Art. 14, which intends to ensure the effective provision of services of general economic interest.33

3.4. The EU’s Aim to Ensure the Effective Provision of Services of General Economic Interest According to Art. 14 TFEU, “Without prejudice to Art. 4 of the TEU or to Art. 93, 106 and 107 of this Treaty, and given the place occupied by services of general economic interest in the shared values of the EU as well as their role in promoting social and territorial cohesion, the EU and the Member States, each within their respective powers and within the scope of application of the Treaties, shall take care that such services operate on the basis of principles and conditions, particularly economic and financial conditions, which enable them to fulfill their missions. The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall establish these principles and set these conditions without prejudice to the competence of Member States, in compliance with the Treaties, to provide, to commission and to fund such services.” Art. 14 TFEU does not affect the competence rules nor the competition rules. A competitive market should be considered as a primary instrument 33

See infra, sub-section 3.4. and Chapter 3.

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for the delivery of “marketable” goods and services, including those subject to public service obligations. However, in the case of a market failure or where the market is not able to deliver goods and/or services or at least not at the desired level of continuity, consumer protection, quantity, quality and price, public intervention is not only allowed, but also needed, which means that the lack of commensurate public intervention breaches the public authority’s obligation to act in order to ensure the effective provision of services of general economic interest.34 In fact, the EU’s and Member States’ aim to ensure the effective provision of services of general economic interest while bearing in mind the other aims, but in particular the aim to establish an internal market, is the leitmotif of this book and is most visible in Chapter 3.

4. COMPETENCES OF THE EUROPEAN UNION The competences of the EU are a genuine constitutional issue.35 Here we shall once again point out the link between values and aims on the one hand and competences or powers on the other. The EU pursues the values, aims and objectives by appropriate means commensurate with the competences which are conferred upon it in the Treaties.36 Furthermore, Art. 352 TFEU contains the so-called flexibility clause, according to which,

Thus, in this regard a government failure, having in mind the “new context” after the Lisbon Treaty, should not be limited to the active behavior of a public authority only, i.e., market intervention, but also relates to its passive behavior when its action is needed in order to ensure the effective provision of services of general economic interest. In other words, the government can also fail to do its job when there is no action but the action is actually needed (looking from the general interest perspective); see more in Chapter 3. 35 The fundamental principles governing the competences of the EU are set out in the Title I of the TEU (“Common Provisions”) and in Title I of the TFEU (“Categories and Areas of Union Competences”). Further details about these competences are to be found in the provisions of the TFEU relating to each area, which govern the provisions relating to the relevant areas that were set out in the TEU, as amended by the Lisbon Treaty, and supplemented by the provisions on police and judicial cooperation in criminal matters that were previously contained in Title IV of the TEU. Pursuant to the Lisbon Treaty, the only area set out in the TEU is the common foreign and security policy. Cf. Lenaerts and Van Nuffel 2011, 105. 36 Art. 3(6) TEU. 34

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under strict conditions, competence or powers can be derived from the objectives (values and aims) of the EU.37 The Treaties explicitly deal with competences, namely, with their types, division and application. In this section a special emphasis is on the core principles governing the competences of the EU, but only to the extent relevant for services of general economic interest.38 The most important question is, who is entitled and obliged to ensure the effective provision of services of general economic interest and what precisely must be done by the EU and Member States?

4.1. Limits to the Competences of the European Union The limits of the EU’s competences depend on how competences are granted and by considering the division of competences between the EU and the Member States. The starting point is the principle of conferral.

4.1.1. Principle of Conferral of Competences: The “Empty Box” Principle The principle of conferral of competences states that the EU shall act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein, while competences not conferred upon the EU in the Treaties remain with the Member States.39 To put it simply, the EU is not a state, and therefore does not have any of the intrinsic competences typical of sovereign states under classical According to Art. 352(1) TFEU, “If action by the EU should prove necessary, within the framework of the policies defined in the Treaties, to attain one of the objectives set out in the Treaties, and the Treaties have not provided the necessary powers, the Council, acting unanimously on a proposal from the Commission and after obtaining the consent of the European Parliament, shall adopt the appropriate measures. Where the measures in question are adopted by the Council in accordance with a special legislative procedure, it shall also act unanimously on a proposal from the Commission and after obtaining the consent of the European Parliament.” 38 For a detailed discussion of the issue in question see for example Craig and de Búrca 2015, 73– 104; Weatherill 2014, 557–587; Azoulai 2014; Lenaerts and Van Nuffel 2011, 105–175. 39 See Art. 4(1) and 5(2) TEU. 37

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international law. The competences of the EU depend on the will of the Member States. The EU has only those competences which are conferred on it by the Member States. In this regard the very establishment of the EU is similar to an empty box at the moment it is created; empty until filled with appropriate substance. Moreover, when Member States confer competences on the EU, they can do so in different manners. There are various categories of competences, depending on the legal basis and the relationship between the competences of the EU and those of the Member States. In general, the most important category seems to be that relating to the scope of the EU’s competences. There are very few areas in which the EU has exclusive competence, while in most areas its competence is shared with the Member States. Moreover, in some areas the EU can act only in a supporting, coordinating or supplementary role.40

4.1.2. Exclusive, Shared and Supporting Competences of the EU An exclusive competence of the EU in a specific area41 means that “only the EU may legislate and adopt legally binding acts, while the Member States are allowed to do so themselves only if so empowered by the EU or for the implementation of EU acts.”42 A shared competence of the EU and Member States in a specific area43 means that “the EU and the Member States may legislate and adopt legally binding acts in that area. The Member States shall exercise their competence to the extent that the EU has not exercised its competence. The Member States shall again exercise their competence to the extent that the EU has decided to cease exercising its competence.”44 The EU’s supporting competences in certain areas45 means that “under the conditions laid down in the Treaties, the EU shall have competence to

40

There are also special categories for EU action in the areas of economic and employment policies, and the common foreign and security policy. 41 See Art. 3 TFEU. 42 Art. 2(1) TFEU. 43 See Art. 4 TFEU. 44 Art. 2(2) TEU. 45 See Art. 6 TFEU.

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carry out actions to support, coordinate or supplement the actions of the Member States, without thereby superseding their competence in these areas. Legally binding acts of the EU adopted on the basis of the provisions of the Treaties relating to these areas shall not entail harmonization of Member States' laws or regulations.”46 With respect to the areas for which the Treaties prescribe certain categories of competence, services of general economic interest mainly fall under the shared competences of the EU and the Member States.47 This is in fact already indicated by Art. 14 TFEU which stipulates their joint responsibility for the effective provision of the discussed services. Of course, the Member States still play a crucial role in this regard since they directly or indirectly carry out these activities, while the EU more or less sets limits, mostly in the form of competition and free movement rules, and supervises their application. However, in some cases the EU takes a more proactive approach, meaning that it goes beyond simply setting limits for the Member States’ actions, for example when it comprehensively defines universal services in certain sectors under the liberalization process.

4.2. Use of Competences of the European Union According to Art. 5(1) TEU, the use of EU competences is governed by the principles of subsidiarity and proportionality.48

46

Art. 2(5) TFEU. However, due to importance of competition rules which, inter alia, limit Member States in the field of services of general economic interest, it is appropriate to point out the exclusive competence of the EU for the establishment of the competition rules necessary for the functioning of the internal market as stipulated in Art. 3(1)(b) TFEU. 48 Moreover, when it comes to the use of EU competences, several other principles should also be mentioned, for example the principle of sincere cooperation, the principle of equal treatment, and more generally the principles which are integral parts of the rule of law. 47

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4.2.1. Principle of Subsidiarity The principle of subsidiarity is defined in Art. 5(3) TEU and additionally supported by Protocol (No 2) on the application of the principles of subsidiarity and proportionality.49 According to Art. 5(3) TEU, “Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the EU shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at EU level. The institutions of the EU shall apply the principle of subsidiarity as laid down in the Protocol on the application of the principles of subsidiarity and proportionality. National Parliaments ensure compliance with the principle of subsidiarity in accordance with the procedure set out in that Protocol.” Logically, the principle of subsidiarity is not applicable in cases where the EU enjoys exclusive competence. However, its role is clearly visible when the EU shares competence with Member States, since it limits the EU (or the EU’s institutions) when exercising this particular category of competence. In other words, even when the EU has competence, it can only use that competence if the conditions of both decentralization and efficiency are met. 4.2.2. Principle of Proportionality The principle of proportionality is defined in Art. 5(4) TEU and additionally supported by Protocol (No 2) on the application of the principles of subsidiarity and proportionality. According to Art. 5(4) TEU, “Under the principle of proportionality, the content and form of EU action shall not exceed what is necessary to achieve the objectives of the Treaties. The institutions of the EU shall apply the principle of proportionality as laid down in the Protocol on the application of the principles of subsidiarity and proportionality.”

49

Protocol (No 2) is to be read in tandem with Protocol (No 1) on the role of national parliaments in the European Union; cf. Craig and de Búrca 2015, 97.

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The principle of proportionality clearly limits the EU institutions in the exercise of their powers.50 More precisely, it limits the measure(s) used to achieve the value(s) and aim(s) of the Treaties. EU institutions must adopt measures which are appropriate to attain a specific constitutional value or aim and at the same time do not go beyond what is necessary to achieve it, which means that there is no equally effective alternative measure with less negative effects. The principle in question, as developed in the case law for the assessment of EU measures, does not (always) include the weighing of costs and benefits except when it can impinge upon the substance of a fundamental right.51 Thus, a measure of an EU institution is proportional when it is appropriate and necessary (and sometimes it must be also positive, meaning that the benefits outweigh the costs). The principle of proportionality is explicitly or implicitly incorporated in several provisions of the Treaties, including Art. 106(2) TFEU, which is of paramount importance for services of general economic interest.52

4.3. (Internal) Division of Powers: The Institutional Aspect The (internal) division of powers follows the logic of the three branches of public authority, i.e., legislative, judicial and executive. However, the EU’s institutional framework is not as simple as that of the Member States, where one can easily draw a line between the three branches. As explained below, in the case of the EU some functions are carried out by more than just one institution.

50

It is a general legal principle with a constitutional character which also affects the exercise of powers by Member States. 51 On the other hand, the costs and benefits of the individual measure are usually weighed when assessing the proportionality of Member States’ measures, except in case of specific situations which sometimes occur also in the field of services of general economic interest. This condition is often called “proportionality in the narrow sense.” Cf. Gordan and Moffatt 2014, 345–365; Lenaerts and Van Nuffel 2011, 143–144. 52 See Chapter 3.

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The EU is served by a single institutional framework consisting of the European Parliament, the European Council, the Council of the EU,53 the European Commission, the Court of Justice of the EU, the European Central Bank, and the Court of Auditors.54 The institutions act on behalf of the EU and do not have legal personality, except the European Central Bank.55 Some institutions are assisted by the Committee of the Regions and by the European Economic and Social Committee acting in an advisory capacity. The EU also has several other bodies, such as organs, offices and agencies. From the perspective of services of general economic interest, the most important EU institutions are the European Parliament, the Council of the EU, the European Commission, and the Court of Justice of the EU. The European Parliament, together with the Council, exercises legislative and budgetary functions and functions of political control and consultation as laid down in the Treaties, and it elects the President of the European Commission.56 The Council (of the EU), together with the European Parliament, exercises legislative and budgetary functions, and carries out policy-making and coordinating functions as laid down in the Treaties.57 The European Commission promotes the general interest of the EU and takes appropriate initiatives to that end. It ensures the application of the Treaties, and of measures adopted by the institutions pursuant to them. It oversees the application of EU law under the control of the Court of Justice of the EU, executes the budget and manages programs.58 EU legislative acts may only be adopted on the basis of a European Commission proposal, except where the Treaties provide otherwise. Other acts are adopted on the

53

The Council of the EU is not the same as the Council of Europe, since the former is an EU institution while the latter is an international organization. 54 See Art. 13(1) TEU. 55 See Art. 282(3) TFEU and Protocol (No 4) on the Statute of the European System of Central Banks and of the European Central Bank. 56 See Art. 14(1) TEU. 57 See Art. 16(1) TEU. 58 It also exercises coordinating, executive and management functions, as laid down in the Treaties. With the exception of the common foreign and security policy, and other cases provided for in the Treaties, it ensures the EU's external representation, and it initiates the EU's annual and multiannual programming with a view to achieving interinstitutional agreements; see Art. 17(1) TEU.

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basis of a European Commission proposal where the Treaties so provide.59 Most of the abovementioned powers are important from the perspective of services of general economic interest, however, one should also consider the power to adopt decisions and directives for the implementation of Art. 106 TFEU.60 The latter power allows the European Commission also in the field of services of general economic interest to adopt directives “independently,” and not just make proposals. The Court of Justice of the EU ensures that the law is observed in the interpretation and application of the Treaties.61 Each institution acts within the limits of the powers conferred on it in the Treaties, and in conformity with the procedures, conditions and objectives set out in them.62 The institutions practice mutual sincere cooperation.63 Having in mind the competences of the EU, in the field of services of general economic interest several institutions of the EU, which cover all three branches of public authority, are empowered to take appropriate actions.

5. EUROPEAN UNION LEGAL SYSTEM Understanding the EU’s legal system is of course important for a proper understanding of the EU’s legal framework for services of general economic interest. However, it is not the core of this book, but rather an introduction which aims to offer insight into basics of the EU law “toolkit,” therefore, its discussion in this section will be somewhat general and limited to basic concepts and principles.

59

See Art. 17(2) TEU. See Art. 106(3) TFEU. 61 Member States provide remedies sufficient to ensure effective legal protection in the fields covered by EU law; see Art. 19(1) TEU. 62 See Art. 13(2) TEU. 63 Ibid. 60

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In this section, the main focus is on the legal sources of the EU legal system and their mutual relationship within that system.64

5.1. General Overview The EU’s legal system is, as already indicated by its name, a system; 65 it consists of numerous elements which form a coherent unit whose basic structure is similar to a pyramid. The legal sources forming the very top of the pyramid have a primary or constitutional character, while the remaining legal sources are derived from and depend on them. In principle, the secondary or derived legal sources which form a certain layer of the pyramid must, on one hand, be in line with the legal sources that form a higher layer and, on the other, prevail over the legal sources that form a lower layer. Conflicts between legal sources in the same layer are resolved by using classical “derogation clauses” such as lex specialis derogat legi generali, lex posterior derogat legi priori and combinations thereof. The unique character of the EU’s legal system can mainly be attributed to the specific characteristics of the EU itself and its function.66 As was already stated in early case law, “[…] the Community constitutes a new legal order of international law for the benefit of which the states have limited their sovereign rights, albeit within limited fields, and the subjects of which comprise not only Member States but also their nationals. Independently of the legislation of Member States, Community law therefore not only imposes obligations on individuals but is also intended to confer upon them rights which become part of their legal heritage. These rights arise not only where they are expressly granted by the treaty, but also by reason of obligations which the Treaty imposes in a clearly defined way upon individuals as well as upon the Member States and upon the institutions of 64

Some texts on the EU legal system also include a discussion regarding the relationship between EU legal sources and the “original” Member States’ legal sources, however, for greater clarity this issue is discussed in a separate section, “Enforcement of EU law.” 65 Also referred to as the legal order. 66 See section 1 of this chapter.

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the Community.”67 Moreover, “by contrast with ordinary international treaties, the [then] EEC Treaty has created its own [autonomous] legal system which, on the entry into force of the Treaty, became an integral part of the legal systems of the Member States and which their courts are bound to apply.”68 According to the early case law, the EU legal system is a sui generis autonomous legal system. Of course, this is not to say its development and content is absolutely free of any external influence, which is probably most obvious in the field of human rights and fundamental freedoms. The EU’s legal system has expanded enormously, including in the field of services of general economic interest.69 While the Treaties and other primary legal sources are relatively easy to count, this is more difficult when it comes to the secondary legal sources. The situation is even more challenging because not only the “hard law” but also the “case law” and “soft law” must be taken into consideration when discussing services of general economic interest. The entire body of EU legal sources is known as the “acquis communautaire” or the EU acquis.

5.2. Primary Legal Sources The primary legal sources have a constitutional character. They serve as the supreme legal basis for actions of the EU institutions and other bodies.70 In contrast to secondary legal sources, primary legal sources are not created by the institutions of the EU but rather by the Member States in their role of constituent authority or “Masters of the Treaties.”71 The Member States 67

See case 26/62, Van Gend & Loos, ECLI:EU:C:1963:1. See case 6/64, Costa v. ENEL, ECLI:EU:C:1964:66. 69 See Chapter 3. 70 Even the CJEU is bound in an absolute way by the TEU and TFEU, and more generally, by the primary legal sources. In other words, it has no power to rule on the validity of the Treaties, but it is authorized to interpret them; see Art. 263 and 267 TFEU, and case C-35/86, Levantina Agricola Industrial SA (LAISA) and CPC España SA v Council of the European Communities, ECLI:EU:C:1988:211. 71 See section 1 of this chapter. 68

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created most of the primary legal sources specifically for EU matters (e.g., the Treaties,72 the Protocols,73 and the Charter of Fundamental Rights of the European Union (CFREU)), while some primary legal sources which were primarily created for non-EU matters (e.g., general principles of law) are used also for EU matters. The TEU and TFEU form the core of primary EU law. They have the same legal value.74 As discussed in Chapter 3, the most important provisions of the Treaties regarding services of general economic interest are Art. 3 TEU and Art. 14 and 106 TFEU, and more broadly, the provisions on the internal market.75 The Protocols and Annexes to the Treaties form an integral part of the TEU and TFEU.76 Several protocols are important from the public services perspective but in particular Protocol (No 26) on services of general interest, which relates to both types of services of general interest, i.e., services of general economic interest and non-economic services of general interest. The CFREU is a codification of rights, freedoms and principles, and has the same legal value as the TEU and TFEU.77 Bearing in mind the development of the protection of human rights and fundamental freedoms in the Europe, it was not necessary to “invent” something new. This is confirmed by the preamble to the CFREU, which states that “[t]his Charter reaffirms, with due regard for the powers and tasks of the EU and for the principle of subsidiarity, the rights as they result, in particular, from the constitutional traditions and international obligations common to the Member States, the ECHR, the Social Charters adopted by the EU and by the Council of Europe and the case-law of the CJEU and of the ECtHR.” The CFREU includes several provisions which are relevant to services of

72

I.e., the TEU, the TFEU, and the amending treaties and accession treaties. The Protocols and Annexes to the Treaties form an integral part thereof; see Art. 51 TEU. 74 See Art. 1(3) TEU and Art. 1(2) TFEU. The fact that both Treaties contain the same provision is not a coincidence. If only one of them would deal with the question of legal value this would already signal who is “in charge.” Therefore, both Treaties contain a provision declaring the equivalent legal value of the TEU and TFEU. 75 This is not to deny, however, the relevance of numerous other provisions of the Treaties. 76 See Art. 51 TEU. 77 See Art. 6(3) TEU. 73

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general economic interest, but this is most evident in its Art. 36, according to which “[t]he EU recognises and respects access to services of general economic interest as provided for in national laws and practices, in accordance with the Treaties, in order to promote the social and territorial cohesion of the EU.” At this point it is also worth mentioning that if a certain right is not included in the CFREU this does not necessarily mean it is not protected, since the protection of fundamental rights goes beyond the CFREU. Namely, the TEU and TFEU recognize the protection of human rights as one of the values and aims of the EU.78 Moreover, the TEU states that fundamental rights, as guaranteed by the ECHR and as follow from the constitutional traditions common to the Member States, shall constitute the general principles of EU law.79 And last but not least, the CJEU ensures that the law is observed in the interpretation and application of the Treaties,80 while the term “law” includes also fundamental rights. Thus, fundamental rights in the EU are protected in different ways, which clearly shows the EU’s orientation towards their protection.81 General principles of law are also widely recognized as a primary legal source, although they do not have “own” codification; they depend on the TEU and TFEU. As mentioned above, Art. 19(1) TEU and its broadly drafted concept of the “law” has enabled the CJEU to have recourse to general principles of law when interpreting and applying EU rules. Similar can be said for Art. 340 TFEU, although its scope is narrower as it relates solely to compensation for damages.82 Furthermore, the TEU and TFEU contain several provisions which explicitly cover specific general principles

78

See Art. 2, 3(5), 21(1) TEU, and Art. 67(1), 151 TFEU. See Art. 6(3) TEU. 80 See Art. 19(1) TEU. 81 And there is a great chance that EU will become a party of the ECHR: Art. 6 TEU states that the EU shall accede to the ECHR, but there is no deadline for doing so. In fact, some steps have already been taken in this direction, but Opinion 2/13 of the CJEU appears to slow down this process, yet, its continuation is still possible. 82 Art. 340 TFEU: “[…] In the case of non-contractual liability, the EU shall, in accordance with the general principles common to the laws of the Member States, make good any damage caused by its institutions or by its servants in the performance of their duties. […]” 79

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of law, for example the principle of proportionality,83 principle of nondiscrimination84 and so forth.

5.3. Secondary Legal Sources Secondary legal sources are here considered in the broadest sense, namely as all acts of the EU’s instituitons or bodies directly or indirectly derived from the primary legal sources.85 They can be general or individual depending on their addressees, generally applicable or sector specific depending on their scope of application, and legislative or non-legislative depending on the procedure through which they were created. In the field of services of general economic interest, the most important types of secondary legal sources are regulations, directives, decisions, and judgements.86 Regulations have general application, are be binding in their entirety and are directly applicable in all Member States.87 This means that they are able to penetrate the Member States’ legal systems by themselves, and no national implementing act is needed for them to do so. Regulations usually define the aims as well as the form and methods for achieving the desired aims. They are known as “unification instruments.” Directives are binding as to the result to be achieved upon each Member State to which they are addressed, but leave the choice of form and methods 83

See Art. 5(4) TEU. See Art. 18 TFEU. 85 Some scholars equate the secondary legal sources and the autonomous acts of EU institutions as defined by Art. 288 TFEU. Such an approach appears to be too narrow, since one should also include at least judgements and soft law sources (recommendations, opinions, guidelines, notices, communications, frameworks etc.). On the other hand, some scholars accept a broader approach which includes international agreements as well; cf. Lenaerts and Van Nuffel 2011, 753. 86 International agreements concluded by the EU also play a certain role. They must be in line with the Treaties, however, they prevail over the autonomous acts of the EU’s institutions (see Art. 216(2) TFEU and case C-308/06, Intertanko, ECLI:EU:C:2008:312). In principle, the same can be said for other sources of classical international law, i.e., customary international law and general principles of law (see case 386/08, Brita, ECLI:EU:C:2009:326; joined cases C402 and 415/05, Kadi, ECLI:EU:C:2008:461; joined cases 21–24/72, International Fruit Company, ECLI:EU:C:1972:115). 87 See Art. 288(2) TFEU. 84

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to the national authorities.88 Thus, directives are not directly applicable and must be transposed by a certain deadline into the Member States’ legal systems through a special national implementing act. They usually define only aims, and are therefore known as “harmonization instruments.” Decisions are binding in their entirety.89 Decisions which specify the parties to which it is addressed are binding only on those parties.90 They are typical (administrative) acts of the European Commission. Judgements or rulings are also binding in their entirety. Sometimes they can even have the erga omnes effect.91 At this point it is also worthy to underline the importance of soft law sources which can be considered, inter alia, as a guide or use-instructions. All of the abovementioned legal sources, with all their different forms and characteristics, are of great importance to services of general economic interest, as explained in Chapter 3.

6. ENFORCEMENT OF EUROPEAN UNION LAW The enforcement of EU law is of crucial importance since the law as such, namely a set of legal principles and rules, is not an end in itself but rather a tool. At the end of the day, what really matters is whether and how legal principles and rules are applied in real life. In principle, the “last mile” is carried out by national organs. When looking at enforcement at the national level, it should be emphasized that not only the national courts, which are considered as an extension of the EU (courts) when they apply EU law,92 but also administrative bodies and persons with public authorizations and all levels of public authorities, must apply EU law.93 88

See Art. 288(3) TFEU. See Art. 288(4) TFEU. 90 Ibid. 91 Cf. Douglas-Scott 2002, 244. 92 In principle, the national courts have recourse to the CJEU’s support in the form of preliminary procedure as set out in Art. 267 TFEU. 93 See case C-103/88, Fratelli Costanzo v. Comune di Milano, ECLI:EU:C:1989:256. 89

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Moreover, there is a difference between public and private enforcement of EU law, which are, in principle, carried out in parallel procedures. The former primarily protects public interest while the latter is focused on private interests. Again, this book deals with public services or services of general economic interest and not specifically with the enforcement of EU law. Therefore, this section outlines the basics of certain fundamental principles which directly or indirectly affect the enforcement of EU law also in the field of services of general economic interest, namely the principles of primacy, direct effect, and procedural autonomy. Of course, all these legal principles have own limits which are also briefly pointed out in this section.

6.1. Principle of Primacy The principle of primacy94 deals with the question of which rule shall be applied in case of a conflict between supranational and national rules.95 It was created by the former ECJ (now CJEU) at the very beginning of the European integration process. In the case Costa v. ENEL,96 the Court offered several arguments in favor of the primacy of the then Community law, and stated: “[…] the integration into the laws of each Member State of provisions which derive from the Community, and more generally the terms and the spirit of the Treaty, make it impossible for the states, as a corollary, to accord precedence to a unilateral and subsequent measure over a legal system accepted by them on a basis of reciprocity. Such a measure cannot therefore be inconsistent with that legal system. The executive force of Community law cannot vary from one state to another in deference to subsequent domestic laws, without jeopardizing the attainment of the objectives of the

94

Some scholars use the term supremacy, however, this term does not seem to be fully in line with the theories which oppose to the hierarchical relationship between supranational and national (constitutional) rules. 95 For more on the principle of primacy see for example Craig and de Búrca 2015, 266–315; Trstenjak 2013, 71–76; De Witte 2011, 340–346 and 358–361; Lenaerts and Van Nuffel 2011, 754–765; Dougan 2007, 931–963; Lenaerts and Corthaut 2006, 287–315. 96 See case 6/64, Costa v. ENEL, ECLI:EU:C:1964:66.

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Treaty […] and giving rise to […] discrimination […]. The obligations undertaken under the Treaty establishing the Community would not be unconditional, but merely contingent, if they could be called in question by subsequent legislative acts of the signatories. Wherever the Treaty grants the states the right to act unilaterally, it does this by clear and precise provisions […]. Applications by Member States for authority to derogate from the Treaty are subject to a special authorization procedure […] which would lose their purpose if the Member States could renounce their obligations by means of an ordinary law. The precedence of Community law is confirmed by Article 189 [now 288 TFEU], whereby a regulation “shall be binding” and “directly applicable in all Member States.” This provision, which is subject to no reservation, would be quite meaningless if a state could unilaterally nullify its effects by means of a legislative measure which could prevail over Community law. The law stemming from the Treaty, an independent source of law, could not, because of its special and original nature, be overridden by domestic legal provisions, however framed, without being deprived of its character as Community law and without the legal basis of the Community itself being called into question […].” The subsequent case law97 clarified some details regarding this principle, and nowadays the principle of primacy requires that in case of any conflict between any supranational rule and any national rule, including a constitutional rule, all national bodies must apply the supranational rule and set aside the conflicting national rule, unless EU law specifically stipulates otherwise for a particular case.98 Moreover, Member States’ bodies cannot declare any general or individual act issued by EU institutions as illegal. Thus, the principle of primacy aims to ensure the full effectiveness of EU law. The principle of primacy is generally recognized by the Member States, but there are still some details on which certain national constitutional courts

97

Cf. case 14/68, Walt Wilhelm, ECLI:EU:C:1969:4; case 11/70, Internationale Handelsgesellschaft, ECLI:EU:C:1970:114; case 106/77, Simenthal, ECLI:EU:C:1978:49; case C-213/89, Factortame, ECLI:EU:C:1990:257; case C-198/01, CIF, ECLI:EU:C:2003:430; joined cases 10-22/97, IN.CO.GE, ECLI:EU:C:1998:498; case C234/04, Kapferer, ECLI:EU:C:2006:178. 98 Indeed, as suggested by some scholars the principle of primacy connotes that “the most minor piece of technical EU legislation ranks above the most cherished constitutional norm.”

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have a rather different opinion. Therefore, one can differentiate between two dimensions of the principle in question: one is the CJEU’s perspective, while the other is the perspective of (certain) Member States’ constitutional courts. This probably explains why the principle of primacy still does not have an explicit legal basis in the Treaties.99 At the end of the day, however, services of general economic interest are not among the most problematic fields in the EU law when discussing the application of principle of primacy.

6.2. Principle of Direct Effect (and Beyond) The principle of direct effect deals with the question of what kind of provisions of the EU legal sources, e.g., of the Treaties, the CFREU, international agreements, regulations, and directives, can confer rights on individuals, or more broadly speaking, can be invoked and relied upon by individuals before national bodies.100 This principle as well was created by the former ECJ (now CJEU) at the very beginning of the European integration process. In the Van Gend en Loss case,101 the Court stated: “[…] The objective of the EEC Treaty, which is to establish a common market, the functioning of which is of direct concern to interested parties in the community, implies that this treaty is more than an agreement which merely creates mutual obligations between the contracting states. This view is confirmed by the preamble to the Treaty which refers not only to governments but to peoples. It is also confirmed more specifically by the establishment of institutions endowed with sovereign rights, the exercise of which affects Member States and also their citizens. Furthermore, it must be noted that the nationals of the states brought together in the Community are 99

The so-called primacy clause was incorporated in the Constitutional Treaty, which was, however, not ratified by some Member States, and as a consequence never entered into force. Instead, only the Declaration on Primacy was attached to the Lisbon Treaty, which confirms the CJEU's case law. However, the declaration in question is not binding. 100 For more on the principle of direct effect see for example Craig and de Búrca 2015, 184–224; Frantziou 2015, 647–679; De Witte 2011, 329–339; Lenaerts and Van Nuffel 2011, 809–811 and 901–905; Craig 2009, 349–377; Dougan 2007, 931–963. 101 See case 26/62, Van Gend and Loos, ECLI:EU:C:1963:1.

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called upon to cooperate in the functioning of this Community through the intermediary of the European Parliament and the Economic and Social Committee. In addition, the task assigned to the Court of Justice under Article 177 [now 267 TFEU], the object of which is to secure uniform interpretation of the Treaty by national courts and tribunals, confirms that the states have acknowledged that Community law has an authority which can be invoked by their nationals before those courts and tribunals. The conclusion to be drawn from this is that the Community constitutes a new legal order of international law for the benefit of which the states have limited their sovereign rights, albeit within limited fields, and the subjects of which comprise not only member states but also their nationals. Independently of the legislation of Member States, Community law therefore not only imposes obligations on individuals but is also intended to confer upon them rights which become part of their legal heritage. These rights arise not only where they are expressly granted by the Treaty, but also by reason of obligations which the Treaty imposes in a clearly defined way upon individuals as well as upon the Member States and upon the institutions of the Community.” With the creation of the principle of direct effect the Court in fact created a precondition for the private enforcement of EU law. Of course, the subsequent case law102 clarified certain details, in particular regarding the direct effect of international agreements (in particular those of the WTO) and directives, since these two forms of EU legal sources caused the most problems. Nowadays it is more or less clear that a provision can have direct effect if it satisfies the general conditions, i.e., it must be sufficiently clear and precise, unconditional, and it can leave no scope for discretion as to its implementation. However, certain additional conditions must be met with regard to international agreements and directives. International agreements must have the intention to confer rights on individuals, while directives must be transposed too late or improperly

102

Cf. case 2/74, Reyners, ECLI:EU:C:1974:68; case 41/74, Van Duyn, ECLI:EU:C:1974:133; case 148/78, Ratti, ECLI:EU:C:1979:110; case 270/81, Felicitas, ECLI:EU:C:1982:281; case 152/84, Marshall, ECLI:EU:C:1986:84; case C-188/98, Foster, ECLI:EU:C:1990:313; case C-91/92, Paola Faccini Dori, ECLI:EU:C:1994:292; case C-62/00, Marks & Spencer, ECLI:EU:C:2002:435; case C-438/05, ITWF and FSU, ECLI:EU:C:2007:772.

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and, moreover, individuals have to exercise their rights against the Member State. Direct effect should not be confused with some similar but different concepts. First, it should not be confused with the direct applicability, which means the capability of an EU legal source to insert itself into the Member States’ legal systems, without requiring any implementing measure of the Member States. Second, it should not be confused with the indirect effect (sincere interpretation), which means the obligation to interpret national law in conformity with EU law.103 Third, it should not be confused with the incidental (horizontal) effect, i.e., the exclusionary effect of supranational provisions, meaning that they exclude the application of conflicting national rule(s) in particular cases; however, loopholes are not filled by the supranational provision(s) but rather by the remaining relevant nonconflicting national provisions, if there are any.104 All these concepts, namely direct, indirect and incidental effects, were created by the former ECJ (now CJEU) in order to ensure individuals the private enforcement of rights which are conferred on them by EU law where there is no such right in the national legislation or where such right is even prohibited by national legislation. Of course, at the end of the day it is possible that an individual will not be able to enforce a particular right in spite of all the abovementioned concepts (in case not all the conditions for each concept are met), however, for such cases the ECJ established state liability for damages.105 As discussed in this book, there are several examples in the field of services of general economic interest, e.g., in case of the free movement and competition rules as well as in case of the balancing provision which enables limited application of the aforementioned rules, in which the discussed principle is of great importance.

103

Cf. case 14/83, Von Colson, ECLI:EU:C:1984:153; case C-106/89, Marleasing, ECLI:EU:C:1990:395; joined cases C-397-403/01, Pfeiffer, ECLI:EU:C:2004:584. 104 Cf. case C-194/94, CIA Security International, ECLI:EU:C:1996:172; case C-443/98, Unilever Italia, ECLI:EU:C:2000:496. 105 Cf. case 6 and 9/90, Francovich, ECLI:EU:C:1991:428; case C-46/93, Brasserie du Pêcheur, ECLI:EU:C:1996:79.

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6.3. Principle of Procedural Autonomy The principle of procedural autonomy is a “creation” of the ECJ, which stated for the first time in the Rewe case106 that “[…] in the absence of Community rules on this subject, it is for the domestic legal system of each Member State to designate the courts having jurisdiction and to determine the procedural conditions governing actions at law intended to ensure the protection of the rights which citizens have from the direct effect of Community law, it being understood that such conditions cannot be less favourable than those relating to similar actions of a domestic nature […] the position would be different only if the conditions and time-limits made it impossible in practice to exercise the rights which the national courts are obliged to protect.” The principle in question was subsequently referred to in several cases107 and widely discussed in theory.108 Quiet differently from how one might expect, given the name of the principle, the Member States do not in fact have full autonomy in the field of procedural law. It should be recalled that the Court explicitly stated in the Rewe case that the national procedural rules apply “in the absence of Community rules on this subject,” and so far it has consistently repeated this condition. Moreover, even in cases when national procedural rules apply, those rules may not be not less favorable than those governing similar domestic situations (principle of equivalence) and furthermore, they may not make it excessively difficult or impossible in practice to exercise the rights conferred by EU law (principle of effectiveness). Hence, in principle, supranational rules prevail over national rules, even in the case of indirect conflicts.109 Of course, the discussed principle is of great importance also in the field of services of general economic interest. One can think of several scenarios

106

See case 73/76, Rewe-Zentralfinanz, ECLI:EU:C:1973:105. Cf. case 199/82, Amministrazione Delle Finanze Dello Stato, ECLI:EU:C:1983:318; C-326/96, Levez, ECLI:EU:C:1998:577; case C-3/16, Aquino, ECLI:EU:C:2017:209. 108 Cf. Bagrizabehi 2016, 13–30; Grashof 2016, 56–63; Prechal 2015, 43–53. 109 A conflict between a substantive supranational rule and a procedural national rule is called an indirect conflict. The principle of primacy also covers indirect conflicts and not only direct conflicts between substantive rules with supranational and national character. 107

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where national procedures are needed for the proper application of the substantive rules of the EU. For example, if undertaking which is entrusted with the operation of services of general economic interest receives illegal (unlawful) State aid or State aid which is incompatible with the internal market, at the end of the day, in most of such cases the supranational rules must be enforced before competent national bodies.110

110

In principle, this is true for both, public and private enforcement of supranational State aid rules.

Chapter 2

SETTING THE SCENE: THE SOCIO-ECONOMIC AND POLITICAL BACKGROUND OF PUBLIC SERVICES IN THE EUROPEAN UNION AND BEYOND 1. INTRODUCTION This chapter is designed to provide a backdrop for the legal discussion of public services or services of general economic interest by explaining the socio-economic and political background in the EU and the terminology and definitions which are most frequently used in the field of public services in Europe. In other words, this chapter serves as a direct introduction to the discussion of the EU’s legal framework for services of general economic interest, which follows in the next chapter.

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2. THE SOCIO-ECONOMIC AND POLITICAL BACKGROUND OF PUBLIC SERVICES IN THE EUROPEAN UNION Understanding the socio-economic and political background of public services in the EU is highly important for a proper understanding of the EU’s legal framework for services of general economic interest, since the law never exists in a vacuum, but always in a specific society and its socioeconomic and political environment. In this regard, the concepts of the welfare state and the related European social model111 are a natural starting point for the discussion, since they involve the complex relationships between the state, the people and the market to which the public services are closely linked. Furthermore, the challenges of the welfare state, and consequently of public services, are important in real life. Here we should emphasize the role of competitive markets in the provision of public services and the limits of competition law in a social market economy, which is probably most obvious in the process of the liberalization of certain economic infrastructure sectors as initiated by the European Commission on the basis of EU (economic) law, which will be discussed below.

2.1. The Welfare State and the European Social Model: The Importance of Public Services or Services of General Economic Interest The welfare state is a phenomenon which has been discussed for decades, yet there is still no generally accepted precise definition.112 In fact, 111

The European social model can be described as a set of activities associated with social rights which aim at social justice and protection, equal treatment, and social and territorial cohesion etc. One of its pillars are services of general (economic) interest. The European model of society is similar but broader model since it goes beyond social aspects. It is built on a collection of common values which include, inter alia, access of citizens to services of general (economic) interest. In addition to the access to the discussed services, it includes human rights protection, democracy and rule of law, social protection and solidarity, jobs and sustainable growth based on social market economy. 112 Cf. Lauzadyte-Tutliene, Balezentis, and Goculenko 2018, 100–104; Dósa 2018, 45–65; Tendera-Właszczuk and Szymański 2017, 134–135; Taylor-Gooby 2016, 713.

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it is questionable whether such a definition is even possible. Although the concept is fairly divisive, this does not mean that one cannot identify the core of the concept which is common to more or less all variations of the welfare state.113 Most discussions of the welfare state focus on the complex relationship between public authority (i.e., the modern state), the people,114 and the market.115 The modern state is democratic, it vests power in its people, it has three branches which are subject to the principle of checks and balances, and it is governed by the rule of law with a special emphasis on human rights. As such, the modern state is not an end in itself but rather an instrument which can be used to achieve specific public aims by considering the interest of the people, which clearly shows the relationship between a modern state and its people. In short, the modern state is primarily designed to serve the people by satisfying their needs. Of course, as the saying goes, the devil is in the details. A welfare state thus takes care of the (social) needs of “its people.” Since there are numerous (social) needs, some of which evolve over time and some of which arise anew, it is for the public policy makers to wisely decide, 116 bearing in mind all relevant circumstances (including the market situation),117 what (social) needs will be satisfied through public assistance, 113

It seems that most scholars would agree with the general statement that a welfare state systematically takes care of the basic social needs of its people in order to provide them with what is necessary for their effective functioning within the community. However, this can be achieved in different ways. The most obvious and probably fundamental difference is related to the political and economic system. Socialist countries with state-planned (command) economies took a different approach compared with capitalist countries with (social) market economies. For practical reasons, only the latter are taken into consideration in this book. 114 The term “people” is used broadly since different scholars use different terms, such as citizens and inhabitants, and sometimes even taxpayers. 115 Except in cases of public services which relate to non-economic services which are not provided on the market. These kinds of public services are not discussed in this book. 116 This decision cannot be made once and for all, but must be continuously revisited. 117 The market perspective is highly important in the case of a (social) market economy and far less in the case of a state-planned economy. In a (social) market economy, where markets are considered the primary mechanism for the production and allocation of goods and services, the market situation is of crucial importance. That is, where markets alone offer the desired outcome, there is no need to intervene, and no justification for intervening, in the market. The situation is different, however, where the market does not offer the desired outcome. In such cases market intervention is allowed but must be carried out in accordance with the EU market

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what quality and price is appropriate, and what kind of assistance will be offered. In my opinion, the answers to these questions are decisive when labelling a “welfare state,” but at the same time we have to bear in mind that there are many types or variations of welfare state. This is supported in the literature, as numerous scholars have identified different variations of the welfare state, e.g., liberal, corporatist and social democratic as discussed by Esping-Andersen, and Scandinavian, Bismarckian, Latin and Anglo-Saxon as discussed by Leibfried.118 Even though the Member States have developed different variations of the welfare state, they share many values, including effective public services.119 These shared values form the basis of the European social model,120 which is expression of the countries’ common welfare concerns. As the European Commission has noted on several occasions, public services or – to use the EU legal term – services of general interest are part of the values shared by all European societies and form essential element of the European social model.121 According to the Commission, the role of services of general interest “is essential for increasing quality of life for all citizens and for overcoming social exclusion and isolation. Given their weight in the economy and their importance for the production of other goods and services, the efficiency and quality of these services is a factor for competitiveness and greater cohesion, in particular in terms of attracting

rules as well as with the principle of proportionality and more generally with respect for the rule of law. 118 See Nistor 2011, 16–17. 119 In other words, public services are important component of the welfare state. In fact, public services are, in principle, established to ensure people’s welfare. As such, they could be called welfare services. In theory, some scholars differentiate between utility and welfare services (see Sauter 2015, 2), probably in order to contrast the group of public services which does essentially depend on (network) infrastructure with the other group of public services which does not. However, the differentiation in question can give the incorrect impression that the first group are not welfare-capable. Therefore, this book does not adhere to the abovementioned differentiation but makes a distinction between utilities and classical (nonutility) public services, with the important observation that both groups are welfare-capable. 120 See the Commission's White Paper on European Social Policy – A Way Forward for the Union, COM(94) 333 final, p. 2. 121 See the Commission's Green Paper on Services of General Interest, COM(2003) 270 final, p. 3; the Council's Conclusions “Social Services of General Interest: at the heart of the European social model,” 3053rd Employment, Social Policy Health and Consumer Affairs Council meeting, Brussels, 6 December 2010.

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investment in less-favored regions. The efficient and non-discriminatory provision of services of general interest is also a condition for the smooth functioning of the internal market and for further economic integration in the EU. Furthermore, these services are a pillar of European citizenship, forming some of the rights enjoyed by European citizens and providing an opportunity for dialogue with public authorities within the context of good governance. […] services of general interest touch on the central question of the role public authorities play in a [social] market economy, in ensuring, on the one hand, the smooth functioning of the market and compliance with the rules of the game by all actors and, on the other hand, safeguarding the general interest, in particular the satisfaction of citizens' essential needs and the preservation of public goods where the market fails.”122 To be clear, welfare issues (still) primarily fall under the domain of the Member States, including the field of public services. This is not to say, however, that the EU has no competences regarding public services.123 In addition to some limited direct competences where it carries out “positive integration,” we should in particular take into consideration its indirect competences, where it carries out “negative integration,” mainly by applying competition rules, or more generally, internal market rules.124 In fact, the latter role of the EU is the primary focus in this book, and here we should also point out that EU (economic) law has a significant effect on the national systems of public services.125 A general overview of the relationship between market competition and public services is briefly described in the following section, with a more in-depth analysis given in Chapter 3.

See the Commission’s Green Paper on Services of General Interest, COM(2003) 270 final, p. 3. 123 See Art. 14 TFEU, and Protocol (No 26) on services of general interest, OJ 115, 9. 5. 2008, p. 308. 124 See more in the Chapter 3. 125 EU law has had a strong impact on the development of the welfare state in Member States, and the same can be said of public services, which help constitute the key pillars of the welfare state. 122

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2.2. Public Services and Competitive Markets: The Limits of Competition Law Public services or services of general economic interest, as already noted, are among the most important pillars of the European social model. Thus in the EU there is no question of “if” they should be provided but rather of “when and how.” In the social market economy,126 the answers to when and how to provide public services necessarily include market considerations. When the market itself provides goods and services in a desired way, i.e., in accordance with public policy targets relating to continuity, quality, affordability, equal treatment, consumer protection and so forth, there is generally127 no need nor justification for market intervention.128 In this 126

127

128

Again, in this book the focus is on social market economies rather than “pure” market economies, since the TEU states that the EU shall work, inter alia, towards a highly competitive social market economy, aiming at full employment and social progress. Moreover, the social market economy model is predominant among the Member States. For example, some scholars have pointed out that the market failure approach is too narrow since it treats the primary value as that of competitive markets, to which other values are secondary and come into play as a means of mopping up residual problems which markets cannot resolve. In contrast, they suggested that each of the different approaches has a legitimacy on its own, and that resolving particular difficulties should depend on which ones we wish to prioritize in a particular situation. Thus, in a type of public service which is required for basic well-being (for example water supply) we might wish to prioritize social rights and, for example, prohibit disconnection because we regard the service as truly essential. In other situations, they continue, we might wish to prioritize social solidarity, for example in public broadcasting with its close links to citizenship. According to some scholars, public services should not be reduced to a minimum, such as only basic universal services requirements, applicable only in cases of market failure. Cf. Prosser 2005, 244. In capitalist countries with a (social) market economy model, market intervention sooner or later affects individuals’ rights, starting with the right to private property, which is the backbone of the present system that predominates across the globe. Although the right to private property is not at the center of the discussion it deserves at least some attention since it is the basis from which several relevant principles are derived, like for example the free conduct of business and the protection of market competition. That is, when observing private property from the eyes of the owner or proprietor, i.e., in accordance with the individualistic approach which is nowadays predominant, the attention is focused on its potential positive impacts on the owner and society in general, while attempting to limit its potential negative impacts through restrictions on the acquisition and enjoyment of private property. In the current conditions and at the current level of social development, the latter can be understood as a stimulus for a social market economy and therefore a driver of economic and therefore of social development, as it allows the owner to attempt to ensure the material conditions for his survival, security and personal development, including the use of his property for a certain economic activity, under the condition that this does not lead to any unjustified breaches of

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regard it should be noted, however, that there can be significant differences between Member States with regard to the questions of which goods and services are “essential,” and what level of continuity, quality, affordability, and consumer protection will be provided. It should be clear, however, that different standards lead to different abilities of the markets to offer the desired outcome. Moreover, as explained in the next section, the EU has forced the liberalization of certain economic sectors, which stimulated the development of competitive markets in the provision of public services, i.e., their “marketization.”129 For this reason, undistorted market competition is used as an instrument. If market competition leads to the desired aims, it is considered to be workable or effective market competition. EU competition policy seems to be primarily focused on the promotion of consumer welfare through maximizing economic efficiency, which is particularly true in the area of antitrust,130 and a bit less so in the field of State aid,131 where one can find more space for non-economic considerations as explained in Chapter 3. Nevertheless, this clearly shows, on one hand, the importance of competition law, which prevents unnecessary restrictions to market competition, and on the other, tensions with non-economic values and aims, which are reflected in public services law. The European integration process has been equipped the constitutionally protected areas of other persons. This conceptualization of private property sooner or later leads to the issue of the freedom to conduct business, which by its nature requires a suitable constitutional milieu subject to the rule of law, and a functioning market on which market mechanisms operate under conditions of undistorted competition, except in those cases where it would not be appropriate, or where it is legislated differently for reasons of general interest. In this sense the above statements have to be understood with respect to the importance of private property to the topic in question. For purposes of transparency and easier understanding of the essential components of the current conceptualization of private property, we should make note of the historically-formed collective approach of the former socialist countries, as an antipode to the currently predominant individualist approach. The collective approach was characterized by viewing private property through the eyes of the non-owner, where the focus was on the potential negative impact of private property on relations in society (as it could be “illustrated” in a half-joking and half-serious manner with the bottle and its effect on the tribe in the movie The Gods Must Be Crazy, 1980). Marx and various others saw private property as a generator of class war and the associated danger of social conflicts. 129 See Prosser 2005, 1. 130 I.e., business coordination as set out in Art. 101 TFEU, and abuse of dominant position as set out in Art. 102 TFEU. 131 Art. 107 TFEU.

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with an extensive body of competition law from the very beginning, and it is still among its most wide-ranging and important legal fields. EU competition rules have always had a major impact on national competition rules as well as on several other fields of law. However, when it comes to public services law the situation is rather different. Most of the EU Member States have developed comprehensive public services laws that set out the obligations, organization and procedures related to public services, while hardly any such rules exist at the supranational level. Nowadays, the EU has some (sector-specific) rules on public services which enable positive integration, but in the field of public services the EU rules are predominantly oriented towards negative integration based on competition rules and more generally on internal market rules as discussed in Chapter 3; the main emphasis, however, is on competition rules. At this point it is also worth mentioning that competition law is only applicable to economic activities. In other words, EU competition law does not have a corresponding effect on non-economic services of general interest, but only on services of general economic interest. However, even in the case of the latter, the EU never demanded the unlimited application of competition law.132 The limits of the application of competition law to services of general economic interest are clearly visible in Art. 106(2) TFEU, which is also discussed in Chapter 3.

132

The intensely market-based approach as suggested by the OECD in the Report on Regulatory Reform published in 1997, according to which the best approach to the relationship between competition law and public services law is a straightforward one, namely that competition law is applied to the maximum possible extent, while social and other non-economic outcomes are addressed by specific public policies, seems to contravene EU law as well as the traditions of (most) Member States.

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2.3. The Liberalization of Certain Infrastructure Sectors and Its Effects on Public Services or Services of General Economic Interest The liberalization of certain133 infrastructure sectors, such as energy, telecommunications, postal services and transportation, introduced a new paradigm, which also affected public services or services of general economic interest, as will be discussed in detail below. Thus, from the public services perspective, the most important question is how to transform previously closed and non-competitive markets in certain essential goods and services, which were subject to public services obligations, into fully or at least sufficiently competitive markets, and of how to ensure that despite such a transformation there will be no negative side effects or at least no excessive negative side effects for consumers or users of essential goods and services, such as energy, telecommunications, postal and transportation services. It seems that the concept of universal service, as will be discussed in section 3.5 of this chapter, could be pointed to as the most obvious example of this concern. On one hand, the concept of universal service gave additional legitimacy to the liberalization process and at least to a certain extent assuaged the concerns of (certain) EU Member States. On the other hand, it also corresponds to the joint responsibility of the EU and Member States for effective provision of public services, or to use EU terminology, services of general economic interest in accordance with Art. 14 TFEU.

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Liberalization did not affect all economic sectors where public services occur in real life. In some cases, the markets were already open, and a competitive rivalry among undertakings had been developed and maintained from the very beginning of the European integration process. Thus there was no need for the liberalization of these sectors. The situation was rather different in the case of (most) infrastructure sectors, as explained in the following sections.

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2.3.1. Conceptual Explanation of the Liberalization of Certain Infrastructure Sectors and Related Processes The liberalization of certain infrastructure sectors134 is a concept that is often applied inconsistently or unevenly in European theory, therefore it is reasonable to begin by explaining what we mean by the term. Liberalization is a concept that in and of itself would be difficult to define as a (solely) legal concept.135 If we start with the general definition, liberalization in the broadest sense means “the removal or reduction of restrictions or barriers on the free conduct of certain activities.” Liberalization is therefore such a wide-open concept that it requires association with a particular subject and specification within that field. This book deals with the liberalization of infrastructure sectors under EU law. Definitions of liberalization can be found in European legal theory, but more often the legal texts avoid providing them, and the conceptualization of liberalization has to be drawn from context, and on that basis one can establish various differences in the way it is conceived. On one hand we find narrow definitions, where liberalization is equated with demonopolization, and on the other hand broad definitions that include privatization and total commercialization. Despite this, a common core can be identified among the majority of conceptions of the liberalization of infrastructure sectors, i.e., the implementation or strengthening of market mechanisms in certain infrastructure sectors or markets within them that provide essential goods and/or services. On the basis of an analysis of several conceptions of the liberalization of infrastructure sectors and taking account of the “European” (i.e., EU) dimension, in this book we will use a

134

This refers to infrastructure sectors which are effectively a network that serves as a basis for vertical linking of markets. Such infrastructure often includes a quality or nature that justifies special regulation. More precisely, a monopolistic bottleneck (which means a combination of economic irreversibility and a natural monopoly), seems to be the biggest challenge which justifies special regulation. 135 The origin of the concept of liberalization can be found in the Latin words liber (unoccupied, free, unobstructed, unchained), liberamentum (release) or liberatio (liberation) and today can be found in many languages, for example the English liberalization, the German Liberalisierung, the French libéralisation, the Italian liberalizzazione and the Spanish liberalización.

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two-tiered definition of the liberalization of infrastructure sectors in the narrow and broader sense, as follows. The liberalization of infrastructure sectors in the narrow sense is known as demonopolization or deoligopolization, which involves the abridging of exclusive (monopolistic) and special (oligopolistic) rights conferred through specific statutes, and aims more broadly at the elimination of general statutes that in any way restrict companies’ access to reserved markets and thus restrict competition on those markets. In the narrow sense, liberalization can be defined as a subcategory of deregulation, i.e., that part of deregulation that focuses on the establishing of competition on an observed market, and then on its effective protection. Since in this case it is a subcategory of deregulation that leads to the strengthening of market competition, we can call it pro-competitive deregulation.136 The liberalization of infrastructure sectors in the broader sense is their transformation, in which uncompetitive markets within those sectors are transformed into (more) competitive ones and market mechanisms are strengthened across the board. In this sense it is a long-term process that on the most general level includes any official intervention into the market or any official intervention into market processes in order to remove anticompetitive general and specific statutes and replace them with procompetitive ones designed to introduce and/or protect (effective) competition on the market and to achieve various other objectives that strengthen market competitiveness. Since it involves a combination of subcategories of deregulation and regulation that leads to the bolstering of market competitiveness, it can be defined as a combination of procompetitive economic deregulation and regulation.137 136 137

Its antithesis, which is another subcategory of deregulation, is anti-competitive deregulation. Liberalization in the broader sense is the removal of legal and functional obstacles to entry into or competing on a market. Legal obstacles include general and specific statutes that prohibit entry onto a market by defining legal or artificial monopolies (e.g., by using exclusive rights) and oligopolies (e.g., by using special rights). The removal of legal obstacles is therefore the removal of the legal acts that define legal or artificial monopolies or oligopolies, and can be executed quickly and easily. However, the removal of the functional obstacles is much more problematic. In the majority of cases they are removed through a combination of measures that ensure that the former monopolists are not in a disproportionately superior position to that of the companies that are newly appearing on the market. The object is therefore to mitigate the market strength of the former monopolists, which can be accomplished chiefly

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This shows that the concept of liberalization, which is not solely a legal concept, can be supplemented with purely legal concepts, i.e., deregulation and regulation. In order to clarify, these two concepts are explained below,138 while it is worth mentioning here that both of these processes are two-way, as they can both work to either strengthen or weaken market competition, depending on the individual starting points and objectives.139 2.3.1.1. Regulation Regulation is a concept that has no standard definition in European legal theory. The definitions differ in terms of scope, subject and systemic bases. In this book, the focus is on market regulation, which means any official intervention into a market or market process through the adoption of general or specific statutes or acts which is designed to introduce and/or protect competition on the market or to restrict competition on the market, and to achieve other economic and/or non-economic objectives. For greater clarity, this “definition” is supplemented by the following explanations: First, regulation is an official activity that involves the adoption and application of general and specific statutes or acts, which is primarily but not exclusively the domain of the sectoral regulators. This is noted here because regulation is often defined as a (normative) function of sectoral regulators. Second, market regulation refers to a market or market processes, which means that it could involve the introduction, protection or limitation of market mechanisms, depending on the content of the regulatory measures or instruments. This is frequently overlooked. In the present circumstances, due to the many years of primacy of non-competitive markets in various essential

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through their commitment to allow access under certain conditions to infrastructure that represents an essential facility, and the setting of the price of access and use of that infrastructure cannot be left to the former monopolists, but must be (carefully) set by the sectoral regulator. Furthermore, the market strength of the former monopolists is broken down through vertical disintegration or separation at various levels (accounting, functional, legal and ownership separation). Although in the context of the liberalization of infrastructure sectors the sequence of the processes was such that deregulation is (was) required before regulation could be put in place, here we will discuss regulation first, since in the abstract sense primary regulation is a precondition for primary deregulation. Thus both pro-competitive and anti-competitive regulation are possible, and the same can be said for deregulation. Here we will focus on pro-competitive regulation and pro-competitive deregulation.

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goods and/or services, regulation is in principle used to introduce and protect market competition, but we cannot exclude the possibility that the situation will not (once again) turn in the other direction, especially taking historical cyclicity into account. Unless specifically stated otherwise for individual cases, below we will be referring to so-called pro-competitive regulation.140 Third, looking at the predominant aims of specific regulations, we can distinguish between economic and non-economic regulation, although we should point out that this distinction is relative given that a specific regulatory measure can have both economic and non-economic effects. In the literature, economic regulation is defined in principle as regulation that directly relates to a market and is used to correct unwanted negative effects in the event of a market failure, i.e., when a market is unable to reach its economic aims, such as effective competition or economic efficiency, or even legitimate non-economic aims.141 Non-economic regulation – and within it primarily social regulation – is defined in principle as regulation that serves to counter various threats that appear among users of essential goods and/ or services, and as such even non-economic regulation at least indirectly relates to the market, even though it is directed towards the achieving of non-economic aims. Essentially, non-economic regulation is also the result of market failures, since the market as an economic category is, by its very nature, not able to deliver or achieve desired non-economic aims or at least not sufficiently. Here we should emphasize that services of general economic interest are in principle an expression of social or predominantly non-economic objectives that the market is unable to achieve by itself, at least not to a sufficient extent. All of this relativizes the division of regulation into economic and non-economic. Fourth, depending on whether an (economic) regulation refers to a specific sector or to several sectors, we can distinguish between vertical and horizontal regulation. In this context we are speaking primarily of the difference between special 140

Again, this is not to say that anti-competitive regulation is not an issue, since it has already been used in past and no one can exclude the possibility that some day it will be used again. Nowadays, however, pro-competitive regulation is considered as a rule. 141 In this book, market failure is not used in the narrow sense which is (predominantly) used in economic theory. For a brief overview of the economic theory of market failure see for example Burke 2018, 22–24.

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liberalization law, which mainly consists of sector-specific regulation, and general competition law which is principally applicable in all economic sectors. Competition law is designed to protect competition and in principle is insufficient for the transformation of non-competitive markets into competitive ones. In such cases competition has to be introduced, which can be achieved through adopting rules that are designed to achieve that purpose, are sufficiently effective, and that at the same time take into account the specifics of the individual sector.142 Fifth, depending on when a regulation or official intervention into a market is implemented, we can distinguish between ex ante and ex post regulation, although this distinction is sometimes hidden. Due to the multitude of different cases, it is difficult to establish sufficiently precise research criteria, and therefore we have to be satisfied with more general ones, of course with all of the baggage that such criteria bring with them. In this sense we can say that ex ante143 regulation is the basis for official measures carried out preemptively; this mainly involves cases in which the competent authority is entitled and obliged to issue commendatory rules (and to exercise authority over their enforcement), which require precisely defined (active) conduct on the part of the subjects, which furthers the realization of the economic and noneconomic objectives in the area in question. The primary economic aim in this area is the introduction of effective competition on previously closed, non-competitive infrastructural markets in essential goods and/or services, while the leading non-economic aim is the adequate supply of various essential goods and/or services justified and organized on the basis of the principles of fairness and solidarity. We can distinguish between economic regulation that, taking into account the definition of liberalization in the broader sense, we can define as true liberalization law or as sectoral (ex ante) regulation,144 and social or non-economic (ex ante) regulation, which

142

Closely connected with this is the difference between ex ante and ex post regulation, where the former is more (market) invasive than the latter, as discussed below. 143 Ex ante is generally translated as prior to, before the fact, or in advance. 144 However, here we should note that ex ante rules, which require the (prior) declaration of market concentrations and State aid above a certain threshold (which we can consider a formal or procedural obligation, and not a substantive obligation, which would prescribe certain active market behavior) can also be found within general competition law, which only confirms the

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overlaps to a significant extent with public services law.145 On the other hand, ex post146 regulation involves official market interventions subsequent to an event. This includes primarily prohibitory rules that require precisely defined passive conduct on the part of the subjects, which furthers the realization of protection of competition and the related economic effects and other economic objectives, and which can be defined as general competition law. Ex ante economic regulation is an aggressive market intervention that countries can pursue in the market economy model only when absolutely necessary and only to the extent that is absolutely required. Here we should note that in practice ex ante and ex post (economic) regulation can in principle be implemented by several types of authorities. Therefore there is a need for specialized independent bodies, whereby ex ante economic regulation is usually implemented by sectoral regulators,147 while ex post economic regulation is implemented by the competition protection authority. In practice this can lead to significant tensions between the sectoral regulators and the competition protection authority, since the boundaries between their various duties overlap considerably.148 Sixth, depending on whether the regulation affects all market participants equally, we can distinguish between symmetric and asymmetric regulation, although here again it is necessary to point out the relativity of the concept.

initially cited difficulties in determining the limits or delimitation between the concepts in question. 145 Technical and safety standards must be considered as well. Moreover, in theory the framework of the management of public services usually includes: the prescription of the method and conditions for providing the public service (regulation), decision-making on access to the providing of the public service and decision-making about the specific conditions for performing the activity (licensing), setting prices and other economic conditions for providing the public service (pricing), and control (monitoring, supervision). We should specifically mention that here we are using a concept of regulation that covers all of the activities concerned, and not just the prescription of the method and conditions for providing the public service (which we consider regulation in the narrow sense). 146 Ex post is generally translated as subsequent or after the fact. 147 Cf. Anna Forgács, The Regulatory Powers of Agencies in the United States and the European Union, European Network Law and Regulation Quarterly, no. 1/2015, 11– 24. 148 A typical example is network access and pricing policy, as it involves issues that are present in the context of both ex ante and ex post economic regulation.

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2.3.1.2. Deregulation Deregulation is another concept that has no standard definition in European legal theory, and the differences appear similarly to those in the case of regulation. In this book we will use deregulation to mean the antithesis of regulation.149 The concept of deregulation comprises two parts, which are equivalent or close to the Latin prefix de-, meaning (among other things) “to remove something,” and the Latin word or root regula, which means “rule.” In view of the above, a suitable definition of market deregulation is one whereby deregulation is any state intervention into a market or any official intervention in market processes that involves the abolishing of existing regulations or specific statutes or acts, and that is intended to introduce and/or protect competition on the market or to limit competition on the market, and to achieve other economic and/or non-economic objectives. To put it simply, it is the annulment or abolishment of existing rules,150 i.e., a modification of an existing regulation. This definition of deregulation is used here as the underlying definition, but it requires some elucidation, as follows. First, deregulation is an official action, which is manifested through the annulment or abolishment of existing regulations or specific statutes or acts. The official action is executed in a formal and technical sense through the adoption of regulations or the issuance of new specific statutes or acts, which amend or annul the formerly valid regulations or statutes or acts, and therefore some consider it to be a subcategory of regulation. As noted above, this formalist approach in the context of the broad definition of regulation is accurate in the strict sense, but does not place sufficient emphasis on the substantive aspect, i.e., the results of deregulation, which are manifested in the annulment or abolishment of a certain rule that regulated the content of a market or market process. The role of these “nullifying regulations,” statutes or acts therefore does not constitute a new, active regulation of 149

In the strict sense, deregulation is also a type of regulation, which results in reducing the scope of regulations, while regulation results in an increase in the scope of regulations. 150 Cf. also Bryan A. Garner, Black`s Law Dictionary, 7th edition, West Group, Minnesota 1999, p. 454; Carol G. Braham, Webster’s Basic Dictionary of American English, Random House, New York 1998, p. 113; William J. Stewart, Collins Dictionary of Law, 3rd edition, Collins 2006, p. 144.

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market processes, but merely their elimination, which restricts the existing legal regulation and thereby creates a space for a new or different regulation, where we should note that this empty space can be filled either by new rules or other existing rules. Second, deregulation refers to a market or market processes, meaning that it can be used to introduce or protect market rules or to limit them, depending on the content of the annulled or abolished regulation, specific statute or act. In the present situation, due to the many years of ascendance of non-competitive markets in various essential goods and/or services, in principle market deregulation is used to introduce and/or protect market competition. Therefore, below we shall focus on this type of deregulation, i.e., pro-competitive deregulation, unless explicitly stated otherwise.151 Third, pro-competitive deregulation is aimed at public-law rules that have closed off certain markets by restricting some companies’ access to those markets. Oligopolies or even monopolies were created through the granting of special or exclusive rights. These rules led to the creation of a regime that differed from the established market economy model, due to the belief that this was necessary primarily due to natural monopolies and the need for the high-quality supply of essential goods and/or services. 2.3.1.3. Privatization Privatization is a concept that has been used a lot in Europe over the last few decades, but usually in too narrow a sense, i.e., to refer only to the sale of state-owned companies. As shown below, broader definitions are more appropriate, and are also relevant to public services or services of general economic interest. Privatization will be defined here as any form of grant or allocation of legal or public powers or rights that a national, regional or local authority executes to the benefit of at least one legal entity under private law, which includes natural persons and all forms of privately organized legal entities, regardless of the holders of the participating interests. But this definition also requires further explanation. First, we have to remember that numerous

151

Again, also in this case one should consider the possibility of anti-competitive regulation.

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subcategories and types of privatization can be found in the literature. Here we will distinguish between formal and material privatization. Formal privatization is merely a change to a legal organizational form where an entity under public law is transformed into an entity under private law, e.g., into a joint stock company or a limited liability company, where the state or other public authority retains internal influence on that entity, as it can pursue its interests on the basis of authorizations stemming from its status as (sole) shareholder. Material privatization on the other hand involves either the transfer of property or the transfer of duties or tasks. The privatization of property means the transfer of certain types of public property, e.g., shares or participating interests in a state-owned company, to an entity or entities under private law. This transfer is carried out mainly on the basis of sales contracts, but can also have other legal bases. The privatization of duties or tasks involves the transfer of certain duties or the delegation of the authority to execute a certain task, which had previously been directly executed by public authorities, to entities under private law, whereby different degrees of such transfer or delegation are possible. A typical example of the privatization of duties is a concession for carrying out certain activities that are provided as a public utility. 2.3.1.4. (Total) Commercialization (Total) commercialization is a concept that denotes the application of general market principles to a given economic activity, i.e., the total abandonment of a given (public) activity152 which is then left to the free market and market mechanisms, which manifests externally as a total relinquishing of the conducting of that activity by a public authority and at the same time as an outright waiver of specific regulations and the accompanying supervision. In this case only the general legal statutes and accompanying supervision (i.e., inspections) are preserved, as applies to (business) activities to which the state is more or less indifferent.153 In the legal sense therefore we are speaking of extensive deregulation through which specific regulations are lifted that prior to that had restricted interested 152 153

This usually refers to an activity that was previously subject to public-law restrictions. Such as e.g., the manufacture and sale of chocolate.

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companies’ access to a market or ability to conduct those activities, and/or had subjugated the activities to a particular regime of public-law restrictions on or public service obligations. In such case the activity in question is then carried out according to the market logic by persons under private law or is not carried out at all. In short, an activity which was previously considered to be in the public interest and therefore the state’s concern, directly or indirectly performed by the state, is declared as being purely commercial (ergo, no longer in the public interest), which means from that point on it is fully left to market mechanisms.

2.3.2. The New Paradigm in the Organization of Certain Infrastructure Sectors The new paradigm in the organization of infrastructure sectors in the (majority of)154 Member States and their public sector economies in general originates first of all from the then European Community law, which required that Member States adapt their commercial public monopolies such that they eliminate discrimination with regard to the conditions for supply and marketing of goods and services among Member States and prohibit the adoption or preservation of measures contrary to the aims of the then European Community, where the emphasis was on the integration of the internal market, which is inseparably connected to the provision of the free movement of the main production factors and undistorted competition on the internal market, except for cases of a real threat to the conducting of a specific duty or task entrusted to one or more companies in the public interest.155 The logical result of the principled imperative to introduce market rules into these sectors or markets in certain essential goods is a process of pro-competitive deregulation and (re)regulation. The usual companion of the liberalization process, although not in all cases, is the privatization of property and even more of particular public tasks.156 This involves systemic 154

The United Kingdom is a slight exception, as the reorganization of infrastructure sectors there began earlier, under Thatcherism. 155 See Art. 106(2) TFEU (formerly Art. 86(2) TEC) which is discussed in Chapter 3. 156 In principle, the privatization of property is not an imperative of EU law; its neutrality in this respect is codified; see Art. 345 TFEU.

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legal changes to the public sector economy and consequently to the area of public services, which creates complex problems or regulatory challenges at various levels. Although the issue of the state and its adjustment to the systemic changes is at the forefront, it is nevertheless worth pointing out various relevant circumstances at the EU level, if we bear in mind that it was the generator of the liberalization of the national markets in various essential goods which long enjoyed special status – that is, the primary legislation was not strictly applied to them for decades or was explained in such a way that enabled the preservation of legal monopolies and the restriction of competition. This “untouchable” status was mainly the consequence of the socio-political sensitivities of the markets in question. The institutions of the European (Economic) Community preferred to deal with less problematic markets, and only when they had achieved the desired results on them did they shift their focus to the closed markets in essential goods, particularly those with a markedly EU character. Secondary sectoral legislation was passed that was characterized by an approach that featured political negotiation with the Member States and concern for the interests of the users. The political negotiation approach is seen particularly in the fact that the European Commission as a rule did not operate from strength, and only in exceptional cases resorted to the use of the mechanism provided in Art. 86(3) TEC, which is identical in content to the current Art. 106(3) TFEU.157 The majority of the sectoral legislation was adopted pursuant to Art. 95 TEC (now Art. 114 TFEU), which addresses harmonization based on acts adopted in regular legislative procedure,158 and was designed in accordance with the principle of gradual liberalization, which increased economic freedom while still taking the interests of the users of essential goods into account, as explained below. For now we can say that their interests were taken into account to the greatest degree in the concept of services of general economic

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As explained in Chapter 3, this provision empowers the European Commission to adopt directives without cooperation with the Council of the EU and European Parliament, which is quite different from regular legislative procedure. In regular legislative procedure the European Commission “merely” issues proposals of legislative acts while the latter are then adopted (or not) by the Council of the EU and the European Parliament.

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interest, which determines the external borders of the national concepts of services of economic interest.159 This liberalization did not affect all sectors in the same way, i.e., it was not introduced with the same dynamics and with the same public sector measures, which is the logical consequence of the specificities of the individual sectors, but nevertheless a more or less uniform general pattern was developed. In addition, all of the liberalizing or harmonization directives took public services into account or created specific public service obligations. The EU, or at that time the European Community, thus created a legitimate reason for its interventions, i.e., in the context of the realization or protection of the interests of integration,160 but at the same time it wanted to signal to the citizens and politicians of the Member States that their vital interests would not be affected by liberalization.161 Looking at the historical background of systemic changes in Europe and their impacts on the individual countries, we find that the main problem has been the new role of the state and its improper adjustment to the changes. Some states did not understand the new paradigm and its consequences, while some problems can be also attributed to political calculations. The primary consequence has been the ineffective supervision of the system, which has had a negative effect on the implementation of the applicable regulations, and partially also led to insufficient adoption of norms, as the new conditions have not been regulated in time or correctly, in particular due to the inadequate implementation of the directives, which has led to adverse outcomes. If pro-competitive deregulation is not followed by pro-competitive regulation, a legal vacuum occurs which can have long-term harmful economic and social consequences. Here we should note that the desired (effective) market competition does not simply appear of its own accord, quite the contrary, as it is first necessary to establish it through ex ante 159

Cf. the English public services, the German öffentliche Dienst(leistungen), Daseinsvorsorge, the French service public, the Italian servizio pubblico etc. 160 This is also current in the context of ensuring social and territorial cohesion on one hand and strengthening the competitiveness of the European economy on the other (if we can even speak of two sides here). 161 In some directives the universal service obligations are even imposed before the provisions on the elimination of obstacles to competition; even though the latter were in fact the reason for the adoption of the directives; cf. Giorgio Monti 1, 491.

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regulation, and when that has been achieved it has to be protected, which in principle is satisfied through ex post regulation in the form of general competition law. The introduction of market rules in previously closed markets in essential goods and/or services also introduces the possibility of market failure, as the market is not able to achieve all desired objectives associated with the provision of essential goods and/or services. The abovementioned systemic changes demand rules that ensure the adequate provision of essential goods and/or services that had previously been provided directly by the state or via vertically integrated (public) undertakings that operated on closed markets with no or limited competition, and not according to competition rules. In other words, by eliminating the public monopolies, opening the markets to competition and introducing competition rules on previously closed markets, a real need appears to protect the social objectives, which can only be effectively safeguarded through a specific system of legal principles and rules formulated by the public authorities. This makes it clear that the systemic changes have led to two related groups of issues. The first group includes economic issues, concentrated around the introduction and protection of competition, while the second group includes social and other non-economic issues, concentrated around the provision of various essential goods and/or services under certain (politically desired) conditions, which clearly underlines the importance of public services (law). It is therefore necessary to resolve the outstanding questions relating to norms, i.e., pure legal questions, and also some institutional questions. This relates in particular to the problem of independent regulatory bodies and the horizontal and vertical relationships between them. The systemic changes have also led to various issues at the level of the state in the broader sense. State-owned companies or public undertakings are facing changes that have a fundamental effect on their role and their former position. Here we should note in particular the fact that the discussed undertakings have lost their instrumental role (at least to certain extent), as states can no longer use them as a primary instrument to realize their public objectives in the area of social and other public policies. In short, the monopolistic state-owned companies that operated on markets that are now subject to liberalization require new strategic orientations that fit with

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the new paradigm. We can therefore conclude that the states, under the influence of the new paradigms (which originate primarily in EU law) must redefine their role as regulators, i.e., the regulatory function (jure imperii), which in the broader context also includes services, i.e., the satisfaction of public needs, which can be provided through public services. Moreover, the states must also redefine their business role, i.e., their business function (jure gestionis). The role of the state as an authority is therefore important from the perspective of public services or services of general economic interest, as it provides the framework for the implementation of primary regulation, which in the fields of energy, telecommunications, postal services and transport (particularly rail) is subject to the significant influence of EU law, and adopts decisions regarding the provision of public needs, including via public services, decides on their organizational structure and funding, and carries out their supervision, while at the same time the entrepreneurial role of the state is also important, as under certain conditions public services can be provided by state-owned companies or public undertakings.

3. PUBLIC SERVICES AND RELATED NATIONAL AND SUPRANATIONAL CONCEPTS On one hand, “public services” is a globally recognized umbrella term which can be used when discussing how public authorities can provide essential goods and services without reference to any particular state.162 On the other, it can also be used when discussing this issue within a given state. Therefore, it is always helpful to explain the context in which the term is 162

In this sense, public services are meant as economic and non-economic services subject to special (public law) obligations in order to protect the public interest. The public authorities are responsible for public services or services of general economic interest but do not necessarily provide them directly; that is, they can also entrust them to public or private entities. Thus, the concept of public services, when observed at the abstract level, has two essential elements, namely, the political and the legal. The first is the public interest and the second is a set of special (public law) obligations. There is a close link between the two elements since special (public law) obligations are imposed on service providers by public authorities in order to ensure that various public interest objectives are met.

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being used. For a better understanding of the differences between national concepts and, even more importantly for our purposes, between national concepts and supranational concepts, before discussing the latter this chapter provides a brief overview of certain national concepts, i.e., the French concept of “service public,” the German concept of “öffentliche Diensleistungen (Daseinsvorsorge),” and the British concept of “public services.” When the initial Community law was drafted, the drafters decided not to use the term “public services,” since they wanted to avoid national connotations. Instead, the new term “services of general economic interest” was used, which was intended to emphasize its supranational nature. Eventually, additional terms appeared in the acquis communautaire such as “services of general interest,” “non-economic services of general interest,” “social services of general interest,” and “universal services.” These concepts are also briefly discussed in this chapter. Their proper understanding is essential when discussing the issues at hand. Moreover, the legal consequences can vary significantly depending on the legal concept under which a given activity or service is categorized,163 meaning that the definitions are quite important.164

3.1. Public Services Concepts as Developed in Various Member States As the title of this section suggests, at this point the term “public services” is not used as an umbrella term which absorbs various national 163

For example, as Neergaard pointed out, the distinction between services of an economic nature and services of a non-economic nature is important because they are not subject to the same rules of the Treaty. For instance, provisions such as the principle of non-discrimination and the principle of free movement of persons apply with regard to the access of all kinds of services. The public procurement rules apply to the goods, services and works acquired by public entities with a view to providing both services of an economic and a non-economic nature. However, the competition rules (for public services, the antitrust and State aid rules are of particular importance) of the Treaty only apply to economic activities […]. The rules on the freedom to provide services and the right of establishment only apply to providers of “services” which are economic activities. See Neergaard 2009b, 24. 164 See Neergaard 2009b, 17.

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concepts but refers to its national variations in France, Germany and the United Kingdom. France and Germany are founding members of the European integration process, and they are the “leaders” of the two probably most influential legal groups in the EU, the Roman and German, both of which come from the civil law tradition. The British concept is included since it is based on the common law tradition. The French concept of “service public” originally appeared in case law as early as the nineteenth century,165 however, its theoretical foundations were established in the early twentieth century, initially (it is believed) by Léon Duguit, and it was further developed by Gaston Jéze and later by numerous scholars. The essential idea behind “service public” is that the state must be conceived of in relation to its function of serving the needs of its people as the basis of its legitimacy.166 The definition of the public interest is at the state’s discretion, and when it declares a specific activity as being in the public interest and takes responsibility for its provision, it becomes part of the “service public.”167 Thus the French concept of “service public” is very broad one. Moreover, the original concept was linked to public property and oversight (at least in the case of so-called constitutional public services),168 and it was significantly inspired by the ideals of equal treatment, solidarity and social cohesion. Not surprisingly, tensions arose in relation to the idea of economic efficiency and other attributes of the internal market, and as a result, certain modifications were needed in order to align the French concept with the EU imperatives. The German concept of “öffentliche Dienstleistungen” or “Daseinsvorsorge” rests on theoretical foundations developed by Ernst Forsthoff in the late nineteen-thirties. He pointed out the inability of modern

165

See Prosser 2005, 102. The concept can be viewed as being in line with the maxim of the French revolution, liberté, égalité, fraternité. It is a means by which various aims can be achieved, but in particular equal treatment, solidarity, and social cohesion. It (predominantly) pursues non-economic aims. As the Council d'Etat stated: “[…] it is the essence of service public, as a means of consolidation of the social contracts and of social solidarity, that it contributes to some types of redistribution and of transfers between social groups” (taken from Prosser 2005, 103). 167 See Schweitzer 2011, 13–14; Dreyfus 2009, 270–272; Prosser 2005, 98–113. 168 See Prosser 2005, 98–101. 166

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individuals to produce the goods and services they need for survival. 169 Therefore, according to Forsthoff, the state has to protect the primacy of human values by ensuring that all individuals are provided with essential goods and services rather than being left alone and dependent on markets and their unpredictable results. Although on the face of it this concept seems to be broad and capable of largely excluding the market from the provision of essential goods and services, it seems that this was not the case in practice, or at least not to a significant extent. One of the reasons for this could be the structure of the German national economy, which combined both public and private undertakings. But this is not to say that there was nothing to change under the pressure of EU law. The British concept of public services follows the general idea that in some cases the state or other public authority must intervene to ensure the basic needs of its people. However, originally there was no comprehensive body of public service law. Instead of protecting public service values through law, this was a matter for the various ministers or implemented through the political process.170 Moreover, the legal structures adopted for the provision of public services are highly varied.171 Perhaps it was a legacy of Adam Smith, but in principle the market played a more important role in providing essential services than in the countries of Continental Europe. Furthermore, due to Thatcherism, the liberalization process began earlier in the UK than in other Member States, and therefore the implementation of EU demands in relation to public services has in principle required less action there than by other Member States.172 In short, when comparing Member States from the public services perspective one can see that each of them has some form of public services, but there are differences as to what kinds of goods and services should be provided through public services, the types of standards, legal forms and instruments applied, how they are financed etc. Therefore, it is challenging to establish a uniform concept, for example at the level of the EU. Not

169

See Schweizer 2011, 15. See Boeger and Prosser 2009, 358. 171 Ibid. 172 Cf. Boeger and Prosser 2009, 357. 170

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surprisingly, the supranational concept of “services of general economic interest” is relatively wide and flexible, as explained in the following section.

3.2. Services of General Economic Interest The concept of services of general economic interest can be found173 in Art. 14 and 106(2) TFEU,174 in Art. 1 of Protocol No. 26 on Services of general interest,175 in Art. 36 CFREU,176 in Art. 1 and 17 of Directive 2006/123/ES,177 and in Art. 1 to 4 of the Regulation (EU) 360/2012,178 however, without a definition in any of these sources. But its mere appearance in EU legal sources is already enough to qualify it as a supranational legal term of an autonomous nature. Only EU institutions are empowered to define or interpret such term, while Member States’ bodies are bound to apply their definitions or interpretations.179 There is a broad agreement among EU institutions that the term refers to services (sometimes the term activity is used)180 of an economic nature which the Member States or the Community or the EU subject to specific

173

Apart from numerous soft law instruments. OJ C 326, 26. 10. 2012, 47. 175 OJ C 115, 9. 5. 2008, 308. 176 OJ C 326, 26. 10. 2012, 391. 177 OJ L 376, 27. 12. 2007, 36. 178 OJ L 114, 26. 4. 2012, 8. 179 Even if the same term is used in the national legislation, which is highly unlikely since the drafters of the initial Treaty decided to use a term which was different from the then-current national terminology of the Member States in order to avoid any national connotation, the supranational term, when applied in the context of Art. 14 and 106(2) TFEU, and Art. 36 CFREU and so forth, must be applied equally in all Member States without any national accent. In this regard Art. 267 TFEU seems to be of particular importance. 180 See COM(2011) 900, 3, where the European Commission defined services of general economic interest as “economic activities which deliver outcomes in the overall public good that would not be supplied (or would be supplied under different conditions in terms of quality, safety, affordability, equal treatment or universal access) by the market without public intervention. The public service obligation is imposed on the provider by way of an entrustment and on the basis of a general interest criterion which ensures that the service is provided under conditions allowing it to fulfil its mission.” 174

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public service obligations by virtue of the criterion of general interest.181 That is, they exhibit special characteristics compared to those of other economic activities.182 As they satisfy essential needs crucial for the normal functioning of individuals and of society as a whole, the public authorities believe that they need to be provided even where the market may not have sufficient incentive to do so, or at least not in a desired way. In other words, they deliver politically desired outcomes to the overall public benefit that would not be supplied without public intervention, or would be supplied (by the market) under different (unacceptable) conditions in terms of objective quality, safety, affordability, equal treatment or universal access.183 Therefore, public authorities take responsibility for their provision and attach special obligations to them which are (usually) based on public law (i.e., the public service obligations). From the terminological point of view, the name is a bit misleading. Instead of services of general economic interest it would probably be better to use a term like market services or economic services of general interest.184 From the substantive point of view, the concept consists of several elements, i.e., “services,” “economic,” and “general interest.” The word “services” is interpreted broadly. It includes services in the narrow sense as well as the production and supply of goods. Moreover, it seems remuneration is essential for the qualification of services. The word “economic” indicates economic activity which is, according to the ECJ and now CJEU,185 any activity consisting in offering goods and services on a given market.186 The existence of the latter seems to be essential in this regard. That is, if there are no market mechanisms and risks regarding certain goods and services, there is no market in the classical See COM(2003) 270 final, par. 17, where it is also stated that the discussed concept “[…] covers in particular certain services provided by the big network industries such as transport, postal services, energy and communications. However, the term also extends to any other economic activity subject to public service obligations.” 182 Cf. case C-266/96, Corsica Ferries, ECLI:EU:C:1998:306. 183 See SWD(2013) 53 final/2. 184 Bauby rightly pointed out that “the expression services of general economic interest is particularly improper, because the authors’ main aim was the economic nature of the services rather than any particular economic category of general interest”; see Bauby 2011, 23. 185 Cf. joined cases C-180 to 184/98, Pavel Pavlov, ECLI:EU:C:2000:428. 186 See also the concept of undertaking discussed in section 5.1.1.1. 181

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sense. Thus, services or activities are not economic (or non-economic) by their very nature (once and for all), since their qualification depends on how they are organized. Therefore, today a particular activity can be considered as economic although in the past it was considered non-economic and vice versa. Of course, it is possible that in the future the situation will be different (again). In Europe after the Second World War numerous activities were removed from the market and were provided in accordance with the principle of solidarity, or more generally, in a way which does not correspond to market logic. However, the liberalization wave has brought changes in this regard and many of them are now (again) being offered on the market in a kind of cyclical pattern. In the last few decades the category of economic activities has been expanding while the category of noneconomic activities has been shrinking.187 Moreover, these changes are not only visible from the chronological perspective but also from the geographical perspective. For example, in most Member States, prison management is considered a non-economic activity, since the prisons are controlled by the states and no markets exist in this regard. However, the situation is rather different is some countries, for example the United States, where one can find private prisons and related markets. Thus, (almost) every activity can be economic or non-economic, depending on their organization. In principle, the organization of a particular activity is a political question which, as far the EU or its Member States are concerned, is not without limits, which is probably most evident in the case of the liberalized sectors such as energy, telecommunications, postal services and transportation. Here, the EU has enforced a new paradigm, as was explained in the previous section, although most Member States were not happy about it. Furthermore, the term “general interest,” as opposed to private or individual interest, brings additional limits. Although it is vague and cannot be defined by an exact number of people and by a list of essential needs, it does have limits. The criteria of objectivity and reasonableness must be applied, there must be a group of people defined objectively, not arbitrarily, 187

In a positive correlation, the scope of the application of EU competition law is also increasing, and as a consequence, its importance in the field of public services or services of general economic interest is rising.

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and their needs must be considered as essential if they are needed for the normal functioning of the group in question. The term “general interest” is sometimes, but not always, used interchangeably with the public interest. This inconsistency can be attributed to the fact that the different legal traditions understand their relationship differently. National considerations should not, however, influence the interpretation of autonomous supranational concepts such as services of general economic interest. Their interpretation must remain entirely in the hands of EU institutions. As noted above, when defining the concept, the European Commission sometimes refers to services and sometimes to activities.188 This could indicate a distinction between the general and the public interest. The general interest can be interpreted as mentioned above, while the public interest can be interpreted as a trigger for public service obligations. In other words, the general interest is a matter of the specific objective characteristics of the individual service, while the public interest is a matter of a (relatively) subjective political decision. That is, if some market or economic service is of general interest, the competent public authority should declare it to be in the public interest via a legal act, thereby attaching public service obligations to the service in question. For this reason, an act of entrustment is used. The TFEU in English does not make any terminological distinction, and the same can be said for most of the other official EU languages. However, there are at least two cases, namely the TFEU in German and in Slovene, where a difference is indicated. For practical reasons, we will limit our discussion of the issue to the TFEU in German. It contains two terms that correspond to services of general economic interest: “Dienste von allgemeinem wirtschaftlichen Interesse” in Art. 14 TFEU and “Dienstleistungen von allgemeinem wirtschaftlichen Interesse” in Art. 106(2) TFEU.189 This question is not largely discussed in German theory,190 but the question remains why the other term was introduced in the Amsterdam Treaty and 188

See COM(2003) 270 final and COM(2011) 900, 3. Similarly, the TFEU in the Slovene language contains the term “služba splošnega gospodarskega pomena” in Art. 14 TFEU and the term “storitev splošnega gospodarskega pomena” in Art. 106(2) TFEU, both of which, however, like the German examples above, are translated into English as “service(s) of general economic interest.” 190 Moreover, it seems most scholars consider the two terms to be synonyms. 189

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whether its inclusion was a lapsus linguae or a mere coincidence.191 Furthermore, in Protocol No 26 on services of general interest, both terms are used, which looks to be more than just another coincidence. This is particularly so because their use appears to be logical when considering the context in which each term is used. Namely, Art. 1 of Protocol No 26 on services of general interest sets out, inter alia, the essential role and the wide discretion of national, regional and local authorities in providing, commissioning and organizing services of general economic interest as closely as possible to the needs of the users. Here, the term “Dienste von allgemeinem wirtschaftlichen Interesse” is used. However, already in the next line, where the Protocol in question points out the diversity between various services of general economic interest and the differences in the needs and preferences of users that may result from different geographical, social or cultural situations, the term “Dienstleistungen von allgemeinem wirtschafltichen Interesse” is used. This could lead to a conclusion that there is indeed a difference between the two terms; the term “Dienstleistungen von allgemeinem wirtschaftlichen Interesse” could correspond to what was previously explained regarding the terms “service,” “economic interest” and “general interest” while the term “Dienste von allgemeinem wirtschaftlichen Interesse” could be used when “Dienstleistungen von allgemeinem wirtschaftlichen Interesse” are subject to public service obligations.192 The latter are attached in the name of public interest. In other words, the concept 191

Interestingly, the proposal of the Treaty establishing a Constitution for Europe preserves the latter term in Art. III-122, as does the Lisbon Treaty. 192 One can also recognize this logic in Art. 106(2) TFEU where the term “Dienstleistungen von allgemeinem wirtschaftlichen Interesse” is used explicitly while the public service obligation is merely implied, where the provision refers to (an act of) entrustment and the assignment of particular tasks (cf. Ølykke and Fanøe Andersen 2016, 14). To me, case T-289/03, BUPA, ECLI:EU:T:2008:29, in which the General Court pointed out that the concept of public service obligation referred to in the famous Altmark case, i.e., case C-280/00, ECLI:EU:C:2003:415, corresponds to that of a service of general economic interest, and that it does not differ from that referred to in Art. 106(2) TFEU, does not undermine the aforementioned thesis. Again, Art. 106(2) TFEU does not deal with all services of general economic interest but only with those to which particular tasks are assigned. Art. 14 TFEU does not contain anything about the entrusment or special task; here, only services of general economic interest are meant to which special tasks (public service obligations) are assigned. This could explaind why the German version of Art. 14 TFEU includes the term “Dienste (not Dienstleistungen) von allgemeinem wirtschaftlichen Interesse,” while Art. 106(2) TFEU includes the term “Dienstleistungen von allgemeinem wirtschaftlichen Interesse.”

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of public service obligations is a set of requirements193 as established by (public) law in order to satisfy the public interest. Public service obligations are imposed on the provider of services of general economic interest through an act of entrustment. When the provider fulfills its public service obligations it carries out the activity in the public interest (as well as in general interest).194 In daily practice there are numerous services of an economic nature which are of general interest, however, not all of them are subject to public service obligations. The latter is a political decision which is mostly taken when the market alone cannot deliver the politically desired outcome. The fact that most of the EU’s official languages do not make any terminological distinction in this regard is not per se a reason for the rejection of this interpretation. After all, we are dealing with (a) supranational term(s), and therefore the uniform interpretation of Art. 14 and 106(2) TFEU must be ensured. Thus, the term service of general economic interest can be interpreted in two slightly different ways depending on the context in which it is used.195 As noted at the beginning of this section, it is very important to have an understanding of this concept, since Art. 106(2) TFEU allows the nonapplication of the rules contained in the Treaties, including competition rules, if certain conditions are met, as will be discussed in detail in Chapter 3.196 Therefore, it is only logical that Member States cannot have a totally free hand when dealing with services of general economic interest.197 193

In fact, it can be described as a mandatory content of the service in question. In case the Member State declares certain activity or service to be in public interest although it is not in general interest, this can be considered as a kind of a manifest error in the eyes of the European Commission and the CJEU. 195 Here, the concept of public service obligations seems to be an essential element for the distinction. 196 However, at this point it is already worth mentioning that as regards the need and intensity of EU action and the role of the Member States we can distinguish between services of general economic interest provided by large network industries and other (ordinary) services of general economic interest. While for the first group the EU has adopted numerous sectorspecific rules which apply in addition to general rules, the second group is subject to general rules only (except in rare cases). In this regard it is obvious that EU law has far more reaching influence on the infrastructure related services. 197 Let us use an example which further explains both meanings, i.e., the broad meaning (corresponding to “Dienstleistungen von allgemeinem wirtschaftlichen Interesse”) and the narrow one (corresponding to “Dienste von allgemeinem wirtschaftlichen Interesse”). Namely, the production and distribution of candies cannot be considered a service of general 194

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Although the concept is fairly broad, having the nature of a supranational framework of a “prohibitory”198 nature, it has limits as defined by EU institutions, and it can be “filled up” by national concepts but only as long as they fit into it.199 In this regard, the Member States enjoy relatively broad discretion, while the European Commission and the Court of Justice of the EU mostly concentrate on manifest errors200 and abuses. The operation of the energy grid can undoubtedly be declared a service of general economic interest, while this is certainly not the case for the production and distribution of chocolate. Thus, Member States cannot simply avoid applying EU rules by declaring a particular service as being a service of general economic interest. This is only possible as long as it fits into the supranational concept. And even when this is the case, EU law stipulates further strict conditions for non-application or limited application of the Treaties’ provisions.

3.3. Services of General Interest The concept of services of general interest can be found in the abovementioned Protocol No. 26. In EU practice, this umbrella concept refers to services, either economic or not, that the Member States regard as

economic interest in the broad sense, while the opposite can be said for staple foods and clothing. However, in spite of the fact that staple foods and clothing can be considered services of general economic interest in the broad sense, they cannot be considered as services of general economic interest in the narrow sense (which means that they cannot be subject to public service obligations) where the market alone provides them in a politically desired way. Of course, EU law also sets limits in this regard; see for example C(2017) 3712 final. 198 The situation is, however, different in the case of universal service since here the (minimum) content can be defined by the EU, as explained below, and therefore one can recognize a (more) commendatory or prescriptive nature of supranational rules defining universal services obligations. 199 Looking from this “primacy” perspective, the supranational concept seems to be broader than the national concepts (with economic nature) and the latter can be considered as “elements” of the supranational concept if they fit into it, starting with their nature. Non-economic public services are not part of services of general economic interest. Regarding the latter, EU law does not in principle set limits on the attachment of public service obligations or limits are less strict. 200 Some scholars criticize the current definition of services of general economic interest as well as manifest error control; cf. Burke 2018, 60–61, 70–83 and 182–183.

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being of general interest, and which they therefore subject to specific public service obligations.201 Thus, the concept covers services of general economic interest as discussed in section 3.2, and non-economic services of general interest, which are not subject to (all of) the rules in the Treaties.202

3.4. Social Services of General Interest Social services of general interest have a strong social component which, however, does not a priori exclude the economic nature of the service. Thus, social services of general economic interest can be considered as services of general economic interest or non-economic services of general interest depending on the nature of the service or activity. So far, two major groups of social services of general interest can be distinguished in addition to health services.203 “The first additional group consists of statutory and complementary social security schemes, organized in various ways (mutual or occupational organizations), covering the main risks of life, such as those linked to health, ageing, occupational accidents, unemployment, and retirement and disability. The second additional group consists of other essential services provided directly to individuals. These services (that play a prevention and social cohesion role) consist of customized assistance to facilitate social inclusion and safeguard fundamental rights. Firstly, they offer assistance to persons faced by personal challenges or crises (such as debt, unemployment, drug addiction or family breakdown). Secondly, they include activities to ensure that the people concerned are able to completely reintegrate into society (rehabilitation, language training for immigrants) and, in particular, return to the labor market (occupational training and reintegration). These services complement and support the role of families in caring for the youngest and 201

See SEC(2010) 1545 final. Art. 2 of Protocol No. 26 explicitly states: “The provisions of the Treaties do not affect in any way the competence of Member States to provide, commission and organize non-economic services of general interest.” It is, however, questionable whether this provision should be interpreted in an absolute manner; cf. Neergaard 2009b, 24. 203 See SWD(2013) 53 final/2. 202

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oldest members of society in particular. Thirdly, these services include activities to integrate people with long-term health or disability problems. Fourthly, they also include social housing, which provides housing for disadvantaged citizens or socially underadvantaged groups. Of course, certain services can include all four of these dimensions.”204

3.5. Universal Services Universal services is a dynamic205 concept which can be found in several sector-specific legislation,206 since it has been developed specifically for some of the network sectors which were subject to the liberalization process.207 It refers to a set of general interest requirements ensuring that certain services are made available at a specified quality to all consumers and users throughout the territory of a Member State, independently of geographical location, and at an affordable price with respect to specific

204

Ibid. It is not defined once and for all but can be adapted to changes in real life. Thus it ensures that general interest requirements can take account of political, social, economic and technological developments, and it allows these requirements, where necessary, to be regularly adjusted to the citizens’ evolving needs; see COM(2003) 270 final. 206 Cf. Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC, OJ L 211, 14. 8. 2009, 55; Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users’ rights relating to electronic communications networks and services, OJ L 108, 24. 4. 2002, 51; Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service, OJ L 15, 21. 1. 1998, 14. Where the basic principles of universal service are defined at the EU level, the implementation of these principles can be left to the Member States, thus allowing different traditions and specific national or regional circumstances to be taken into account. Furthermore, the concept of universal service can apply to different market structures and can therefore be used to regulate services in different stages of liberalization and the opening of markets; see COM(2003) 270 final. 207 It seems that the rationale behind this concept was to protect consumers against the newly introduced competition and market logic, according to which undertakings only provide services where they can reasonably expect a desired profit. In other words, in a liberalized market environment, a universal service obligation guarantees that everybody has access to the service at an affordable price and that the service quality is maintained and, where necessary, improved. 205

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national conditions.208 Thus, the concept establishes the right of every citizen to access certain services considered as essential and imposes obligations on industries to provide a defined service under specified conditions, including complete territorial coverage.209 As such, the concept of universal services can be viewed as a special instance of the broader concept of services of general economic interest.210 More precisely, universal service is (minimum) content which fills up the broader framework called services of general economic interest, and where it is defined by the EU, it significantly limits the discretion of Member States.211

208

See COM(2003) 270 final. Ibid. 210 In the case of universal service, the public service obligations which are attached to the service in question are called universal service obligations. Thus, the concept of universal service obligations is narrower than the concept of public service obligation. All universal service obligations are public service obligations, while not all public service obligations are universal service obligations. 211 Cf. Micklitz 2011, 63–102; Sauter 2008, 167–193. 209

Chapter 3

THE EUROPEAN UNION’S LEGAL FRAMEWORK FOR SERVICES OF GENERAL ECONOMIC INTEREST 1. INTRODUCTION This chapter is built on the foundations discussed in the previous chapters. It forms the very core of this book, since it deals with the EU’s legal framework for services of general economic interest. This legal framework is composed of numerous provisions of the Treaties and other primary law sources, as well as of secondary law sources as explained below. This circumstance undoubtedly brings some legal challenges, however, the extent, scale and variety of the discussed legal framework are not the biggest challenge. What seems to be even more challenging is the relatively broad and often ambiguous wording of the relevant provisions. As a consequence, in daily practice one cannot reliably interpret and apply the aforementioned hard law without careful prior consideration of the related case law and soft law, or at least not in most cases,212 since particularly in 212

This is not a problem per se since fast development demands sufficiently flexible legal provisions (which must be interpreted before they can be applied, and this, at least to me, is a genuine lawyers’ job since non-lawyers can read but they usually do not have sufficient

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the last few decades this field of law has been very dynamic. Therefore, case law and soft law are also discussed here, either directly (by quoting essential passages or explanations) or indirectly (by providing references). The emphasis is on primary EU law,213 which has a constitutional character and forms an umbrella legal framework which is in principle applicable to all economic sectors. This is not to say that secondary EU law is ignored in this book, but in most cases it is not discussed in detail. In this way the book tries to maintain the focus as much as possible on the complex fundamental questions which are common to all services of general economic interest. Thus, this chapter first provides an overview of the relevant sources of EU law, with a brief discussion, followed by a discussion of the related roles of the EU and the Member States in the field of services of general economic interest, where Art. 14 TFEU and the related Protocol (No. 26) on services of general interest are in the forefront, and a discussion of the role of fundamental rights with an emphasis on Art. 36 CFREU. Moreover, this chapter discusses the importance of the competition rules, where for practical reasons the emphasis is on State aid rules, i.e., Art. 107– 109 TFEU. Last but certainly not least important (in fact the opposite), this chapter discusses the highly controversial (and in most cases decisive) rule which sets out the conditions limiting the application of the TFEU’s provisions in favor of services of general economic interest, i.e., Art. 106(2) TFEU.

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knowledge and skills needed for a proper interpretation of flexible provisions). We can find similar situations in other areas of our lives as well; for example, most of us have to read the instructions for use of a high-tech device before we are able to use it properly. An EU constitutional framework on services of general (economic) interest has gradually emerged. In addition to the (balancing) provision, which is now numbered as Art. 106(2) TFEU and was already part of the primary law at the beginning of the process of European integration, there are now also Art. 14 and (the related) Protocol (No. 26) on services of general interest, and Art. 36 CFREU. This is not to say, however, that other rules of the Treaties and related protocols are not relevant for services of general economic interest, but in fact the opposite, which is particularly obvious in the case of competition rules.

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2. OVERVIEW OF RELEVANT SOURCES OF EU LAW An overview of the relevant sources of EU law allows us to identify the legal rules which are directly or indirectly applicable to services of general economic interest or have some impact on them. In addition, those rules are briefly explained (while the competition rules, i.e., Art. 101–109 TFEU, and among them the State aid rules in particular, i.e., Art. 107–109 TFEU, as well as the limits of their application for services of general economic interest, i.e., Art. 106(2) TFEU (and its relationship with Art. 14 TFEU) are discussed further in section 5 of this chapter). In this regard, certain primary and secondary legal rules having both a general and a sector-specific scope of application are listed and briefly discussed in this section.214

2.1. TEU The Treaty on European Union is not directly related to services of general economic interest, however, its provisions on the values and aims of the EU as well as on general principles such as the principles of conferral, subsidiarity, proportionality, and sincere cooperation deserve a closer look. The relevance of these provisions for services of general economic interest was already explained in Chapter 1. Therefore, the principles in question are not discussed again in this chapter.

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This section merely offers an overview of selected relevant sources of EU law, while section 5 of this chapter offers a detailed discussion of the competition rules and their impact on services of general economic interest, focusing on State aid rules in particular, and of the exception rule, which sets limits to the application of the competition rules as well as of other rules of the Treaties.

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2.2. TFEU The Treaty on the Functioning of the European Union contains numerous provisions which are directly or at least indirectly relevant for services of general economic interest. For practical reasons, in this section the main emphasis is on the provisions on competences, provisions on nondiscrimination and citizenship of the EU, and the provisions on the internal market and competition, however, this is not to deny or underestimate the relevance of the TFEU's other provisions.

2.2.1. TFEU's Provisions on Competences of the EU The TFEU's provisions on the competences of the EU can also be considered a starting point for EU actions when it comes to services of general economic interest. In most cases the EU exercises its competences through so-called negative integration, while positive integration occurs to a lesser extent. Art. 3 TFEU defines several fields in which the EU has exclusive competences.215 One of them is the field of competition, in which according to Art. 3(1)(b) TFEU the EU has exclusive competence to establish the competition rules necessary for the functioning of the internal market.216 As will be discussed below, the competition rules set important limits for EU Member States in terms of the organizing and funding of services of general economic interest. However, the application of internal market rules (free movement and competition rules) has limits as set out in some of the TFEU’s provisions,217 including in Art. 93 and 106(2) TFEU.218

Art. 2(1) TFEU: “When the Treaties confer on the EU exclusive competence in a specific area, only the EU may legislate and adopt legally binding acts, the Member States being able to do so themselves only if so empowered by the EU or for the implementation of EU acts.” 216 Protocol No 27 on the internal market and competition explicitly points out that the internal market as set out in Art. 3 TEU includes a system ensuring that competition is not distorted. 217 See for example Art. 101(3), Art. 107(2) and Art. 107(3) TFEU, which generally set limits to the application of the competition rules without being limited to a specific sector or specific services or activities. Moreover, the Treaty contains services of general economic interest related exceptions as discussed below in this chapter. 218 Art. 106(3) TFEU empowers the European Commission to adopt directives and decisions in order to ensure the application of Art. 106(1) and 106(2) TFEU. 215

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Art. 4 TFEU defines numerous fields in which the EU shares competences with the Member States. From the services of general economic interest perspective, the most important are the competences in the field of the internal market219 and more specifically in the fields of energy220 and transport.221 Moreover, the EU shares competences with the Member States in the fields of economic, social and territorial cohesion,222 the trans-European network,223 and the environment.224 Art. 14 TFEU is not a typical competence provision, yet among other things it enables legislative activity of the EU in the field of provision, commission and funding of services of general economic interest.225 Art. 352 TFEU sets out the so-called flexibility clause, according to which under strict conditions, competences or powers can be derived from the objectives (values and aims) of the EU. Protocol No 27 on the internal market and competition explicitly refers to Art. 352 in order to achieve the establishment of the internal market, which includes, inter alia, a system ensuring that competition in the internal market is not distorted.

2.2.2. TFEU's Provisions on Non-Discrimination and Citizenship of the EU The TFEU's provisions on non-discrimination and on citizenship of the EU, i.e., Art. 18–25 TFEU, are closely linked, which is not surprising in light of EU citizens’ right to freely move and reside in the Member States. When EU citizens move to another Member State to reside there they may not be discriminated against by the locals. This scenario can be an issue in the context of services of general economic interest. At the moment, however, supranational hard law does not explicitly connect the concept of EU citizenship with the concept of services of general 219

See also the provisions on the internal market, in particular Art. 26 and 114 TFEU. See also Art. 194 TFEU. 221 See also the provisions on transport, in particular Art. 91 TFEU. 222 See also the provisions on economic, social and territorial cohesion, in particular Art. 177 TFEU. 223 See also the provision on trans-European networks, in particular Art. 172 TFEU. 224 See also the provisions on environment, in particular Art. 192 TFEU. 225 This provision is discussed in section 3 of this chapter, in which also the relationship with Art. 106(2) TFEU is discussed (as well as in section 5 of this chapter). 220

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economic interest. In other words, there is no (uncontestable) link between citizenship of the EU and (access to) services of general economic interest or to universal services. However, the provisions are flexible enough that at least access to certain services can be recognized.226 Of course, one should also pay attention to possible collateral damage due to so-called forum shopping, which could pose a real threat to the most vital national systems. Therefore, the EU’s provisions on citizenship have some (limited unused) potential, but only time will tell if it will be capitalized on anytime soon.

2.2.3. TFEU's Provisions on the Internal Market (Free Movement) The TFEU's provisions on the internal market227 are, of course, relevant from the services of general economic interest perspective. The core of the internal market law is formed by the TFEU's provisions on free movement of goods (Art. 28–37 TFEU), persons (Art. 45–55 TFEU), services (Art. 56– 62 TFEU),228 and capital (Art. 63–66 TFEU).229 However, in practice not all of them are (equally) important for services of general economic interest. Moreover, their overall impact on the services in question is less important than one might anticipate at first sight or when compared with the past situation before the liberalization process was initiated.230 Nowadays, market competition together with the financial aspects of services of general economic interest are the core issue (therefore, competition rules play a much more important role here). And even in cases 226

Cf. Sauter 2015, 80–82; Micklitz 2009, 63–102; Prosser 2005b, 543–563. The internal market comprises an area without internal borders in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties; see Art. 26(2) TFEU. Moreover, the internal market as set out in Art. 3 TFEU includes a system ensuring that competition is not distorted; see Protocol No 27 on the internal market and competition. The competition rules are discussed in the next section of this chapter. 228 According to Art. 58(1) TFEU, the freedom to provide services in the field of transport shall be governed by Art. 90–100 TFEU. 229 Moreover, several other TFEU provisions form the internal market law in a broad sense, but are not discussed here either because of their limited impact on services of general economic interest or because they are discussed in a separate section (for example the competition rules, which have the greatest impact on the services of general economic interest, in particular to those depending on public infrastructure such as energy, telecommunications, postal services and rail). 230 In this regard, the competition rules have the most significant impact on services of general economic interest as discussed later in this book. 227

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where genuine problems concerning free movement occur, most of such cases are now provided for in the numerous legal acts of the EU.231 And let us not forget that in principle, the legal acts of the EU which are in line with the Treaties “supplant,” within their scope of application, the provisions of the Treaties.232 Nevertheless, we will provide a general explanation of the idea of free movement, the distinction between the “essences” of the four fundamental freedoms, and the provision on commercial monopolies. First of all, we should note once again that the four fundamental freedoms (i.e., the free movement of goods, services, capital and persons) represent the core of the internal market, since the latter is defined as an area without internal borders in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties (including also the provisions on exceptions to free movement and the provisions on competition).233 To put it simply, the general idea of the internal market is to achieve, to the greatest extent possible, that the conditions for doing business across borders, that is to say selling goods from one Member State to another Member State or providing services in another Member State etc., are equal to the conditions for doing business within one Member State. To a certain extent,234 this idea is also applicable to the provision of services of general economic interest. 231

See section 2.4. of this chapter. Cf. case C-280/00, Altmark Trans, ECLI:EU:C:2003:415, where the ECJ (now CJEU) explicitly stated that if the conditions for the application of the former Regulation (EEC) No 1191/69 are met, the provisions of that regulation will apply to the subsidies at issue in the main proceedings, and the national court will not have to consider whether they are consistent with the provisions of primary law, that is to say with the former Art. 77 TEEC (now Art. 93 TFEU). 233 See Art. 26(2) TFEU. 234 One should also consider the general exceptions to the application of the free movement rules (Art. 36, Art. 45, Art. 52 and Art. 62 in conjunction with Art. 52 and Art. 65 TFEU) as well as the special exception to the application of all rules which is defined in favor of services of general economic interest (Art. 106(2) TFEU). Since the latter exception is discussed in depth in a separate section of this chapter, only general exceptions are briefly addressed here at the purely abstract level. First of all, as anticipated, the case law reveals a narrow interpretation of the Treaty’s provisions on exceptions. That is, the CJEU (formerly the ECJ) has consistently held that the fundamental principles of the Treaty, such as the four freedoms, may be limited only by rules which are justified by overriding reasons relating to the general interest and which apply in a non-discriminatory manner to all persons or undertakings pursuing an activity in the state of destination and, moreover, the restrictions must be suitable for securing the attainment of the objective which they pursue, they must not go beyond what 232

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Furthermore, we should consider the distinction between the “essences” of the four fundamental freedoms. The concept of “goods” is not defined by the Treaties, but according to the case law it means a product or tangible property which can be valued in money and which is capable, as such, of forming the subject of commercial transactions.235 According to the case law, electricity236 and natural gas237 are considered goods, while television signals238 are not. The transmission of the latter is considered a service.239 Although some classifications can raise doubts, in most cases the difference between goods and services seems to be clear and the decisive criteria for their distinction is tangibility.240 Moreover, there is no straightforward distinction between services and establishment, in particular because the person providing a service may, in order to do so, temporarily pursue his activity in the Member State where the service is provided, under the same conditions as are imposed by that state on its own nationals.241 Thus, the decisive criteria for the distinction is the origin242 or the level of integration into the other EU Member State.243 is necessary in order to attain it, and sometimes the court also demands that the positive effects of a restrictive measure must outweigh its negative effects (cf. case C-398/95, Syndesmos ton en Elladi Touristikon kai Taxidiotikon Grafeion, ECLI:EU:C:1997:282; case C-55/94, Reinhard Gebhard, ECLI:EU:C:1995:411). In other words, there must be a reason or aim compatible with the Treaty as well as a proportional measure. In principle, purely economic reasons or aims are not accepted as a justification for the infringing of the free movement provisions. This is, however, not to say that the mere existence of an economic reason automatically excludes the possibility of exception. If an economic reason is accompanied by at least one relevant non-economic reason there is still a chance for an exception (cf. case 72/83, Campus Oil Limited and others, ECLI:EU:C:1984:256). However, even after a certain reason is qualified as relevant the restrictive measure can still conceal protectionist intentions and thus the principle of proportionality must apply (cf. Nistor 2011, 86). 235 Cf. case 7/68, Commission v. Italian Republic, ECLI:EU:C:1968:51; case 1/77, Robert Bosch, ECLI:EU:C:1977:130. 236 See case C-393/92, Municipality of Almelo and others, ECLI:EU:C:1994:171. 237 See case C-159/94, Commission v. French Republic, ECLI:EU:C:1997:501. 238 See case 155/73, Giuseppe Sacchi, ECLI:EU:C:1974:40. 239 Art. 57(1) TFEU states that “services shall be considered to be services within the meaning of the Treaties where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement of goods, capital and persons. Services shall in particular include activities of an industrial character, activities of a commercial character, activities of craftsmen, and activities of the professions.” 240 Cf. Leible and Streinz 2010a, 10. 241 See Art. 57(2) TFEU. 242 Cf. Randelzhofer and Forsthoff 2011, 10. 243 Cf. Opinion of the AG Léger in the case C-55/94, Gebhard, ECLI:EU:C:1995:194, in which the difference between services and establishment was explained as follows: “The principle of

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And finally, we should examine the present relevance of Art. 37 TFEU for services of general economic interest.244 From the historical point of view, this provision has played a relatively important role in some economic sectors which were subject to the liberalization process.245 But at the same time one should remember that this was mostly in relation to activities which are now exposed to market competition and are not subject to public service obligations. All in all, once the so-called infrastructure economic sectors had undergone a significant transformation towards (increased) competition, the relevance of Art. 37 TFEU diminished substantially.246 Moreover, most activities which are nowadays subject to public service obligations are not considered as provision of goods, which means they do not fall under the scope of application of Art. 37 TFEU.

2.2.4. TFEU's Provisions on Competition The TFEU's provisions on competition247 have the most significant impact of all of the TFEU's provisions in the field of services of general economic interest (in particular those subject to the long-term liberalization process), and in this regard they go beyond even the free movement freedom of establishment aims to foster the free movement of self-employed persons by enabling a self-employed person from one Member State to establish himself in another Member State on the same terms as a national of the latter State. In other words, “... establishment means integration into a national economy.” The principle of freedom to provide services merely enables a self-employed person established in a Member State in which he is integrated to exercise his activity in another Member State. Establishment and the provision of services are mutually exclusive: it emerges clearly from Article 60 of the EC Treaty [now Art. 57(1) TFEU] that the provisions on freedom to provide services are applicable only on condition that those on freedom of establishment are not applicable.” 244 Thus, here not its role in general but rather its role in relation to the services in question is examined. 245 For example, for the import of electricity and natural gas as well as for the import of telecommunications terminal equipment. There are several cases relating to electricity which confirm the relevance of Art. 37 TFEU (case C-157/94, Commission v. Kingdom of the Netherlands, ECLI:EU:C:1997:499; case C-158/94, Commission v. Italian Republic, ECLI:EU:C:1997:500; case 159/94, Commission v. France Republic, ECLI:EU:C:1997:501; case 160/94, Commission v. Kingdom of Spain, ECLI:EU:C:1997:502). Furthermore, both directives on competition in the markets in telecommunications terminal equipment stressed the importance of what is now called Art. 37 TFEU (Directive 88/301/EEC, OJ L 131, 27. 5. 1988, p. 73; Directive 2008/63/EC, OJ L 162, 21. 6. 2008, p. 20). 246 Cf. Leible and Streinz 2010b, 12. 247 According to Protocol No 27 on the internal market and competition, the internal market as set out in Art. 3 TEU includes a system ensuring that competition is not distorted.

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provisions.248 Therefore, we shall concentrate on the competition provisions, in particular on those related to State aid.249 The competition-related provisions are of a prohibitory nature and as such they set cogent limits for the Member States as well for undertakings (that fulfill public service obligations or other economic activities). This is an important building block of negative integration. Exemptions from the application of the competition rules are only possible under very strict conditions.250 The importance of the competition rules is further indicated by the wording of Art. 106(2) TFEU which clearly accentuates the rules on competition. The competition rules set out in the TFEU can be distinguished with regard to their addressee. That is, some of them impose obligations on EU Member States, i.e., Art. 106(1) in conjunction with Art. 101 and/or Art. 102 TFEU, and Art. 107(1), 108(2) and 108(3) TFEU,251 while others impose obligations on undertakings, i.e., Art. 101 and 102 TFEU.

2.2.5. TFEU's Provisions on Specific Economic Sectors and TransEuropean Networks Art. 90–100 TFEU are related to the transport sector, specifically transport by rail, road and inland waterway.252 However, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may lay down appropriate provisions for sea and air transport.253 Of course, legislative provisions of the European Parliament and the Council are also possible for transport by rail, road and inland waterway.254 Thus, in addition to the TFEU’s provisions on transport, legislative acts are also possible in the field of services of general economic

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Cf. Sauter 2015, 71. See section 5.1.5. of this chapter. 250 Exceptions can be found in Art. 93, 106(2) and 107(2) and 107(3) TFEU. 251 Here it should be noted that there are also other State aid provisions in the TFEU, however, they do not impose obligations on the Member States but rather empower the European Commission and the Council to act in this field of law, and set conditions for exceptional compatibility of certain forms of State aid with the internal market. 252 See Art. 100(1) TFEU. 253 See Art. 100(2) TFEU. 254 See Art. 91 TFEU. 249

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interest. In fact, one important aspect of services of general economic interest, namely their public funding and the conditions for their compatibility with the Treaties, is covered by Art. 93 TFEU.255 Art. 194 TFEU is related to the energy sector (and displays a strong interdependence with environmental issues).256 The provision sets out a clear basis for legislative activity, including in the field of services of general economic interest. Art. 170–172 TFEU are related to the trans-European networks in the areas of transport, telecommunications and energy infrastructure. It seems that these provisions do not have a direct impact on services of general economic interest, however, they are important because of their potential indirect impact. The trans-European networks connect national markets, which is a precondition for market competition. Moreover, new infrastructure usually brings higher quality (standards) for the services in question.

2.2.6. TFEU's Provision on the System of Property Ownership Art. 345 TFEU is related to the system of property ownership of Member States. In this regard, the provision makes clear that EU law is neutral as to the system in question. From the formal point of view, public property as such is not against EU law. Thus, EU law in principle provides for public undertakings and their role as provider of services of general economic interest. Moreover, it in principle provides for public infrastructure, which is essential for certain services of general economic interest.

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The terminology of Art. 93 TFEU seems to depart from Art. 14, 106 and 107 TFEU. It contains the terms “reimbursement” and “public service.” One could raise doubts as to why the drafters of the Treaty of Rome used the term “public service” and not the term “service of general economic interest” in the field of transport, however, after the so-called Altmark test was established by the ECJ (now CJEU) in case C-280/00, Altmark Trans, ECLI:EU:C:2003:415, and now that this test is applicable in all sectors, it seems that the difference in terminology is no longer an issue. 256 See Art. 194(2) TFEU. Moreover, it should be pointed out that the TFEU's provisions on the environment (Art. 191– 193) and on economic, social and territorial cohesion (Art. 174–178) have an effect on services of general economic interest.

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However, public undertakings which act as providers of services of general economic interest must respect the existing rules set out in the Treaties, in particular the competition rules,257 except in cases where the strict conditions for exceptions as defined by Art. 106(2) TFEU are met.258 Thus, public undertakings and other forms of public property are allowed to exist, however, they must play the game according to the EU rules (in principle, they should not be in an a priori better position than private undertakings and other forms of private property).259 In the recent case law, the abovementioned approach is clearly indicated in the joined cases C‑105/12 to C‑107/12, Staat der Nederlanden v Essent NV and others,260 in which the CJEU offered the following reasoning: “Article 345 TFEU is an expression of the principle of the neutrality of the Treaties in relation to the rules in Member States governing the system of property ownership. In that regard, it is apparent from the Court’s case law that the Treaties do not preclude, as a general rule, either the nationalization of undertakings […] or their privatization […]. It follows that Member States may legitimately pursue an objective of establishing or maintaining a body of rules relating to the public ownership of certain undertakings. In the main proceedings, it can be seen from Article 93(2) of the Law on Electricity, Article 85(2) of the Law on Gas and Article 1 of the 2008 Decree, the effect of which was summarised in paragraph 17 of this judgment, that the prohibition of privatization, within the meaning of the national legislation at issue in the main proceedings, allows, in essence, the transfer of shares held in a distribution system operator only to the authorities and to 257

Including State aid rules; although they are addressed on Member States they indirectly affect undertakings. 258 See section 5.2. of this chapter. 259 In daily practice, the full application of the competition rules sometimes causes difficulties for public undertakings and their owners, and in the final analysis leads to the privatization of public undertakings even where there is no formal privatization obligation. Although there is no general privatization obligation in EU law, this is not to say that there are no cases where a privatization obligation exists. Yet, such obligation is usually a consequence of prior action which goes against the aims of the EU or the provisions of EU law. For example, the privatization obligation can be established in relation to State aid which is declared as compatible with the internal market, but only under the condition that the aid beneficiary or its part will be privatized in due time; see for example the Commission decision of 18. 12. 2013 on State aid, No SA.33229 (2012/C) (ex 2011/N) – Restructuring of NLB–Slovenia. 260 ECLI:EU:C:2013:677.

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legal persons owned, directly or indirectly, by those authorities, since any transfer which has the result that the shares become the property of persons other than such authorities and legal persons is prohibited. It follows that the prohibition of privatization precludes ownership by any private individual of shares in an electricity or gas distribution system operator active in the Netherlands. Its objective is therefore to maintain a body of rules relating to public ownership in respect of those operators. Such a prohibition falls within the scope of Article 345 TFEU. In this case, it is moreover apparent that the prohibition of privatization encompasses the prohibition contained in Article 10b(2) of the Law on Electricity and Article 2c(2) of the Law on Gas, which provide that an undertaking established in another Member State and active in the generation/production, supply or trade in electricity or gas in the Netherlands and companies of another Member State which are members of the same group as such an undertaking may not acquire shares in an electricity or gas distribution system operator active in the Netherlands. However, Article 345 TFEU does not mean that rules governing the system of property ownership current in the Member States are not subject to the fundamental rules of the Treaty, which rules include, inter alia, the prohibition of discrimination, freedom of establishment and the free movement of capital […]. Consequently, the fact that the Kingdom of the Netherlands has established, in the sector of electricity or gas distribution system operators active in its territory, a body of rules relating to public ownership covered by Article 345 TFEU does not mean that that Member State is free to disregard, in that sector, the rules relating to the free movement of capital […]. Accordingly, the prohibition of privatization falls within the scope of Article 63 TFEU and must be examined in the light of that article, as must the group prohibition and indeed the prohibition of activities which may adversely affect system operation.” In short, Art. 345 TFEU is (still) important, yet it is not an omnipotent shield; it must not be interpreted and applied in such a way as to devalue other Treaty provisions or to deprive them of legal effect.

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2.2.7. TFEU’s Provisions on the Enforcement261 of European Union Rules Art. 106(3) TFEU binds and empowers the European Commission to ensure the application of the provisions of Art. 106 TFEU, i.e., of Art. 106(1) and 106(2) TFEU, and for this reason, where necessary, it addresses appropriate directives or decisions to Member States. This provision seems to have a great potential, but it has not been fully exploited so far. That is, Art. 106(1) and 106(2) TFEU are of particular importance for services of general economic interest, especially after the liberalization process began in the crucial economic sectors, e.g., energy, telecommunications, postal services and rail. However, the European Commission did not use this mechanism as often as one might expect after the Court gave it green light to do so.262 In fact, a closer look reveals that the European Commission in most cases considered this mechanism as a “Plan B” while the “Plan A” was close cooperation with the Member States. For illustration, Art. 106(3) TFEU empowers the European Commission to issue directives without the involvement of Member States, which is different from the ordinary legislative procedure, in which the European Commission is only empowered to propose directives (and regulations) to the European Parliament and the Council of the EU (which represents the Member States) while these two institutions are empowered to accept or reject the proposals of the European Commission. However, most of the legislation in this field was issued by the ordinary legislative procedure. It seems that in this way on one hand the European Commission tried to avoid actions before the Court, and on the other it tried to take a relatively strong position towards the European Parliament and the Council of the EU in the field in question, since both institutions were aware of the powerful mechanism, and the European Commission was able to achieve most of its aims through the 261 262

Here enforcement is meant in the widest sense. See for example joined cases 188–l90/80, French Republic, Italian Republic and United Kingdom of Great Britain and Northern Ireland v Commission of the European Communities, ECLI:EU:C:1982:257; case C-202/88, French Republic v Commission, ECLI: ECLI:EU:C:1991:120; joined cases C-271/90, C-281/90 and C-289/90, Kingdom of Spain, Kingdom of Belgium and Italian Republic v Commission, ECLI:EU:C:1992:440; joined cases C-48/90 and C-66/90, Kingdom of the Netherlands, Koninklijke PTT Nederland NV and PTT Post BV v Commission, ECLI:EU:C:1992:63.

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ordinary legislative procedure. Thus, at the end of the day the European Commission’s approach in the field in question seems to be reasonable. This is not to say, however, that the European Commission did not use Art. 106(3) TFEU at all. As examples we should note the so-called Transparency Directive,263 Directive 88/301/EEC as well as the Decision264 from the Almunia package. In addition, at this point the TFEU’s other provisions on the enforcement (in the widest sense) of EU rules should be mentioned, e.g., Art. 108(2), 114, 258 TFEU. These provisions provide for various enforcement actions, i.e., they empower the European Commission to adopt decisions, prepare proposals of legislative acts, and lodge actions before the CJEU.

2.2.8. Protocols The Protocols form an integral part of the Treaties, i.e., the TEU and TFEU.265 Some of them are directly or indirectly related to services of general economic interest. Since those services are covered by the TFEU, the relevant protocols are discussed in this section under the TFEU, beginning with Protocol No 26 on services of general interest, followed by Protocol No 27 on the internal market and competition, and Protocol No 29 on the system of public broadcasting in the Member States.

2.3. CFREU The Charter of Fundamental Rights of the European Union has the same legal value as the Treaties, i.e., the TEU and TFEU,266 but does not in any way extend the competences of the EU as defined in the Treaties.267

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Directive 80/723/EEC, and later also Directive 2006/111/EC. Decision 2012/21/EU. 265 See Art. 51 TEU. 266 See Art. 6(1) TEU. 267 See Art. 6(1) TEU, and Art. 51(2) CFREU. 264

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It contains several provisions which are at least indirectly important for services of general economic interest.268 The provision most clearly directly related to services of general economic interest is Art. 36 CFREU on access to services of general economic interest, yet its impact is also rather limited.269 The provision in question does not establish any new fundamental right. In fact, it does not establish any right to demand provision of such services from the EU. However, it establishes the obligation of the EU to respect access to services of general economic interest in case such access is recognized by Member States. Nevertheless, this provision should not be ignored or underestimated. It supports Art. 14 and 106(2) TFEU and in the future it can play at least some role in the development of hard EU law as well as case law.270

2.4. Acts of EU Institutions The acts of EU institutions are referred to as derived or secondary sources of EU law, since they are based on the primary sources of EU law (on the TEU and TFEU in particular). There are various types of acts, which form hard law, soft law and case law. In this section the emphasis is on hard law and soft law, while case law is not discussed here but is instead addressed in other sections where appropriate to supplement the text. Moreover, the acts in question can be distinguished regarding their scope of application. On one hand, some acts are applicable in all or at least several economic sectors, and are therefore called horizontal or generally applicable acts. On the other hand, certain acts are applicable in only one specific economic sector, and are therefore called vertical or sector-specific acts. Both kinds of acts are discussed in this section.

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Some scholars have even pointed out that the CFREU can provide an additional albeit indirect link between public services and citizenship; see Sauter 2015, 21. 269 See also section 4 of this chapter. 270 In the context of the latter certain scholars note the various possibilities of interpretation and the risks associated with the interpretative flexibility of the provision. Since in their view the provision can be interpreted in several different ways, they believe that it could be a kind of Trojan horse if not interpreted properly.

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2.5. Generally Applicable Acts of the EU The generally applicable acts of the EU in the field of services of general economic interest fill out or concretize the general legal framework as set out in the Treaties. They are predominantly focused on the area of free movement (of services), and on State aid measures, that is to say, on the public funding of services of general economic interest.271 By ensuring a level playing field for the provision of services of general economic interest, these rules make an important contribution to the establishment of the internal market. Starting with the free movement rules, which form an important pillar of the internal market, we shall first discuss Directive 2006/123/EC272 since it contains general provisions facilitating the exercise of the freedom of establishment for service providers and the free movement of services.273 As such, it is in principle also applicable for services of general economic interest274 (while it is not applicable for other services of general interest,275 271

However, already at the beginning of this section it should be pointed out that the EU has not yet used the “powerful tool” as granted by Art. 14 TFEU (cf. Rodrigues 2009, 255–266) which is questioned by some scholars (cf. Sauter 2015, 177–178). Indeed, a regulation with a general scope of application in the sense of Art. 14 TFEU could solve at least some of the existing problems, but it could also create new ones. One should consider legislative activity as “the art of the possible.” After all, sometimes a restrained approach can lead to a positive result, in particular when looking from the long-term perspective. It seems that patience has paid off in terms of liberalization. Namely, it was not forced right at the beginning of the European integration process, even though the legal basis was there. Moreover, even when the liberalization process had begun, the European Commission rarely used its power solely to adopt directives for the application of Art. 106(1) and Art. 106(2) TFEU as defined by Art. 106(3) TFEU. The European Commission’s decision primarily to issue draft legislative acts within the ordinary legislative procedure while leaving the abovementioned power as an alternative solution turns out to have been politically wise. Thus, I do not want to suggest that this power should be frozen for a long time, but rather that its limited use so far is not a priori a bad thing, and similar logic applies for legislative powers defined by Art. 14 TFEU. Of course, a final verdict can be only issued after careful analysis, and since I have not carried one out yet, I simply do not dare to prejudice anything in this regard. 272 OJ L 376, 27. 12. 2007, 36. 273 See Art. 1(1) of Directive 2006/123/EC. 274 See Art. 4 of Directive 2006/123/EC according to which “service” means any self-employed economic activity, normally provided for remuneration, as referred to in Art. 50 TEC (now Art. 57 TFEU). 275 In this regard, it is worth noting that the second sentence of recital 17 of Directive 2006/123/EC seems to be inconsistent with the earlier position of the European Commission as expressed in its various soft law instruments. Namely, the European Commission has consistently used

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i.e., for non-economic services of general interest).276 Yet, in everyday practice its impact on services of general economic interest is fairly limited due to numerous exceptions and/or derogations.277 Specifically, Directive 2006/123/EC does not deal with the liberalization of services of general economic interest which were reserved for decades for certain public or private entities, nor with the privatization of public entities providing such services.278 It also does not deal with the abolition of monopolies providing services nor with aid granted by Member States which are covered by EU rules on competition.279 Moreover, the directive does not affect the freedom of Member States to define, in conformity with EU law, what they consider to be services of general economic interest, how those services should be organized and financed in compliance with the EU State aid rules, and what specific obligations they should be subject to.280 The directive follows the logic of Art. 106(2) TFEU since it explicitly states that certain provisions are applicable for services of general economic interest only insofar as their application does not obstruct the performance, in law or in fact, of the particular task assigned to them. Besides these general exceptions, Directive 2006/123/EC also contains some additional sector-specific derogations from the freedom to provide services (but not from the freedom of establishment).281 Last but not least, Directive 2006/123/EC does not cover the term “service of general interest” as an umbrella term which covers both services of general economic interest and non-economic services of general interest. The second sentence of recital 17, however, seems to equate services of general interest and non-economic services of general interest, which is apparently a departure from Art. 2(2)(a) of Directive 2006/123/EC and also from Protocol No 26 on services of general interest. So, leaving aside this semantic confusion, Directive 2006/123/EC does apply to some services of general interest, namely, to those of an economic nature to which public service obligations are attached (i.e., services of general economic interest) except in cases which are explicitly defined by the directive in question as explained in this section. 276 See Art. 2(2)(a) of Directive 2006/123/EC. 277 Cf. van de Gronden 2009, 233–254. 278 See Art. 1(2) of Directive 2006/123/EC. 279 See Art. 1(3) of Directive 2006/123/EC. 280 Ibid. 281 See Art. 17 of Directive 2006/123/EC, which enables the derogation from the freedom to provide services for services of general economic interest which are provided in another Member State, including, inter alia, in the postal, electricity, gas, water and waste management sectors. Furthermore, Art. 2 of Directive 2006/123/EC excludes its own application to the electronic communications sector, transport sector and to some other sectors where services of general economic interest are or could be established. However, in this

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the public funding of services of general economic interest,282 which is only logical since it seems to be limited from the outset to the freedom of establishment and to free movement of services. These two freedoms, however, are of only limited importance for the services of general economic interest in the sectors subject to the liberalization process (when compared with competition rules and with State aid rules in particular). Thus, the impact of this directive is fairly limited. In addition to Directive 2006/123/EC, other generally applicable acts of the EU, which also originate in the area of free movement (but which are, however, also important in the area of State aid) are relevant for services of general economic interest. For example, two directives dealing with the awarding of concession contracts and public procurement contracts are of importance; namely Directive 2014/23/EU283 and Directive 2014/24/EU.284 They aim to provide a level playing field for services (including services of general economic interest) which is a precondition for market integration and consequently for the functioning of the internal market. The primary focus is on the free movement of goods, freedom of establishment and the freedom to provide services, as well as on the principles deriving therefrom, such as equal treatment, non-discrimination, mutual recognition, proportionality and transparency.285 In this regard, it is easy to recognize their importance for services of general economic interest. Moreover, a competitive selection procedure for the provider of services of general economic interest, which enables (cost) efficiency, is important from the perspective of the State aid rules. This became particularly clear with regard regard it is worth noting that Art. 17 of Directive 2006/123/EC defines only the limits of the scope of its own application, i.e., it does not exempt the abovementioned sectors from the application of the relevant provisions of the TFEU nor from the sector-specific rules if they exist. 282 See Art. 1(3) of Directive 2006/123/EC. 283 OJ L 94, 28. 3. 2014, p. 1. 284 OJ L 94, 28. 3. 2014, p. 65. For purposes of greater clarity, it should be pointed out that in the field of public procurement the EU also adopted Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors, OJ L 94, 28. 3. 2014, p. 243, which, however, is not generally applicable since it applies only to the water, energy, transport and postal services sectors. Therefore, it is included in the next section of this chapter in which the sector-specific acts of the EU are discussed. 285 See recital 1 of Directive 2014/24/EU and recital 4 of Directive 2014/23/EU.

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to services of general economic interest after the pivotal Altmark Trans judgement286 and even more after the so-called Almunia package (also called the Altmark II Package or the Altmark 2011 package).287 Similarly, Directive 2006/111/EC288 also mainly supports the EU State aid rules. In this regard the directive in question primarily aims to ensure the transparency of financial relations between Member States and their public undertakings, as well as financial transparency within certain undertakings, i.e., those that are entrusted with the operation of services of general economic interest. The reason is obvious, in that transparent financial relations are a precondition for the proper application of the State aid rules. The initial transparency directive, i.e., Directive 80/723/EEC,289 which could be considered an introduction to the strict(er) enforcement of State aid rules or of competition rules in general, clearly indicated this purpose.290 Since the transparency of financial relations is important part of the enforcement of the State aid rules, which fundamentally impact the funding of services of general economic interest, this issue is further discussed in section 5 of this chapter. Therefore, at this point we shall merely note that the directive in question uses two measures in order to achieve the transparency of financial relations: first, the transparent flow and use of public resources, and second, separate accounts in case the entrusted undertaking performs two or more activities. And last but certainly not least, this overview of the general acts of the EU which impact services of general economic interest would not be complete without mentioning two instruments incorporated in the abovementioned Almunia package,291 namely Regulation (EU) 360/2012292 and Decision 2012/21/EU.293 They play an important role in the field of State aid rules since the regulation in question sets out the conditions for de 286

See case C-280/00, ECLI:EU:C:2003:415. See more in section 5 of this chapter. 288 OJ L 318, 17. 11. 2006, p. 17. 289 OJ L 195, 29. 7. 1980, p. 35. 290 See the preamble to Directive 80/723/EEC. 291 The Almunia package is comprised of four instruments, two hard law instruments and two soft law instruments. For more on the Almunia package see section 5 of this chapter. 292 OJ L 114, 26. 4. 2012, p. 8. 293 OJ L 7, 11. 1. 2012, p. 3. 287

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minimis aid (which is not considered State aid in the sense of Art. 107(1) TFEU) while the decision in question sets out the conditions for block exemptions (which means there is State aid in the sense of Art. 107(1) TFEU, however, it is considered to be compatible with the internal market). These issues are further discussed in section 5 of this chapter.

2.5.1. Sector-Specific Acts of the EU The EU’s sector-specific acts in the field of services of general economic interest have the same function as the generally applicable acts discussed earlier, i.e., they fill out or concretize the general legal framework as defined by the Treaties. However, their scope of application is limited to specific sector(s). Special rules are needed because a “one-size-fits-all” approach would not be appropriate; the differences between economic sectors are simply too significant and are now more or less successfully mirrored in the existing sector-specific regimes. The latter constantly evolve and, as a consequence, an extensive body of sector-specific acts has been established over time, which is supported by the Court’s judgements and the European Commission’s decisions, notices, guidelines, communications and so forth. A detailed discussion of them would go far beyond the purpose of this book, whose main focus is on the legal framework for services of general economic interest as defined by the Treaties. Therefore, this section does not deal with all of the sector-specific rules but only with those which regulate services of general economic interest or in some cases the special mode of services of general economic interest known as universal services. In other words, this section contains an overview of the relevant special acts and the basics of the sector-specific regimes for services of general economic interest.294 In this regard, the emphasis is on the so-called regulated sectors, i.e., telecommunications, postal services, energy and rail. These sectors are most intensively regulated by the EU rules, and the concepts of universal service (or at least with “ordinary” public service obligations) and special consumer rights were introduced within these sectors as a counterweight to

294

Therefore, this section does not deal with all sector-specific acts.

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the liberalization process.295 Thus, the current sector-specific regimes of the EU for services of general economic interest must be viewed in the context of the liberalization process which was fostered by the European Commission. From the very beginning of this process, one of the most important aims, in addition to the classical aims of liberalization, was to protect (end-)users (consumers) in case of market failures or shortcomings. In fact, this social or non-economic dimension was a counterweight to the economic dimension, which enabled a balanced liberalization process and as such was crucial for its implementation.296 Thus, in addition to the general rules on consumer protection, one can also identify rules that apply specifically to services of general economic interest and the protection of their users. The (supranational) concept of universal service seems to be the most obvious result of this political endeavor. Both the liberalization process and the concept of universal service have been discussed above, and it is suggested that this section should be read in conjunction with the sections in which the liberalization process and universal service are discussed.

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When looking from the legal approach perspective, these economic sectors are treated differently as compared with other economic sectors; not only with those in which infrastructure is not essential but also with those in which infrastructure plays an essential role, for example the water distribution, water sanitation, waste management, broadcasting and so forth. This is not to say that there was no opposition from the Member States, however, the accentuation of services of general economic interest made the liberalization process more acceptable for (some) Member States.

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2.5.1.1. Services of General Economic Interest in the Electronic Communications (Telecommunications) Sector Services of general economic interest in the electronic communications (telecommunications) sector are (now)297 legally regulated by Directive 2002/22/EC298 (as amended by Directive 2009/136/EC).299 At the very beginning of Directive 2002/22/EC it is stated that “the liberalization of the telecommunications sector and increasing competition and choice for communications services go hand in hand with parallel action to create a harmonised regulatory framework which secures the delivery of universal service.”300 This clearly confirms the abovementioned thesis that the concept of universal services assuaged the sceptics and as such was a key to a politically “sound” liberalization process. Directive 2002/22/EC established the rights of end-users and the corresponding obligations of undertakings providing certain publicly available services.301 In fact, it defined the minimum set of services of specified quality to which all302 endusers should have access (no matter in which part of a Member State are they located), at an affordable price in the light of specific national 297

The genesis of the issue at hand can be traced back by analyzing the following documents and legal acts: Communication from the Commission to the Council, the European Parliament, and the Economic and Social Committee: Developing universal service for telecommunications in a competitive environment – Proposal for a Council Resolution on universal service principles in the telecommunications sector, COM(93) 543 final; Council Resolution of 7 February 1994 on universal service principles in the telecommunications sector, OJ C 48, 16. 2. 1994, p. 1; Resolution on the communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on universal service for telecommunications in the perspective of a fully liberalized environment - an essential element of the information society, OJ C 20, 20. 1. 1997, p. 156; Directive 98/10/EC of the European Parliament and of the Council of 26 February 1998 on the application of open network provision (ONP) to voice telephony and on universal service for telecommunications in a competitive environment, OJ L 101, 1. 4. 1998, p. 24; Directive 97/33/EC of the European Parliament and of the Council of 30 June 1997 on interconnection in Telecommunications with regard to ensuring universal service and interoperability through application of the principles of Open Network Provision (ONP), OJ L 199, 27. 7. 1997, p. 32. These two directives are no longer in force, but they remain important since they defined the minimum scope of universal service obligations and established rules for its costing and financing. 298 OJ L 108, 24. 4. 2002, p. 51. 299 OJ L 337, 18. 12. 2009, p. 11. 300 See recital 1 of Directive 2002/22/EC. 301 The rights in question apply without prejudice to the consumer protection rules; see Art. 1(4) of Directive 2002/22/EC. 302 Here it should be noted that the directive contains special rules for disabled end-users.

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conditions, and without (unnecessary) distortions of competition.303 The concept of universal service is designed as a dynamic concept, which evolves in order to reflect advances in technology, market developments and changes in user demand. The question remains, however, whether only the EU304 or also the Member States can increase or decrease the level of universal service. That is, there are doubts regarding the mode of harmonization. Did the directive bring about minimum or full harmonization, or perhaps both (that is to say, for some elements minimum and for some elements full harmonization)?305 The directive contains some indicators but it is far from being clear in this regard, in particular after it was amended by Directive 2009/136/EC.306 At first sight the case law also lacks clarity, but a closer inspection reveals a mixed approach in which one can see the interplay between the principle (full harmonization) and the exception (minimum harmonization). All in all, this approach can be justified. On one hand, minimum harmonization can be seen as being in the interest of the end-users since they can get more if their Member State is willing to do so. On the other hand, however, in the case of a (significant) increase in the (quality) level of universal service, there is a great chance that the market will not be able to deliver the desired result, which means that the concept of universal service can be (ab)used as an argument for intensive market intervention resulting in prevention of competition and so forth. Moreover, competition can be distorted due to inappropriate public funding of the universal service (provider). This question is discussed in a separate section of this book dedicated to State aid measures or 303

The latter could be interpreted as a ban on the use of universal service obligations where the service in question can be provided under market conditions. 304 Art. 15 of Directive 202/22/EC (in conjunction with Annex V) demands periodical reviews of the scope of universal service as defined by the directive, and, in considering whether the scope of universal service obligations shall be changed or redefined, the European Commission must take into account the following: first, are specific services available to and used by a majority of consumers and does the lack of availability or non-use by a minority of consumers result in social exclusion, and second, does the availability and use of specific services convey a general net benefit to all consumers such that public intervention is warranted in circumstances where the specific services are not provided to the public under normal commercial circumstances? 305 Cf. Sauter 2015, 189–191. 306 Moreover, a different position is taken in the second and third periodic reviews of the scope of universal service.

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compensation for the provision of services of general economic interest, while at this point it shall suffice to note that the directive in question contains special provisions on the funding of universal service.307 At this point, it is also worth mentioning the latest regime for roaming in the field of mobile services, which introduces the concept of ‘roam-likeat-home’.308 This is not a genuine universal service, but a political endeavor meant to protect end-users and as a counterweight to the liberalization process, similar to those mentioned above. 2.5.1.2. Services of General Economic Interest in the Postal Services Sector Services of general economic interest in the postal services sector are legally regulated by Directive 97/67/EC309 as amended by Directive 2002/39/EC310 and Directive 2008/6/EC.311 The core of the directive is dedicated to the concept of universal service, which is also a companion to the liberalization process in the postal sector, ensuring its legitimacy in the eyes of (most) Member States. The Member States are charged with ensuring that users enjoy the right to a universal service involving the permanent provision of postal service of specified quality at all points in their territory at affordable prices for all users. 312 Minimum standards have been established in this regard. Some changes have occurred over time, via the abovementioned amendments. For example, the weight limits for the reserved area have been reduced, which consequently increased the non-reserved area in which market competition takes place. Moreover, the exclusive and special rights in the sense of Art. 106(1) TFEU have been abolished, which has brought a further move towards competition as well as towards the use of general rules on competition, public procurement and so forth.

307

See Art. 12 and 13 of Directive 2002/22/EC. See Regulation (EU) 2016/2286, OJ L 344, 17.12.2016, p. 46. 309 OJ L 15, 21. 1. 1998, p. 14. 310 OJ L 176, 5. 7. 2002, p. 21. 311 OJ L 52, 27. 2. 2008, p. 3. 312 See Art. 3(1) of Directive 97/67/EC. 308

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However, we should not ignore the fact that at least some elements of universal service (namely, classical postal items with low weight) have become less important if not obsolete due to e-communications. This is not to say that they cannot regain their importance in the future if something unpredictable occurs in the e-communications sector, but for now, it seems that the existing postal services legislation is not fully up to date. 2.5.1.3. Services of General Economic Interest in the Energy Sector Services of general economic interest in the energy sector are legally regulated by the “twin directives,” Directive 2009/72/EC313 and Directive 2009/73/EC.314 The former relates to electricity and the latter to natural gas. As anticipated, the familiar matrix which combines competition and universal services or public service obligations is also easy to spot in the energy sector. In fact, here the public interest concerns have led to an even broader range of protection and to increased standards in comparison with previous energy legislation. Directive 2009/72/EC states that EU Member States must ensure that all household customers, and, where they deem it appropriate, also small enterprises,315 enjoy universal service, that is the right to be supplied with electricity of a specified quality within their territory at reasonable, easily and clearly comparable, transparent and non-discriminatory prices. To ensure the provision of universal service, Member States may appoint a supplier of last resort. They are given the competence to impose an obligation on distribution companies to connect customers to their network under terms, conditions and tariffs set in accordance with the procedure as defined by the directive. Nothing in the directive in question prevents Member States from strengthening the market position of households and small and medium-sized consumers by promoting the possibilities of voluntary aggregation of representation for that class of consumers.316 Moreover, the directive is not limited to universal services since it also 313

OJ L 211, 14. 8. 2009, p. 55. OJ L 211, 14. 8. 2009, p. 94. 315 Namely enterprises with fewer than 50 employees and an annual turnover or balance sheet total not exceeding ten million euros. 316 See Art. 3(3) of Directive 2009/72/EC. 314

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contains non-universal public service obligations which may relate to security, including security of supply, regularity, quality and price of supplies and environmental protection, including energy efficiency, energy from renewable sources and climate protection; such obligations must be clearly defined, transparent, non-discriminatory, verifiable and must guarantee equality of access for electricity undertakings in the EU to national consumers.317 In addition, the directive in question contains special rules for vulnerable consumers, which are further supported with classical consumer rights. Directive 2009/73/EC contains a similar approach to public services obligations, vulnerable consumers and consumer rights, but the two regimes are not identical. For example, Directive 2009/73/EC contains no provisions on universal service, but it regulates public service obligations relating to security, including security of supply, regularity, quality and price of supplies, and environmental protection, including energy efficiency, energy from renewable sources and climate protection. In addition, a similar approach to the protection of vulnerable consumers and to consumer rights is used as in the field of electricity. It should be pointed out, however, the new energy legislation package “Clean energy for all Europeans” (Directive (EU) 2018/844, Directive (EU) 2018/2001, Directive (EU) 2018/2002, Directive (EU) 2019/944, Regulation (EU) 2018/1999, Regulation (EU) 2019/941, Regulation (EU) 2019/942, Regulation (EU) 2019/943, and Directive (EU) 2019/692), or more precisely, some of the abovementioned legislative acts, amended the “twindirectives” and, additionally, the Directive (EU) 2019/944 repealed the Directive 2009/72/EC with effect from 1 January 2021. 2.5.1.4. Services of General Economic Interest in the Transport Sector Services of general economic interest in the transport sector are legally regulated by several EU acts applying to various modes of transport, i.e., rail, road, maritime and air. The common aim is to provide safe, efficient and high-quality passenger transport services through regulated competition.

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See Art. 3(2) of Directive 2009/72/EC.

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However, market forces alone are not always able to achieve this aim. Therefore, public service obligations are used as an appropriate instrument, while the legislation slightly differs with respect to the different modes of transport and takes their specific features into account, including their operational characteristics. Regulation (EU) 1370/2007318 (as amended by Regulation (EU) 2016/2338)319 covers public passenger transport services by rail and by road.320 The purpose of this regulation is to define how, in accordance with the rules of EU law, competent authorities may act in the field of public passenger transport in order to guarantee the provision of services of general economic interest which are more numerous, safer, of a higher quality or provided at lower cost than those that market forces alone would have allowed.321 The regulation does not define universal services or universal public service obligations, but “merely” sets out mandatory limits for nonuniversal public service obligations which must be included in public service contracts. Regulation (EEC) 3577/92322 deals with maritime cabotage, i.e., (the freedom to provide) maritime transport services within Member States.323 Among other things, it regulates public service obligations.324 In imposing those obligations, Member States are limited to requirements concerning ports to be served, regularity, continuity, frequency, capacity to provide the service, rates to be charged and manning of the vessel.325 Regulation (EC) 1008/2008326 (as amended by Regulation (EU) 2018/1139)327 deals with air transport. As one would expect, it uses public 318

OJ L 354, 23. 12. 2016, p. 22. OJ L 315, 3. 12. 2007, p. 1. 320 See also the Communication from the Commission on interpretative guidelines concerning Regulation (EC) No 1370/2007 on public passenger transport services by rail and by road, OJ C 92, 29. 3. 2014, p. 1. 321 See Art. 1(1) of Regulation (EU) 1370/2007. 322 OJ L 364, 12. 12. 1992, p. 7. 323 See the Communication from the Commission on the interpretation of Council Regulation (EEC) No 3577/92 applying the principle of freedom to provide services to maritime transport within Member States (maritime cabotage), COM(2014) 232 final. 324 See Art. 4(1) of Regulation (EEC) 3577/92. 325 See Art. 4(2) of Regulation (EEC) 3577/92. 326 OJ L 293, 31. 10. 2008, p. 3. 327 OJ L 212, 22. 8. 2018, p. 1. 319

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service obligations in order to maintain appropriate scheduled air transport on routes which are vital for the economic development of the region they serve.328 In this regard it is also worth mentioning that where no air carrier is willing to operate a route on which the obligations have been imposed, the Member State concerned may restrict access to the route in question to a single air carrier and compensate it for its operational losses resulting from the public service obligations. Of course, the selection of that operator must be made through a public tender at the EU level. 2.5.1.5. Services of General Economic Interest in Other Economic Sectors Other economic sectors are also subject to public interest considerations which lead to public service obligations and consumer rights. However, in principle, sector-specific rules are less frequent in those sectors, which means the horizontal (primary) rules apply, i.e., Art. 106(2) TFEU in particular, which is discussed in a separate section of this book.

3. SERVICES OF GENERAL ECONOMIC INTEREST AND THE RELATED ROLES OF THE MEMBER STATES AND THE EUROPEAN UNION This section discusses the roles of the Member States and the EU regarding services of general economic interest. This area is most clearly addressed in Art. 14 TFEU, which reads as follows: “Without prejudice to Art. 4 of the TEU or to Art. 93, 106 and 107 of this Treaty, and given the place occupied by services of general economic interest in the shared values of the EU as well as their role in promoting social and territorial cohesion, the EU and the Member States, each within their respective powers and within the scope of application of the Treaties, shall take care that such services operate on the basis of principles and conditions, particularly

328

See in particular Art. 16, 17 and 18 of Regulation 1008/2008.

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economic and financial conditions, which enable them to fulfil their missions. The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall establish these principles and set these conditions without prejudice to the competence of Member States, in compliance with the Treaties, to provide, to commission and to fund such services.” Art. 14 TFEU is a multifunctional provision, as it addresses the values, aims and operational objectives of the EU, and thus helps to outline the course or orientation of the EU.329 It has a horizontal or overarching scope of application and as such it impacts several policies of the EU and the Member States, including competition policy.330 Moreover, it underlines the importance of the effective provision of services of general economic interest and strengthens their overall position in the Treaties.331 In this regard it explicitly demands appropriate actions by the Member States and the EU, which indicates their joint responsibility or even complementary roles if they act in line with the Treaties, but the provision is silent when it comes to the division of tasks in the field in question, and therefore this section tries to shed some light on this issue.

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Cf. Wernicke 2013b, 5–8. In this regard it has to be taken into consideration in the interpretation and application of other Treaty provisions, including Art. 106(2) TFEU. As will be explained below in greater detail, Art. 14 TFEU does not deprive Art. 106(2) TFEU of its function. After all, Art. 14 TFEU explicitly states: “Without prejudice to Article 4 of the Treaty on European Union or to Articles 93, 106 and 107 of this Treaty […].” A competitive market is still the primary mechanism for provision of services of general economic interest, however, its scope of application should not be unlimited. After the Lisbon Treaty, the social market economy model became the official model, which could be interpreted such that at the abstract level there is no hierarchical relationship between economic and non-economic values and aims (this relationship can be only established on case-by-case basis considering all relevant facts and circumstances). Moreover, the Lisbon Treaty defined numerous non-economic values and aims of the EU, including those which are closely linked to services of general economic interest. Consequently, market competition and services of general economic interest seems to be now on an equal footing. In other words, services of general economic interest are now also the concern of the EU, which should affect the interpretation of Art. 106(2) TFEU. 331 Some scholars are of the opinion this is a central function of the provision in question; cf. Wernicke 2013b, 3. 330

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3.1. From Rome to Lisbon: Services of General Economic Interest in a Changed Socio-Economic, Political and Legal Environment The concept of services of general economic interest has been part of the European integration process right from the outset. Yet, it seems that after the initial tensions within the negotiations, mainly due to the different traditions in this area among the Member States, the concept was more or less in standby mode until the liberalization process began.332 In parallel with this process, however, it became one of the most important and at the same time one of the most controversial concepts in EU law, since it generated significant tensions between those who promoted a market approach that ensured an open market economy with free competition and those who believed that an excessively strict market approach would deprive the concept in question of its function. This became particularly acute after the Maastricht Treaty, which introduced a new provision emphasizing the importance of an open market with free competition without saying anything new about services of general economic interest.333 After the EU’s economic rules, in particular the competition rules, were applied more intensively to services of general economic interest, it became more or less clear, at least for some stakeholders, that the concept was essentially unprotected and that a more balanced approach was needed. The answer followed in the Amsterdam Treaty; a group of stakeholders led by France achieved the introduction of a new provision on services of general economic interest, i.e., Art. 16 TEC.334 However, its impact in practice was relatively unclear 332

Cf. Koenig and Kühling 2002, 656–684. Cf. Prosser 2005a, 154. 334 This provision was supplemented by the Declaration on Article 7d of the Treaty establishing the European Community, according to which “The provisions of Article 7d of the Treaty establishing the European Community on public services shall be implemented with full respect for the jurisprudence of the Court of Justice, inter alia, as regards the principles of equality of treatment, quality and continuity of such services.” Moreover, the Amsterdam Treaty contained also the Protocol on the system of public broadcasting in the Member States, which considered “that the system of public broadcasting in the Member States is directly related to the democratic, social and cultural needs of each society and to the need to preserve media pluralism” and therefore “The provisions of the Treaty establishing the European Community shall be without prejudice to the competence of Member States to provide for the 333

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and modest, since this provision reflected the considerable political divide between those favoring a major Treaty amendment in order to ensure proper codification of the concept and those who were only willing to support very limited change as they believed that the Treaty provisions already offered an adequate balance between competition (policy) and the needs of public services.335 The situation remained unchanged after the Nice Treaty,336 while the so-called Constitutional Treaty included an amendment of Art. 16 TEC, but this treaty never came into force. Instead, the Lisbon Treaty introduced Art. 14 TFEU, which modified Art. 16 TEC as follows: first, it added a reference to Art. 4 TEU, i.e., to the core elements of competence issues, second, it explained the meaning of shared values,337 third, it specified the economic and financial conditions needed for effective provision of services of general economic interest, and fourth, it introduced a legal basis for EU regulations in the field.338 In addition, Art. 36 CFREU, which was given a constitutional character in the Lisbon Treaty, states that “the Union recognises and respects access to services of general economic interest as provided for in national laws and practices, in accordance with the Treaties, in order to promote the social and territorial cohesion of the Union.”339 With regard to the historical background, the effective provision of services of general economic interest was traditionally the responsibility of the Member States, while the Community was focused on the limitation of the Member States’ actions. That is, in light of the negative integration approach, the EU primarily focused on the proper application of EU economic (mostly competition) rules in the field of services of general

funding of public broadcasting insofar as such funding is granted to broadcasting organizations for the fulfilment of the public service remit as conferred, defined and organised by each Member State, and insofar as such funding does not affect trading conditions and competition in the Community to an extent which would be contrary to the common interest, while the realization of the remit of that public service shall be taken into account.” 335 Cf. Prosser 2005a, 159; Wernicke 2013, 4; Frenz 2016, 1406. 336 At that time, the CFREU was not yet a part of primary EU law, and even if it had had such status, this alone would not have been sufficient. 337 See Protocol (No 26) on services of general interest. 338 With the adoption of all of these modifications, most of the reasons for criticism of Art. 16 TEC have been eliminated. 339 This provision is briefly discussed in the next section.

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economic interest, while the services in question were more or less considered non grata. Yet, due to the abovementioned constitutional changes, which explicitly indicated the joint responsibility of the Member States and the EU, while the latter has to pursue numerous values and non-economic aims, including those which are by their nature closely linked to services of general economic interest, it is interesting to assess whether the roles of the Member States and the EU remained unchanged or whether the EU will now have to play a (more) active role than the mere protection of the competitive internal market.

3.2. Changed Role of the EU in the Field of Services of General Economic Interest? As noted above, Art. 14 TFEU is explicitly addressed to Member States and the EU, so it is therefore safe to say that the provision stipulates a kind of joint responsibility. However, it is silent regarding the division of tasks.340 Nevertheless, with respect to the pre-Lisbon division of tasks, I think it is also safe to say that the situation has changed but the roles remain different. In principle, the Member States are there to identify public needs, to define public aims, to define the desired services and make them subject to public service obligations, to ensure the provision of the services on a daily basis (by acting on the field directly by performing those services, or indirectly by selecting and entrusting other persons to perform those services), to provide financial support, to monitor the performance etc. Of course, almost all of these activities are subject to limitations341 set out in

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If all of them carry out their own roles as defined by the Treaties, one can expect effective provision of services of general economic interest without excessive disintegration of the internal market. Limitations to market competition are compatible with the social market economy model if they are legitimate, reasonable and proportionate. 341 But these limitations differ; for example, Member States enjoy broad discretion when defining services of general economic interest, since the EU intervenes only in case of manifest errors. EU controls are, however, much stricter when it comes to financial support of services of general economic interest.

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EU law, which indicates at least part of the role of the EU as explained below. One of the EU’s roles has always been to prevent breaches of EU law, in particular competition law, and it has certainly retained this role. However, I believe Art. 14 TFEU goes beyond stipulating merely a preventive role for the EU in the field of services of general economic interest. Namely, the wording of the provision in question stipulates joint responsibility, but it is drafted in a way that enables at least two interpretations. According to one, Art. 14 TFEU merely prevents the EU from applying EU economic law in such a way as to prevent those services from fulfilling their missions, but it is not obliged to protect or foster those services. This interpretation more or less follows the pre-Lisbon division of tasks. However, there is also another possible interpretation which does not rely solely on the wording of Art. 14 TFEU but it also considers other provisions of the Treaties, Protocols and the CFREU. Thus, when interpreting Art. 14 TFEU in conjunction with these other provisions, in particular with those defining the values, aims and operational objectives of the EU, especially those which are closely linked to services of general economic interest, it becomes clear that the EU should be proactive in order to achieve those values and aims.342 The concept of universal service can be used as an example, however, the EU actions should go beyond this concept. For example, if the Member States do not ensure that (some) services of general economic interest operate on the basis of principles and conditions which enable them to fulfill their missions, the EU seems to be obliged to take appropriate actions to force Member States to improve the poor conditions in order to ensure the effective provision of the services in question.343 This interpretation clearly goes beyond the traditional understanding of the EU’s role in the field of services of general economic interest. Moreover, it goes beyond the obsolete position according to which, Some scholars have also taken such a position. For example, Frenz states: “As a result, institutions of the European Union have a responsibility for services of general economic interest and must exercise this responsibility in the form of positive action. […] Exceptions aside, there is therefore both a positive promotional obligation and a negative stand-still obligation. […]”; see Frenz 2016, 1442–1443. 343 Cf. Frenz 2016, 1444. 342

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in the field in question, the EU only protects economic aims while the Member States protect non-economic aims. Such position seems to be an oversimplification, as explained below in the context of Art. 106(2) TFEU. But for a greater clarity let it be pointed out already here that several noneconomic aims of the EU are closely connected with services of general economic interest, e.g., social and territorial cohesion. Last but not least, Art. 14 TFEU also authorizes the EU to issue regulations in ordinary legislative procedure.344 Thus, after the Lisbon Treaty the EU can issue legislative acts in order to ensure effective provision of services of general economic interest even outside the context of liberalization.345

4. SERVICES OF GENERAL ECONOMIC INTEREST AND FUNDAMENTAL RIGHTS Services of general economic interest are included in the CFREU, specifically in Art. 36 CFREU, which reads as follows: “The Union recognizes and respects access to services of general economic interest as provided for in national laws and practices, in accordance with the Treaties, in order to promote the social and territorial cohesion of the Union.” Is this a new fundamental right? Does this mean that individuals have a subjective right to demand access to services general economic interest? Both questions should be answered in the negative. Art. 36 CFREU does not create a new fundamental right and it does not create any subjective right for individuals.346 However, this is not to say that it is meaningless. Art. 36 CFREU is closely connected with Art. 14 TFEU and is fully in line with it. Art. 36 CFREU can best be described as a part of the EU’s extended catalog of aims, as a principle which underlines the obligation of Member States and

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The relationship between Art. 14 TFEU and Art. 114 TFEU (and also 106(3) TFEU) should be carefully considered in this regard. 345 Cf. Wernicke 2013, 16. 346 Cf. Bergmann 2018, 2289–2290; Jarass 2016, 334–340; Rudolf 2014, 553–558; Voet van Vormizeele 2011, 2705–2707.

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the EU to ensure the effective provision of services of general economic interest, and as an interpretative tool. As such, Art. 36 CFREU clearly strengthens the importance of services of general economic interest.347 Moreover, when discussing relationship between services of general economic interest and fundamental rights, it is appropriate at least to point out that in spite of the fact that at the moment there is no special fundamental right protecting access to services of general economic interest some of “general” fundamental rights can be applied in the discussed field, e.g., nondiscrimination or equal treatment. Thus, also some (classical) fundamental rights are relevant in relation to services of general economic interest.

5. SERVICES OF GENERAL ECONOMIC INTEREST AND MARKET COMPETITION: A BALANCED APPROACH TO RESOLVING TENSIONS Services of general economic interest are by their very nature an instrument of several public policies of Member States, while at the same time they also support several EU aims.348 As such, they are of crucial importance to the normal functioning of society in the Member States and the EU as whole. This thesis cannot be undermined, neither by differences in the perception and organization of services of general economic interest in Member States nor by the limited competences of the EU in the field in question. From the very beginning of the European integration process there was no dilemma of “if” but rather of “how” they should be implemented. Their provision requires a reconciliation with market principles, which is far from being an easy task and is most visible when interpreting Art. 106(2) TFEU.349 As rightly pointed out by Baquero Cruz, this topic is “important, 347

In addition, it also helps to strengthen ties between the EU and its citizens. This refers predominantly to non-economic aims, such as cohesion, social justice, social inclusion and equal treatment. Moreover, it also supports some economic aims starting at the top with the establishment of the internal market. Not surprisingly, the European Commission describes services of general economic interest as a key element of the European social model and (nowadays) also as an important pillar of the internal market. 349 Cf. Ross 2000, 22–38. 348

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difficult, and conflictive. It is a topic about limits, blurred areas, and tensions: between the public and the private spheres, the State and the market, cooperative and competitive conceptions of society, market failures and State failures, the social and liberal elements of constitutionalism. It is a difficult legal topic that has to do with the limits of the Community [now EU] legal order and of the competences of the EU. It could also be seen as an internal test of the flexibility of the predominantly liberal economic constitutional law of the Community [now EU], in addition to the external test provided by its interaction with the sometimes more socially oriented laws and policies of the EU Member States.”350 But first things first; before we discuss Art. 106(2) TFEU, which opens the gates to exceptions, we shall discuss the general principles and rules as enshrined in the Treaty’s provisions on competition.

5.1. Competition Rules, Their Fundamental Characteristics and Impact on Services of General Economic Interest The competition rules have formed an integral part of the Treaties from the very beginning of the European integration process.351 While it is true that the avoidance of distorted competition on the former common market was not the primary reason for European integration, the main protagonists in this process, the so-called founding fathers, were clearly aware that nondistorted market competition was a condition for the establishing and functioning of the former common market. A market that featured distorted competition would not in principle allow the realization of the objectives set out in the so-called founding treaties. Therefore it should be no surprise that in the past (and still today),352 in addition to the normal functions of the EU’s competition rules, i.e., preventing the distortion of market competition to the detriment of the public interest, companies and consumers,353 the purpose of 350

See Baquero Cruz 2005, 171. The Treaty of Paris, i.e., the TECSC, already contained numerous competition rules. The same is true of the Treaties of Rome, i.e., the TEEC and the TEAEC. 352 Art. 3 TEU sets out the aims of the EU, one of which is the establishment of the internal market. 353 See for example case C-52/09, Konkurrensverket, ECLI:EU:C:2011:83. 351

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these rules has always also included market integration, which has to be taken into account when interpreting them.354 Furthermore, it should be noted that the EU has the exclusive competence to set out competition rules necessary for the normal functioning of the internal market.355 Thus the EU’s competition rules also promote market integration, and in this respect the competition rules and the rules on free movement are in fact complementary.356 It should be pointed out that it is not the case, as some hold, in what I see as an overly simplified manner, that the former rules relate to undertakings (this concept is explained in section 5.1.1.1.), so they do not distort market competition, and the latter relate to the Member States, so that they do not impose discriminatory measures that obstruct entry onto the market or doing business within the market, which leads to the separation of the national markets and prevents their integration into the internal market.357 Such oversimplification should be avoided. In fact, the EU competition rules are also binding on the Member States (not just on undertakings), and are so in different ways. If we disregard the Member States’ obligation to supervise their markets and enforce the EU competition rules,358 we can see that some of the competition rules relate directly to the 354

In this respect it relates to the difference between the national systems of competition law, which primarily endeavor (only) to prevent the distortion of market competition, but are not used to create a market, as one already exists; cf. Weitbrecht, Karenfort and Peck 2004, 32. 355 In this regard, Member States are subject to two systems of competition rules, the supranational system, which is applied to anticompetitive conduct that could affect trade between at least two Member States, and a national system, which is applied to anticompetitive conduct that has no cross-border effect or cannot affect trade between at least two Member States. This is a general rule that applies unless otherwise indicated for a particular case. 356 According to Protocol No 27 on the internal market and competition, the internal market as set out in Art. 3 TEU includes a system ensuring that competition is not distorted. Moreover, Art. 3(1)(b) TFEU indicates the importance of competition rules for the functioning of the internal market. In my opinion we can draw the conclusion from this, which is also partly supported by case law (see for example joined cases C‑501, 513, 515 and 519/06 P, ECLI:EU:C:2009:610), that the maximization of consumer welfare is not the sole objective of EU competition law, but that the legal interests of the competitors, the competition structure and competition in general are also relevant). 357 Cf. Sauter 2015, 110. 358 The EU’s aforementioned exclusive competence for setting out competition rules has to be taken into account when speaking about the EU’s competition rules, i.e., about the supranational rules that are necessary to ensure the normal functioning of the internal market (which is in principle the case when they concern conduct that could affect trade between two Member States), and the associated competence for their enforcement. The latter is usually also within the domain of the Member States, but it should be noted that the role of the Member States is

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Member States, which is most obvious in the case of the rules on State aid (which also indirectly relate to certain undertakings).359 Furthermore, we should note here that on the basis of Art. 106(1) TFEU,360 which functions as a so-called reference provision, the competition rules that relate directly to undertakings can also be applied in order to limit the adoption of anticompetitive measures by the Member States.361 We can therefore see that in the final analysis, the majority362 of the competition rules are binding on both undertakings and Member States,363 while more generally we can say that in everyday practice the rules on coordination of business activities, abuse of dominant position and market concentration mainly gravitate towards undertakings, while the rules on market regulation and State aid gravitate towards the Member States. For reasons of transparency we should also note that modern competition law is composed of two parts, which are two sides of the same coin: a part that prohibits unfair business practices and a part that prohibits restrictions of competition. In EU law the emphasis is on the latter, within which some laws predominantly apply at the corporate level, i.e., are related to antitrust (coordination of business activities and abuse of dominant position) and market concentration (mergers and certain contractual arrangements with the “merger effect”), while some rules govern the behavior of the Member States, i.e., State aid and the anti-competition regulation (but it shall be pointed out again that there is also possible to apply the former to Member States and that the latter also affect undertakings, at

nevertheless limited to the area of implementing the rules on market concentrations, which have an EU-wide dimension, as the application of the one-stop-shop principle to such concentrations lies exclusively within the competence of the EU. 359 For more on this see the section on State aid. 360 Art. 106(1) TFEU states: “In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in the Treaties, in particular to those rules provided for in Article 18 and Articles 101 to 109.” 361 For example, Art. 106(1) TFEU in conjunction with Art. 102 TFEU. 362 E.g., market regulation, which is a genuine function of public authority. 363 Even more so if we consider that with a focus on the functional definition of an undertaking, a public authority which in addition to its governing activities also carries out at least one business activity can also be considered an undertaking with respect to its economic activities (for the purpose of implementing the competition rules).

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least indirectly).364 In these areas, the EU has taken significant advantage of its exclusive competence for the establishing of the competition rules necessary for the functioning of the internal market.365 Consequently, in cases of conduct that have an effect on trade between Member States (crossborder effect), the question arises of the relationship between supranational and national competition rules. If such cases result in disparities between the supranational and national rules, the supranational rules have priority. This is in line with the general principle of primacy, although in some cases the EU nevertheless regulates this relationship separately through EU laws,366 but in no case in a manner that would undermine the principle of primacy. At this point it is also worth noting that the EU competition rules are an integral part of the so-called supranational economic constitution. As such, they set limits for market intervention by Member States, and, bearing in mind the fact that public service obligations are a kind of market intervention in cases where the market itself cannot deliver the politically desired result, they had and still have by their very nature a significant impact on services of general economic interest, in particular on their public financing. Below in this chapter we present the fundamental characteristics of the EU’s rules on competition, which constitute the legal regulation of anticompetitive conduct which is in principle prohibited. The emphasis is on State aid and the abuse of dominant position, since they are currently the most pressing issues, and for reasons of clarity the remaining types of anticompetitive conduct that could restrict market competition are also presented in brief.

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The area of unfair business practices in the business-to-business segment is mainly left to the Member States, while unfair business practices in the business-to-consumer segment are regulated by EU consumer law. 365 See Art. 3(1)(b) TFEU. 366 See Art. 3 of Regulation 1/2003 and Art. 21 of Regulation 139/2004.

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5.1.1. Coordination of Business Activities: Agreements, Decisions and Concerted Practices The coordination of the business activities of two or more undertakings is regulated by Art. 101 TFEU.367 It sets out three types of restrictive conduct, which partially overlap: agreements, decisions by associations of undertakings and concerted practices. These are arrangements between two or more undertakings concern at least one market parameter, such as for example price or other terms of business, the consequence of which is coordinated market behavior that could (significantly) restrict competition on the internal market and affect trade between Member States. Here we should further note that corporate conduct that is the consequence of governmental regulation, i.e., that is based on a particular binding act issued by a public authority, which the company or companies cannot realistically avoid, is not covered by the prohibition set out in Art. 101(1) TFEU, which means that in such cases, undertakings are not liable for restrictive behavior that is conducted due to laws or regulations. However, the provision in question is not altogether useless in such cases, as it can be applied in conjunction with Art. 106(1) TFEU and therefore the public authority that issued the requirement can be held liable for the undertaking’s disputed conduct. 5.1.1.1. Prohibition of Coordinated Business Activities The prohibition of coordinated business activities is set out in Art. 101(1) TFEU. However, this prohibition is not absolute, but merely relative, as Art. 101(3) TFEU sets out various conditions for exceptions, where coordinated activities could in certain cases be deemed to be compatible with the internal market. As will be shown below, these are therefore cases in which the positive effects of coordinated activities outweigh the negatives.368 367

This section discusses only the basic features; for a more in-depth treatment one should refer to hard law and soft law as covered by the following European Commission documents: European Commission 2013a, European Commission 2013b, European Commission 2013c, and European Commission 2013d. 368 Here we should note that in this context it speaks only of exceptions that are efficiency based (and not equity based); no balancing test as defined in Art. 101(3) TFEU was determined in

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According to Art. 101(1) TFEU “the following shall be prohibited as incompatible with the internal market: agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: directly or indirectly fix purchase or selling prices or any other trading conditions; limit or control production, markets, technical development, or investment; share markets or sources of supply; apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.” Art. 101(1) TFEU thus comprises a general clause (which contains several elements: undertakings, associations of undertakings, agreements, decisions by associations of undertakings, concerted practices, the potential negative effect on trade between Member States and the prevention, restriction or distortion of competition on the internal market) and a list of hard-core restrictive actions by undertakings and/or groups of undertakings (associations of undertakings).369 For practical reasons, below we will discuss the concept of an “undertaking” and the related concept of economic activities. Here we should note that the competition rules apply solely to economic activities.

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order to realize genuine (non-economic) public interests. However, case C-309/99, Wouters, ECLI:EU:C:2002:98 reflects an approach that is reminiscent of the so-called rule of reason approach within the context of Art. 101(1) TFEU itself. According to this approach, a genuine (non-economic) public interest may cause anticompetitive practices to fall outside the scope of Art. 101(1) TFEU. However, this approach seems to depart from the traditional approach to exceptions to Art. 101(1) TFEU. In the traditional approach, under Art. 101 TFEU, only a balancing test as defined in Art. 101(3) TFEU allowed exceptions. Moreover, in cases which involve services of general economic interest, a genuine (non-economic) public interest can be realized through the application of Art. 106(2) TFEU (outside of Art. 101 TFEU); its availability is an argument against the rule of reason approach within the context of Art. 101(1) TFEU. Cf. Frentz 2016, 175–406 and 551–617; Schröter and Voet van Vormizeele 2014, 254–370; Jones and Sufrin 2011, 124–185; Whish 2009, 81–147; Rose and Roth 2008, 91–187. See also EU acts which are included in several European Commission documents, for example European Commission 2013a, European Commission 2013b, European Commission 2013c, European Commission 2013d.

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The concept of an “undertaking” was gradually formed in the case law of the European Court of Justice and the European Commission. It is an autonomous concept of EU law,370 which is interpreted broadly and functionally as any entity engaged in an economic activity, regardless of the legal status of the entity or the way in which it is financed.371 It thus concerns the conducting of an economic activity, i.e., any activity consisting in offering goods or/and services on a given market.372 In practice this usually occurs voluntarily, against payment and through the assumption of market risks.373 An economic activity in this sense is a dynamic concept. An activity that was non-economic in the past can gradually become economic and vice versa, of course depending on the specific circumstances of the case.374 It is also possible for an activity to be considered economic in some countries and non-economic in others, since in principle no activity is one or the other in and of itself, but is qualified as such depending on the way it is organized at the moment of observation.375 If it is organized in such a way that there is a market for it, it qualifies in principle as an economic activity. But this requires a case-by-case approach. 370

As a result, it has to be interpreted uniformly and independently of national concepts in order to ensure the equal application of the EU’s rules on competition in all Member States. 371 See for example joined cases C-180 to 184/98, Pavel Pavlov and others, ECLI:EU:C:2000:428. 372 An entity that in itself does not provide goods or services on a market is not an undertaking; for example, a holding company is not considered to be an undertaking for purposes of competition law since it merely holds shares, even as a majority shareholder, i.e., the shareholding gives rise only to the exercise of the rights attached to the status of shareholder or member as well as, if appropriate, the receipt of dividends, which are merely the fruits of the ownership of an asset; see for example case C-222/04, Ministero dell'Economia e delle Finanze, ECLI:EU:C:2006:8. 373 The situation is different in the case of non-economic activities (for example activities which are performed according to the principle of solidarity) and activities of public authorities (for example genuine (jure imperii) governmental activities), as these are not conducted on the market according to the market logic. However, if an entity carries out one or more noneconomic activities or governmental activities (on the basis of a public authorization) in addition to one or more economic activities, it is regarded as an undertaking (only) with regard to the economic activity or activities. 374 Under the influence of EU law, in the last decades we have witnessed the expansion of a multitude of economic activities at the expense of the contraction of a multitude of noneconomic activities. This of course means the expansion of the scope of applicability of EU competition law, including in the area of services of general economic interest. 375 In some cases, the decision on the organizational form for certain economic activities is not left to the Member States but is determined mandatorily in EU law. The liberalization of certain infrastructure sectors (energy, telecommunications, postal services and rail) is a typical example.

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Art. 101(1) TFEU applies to restrictive agreements or arrangements between undertakings, but not to agreements or arrangements of entities that collectively form a single economic unit (undertaking). This is defined as a group of two or more entities that are in the type of business relationship in which one of them can adopt the relevant business decisions and the others have to (unconditionally) follow them, meaning that they are unable to adopt their own business decisions, and are economically dependent in this respect. In this case the substantive/functional aspect, i.e., the internal delegation of duties in the form of a single center of decision-making, outweighs the formal/status aspect, i.e., the existence of several legal entities. In practice this usually occurs in the relationship between a parent company and its subsidiaries, or within corporations, but it should be noted that the final decision on whether a certain group of entities can be deemed a single economic unit, i.e., a single undertaking in the sense of Art. 101(1) TFEU, can only be appropriately adopted after all the relevant factors have been taken into consideration. This refers primarily to the holding of a controlling interest,376 the possibility of forming a supervisory or management body, the entities’ actual adherence to instructions in the past, and capital transfers. When a certain group can be considered a single economic unit in the above sense, this has significant consequences in the context of Art. 101 TFEU, in particular: that the prohibition set out in Art. 101(1) TFEU is not applied to agreements or arrangements on market parameters between entities in the group (although the prohibition set out in Art. 102 TFEU can be applied); that the entitles within the group are considered a single party to the agreement from the perspective of assessing the criteria for its permissibility, which can be significant when one of the criteria for its permissibility is that the agreement is bilateral; that the responsibility for breaches of the competition rules by one of the entities in the group can be ascribed to all of the entities in the group; that when setting the level of fines the (global) revenues of all the entities in the group are

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If one of the companies in a group holds a controlling interest in one of the other companies, i.e., is its sole partner (having all shares, 100%), it is assumed that the first company makes the decisions and the second company merely implements the assigned tasks. However, this is a rebuttable assumption.

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taken into consideration; that when determining market share, which in certain cases is relevant with regard to the possibility that certain legal instruments could be used, such as a decree on a certain group exemption, and also often soft laws on cartels, the market shares of all the entities in the group are taken into account; that when establishing whether an entity in a group that has breached the competition rules is a “repeat offender,” the breaches committed by the other entities in the group are also taken into consideration; and that when establishing whether an agreement concluded between an individual entity in the group and a third entity was concluded between competing entities, the economic activities of all of the entities in the group are taken into consideration. 5.1.1.2. Legal Consequences of Breaches The legal consequences of breaches of Art. 101 TFEU are set out in Art. 101(2) TFEU and in various other supranational and national regulations, as will be presented below. According to Art. 101(2) TFEU, “any agreements or decisions prohibited pursuant to this Article shall be automatically void.” All coordinated activities that are prohibited under Art. 101(1) TFEU and do not meet the criteria for exemption under Art. 101(3) TFEU or pursuant to a law derived therefrom (such as laws regulating block exemptions) are therefore void. Their nullity is established directly on the basis of Art. 101(2) TFEU (ex lege). This nullity applies unconditionally and it must be considered by all entities (erga omnes). In principle it is extended only to those parts of restrictive practices that are prohibited under Art. 101 TFEU, but not to those not contrary to that provision and which can be separated from any disputed anticompetitive clauses. If a certain restrictive agreement can be divided into “prohibited” and “acceptable” clauses, an abridged agreement applies which contains only the acceptable clauses as adjudicated under national law. All actions seeking a prohibitory injunction and/or compensation in connection with disputed corporate conduct are also assessed pursuant to the national law of obligations, which is applicable on the basis of the current rules of international private law. These rules are implemented pursuant to national procedural law in the absence of any superseding EU rules, while the fundamental principles of EU law have to

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be taken into consideration, such as the principles of equivalence (nondiscrimination) and effectiveness. In addition to the classical civil-law consequences of breaches of Art. 101 TFEU, other consequences may follow. Regulation 1/2003 (see in particular Art. 7, 23 and 24) e.g., lays down the obligation to bring the infringement to an end377 and strict penalties (i.e., fines and periodic penalty payments).378 Furthermore, the prohibitions set out in Art. 101 TFEU can also be considered criminal conduct under the applicable laws of the Member States. 5.1.1.3. Exceptions: Restrictions of Market Competition That Are Compatible with the Internal Market The exceptions to Art. 101(1) TFEU are applicable if all conditions set out in Art. 101(3) TFEU are met (i.e., the coordinated activity is not illegal and Art. 101(1) TFEU is not applicable). This is the case only if a certain behavior which restricts competition contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and if it does not impose restrictions on the undertakings concerned which are not indispensable to the attainment of these objectives, and does not afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.379 5.1.1.4. Art. 101 TFEU and Services of General Economic Interest Art. 101 TFEU is relevant to services of general economic interest; however, when compared with some other competition provisions, for example with the State aid provisions, its relevance is less significant. This 377

For this purpose, it may impose on them any behavioral or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. Structural remedies can only be imposed either where there is no equally effective behavioral remedy or where any equally effective behavioral remedy would be more burdensome for the undertaking concerned than the structural remedy. If the Commission has a legitimate interest in doing so, it may also find that an infringement has been committed in the past; see Art. 7(1) of Regulation 1/2003. 378 For illustration, in mid-2018 the European Commission fined Google €4.34 billion for illegal practices regarding Android mobile devices which served to increase the dominance of Google's search engine. 379 See Art. 101(3) TFEU.

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would be even more so if Art. 101 TFEU could not be used in conjunction with the so-called reference rules, such as Art. 106(1)380 TFEU or Art. 4(3) TEU,381 which are applicable when national public authorities demand the coordination of certain business activities (usually in such a way that no autonomy is left to the providers of services of general economic interest).382 In fact, in the field of services of general economic interest, Art. 101 TFEU is predominantly used in conjunction with the abovementioned reference rules.

5.1.2. Abuse of Dominant Position Abuse of dominant position is defined in Art. 102 TFEU. According to this provision, “any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; limiting production, markets or technical development to the prejudice of consumers; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.” The provision consists of a general clause (which includes several elements, e.g., undertaking, dominant position, abuse (of dominant position), the internal market or a substantial part of it, and (potentially negative) effects on trade between Member States) and a list of typical abuses of dominant position.383 The elements “undertaking” and “affect 380

Cf. case 66/86, Ahmed Saeed Flugreisen and others, ECLI:EU:C:1989:140; Chalmers 2006, 1122 (the Greek NCA case Port of Piraeus). 381 Cf. case C-437/09, AG2R Prévoyance, ECLI: ECLI:EU:C:2011:112. 382 In such cases the undertaking is not liable for the coordinated business activity but rather the public authority that demanded the anticompetitive behavior. 383 Cf. Frentz 2016, 639–826; Schröter and Bartl 2014, 752– 941; Jones and Sufrin 2011, 259–560; Whish 2009, 672–755; Thompson and O’Flaherty 2008, 909–1030. See also the EU acts which are included in several European Commission documents, for example European

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trade between Member States” are understood in the same way as under Art. 101 TFEU, while the element of the internal market (or a substantial part thereof)384 is interpreted in the sense of Art. 26(2) TFEU and Protocol (No 27) on the internal market and competition, i.e., an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured as well as market competition in accordance with the provisions of the Treaties. For practical reasons, we shall therefore pay closer attention to a dominant position and its abuse.385 Before beginning our discussion of them, we should note that providers of services of general economic interest often enjoy a dominant position, particularly when they provide those services as concessionaires. This means that the provision set out in Art. 102 TFEU is frequently relevant and determines the limit of acceptable conduct by providers of public services, as well as that of concession grantors and public authorities (in the latter case Art. 102 TFEU is applied in conjunction with Art. 106(1) TFEU, as presented in section 5.1.4. of this chapter). 5.1.2.1. Dominant Position The concept of a dominant position in the sense of Art. 102 TFEU is not defined in EU hard law, therefore one has to rely on the case law, i.e., judgements of the Court of Justice of the EU386 (and the practice and documents of the European Commission, which mainly summarize the case law, which is most obvious in sources of soft law,387 and which are usually drafted according to the “one-stop-shop” principle and thus represent the state of play on their publication date).

Commission 2013a, European Commission 2013b, European Commission 2013c, European Commission 2013d. 384 When assessing significance, one has to consider that it is not exclusively a matter of geography, nor exclusively the measurement of the physical size of the market, and also that in principle each Member State is large enough to be considered a significant part of the internal market. 385 Here we focus on the general characteristics; for a more in-depth analysis one should consult the literature on competition law and specifically on abuse of dominant position. 386 See for example case 27/76, United Brands Company, ECLI:EU:C:1978:22, and case 85/76, Hoffmann-La Roche, ECLI:EU:C:1979:36. 387 See for example the Communication from the Commission – Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 24. 2. 2009, p. 7–20.

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In practice, the assessment of whether one is dealing with an individual or collective dominant position usually requires (at least) two steps; first one has to precisely determine the relevant market,388 and then the market power389 of the undertaking or undertakings under observation on that market. The market dominance of one or more undertakings is defined as a position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained on a relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers.390 Dominant position is not prohibited per se by Art. 102 TFEU,391 however, an undertaking that has one is subject to increased supervision and is given a special responsibility for competition on the market in question. That is, a dominant position—from the perspective of the market or market competition—is dangerous, and therefore it is necessary to monitor how it is used. In principle, conduct engaged in by an undertaking with a dominant

388

A relevant market can be seen simply as a group of competitors. Competitors can be classified with respect to the goods or services that they offer, and to the place they offer them, and in certain cases owing to special circumstances also to the time they offer them, such as e.g., during the Olympic Games, world championships, etc. In this sense we refer to the product, geographic and temporal components of a relevant market. For more on the definition of a relevant market see for example the Commission Notice on the definition of relevant market for the purposes of Community competition law, OJ C 372, 9. 12. 1997, p. 5–13. 389 Market power is assessed primarily on the basis of the market shares of the companies in question, and on their actual competitors based on obstacles to entering the market, which can either be legal or material (and are significant from the perspective of establishing potential competitors), as well as on the basis of consumer and supplier strength. 390 For more on this see the Communication from the Commission — Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 24. 2. 2009, p. 7–20. 391 This also holds when the dominant position is a consequence of an exclusive right; namely, as the CJEU pointed out in case C 437/09, AG2R Prévoyance v. Beaudout Père et Fils SARLECLI:EU:C:2011:112: “[…] the mere creation of a dominant position through the grant of special or exclusive rights within the meaning of Article 106(1) TFEU is not in itself incompatible with Article 102 TFEU. A Member State will be in breach of the prohibitions laid down by those two provisions only if the undertaking in question, merely by exercising the exclusive rights conferred upon it, is led to abuse its dominant position or where such rights are liable to create a situation in which that undertaking is led to commit such abuses. […] Such an abusive practice contrary to Article 106(1) TFEU exists where, in particular, a Member State grants to an undertaking an exclusive right to carry on certain activities and creates a situation in which that undertaking is manifestly not in a position to satisfy the demand prevailing on the market for activities of that kind.”

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position will have a completely different effect on market competition than the same conduct by an undertaking without a dominant position. Therefore, it is no surprise that some actions that are considered generally acceptable can be considered prohibited when performed by an undertaking that enjoys a dominant position on the market. The typical examples are refusal to deal, pricing significantly above cost (excessive pricing), pricing below cost (predatory pricing), and transfer and distribution of profits generated on a market on which the company enjoys a dominant position, to one or more (more competitive) markets on which it does not have a dominant position (cross-subsidization).392 As shown below, such actions, which are generally left to undertakings’ own judgement, may be considered abuse of dominant position when carried out by undertakings in a dominant position. At the same time, these types of conduct are in practice quite frequently engaged in by providers of services of general economic interest that enjoy dominant position on some relevant market, e.g., as concessionaires. 5.1.2.2. Abuse (of Dominant Position) Abuse (of dominant position) in the sense of Article 102 TFEU is not defined in the regulations or general laws of the EU, and therefore here as well one must consider the judgements of the Court of Justice of the EU and the decisions and sources of soft law of the European Commission.393 The concept of abuse is predominantly considered “an objective concept relating to the behavior of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that

392

We should note here, without references (which the reader should seek among works on competition law and policy), that (North) American and European competition law differ in their approach to predatory pricing practices. 393 In the same way as stated above in reference to dominant position.

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competition.”394 This definition is subject to the criticism that it is not allencompassing, but it shall suffice for our purposes here. Art. 102 TFEU sets out the typical abuses of dominant position which directly or indirectly impose unfair purchase or selling prices or other unfair trading conditions; limit production, markets or technical development to the prejudice of consumers; apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; or make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.395 Since it is not a numerus clausus catalog of abuses, numerous other types of abuse of dominant position are possible in practice. Because a detailed discussion of them exceeds the purpose of this text, in this section we shall limit ourselves to the widest possible sphere of potential abuses and their classification into groups. Abuses of dominant position can be classified in terms of objective or effect, i.e., into those that abuse customers and those that exclude or distort market competition, and in terms of their price-based or non-price-based nature. Here they can be further divided into exploitative pricing practices on one’s own market (e.g., unfairly high prices); exclusionary pricing practices on one’s own market (e.g., usurious or predatory prices, price discrimination, loyalty rebates); exclusionary nonpricing practices on one’s own market (e.g., discrimination); exclusionary pricing practices on a related market (e.g., cross-subsidization); exclusionary non-pricing practices on a related market (e.g., refusal to conclude a contract in order to refuse supply, licensing or access to essential goods and associated business). We should note here that not all business practices that are harmful to other undertakings are problematic. A “victory” achieved in a “fair” manner in a competitive contest is normally considered unproblematic, although the loser in such a contest incurs damage at least in the sense that it lost a customer, since that customer was, albeit in a fair manner, appropriated by a competitor.

394 395

See case 85/76, Hoffmann-La Roche, ECLI:EU:C:1979:36. Art. 102 TFEU.

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Since Art. 102 TFEU does not foresee allowable exceptions to abuses of dominant position, a company charged with such abuse can settle its liability in this connection only if it demonstrates that the disputed conduct was objectively justified and proportionate. If a company charged with abuse of dominant position fails to defend itself against the allegations, it is considered to be in breach of Article 102 TFEU, which leads to (potential) legal consequences under administrative, criminal and civil law. On the basis of Article 7 of Regulation 1/2003, remedies can be imposed on the party in breach to eliminate the infringement (abusive behavior), which can take the form of negative or positive conduct, and in certain cases it is also possible to demand the sale of certain assets or even the dissolution of the company. Similarly, on the basis of Article 23 or 24 of Regulation 1/2003, offenders can be required to pay a fine or a periodic financial penalty. Breaches of Article 102 TFEU can also be considered criminal conduct under the Member States’ laws. Article 102 TFEU does not impose the sanction of voiding the action, as is the case with Article 101(2) TFEU, and therefore this depends on the provisions of the national legal codes (i.e., those of the Member States). The same applies to actions seeking a compensation for damages. All abovementioned considerations are important for services of general economic interest, in particular when their providers hold special or exclusive rights.

5.1.3. Market Concentration Market concentration is not defined in the primary law of the EU, but in the secondary, i.e., in Regulation 139/2004,396 according to which “a concentration shall be deemed to arise where a change of control on a lasting basis results from (a) the merger of two or more previously independent undertakings or parts of undertakings, or (b) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by 396

In addition to this regulation, market concentration is also regulated by other regulations and sources of soft law. For practical reasons here we should note in particular the so-called implementing regulations, i.e., Commission Regulation 802/2004.

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any other means, of direct or indirect control of the whole or parts of one or more other undertakings.”397 It can be seen from the above that this does not concern merely mergers, but any operation under either corporate law or contract law on the basis of which permanent changes are made to the supervision of at least one entity participating in that operation, and consequently – taking into account the aforementioned concept of a functional unit – reduces the number of undertakings on the market, while at the same time strengthening the market position of at least one entity participating in that operation. Thus the structure of the market is changed, which is significant and requires the declaration of the planned market concentration, which can be made only on the basis of a decision of the European Commission (or the competition protection authority of a Member State, in cases of market concentration that do not reach the prescribed thresholds and thus do not have a supranational aspect).398 Although market concentrations do of course occur in practice in which providers of services of general economic interest participate, it would seem that the rules on market concentrations, in comparison with the other rules on competition, appear less frequently in the form of restrictions to the desired operations of undertakings, and in addition the implementation of a market concentration is conditional on a prior government decree or decision, and therefore here we refer the reader to resources that offer more detailed discussions of market concentrations and market competition in general.399

5.1.4. Market Regulation Market regulation is a genuine function of public authority400 that can be applied in different ways relating to the different roles of the market and the competitors,401 and generally involves the application of general and 397

See Art. 3(1) of Regulation 139/2004 in connection with Art. 3(2-5) of Regulation 139/2004. See Art. 1 of Regulation 139/2004. 399 See for example Frenz 2016, 1093–1357. 400 See supra, Chapter 2. 401 This is for example clearly visible when comparing the various approaches to the organization of national economies, among which three approaches have prevailed historically: the state398

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sector-specific public measures within several public policies, including competition policy. With regard to the special interconnectedness of the competitive internal market and services of general economic interest, we should once again note, inter alia, that the most important economic and even non-economic aims of the EU are tied to a well-functioning internal market, which includes as an integral part a system ensuring that competition is not distorted,402 which in addition to the fact that the EU has exclusive competence for the establishing of the competition rules necessary for the functioning of the internal market 403 increases the role of EU in the area of services of general economic interest.404 In fact, it plays a double role in the area of services of general economic interest, as it contains a series of injunctions that require Member States to carry out various activities,405 and prohibitions that prevent or limit Member States from engaging in conduct that could threaten the aims of the EU. In EU primary law, and in fact in EU law in general in the area concerned, the prohibitory approach predominates. That is, one cannot find any genuine commendatory provisions in EU primary law that specifically and exclusively refer to services of general economic interest406 (yet, as already discussed the situation is different when it comes to EU secondary law), but there are numerous prohibitory provisions applying to or in connection with services of general economic interest, in particular the rules on free movement and the rules on

planned (administrative) economy, the market economy and the social market economy. According to the Treaty of Lisbon, the EU endeavors a highly competitive social market economy. 402 See Protocol (No 27) on the internal market and competition. 403 See Art. 3(1)(b) TFEU. 404 This role is, inter alia, set out in Art. 14 TFEU, which explicitly states that the EU, and not just the Member States, is responsible for the effective provision of services of general economic interest, including through the adoption of legislative acts. 405 For instance, the obligation to provide universal service, which is laid down in EU (secondary) law. Here we should also note that the part of market regulation that is the result of EU law, in the spirit of the liberalization process discussed above, is oriented towards a competitive market, while of course the Member States retain various competences in the area of market regulation, and in the implementation of those competences they have to ensure that they are not in breach of any part of EU law that contains prohibitions. 406 The concept is referred to in Art. 14 and 106(2) TFEU, and in Art. 1 of Protocol (No.) 26 on services of general interest, but these provisions are not of a commendatory nature. This is in particular true for Art. 106(2) TFEU, while it seems Art. 14 TFEU could also be used as a legal base for secondary law for both, prohibitory and commendatory rules and activities.

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competition. In connection with the aforementioned categories of provisions, we have noted above that it would be wrong to take the position that Member States are not bound by the provisions that relate directly to undertakings; that is, according to Art. 106(1) TFEU, “in the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in the Treaties, in particular to those rules provided for in Article 18 and Articles 101 to 109.” As noted above, Art. 106(1) TFEU clearly sets out the obligations of Member States in the case of undertakings over which they can exercise a dominant influence, to abstain from conduct that is in contravention of EU law.407 This provision on one hand prevents Member States from hiding behind certain undertakings, i.e., circumventing the prohibitions applying to them, and thus abusing their influence on certain undertakings and manifesting their own prohibited behavior via those undertakings, while on the other hand it also broadens the scope of the EU competition rules that relate directly to undertakings408 further to the Member States and to public authorities in general.409 Here we should point out that the rule set out in Art. 106(1) TFEU is conditioned by the exception set out in Art. 106(2) TFEU.410 407

This obligation in fact arises from the general principle of sincere cooperation as defined in Art. 4(3) TEU, while it is specifically set out in Art. 106(1) TFEU with respect to certain undertakings. Since Art. 106(1) TFEU refers to other provisions of the TFEU and TEU, it is considered reference provision. This circumstance also obtains with regard to the direct effect of Art. 106(1) TFEU, as it is dependent on the provision to which it refers. That is, in certain cases Art. 106(1) TFEU has a direct effect, if the provision to which it refers in a specific case has a direct effect; cf. Wimmer and Kahl 2001, 60; Geiger 2004, 426; Whish 2009, 218. 408 Here we should first of all refer to Art. 101 and 102 TFEU, which prohibit undertakings from engaging in conduct that could restrict market competition and distort trade between Member States. 409 In other words, a Member State may not direct undertakings to act contrary to Art. 101 and/or 102 TFEU. If this were not the case, a problematic loophole would be created that would be an easy target for abuse. That is, undertakings are not liable for breaches of competition rules imposed by Member States or public authorities in general if they are unable to avoid such conduct since they lack room to maneuver. In the latter case an undertaking that acted contrary to the competition rules would not be liable, and therefore Art. 106(1) TFEU allows Member States to be treated as the transgressor in such cases. 410 In theory it is not disputable that Art. 106(1) TFEU has the nature of a rule, and Art. 106(2) TFEU the nature of an exception, but it is however disputable whether Art. 106(2) TFEU is an exception that applies solely to Art. 106(1) TFEU or more broadly; cf. Burgi 1997, 281– 282; Mann 2015, 176; Rottmann 2007, 41–45; von Wilmowsky 1991, 556; Birkemaier 1988, 145; Baur 1999, 87; Page 1982, 26–27; Badura 1997, 300; Mestmäcker 1988, 557. I believe

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This is discussed in detail below, in section 5.2. of this chapter, therefore we shall merely mention it here in passing. The following section contains an analysis of the various elements of Art. 106(1) TFEU, namely, public undertakings, special and exclusive rights, and measures contrary to the rules contained in the Treaties. It is probably unnecessary to explain that public undertakings and special and exclusive rights are still frequently associated with services of general economic interest, and therefore they receive particular attention in this book. 5.1.4.1. Public Undertakings A public undertaking in the sense of Art. 106(1) TFEU is an autonomous concept of EU law and must be interpreted uniformly by all Member States, in accordance with EU laws, irrespective of any other definitions in national law, as otherwise the effect of Art. 106(1) TFEU and EU law in general would be diminished. Art. 106(1) TFEU does not contain a definition of a public undertaking, which we find for example in Directive 2006/111/EC,411 according to which a public undertaking “means any undertaking over which the public authorities may exercise directly or indirectly a dominant influence by virtue of their ownership of it, their financial participation therein, or the rules which govern it.”412 A public undertaking in the aforementioned sense is thus a development, or rather an “upgrade,” of the concept of an undertaking as set out in Art. 101, 102 and 107 TFEU. It refers not to just any undertaking, but an that in the current circumstances, among other things due to the liberalization process and the numerous privatizations, it is more appropriate to take the position that Art. 106(2) TFEU can be applied to all undertakings authorized to provide services of general economic interest, irrespective of whether it is possible to classify a particular undertaking as a public undertaking or an undertaking to which Member States grant special or exclusive rights in the sense of Art. 106(1) TFEU. 411 Although various authors have questioned whether it is possible to use the definition set out in the directive verbatim in order to interpret Art. 106(1) TFEU, to date the acts of the European Commission and Court of Justice of the European Union do not contain a better generally accepted alternative, therefore here we will use the definition of public undertaking set out in Directive 2006/111/EC. 412 According to Art. 2(b) of Directive 2006/111/EC, “a dominant influence on the part of the public authorities shall be presumed when these authorities, directly or indirectly in relation to an undertaking: hold the major part of the undertaking’s subscribed capital; or control the majority of the votes attaching to shares issued by the undertakings; or can appoint more than half of the members of the undertaking's administrative, managerial or supervisory body.”

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undertaking that is subject to qualified influence by public authority regarding (corporate) decision making or more generally, an undertaking over which a Member State or a public authority can exercise a dominant influence.413 Art. 106(1) TFEU neither prohibits nor requires public undertakings. This is in line with Art. 345 TFEU, which stipulates that “the Treaties shall in no way prejudice the rules in Member States governing the system of property ownership.” The Member States in principle414 make autonomous decisions on the establishment, preservation and privatization of public undertakings and even on the nationalization of undertakings, but of course they do not have completely free rein. This is logical, as otherwise it would be easy to avoid the obligations defined by EU law and consequently threaten the objectives of the EU. In other words, the respect of the Member States’ property ownership systems, as provided for in Art. 345 TFEU, does not exclude the use of the other relevant provisions of the TFEU and TEU and EU law in general. Art. 345 TFEU does not function in isolation, but in interaction with the other provisions of the TEU and TFEU.415 In this connection, the greatest restrictions on Member States with regard to their plans for public undertakings are imposed by the rules on free movement and competition, which focus primarily on the phase of the operation of the undertaking, and less on the phases of its establishment and winding up.416

Public authority means “all public authorities, including the State and regional, local and all other territorial authorities.” 414 In exceptional cases, particularly in cases of breaches of EU law, it is possible to implement structural measures consisting of the complete or partial privatization of a public undertaking. A typical example is State aid that the European Commission approves under the condition of the complete or partial privatization of the public undertaking that is the recipient of State aid. 415 The Member States have the power to make autonomous decisions on property ownership issues only within the framework of EU law. Thus e.g., Member States cannot in principle outlaw private property, systematically nationalize undertakings in order to create monopolies or “close” markets contra EU law, etc. 416 Which means that public undertakings can in principle be established, and this in and of itself is not a problem from the perspective of EU law; however, EU law is very restrictive with respect to the operations of public undertakings. The possible actions of Member States in this area are quite limited, since principally public undertakings are supposed to be subject to the same market logic as private undertakings. In this sense we speak of the equal treatment of public and private undertakings, and in some cases we could even speak of the principle of the prohibition of favoritism towards public undertakings which seems to be even stricter. 413

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5.1.4.2. Special and Exclusive Rights Special and exclusive rights in the sense of Art. 106(1) TFEU are related417 but different types of rights.418 A similar dilemma as was noted in relation to the definition of public undertaking also applies to the definition of special and exclusive rights, as set out in Directive 2006/111/EC. Here as well there is a lack of a better generally accepted alternative to the definition set out in the directive.419 5.1.4.2.1. Special Rights According to Directive 2006/111/EC, special rights are “rights that are granted by a Member State to a limited number of undertakings, through any legislative, regulatory or administrative instrument, which, within a given geographical area, limits to two or more the number of such undertakings, authorised to provide a service or undertake an activity, otherwise than according to objective, proportional and non-discriminatory criteria; or designates, otherwise than according to such criteria, several competing undertakings, as being authorised to provide a service or undertake an activity; or confers on any undertaking or undertakings, otherwise than according to such criteria, any legal or regulatory advantages which 417

There are in fact several similarities. One is that they are protected, at least to a certain extent, from competitive pressures, which in the circumstances of a social market economy is an important privilege, and public authorities use them to implement one or more public policies. In this regard, undertakings (both public and private) that have special or exclusive rights are often characterized as privileged undertakings. These rights are granted in connection with one or more economic activities in order to regulate or intervene with a market. Both types of rights also underscore the special legal relationship between the public authority that grants such rights and the undertakings that obtain them, and within this relationship the public authority usually has significant influence over the privileged undertaking. In this connection the public authority has significant discretion with regard to the granting and revoking of these types of rights, in contrast to the certain similar rights that confer exclusivity, where there is no discretion (intellectual property rights are e.g., exclusive, but they are not granted under discretion, as anyone who meets the pre-determined legal requirements can count on obtaining intellectual property rights). Here we should also note that nowadays, in conditions of competitive markets, special and exclusive rights are granted only in exceptional cases, in principle as a measure of last resort. 418 These two concepts were initially interpreted as synonyms, but in the beginning of the nineties due to the influence of case law this began to change, and now they are interpreted as two related concepts; see case C-202/88, French Republic v Commission, ECLI:EU:C:1991:120. 419 The definitions set out in Directive 2006/111/EC have been subject to the criticism in the literature, since they can be interpreted such that they are granted only through acts or instruments of public law. Cf. Sierra 1999, 5–6.

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substantially affect the ability of any other undertaking to provide the same service or to operate the same activity in the same geographical area under substantially equivalent conditions.”420 With regard to this definition, there are three subtypes of special rights, which are divided into two groups. The first group includes special rights that have the effect of limiting the number of undertakings in a certain territory; the public authority exercises its discretion to determine the number of undertakings that can operate in a certain territory, and selects them freely (without a special competitive process of selection), thereby among other things restricting competition. The second group includes special rights that have the effect of granting privileges to certain undertakings in a certain territory, which are freely selected by the public authority, which give those undertakings a better market position, and while it does not formally exclude other undertakings on the territory in question, in practice this is exactly what can happen. 5.1.4.2.2. Exclusive Rights According to Directive 2006/111/EC, exclusive rights are “rights that are granted by a Member State to one undertaking through any legislative, regulatory or administrative instrument, reserving it the right to provide a service or undertake an activity within a given geographical area.”421 This definition confers exclusivity to a single undertaking within a certain area, which is selected by a public authority, to undertake an economic activity without competitive pressures. It is clear that this kind of right strongly affects market competition, and therefore milder measures, if there are any in a particular case, should be applied. In fact, in principle the granting of an exclusive right should be considered as a measure of last resort.422

420

See Art. 2(g) of Directive 2006/111/EC. See Art. 2(f) of Directive 2006/111/EC. 422 But it seems the case law does not always follow this logic; see for example case C-437/09, AG2R Prévoyance, ECLI:EU:C:2011:112. 421

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5.1.4.3. Measures Contrary to the Rules Contained in the Treaties Measures in the sense of Art. 106(1) TFEU are acts of bodies of public authorities and are implemented within the framework of the performance of the function of the public authority. They primarily include laws, secondary regulations, administrative acts and other legal instruments and actions implemented by public authorities during the performance of their public function. Such measures are disputable if their objective and/or effect is, contrary to EU rules, to provide an advantage to a certain undertaking or undertakings or to ensure certain conduct on their part, i.e., their instrumentalization. Here again, Art. 106(1) TFEU is shown to be a typical reference rule. As follows below, there are certain differences with respect to whether Art. 106(1) TFEU refers to provisions addressed to undertakings or to Member States. 5.1.4.3.1. Measures Contrary to Provisions Addressed to Undertakings A measure that is in contravention of a provision addressed to undertakings, such as Art. 101 and 102 TFEU,423 can on the basis of Art. 423

In practice there are very few cases that address the relationship between Art. 106(1) and 101 TFEU. They mainly involve compulsory or approved (price) cartels; see for example case 66/86, Ahmed Saeed, ECLI:EU:C:1989:140. A significantly larger number of cases relate to the relationship between Art. 106(1) and 102 TFEU; see for example case 38/87, Bodson, ECLI:EU:C:1988:225; case C-179/90, Porto di Genova, ECLI:EU:C:1991:464; case C323/93, La Crespelle, ECLI:EU:C:1994:368; case C-266/96, Corsica Ferries, ECLI:EU:C:1998:306. These mainly involve measures by public authorities that (could) lead undertakings to abuse their dominant position, e.g., through discriminatory, excessive or predatory pricing or through refusal to deal, especially in relation to the prevention of access to an essential facility etc. These measures can relate directly to an undertaking in a dominant position (such that they are either ordered to commit abuse, led to do so, or given assistance in doing so) or indirectly (such that an exclusive right is granted to an undertaking that is not capable of satisfying market demand (see for example case C-41/93, Höfner & Elser, ECLI:EU:C:1998:306), or an exclusive right is granted whereby a conflict of interest is created, such as e.g., if an undertaking is authorized to carry out various regulatory functions that are important from the perspective of the undertaking’s economic activities; if an undertaking that markets a certain product is granted an exclusive right on the basis of which it can freely determine the content of a competitor’s product range, etc. (see for example case C-260/89, ERT, ECLI:EU:C:1991:254). Here we should also note that measures that have an effect similar to abuse of dominant position are also disputable. In case C-179/90, RTT, ECLI:EU:C:1991:474, the Court expressly noted that the granting of exclusive rights to an undertaking that enjoys a dominant position on a complementary or neighboring relevant market is unacceptable unless the conferral is supported on objective grounds. In fact, in this case the Court assigned liability to the state, since an effect was obtained that was similar to abuse of dominant position, irrespective of the actual or potential abuse thereof (doctrine of

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106(1) TFEU lead to the liability of a public authority, which however does not automatically exclude the liability of the undertaking that carried out the prohibited action. It is possible for both the public authority and the undertaking to be liable for its own unlawful conduct, and therefore in principle this could result in two separate proceedings and two separate sanctions. This would occur in the event that the public authority led an undertaking to commit a breach of EU law or supported it in doing so, but the undertaking has the autonomy to make its own decision in this regard. The following elements are crucial from the perspective of the liability of the undertaking: the undertaking can settle its liability for such breach only if it demonstrates that it did not have the possibility of autonomous decisionmaking due to a legally binding governmental measure and was therefore forced into a breach of EU law. 5.1.4.3.2. Measures Contrary to Provisions Addressed to Member States Measures that are contrary to provisions addressed to Member States and which relate to public or privileged undertakings fall under Art. 106(1) TFEU in connection with another relevant provision of the TFEU (depending on the content of the measure). This primarily relates to the TFEU’s provisions on the free movement of goods, services, persons and capital (in particular Art. 28–66 TFEU) and on State aid (in particular Art. 107–109 TFEU). Although at first glance this might appear unnecessary or without any particular value added, since the Member States are already bound by the provisions addressed to them, in fact this is not the case. The value added lies in the ability of the European Commission to act on the basis of Art. 106(3) TFEU, and in the Member States’ inability (due to the provision in question) to prevent the circumvention of obligations or rules addressed to them through the instrumentalization of a public or privileged extension of dominant position). In case C-320/91, Corbeau, ECLI:EU:C:1993:198, the Court went a step further, as it based its judgement on the assumption that the granting of exclusive rights is unacceptable per se unless there are objective grounds or if it is justifiable on the basis of the exception set out in Art. 106(2) TFEU. The Court did not address abuse of dominant position, the inability to satisfy demand, the conflict of interest or the extension of dominant position, but adjudicated solely the granting of exclusive rights and any circumstances that might justify it. It seems that the general effect of this case was, inter alia, to transfer the burden of proof to the Member States.

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undertaking. In other words, Art. 106(1) TFEU prohibits Member States from hiding behind certain undertakings and using them to indirectly achieve aims that they are prohibited from achieving directly, when they overtly appear in the role of public authority.

5.1.5. State Aid State aid is a form of market intervention424 through which competition on the internal market is restricted and trade between Member States is affected, so it is no surprise that the rules on State aid have been a part of the European integration process, i.e., the acquis communautaire, from the very beginning.425 This book presents a brief overview of the basic concepts of EU law regarding State aid, e.g., the concept of State aid, i.e., the conditions for the existence of State aid, the general incompatibility of State aid with the internal market, and the exceptions, primary obligations relating to State aid and the consequences in the event of failure to uphold those obligations. The focus is on the aspects that are significant with regard to the funding of services of general economic interest. 5.1.5.1. The Concept of State Aid: Conditions for the Existence of State Aid State aid in the sense of Art. 107(1) TFEU is “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods […] in so far as it affects trade between Member States.”

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Often with the objective of creating the conditions for the effective provision of services of general economic interest. 425 Without the regulation of State aid at the supranational level it would be impossible to realize the aims of the EU. The EU’s system for the supervision of State aid is sui generis. It is a supranational system that significantly restricts the decision-making powers of the Member States, particularly in the area of economic, financial, environmental and regional policy. This system, although it is supervised by the Court of Justice of the EU, is mainly administered by the European Commission, and therefore in addition to classical legislative acts one must continually monitor other acts that reveal the current policies of the EU, i.e., its decisions and soft law sources.

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This provision implies a series of conditions through which the existence of State aid can be determined: first, that it is granted by a Member State or through state resources, i.e., is of Member State origin; second, that it gives the recipient (undertaking) an economic advantage; third, that it is granted selectively, i.e., through favoritism towards individual undertakings or industry sectors; fourth, that it distorts or could distort competition; and fifth, that affects or could affect trade between at least two Member States. These conditions are determined cumulatively, and consequently each is a condicio sine qua non; if any of the conditions is not met in an individual case, the measure being assessed is deemed not to be State aid in the aforementioned sense. We should also note that these conditions are objective and mutually dependent, and that they form a specific system, i.e., the concept of State aid, which is an autonomous concept EU law, which has to be taken into account in its interpretation. A brief overview of the above conditions is given below.426 5.1.5.1.1. Member State Origin Member State origin is a condition for designating a measure as State aid, as reflected in Art. 107(1) TFEU in the phrase “granted by a Member State or through State resources.” In case law it is interpreted such that in contains two elements: that the aid measure is imputable to a state or public authority and that it directly or indirectly encumbers or affects state resources. The first element, i.e., the imputability of the aid measure to a Member State, is self-evident when an aid measure is adopted directly at its own discretion427 by a state in the broadest sense of the term, i.e., a body that is an organic part of the structure of a national, regional or local authority, or 426

For more on these conditions see e.g., the Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, OJ C 262, 19. 7. 2016, 1–50. Cf. also Säcker and Montag 2016, 82–293; Hancher 2011, 49–120; Heidenhain 2010, 22–60; Quigley 2009, 3–60. 427 Therefore, an aid measure is not imputable to a Member State if the latter is under an obligation to implement the measure under EU law without any discretion. However, this is not the case if EU law simply allows for a certain national measure and the Member State enjoys discretion as to whether to adopt the measure or in establishing the characteristics of the measure.

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when the state as defined in this sense adopts a measure indirectly, such that it designates a private or public body to administer an aid measure. In such cases no special analysis is required, as the aid measure is imputable to a public authority by its very nature. However, the situation is different when an aid measure is adopted by a public undertaking. With regard to current case law, the circumstance that a public authority can exercise a dominant influence over the conduct of a public undertaking is not in itself sufficient to automatically impute the measure to that public authority. In other words, the mere potential for exercising influence is not material, what is material is the exercise of that potential; in short, in every case it is necessary to determine whether the public authorities can be regarded as having been involved, in one way or another, in adopting the observed aid measure.428 However, it does not need to be demonstrated that, in a particular case, the public authorities specifically incited the public undertaking to take the measure in question.429 In fact, since relations between the state and public undertakings are necessarily close, there is a real risk that State aid may be granted through the intermediary of those undertakings in a non-transparent manner and in breach of the rules on State aid laid down by the Treaty. 430 Moreover, precisely because of the privileged relations that exist between Member States and public undertakings, it will, as a general rule, be very difficult for a third party to demonstrate that measures taken by such an undertaking were in fact adopted on the instructions of the public authorities in a particular case. For these reasons, the imputability to the state of a measure taken by a public undertaking may be inferred from a set of indicators arising from the circumstances of the case and the context in which the measure was taken, for example the fact that the body in question could not take the contested decision without taking account of the requirements of the public authorities, furthermore the fact that, apart from factors of an organic nature which linked the public undertakings to the state, those undertakings, through the intermediary of which aid had been granted, had to take account of directives issued by public authority; moreover, the 428

See case C-482/99, France v Commission (Stardust Marine), ECLI:EU:C:2002:294. Ibid. 430 Ibid. 429

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following indicators can be considered: integration of the public undertaking into the structures of the public administration, the nature of its activities and the exercise of the latter on the market in normal conditions of competition with private operators, the legal status of the undertaking (in the sense of its being subject to public law or ordinary company law), the intensity of the supervision exercised by the public authorities over the management of the undertaking, or any other indicator showing, in the particular case, an involvement by the public authorities in the adoption of a measure or the unlikelihood of their not being involved, having regard also to the compass of the measure, its content or the conditions which it contains.431 The second element, i.e., the transfer of state resources, does not mean merely that the aid measure is funded from state resources in the strict sense but rather from public resources; what is actually meant is the use of all of the resources of the persons that constitute the public sector, i.e., including regional and local authorities and public undertakings, as well as the resources of persons under private law, under the condition that the public authorities have some sort of supervision of those funds, which provides them with actual authority in the sense of disposal with the funds or decisionmaking with regard to their allocation.432 The ability to dispose of or make decisions with regard to funds is also shown to be material with regard to distinguishing between the resources of the EU and those of the Member States. Funds provided to Member States by the EU in order to implement certain measures, for which the Member State has no substantive authority over the use of those funds, and its role is purely technical, are not considered resources of the Member State, and therefore the aid measure funded by these resources cannot be considered State aid. However, if the EU provides funds to a Member State in order to implement certain measures, and the Member State does have the substantive authority to decide on the use of those funds (within a defined framework that ensures the intended use of the funds), the aid measure can be considered State aid. A measure encumbers

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Ibid. The circumstance that they are held by persons under private law does not prejudice this and is not relevant in this respect. See for example case T-358/94, Compagnie nationale Air France v Commission of the European Communities, ECLI:EU:T:1996:194.

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public funds if it is de facto funded by the state in the broadest sense of the term, which in practice usually appears as higher expenditure or lower revenue, with a focus on the cost point.433 A measure that provides an economic advantage to an undertaking but that does not encumber public funds is not State aid in the sense of Art. 107(1) TFEU.434 5.1.5.1.2. Advantage An advantage in the sense of Art. 107(1) TFEU, i.e., any aid in any form whatsoever,435 is any economic benefit which an undertaking436 could not have obtained under normal market conditions, that is to say, in the absence of state intervention.437 It is therefore anything that improves the financial and economic position, and thereby the market competitiveness, of an undertaking.438 In practice, this improved position usually manifests as an increase in the value of the undertaking’s assets, or as the maintaining of value or a smaller decrease in value in comparison with its position had the measure not been implemented.439 The point is that the undertaking is better off in comparison to its position before the implementation of the measure, whereby only 433

As explained below, transfers of public funds can be carried out in several forms. For example, an obligation imposed by a Member State on private electricity suppliers to purchase electricity produced from renewable energy sources at fixed minimum prices does not entail the direct or indirect transfer of State resources to undertakings which produce that type of electricity. Namely, the private electricity suppliers are not appointed by the state to manage an aid scheme, but are only bound by an obligation to purchase a specific type of electricity with their own financial resources. However, a transfer of state resources is present where the charges paid by private persons transit through a public or private entity designated to channel them to the beneficiaries. See case C-379/98, PreussenElektra, ECLI:EU:C:2001:160. 435 Advantage can be conferred through various public law and private law legal acts, i.e., via the classical jure imperii operations of authorities (grants and subsidies, tax credits, special or exclusive rights) or through ordinary market transactions, i.e., jure gestionis operations (recapitalizations, sales, purchases, guarantees, loans, etc.). Here we should note that advantage is not created only through active conduct, but also passively, for instance when a debt based on a law or a contract is not recovered. 436 Here, the concept of undertaking is the same as in Art. 101, 102 and 106 TFEU. 437 See for example case C-39/94, SFEI and Others, ECLI:EU:C:1996:285. 438 Here the reason and/or objective of the measure is not essential from the perspective of the existence of an advantage, but rather its positive effect for the undertaking or undertakings that are its beneficiaries. 439 A relevant advantage can also be generated through various measures that reduce the undertaking’s financial burden, which under normal conditions it would have to bear by itself. 434

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advantages that are consequences of the measure are taken into account. However, the decisive criterion for the existence of aid is a qualified440 advantage for the undertaking. The existence of a qualified advantage for an undertaking must be assessed on a case-by-case basis. In some cases this is not difficult, as it is already clear at first glance that the measure concerned generates a qualified advantage for at least one undertaking,441 while in other cases the assessment is extremely difficult and is conducted using special tests or principles depending on the type of measure being assessed. For measures that have the form of classical market transactions, such as recapitalizations, sales, purchases, loans, guarantees, etc., the existence of a qualified advantage is assessed on the basis of the market economy operator principle, while measures that have the form of public (co)financing of services of general economic interest are assessed using the Altmark principle, as discussed below. Advantage Assessment in the Case of Classical Market Transactions: The Market Economy Operator Principle Advantage assessment in the case of classical market transactions, such as recapitalizations, sales, purchases, loans and guarantees, is generally carried out using the market economy operator principle. Under this principle, the conduct of the public authority442 within the framework of a classical market transaction is compared with the actual or hypothetical conduct of a prudent and rational market economy private operator, which over a sufficiently large and reasonable time period leads to a reasonable 440

A qualified advantage in this sense means an advantage that is larger than the advantage that can be achieved under normal market conditions. Obviously, economic activities are carried out in order to generate a profit, and therefore normal benefits, such as profits generated by private companies on the basis of the sale of products or services, are principally not considered an advantage in the sense of Art. 107(1) TFEU. In principle, an advantage is considered to have been conferred only if the state in that transaction acts in a way that does not follow the logic of the market. 441 If what is being assessed is e.g., the provision of grants or tax credits that a public authority confers in the execution of its governmental duties via a public law act in the context of the achieving of various public policy objectives, the assessment is in principle not difficult, since even at first glance it is clear that the undertaking is receiving something that it would not receive through normal market operations. 442 And in some cases other persons that are the extended arms of public authorities.

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profit upon the assumption of a reasonable amount of risk. If possible, an actual company that engages in actual market transactions is used as the reference company,443 and if this is not possible a hypothetical company with the aforementioned characteristics is used. Since there is a considerably wide range of classical market transactions that differ from each other substantially, the market economy operator principle is adapted to the specifics of each individual transaction.444 In fact, we can speak of several subtypes of the market economy operator principle, e.g., the market economy investor principle, market economy seller principle, market economy buyer principle, market economy creditor principle, market economy guarantor principle etc. A detailed discussion of these subtypes would exceed the purpose of this book, therefore we direct the reader to abovementioned references that explore this content in greater depth, including the soft law instruments provided by the European Commission to that end. Advantage Assessment in the Public Financing of Services of General Economic Interest: The Altmark Principle Advantage assessment in the public financing of services of general economic interest is nowadays445 usually carried out using the Altmark principle, which is applied in order to check whether public financing is to If for instance half of an undertaking’s shares are held by the state and half by a private law undertaking that has the aforementioned characteristics, and recapitalization is carried out in which the private company recapitalizes its fifty-percent share independently of the actions of the state, this is generally considered to be an indication that the recapitalization follows market logic. However, in such case it could be based on a market rationale that is refutable, meaning that it is possible to demonstrate that a recapitalization carried out by the public authorities, despite the concurrent and unconditional recapitalization by the private shareholder, does not adhere to market logic. The same applies in the opposite direction, i.e., if the private shareholder decides not to recapitalize, this would not automatically mean that a recapitalization by the public authorities does not adhere to market logic, and therefore that the undertaking in question gained an advantage that it would not have gained under normal market conditions. The public authorities could e.g., demonstrate that the private shareholder decided not to recapitalize because it did not have the money or because it wanted to redirect its operations into other sectors, i.e., it could demonstrate that the market irrationality of recapitalization was not the reason that the private shareholder did not recapitalize the company. 444 It is clear e.g., that the role of an investor that buys a share is different from the role of a lender that buys a bond. 445 Case C-280/00, Altmark, ECLI:EU:C:2003:415, was pivotal in this area. 443

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be regarded purely as compensation for services provided by recipient undertakings in order to discharge public service obligations. If the answer is affirmative, there is no advantage in the sense of Art. 107(1) TFEU,446 but if the answer is negative, there is an advantage in the aforementioned sense (and the public financing measure can be considered State aid if all the other conditions set out in Art. 107(1) TFEU are met). The Altmark principle is designed as a test consisting of four cumulatively defined conditions: First, the recipient undertaking is actually required to discharge public service obligations and those obligations have been clearly defined. Second, the parameters on the basis of which the compensation is calculated have been established beforehand in an objective and transparent manner. Third, the compensation does not exceed what is necessary to cover all or part of the costs incurred in discharging the public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations. Fourth, where the undertaking which is to discharge public service obligations is not chosen in a public procurement procedure, the level of compensation needed has been determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of the respective activity so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations. Below we provide some explanations to these four conditions.447 The first condition of the Altmark test requires the clear establishing of the public service obligations448 that the recipient undertaking actually carries out on the basis of an entrustment act.449 The purpose of this 446

Moreover, if the conditions for de minimis aid are met there is also no advantage in the abovementioned sense; see in particular Regulation 360/2012. 447 For more see the Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest, OJ C 8, 11. 1. 2012, p. 4–14. 448 These obligations are attached to at least one service of general economic interest in the sense of Art. 106(2) TFEU. 449 An entrustment act may take the form of a legislative or regulatory instrument or of a contract (or a combination of the aforementioned instruments), and it must at least specify: the content and duration of the public service obligations; the undertaking and, where applicable, the territory concerned; the nature of any exclusive or special rights assigned to the undertaking

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condition is to ensure the clear definition of what is eligible and what of that is carried out, as this is the only way to assess the appropriateness of the payment amount. It also serves as the basis on which the remaining conditions are built. The second condition of the Altmark test requires an appropriate method for determining the parameters for the calculation of the amount of compensation. That is, it is not the amount of compensation that needs to be determined in advance, but the method of calculation. Although it is not necessary, it is preferable that the parameters be determined within the framework of an abstract formula. The objectivity, verifiability and accessibility of the relevant data must be ensured as much as possible. All of this serves to ensure that the parameters are not arbitrarily and nontransparently selected and defined on the tailor-made basis, thus favoring certain company or companies. The third condition of the Altmark test dictates the use of the principle of the net additional costs of the recipient undertaking, in order to avoid overcompensation. The objective here is not to nullify the operations of the recipient undertaking, as it is normal for companies to pursue profits in a market economy, and therefore this is not disputed if it is reasonable and as such does not undermine the equivalence between the (public) outlay and the (private) matching payment. The starting point for the calculation of reasonable compensation is the additional costs of the discharge of the public service obligations, and therefore they do not include the costs of the provision of all services, but only the costs of those services that are included in the “public service”. The costs that the undertaking would incur even if the undertaking did not discharge its public service obligations are also not included in the calculation. Opportunity costs, i.e., the costs of capital invested by an undertaking, may be included, taking a reasonable profit into account. When the relevant costs, including a reasonable profit, are finally identified, and revenues gained through the provision of the service are by the authority in question; the parameters for calculating, controlling and reviewing the compensation; and the arrangements for avoiding and recovering any overcompensation. See the Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest, OJ C 8, 11.1.2012, p. 4–14.

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subtracted, the calculation can be performed. In short, as the European Commission pointed out in its abovementioned soft law instrument, the compensation must not exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit. The fourth condition of the Altmark test requires the application of the principle of cost effectiveness. This means that not all of the costs incurred by an undertaking in line with the third condition above are taken into account; even though the undertaking in fact incurred them, they are only taken into consideration if they were incurred due to the rational conduct of the undertaking. With respect to the practice of the European Commission, as shown for the aforementioned soft law instrument, can be based on two alternative methods: the compensation offered must either be the result of a public procurement procedure which allows for selection of the tenderer capable of providing those services at the least cost to the community, 450 or the result of a benchmarking exercise with a typical undertaking, well run and adequately provided with the necessary means. In view of the various uncertainties regarding the second option and the associated potential complications, the conducting of a suitable public procurement procedure, if possible, is recommended in order to realize this condition. The development of events in this area to date has shown two things: that there are very few cases in practice in which these strict conditions are actually met, and that there is still a lot of confusion associated with these conditions. In order to provide additional clarity, transparency and flexibility in this area, the European Commission issued two document packages, in 2005 and 2011/2012. The currently applicable package, called the Almunia package or the SGEI II package,451 comprises four documents: Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest;452 Commission Decision 2012/21/EU of 20 450

From this we can conclude that not just any public procurement procedure is relevant to the fourth Altmark condition, but only those procedures that provide the lowest costs, without of course lowering the desired quality of the service. 451 The previous package from 2005 was known as the Monti/Kroes package. 452 OJ C 8, 11. 1. 2012, p. 4–14.

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December 2011 on the application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest;453 Communication from the Commission — European Union framework for State aid in the form of public service compensation (2011);454 and Commission Regulation (EU) No 360/2012 of 25 April 2012 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest.455 These documents differ from each other, inter alia, with regard to their legal nature and function. The first document is an explanatory instrument of soft law, which contains an explanation of the concept of State aid with an emphasis on the Altmark test and related concepts. The second document is a decision which sets out the conditions for so-called block exemptions. If these conditions are met in an individual case, this does not eliminate the public funding measure’s ability to generate an advantage in the sense of Art. 107(1) TFEU for an individual provider of a service of general economic interest, and therefore this decision is not relevant from the perspective of the existence of State aid, but rather from the perspective of the compatibility of State aid with the internal market. That is, if the conditions for a block exemption are met, this means that the public funding measure in question, which is State aid in the sense of Art. 107(1) TFEU, is automatically considered to be compatible with internal market, and the notification and standstill obligation in the sense of Art. 108(3) TFEU does not apply. The third document is an explanatory instrument of soft law, which is similarly relevant from the perspective of the question of compatibility with the internal market, but in contrast to the aforementioned Decision it does not allow exemption from the notification and standstill obligation, but merely attempts to increase legal certainty by reporting the rules and method that the European Commission will use to assess the proposed public funding measure form the perspective of its compatibility 453

OJ L 7, 11. 1. 2012, p. 3–10. OJ C 8, 11. 1. 2012, p. 15–22. 455 OJ L 114, 26. 4. 2012, p. 8–13. 454

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with the internal market. The fourth document is a regulation that sets out the conditions for so-called de minimis aid. If all of the conditions set out in the regulation are met, the public funding measure is deemed not to distort competition on the internal market and not to affect trade between Member States, which means that in view of the fact that the conditions for State aid set out in Art. 107(1) TFEU are defined cumulatively, the measure in question is not State aid in the sense of Art. 107(1) TFEU.456 5.1.5.1.3. Selectivity Selectivity in the sense of Art. 107(1) TFEU, i.e., the favoring of certain undertakings or the production of certain goods, is simply the unjustified favoring of certain undertakings with respect to other undertakings that are in an equivalent legal or actual position, which is a withdrawal from the principle of equal treatment. In other words, not all measures which favor one or more undertakings fall under the notion of State aid, but only those which grant an advantage in a selective way to certain undertakings or categories of undertakings or to certain economic sectors. The opposite of selective measures are general measures, which are not covered by Art. 107(1) TFEU. One has to distinguish between material and regional selectivity.457 It is also reasonable to take note of specific features when determining the selectivity of tax measures.458 These are very complex legal issues and their discussion would go beyond the purpose of this book. 5.1.5.1.4. Distortion of Market Competition The distortion of market competition in the sense of Art. 107(1) TFEU means the distortion or threat of distortion of market competition in the internal market. The CJEU has noted in several cases that this condition is satisfied when a measure is liable to improve the competitive position of the recipient compared to other undertakings with which it competes.459 456

Thus, de minimis aid is not State aid in the sense of Art. 107(1) TFEU. See the Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, OJ C 262, 19. 7. 2016, 1–50. 458 Ibid. 459 See for example case 730/79, Philip Morris, ECLI:EU:C:1980:209. 457

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Moreover, this condition is generally considered to exist when the state grants a financial advantage to an undertaking in a liberalized sector where there is, or could be, market competition in the internal market. On the other hand, one can reasonably presume there is no distortion or threat of distortion of competition in the internal market in the case that: the service is subject to a legal monopoly which is established in total compliance with EU law, and the legal monopoly excludes competition for the market,460 the service is not in competition with other services, and there is no cross-subsidization. Although even relatively small amounts of aid can distort competition, especially aid granted to undertakings operating on a highly competitive market, in cases where the conditions461 for de minimis aid are met this is not considered to be the case. As noted above, de minimis aid is not State aid in the sense of Art. 107(1) TFEU. 5.1.5.1.5. Effect on Trade between Member States Effect on trade in the sense of Art. 107(1) TFEU means an actual effect or potential effect on trade between two or more Member States. This refers to cross-border trade or economic activities in connection with goods, services or capital between two or more Member States proceeding differently than it would if the aid in question were not provided. This occurs when a recipient improves its competitive or market position in at least one Member State due to the aid received, which is possible if the relevant market includes at least two Member States. In this case, the trade between at least two Member States can also be affected even if the aid recipient creates all of its turnover in just one country, as the artificial improvement of the recipient’s competitive position makes it harder for other undertakings to enter the market in the Member State in which the recipient receives the aid. 460 461

Not merely competition within the market. De minimis regulations define several conditions, including the maximum amount of aid. If the amount of aid is below a certain threshold, e.g., €500.000 in the three years in case of special de minimis regulation for services of general economic interest (while in some cases this threshold amounts €100.000 or €200.000 according to the general de minimis regulations), the aid is considered to be de minimis.

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At the same time it is worth noting that some measures can have only a purely local impact, and in such case they do not fall under Art. 107(1) TFEU.462 The same situation applies to de minimis aid as described above with regard to the condition of the (potential) distortion of competition. Thus although even relatively small amounts of aid can affect cross-border trade, in cases where the conditions for de minimis aid are met, this is not deemed to be the case.463 As we have noted, de minimis aid is not State aid in the sense of Art. 107(1) TFEU. 5.1.5.2. Additional Steps in the Application of the Rules on State Aid in the Event of a State Aid Measure in the Sense of Art. 107(1) TFEU The additional steps to be taken in the application of the rules on State aid in the event of a State aid measure in the sense of Art. 107(1) TFEU464 depend on the type465 of State aid and the accompanying circumstances that affect the application of the rules and the exceptions thereto, as we shall briefly cover below. The emphasis is on the question of (in)compatibility of State aid with the internal market and the listing of the exceptions to the obligations relating to State aid, and particularly to the notification and standstill obligation, and to the primary legal consequences of breach of those obligations. The procedural aspect has not been dealt with separately or in depth, but for practical reasons we should note here that the main procedural provision in the area of State aid is Art. 108 TFEU, which is supported by several acts, of which Regulation 2015/1589 is of particular importance, and the soft law instruments also have significant practical value.466

462

See the Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, OJ C 262, 19. 7. 2016, 1–50. 463 The same conditions are applicable as for the distortion of market competition. 464 If the measure in question is not State aid in the aforementioned sense, the other rules on State aid do not apply. 465 E.g., de minimis aid. 466 See the list of legal acts and soft law instruments at the European Commission webpage: http://ec.europa.eu/competition/state_aid/legislation/rules.html.

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5.1.5.2.1. The Incompatibility of State Aid with the Internal Market and Exceptions The principle of the incompatibility of State aid with the internal market is set out in Art. 107(1) TFEU, which states: “Save as otherwise provided in the Treaties, any aid […] shall, […], be incompatible with the internal market.” EU law thus does not stipulate the absolute incompatibility of State aid with the internal market, but only its relative incompatibility, meaning that there are exceptions whereby certain State aid measures are compatible with the internal market. Thus, as a rule, the EU law treats State aids as a poison while exceptionally they are treated as a medicine. These exceptions can be determined only in the Treaties, and can of course be specified in the acts based on the Treaties. The TFEU sets out the exceptions, i.e., the conditions that have to be met for State aid to be deemed compatible with the internal market, in several provisions, namely, Art. 42, 93, 106(2), 107(2), 107(3), 108(2)(3-5), and 346(1)(b) TFEU. From the perspective of the focus of this book, the most important exception is that set out in Art. 106(2) TFEU, which refers directly to services of general economic interest. It is essentially a provision that sets out not just the conditions for waiving the application of the EU’s State aid rules, but also the conditions for waiving the application of other EU rules, and therefore this provision is discussed in a separate chapter, and is merely emphasized here as an important exception.467 5.1.5.2.2. Notification and Standstill Obligation The notification and standstill obligation is set out in Art. 108(3) TFEU, and it means that Member States468 must in principle report any planned (new) State aid to the European Commission and not to grant it until the 467

Here again we should emphasize the connection to Art. 106(2) TFEU and the aforementioned Almunia package. 468 In their relations with the EU, the Member States are always obliged to adhere to the EU’s State aid rules, as are parties to State aid proceedings before the European Commission and the Court of Justice of the EU. This also applies when the State aid is granted by regional or local public authorities or public undertakings.

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European Commission decides on its compatibility469 with the internal market and issues a decision to that effect.470 This notification and standstill obligation however is not required if the conditions for one of the available block exemptions (as set out in EU acts) are met, as in this case the European Commission holds that such State aid is automatically compatible with the internal market, and does not require the conducting of a prior assessment of the compatibility of that State aid,471 or if it is aid granted under an aid scheme already authorised by the European Commission.472 Of course the

469

The question of compatibility with the internal market has to be distinguished from the question of the legality (lawfulness) of the granting of the aid. The former relates to a substantive assessment and the associated application of substantive rules, while the latter usually involves a formal judgement and the associated application of procedural rules; that is, the question of legality (within which in principle the existence of State aid would also have to be decided, which dictates an assessment of some substantive rules) relates to adherence to the notification and standstill obligation, which are of a procedural nature. If the State aid was granted in such a way that the notification and standstill obligation was breached, the State aid is deemed to be unlawful. However, the mere circumstance that State aid is unlawful does not prejudice the assessment of its compatibility with the internal market. The assessment of compatibility with the internal market still has to be carried out, whereby it is possible that unlawful State aid will be found to be compatible with the internal market. In such cases the State aid is considered to be incontestable from the moment that the European Commission issues a decision in which it promulgates the State aid as compatible with the internal market, and does not have to be returned or recovered, but this does not mean that there are no legal consequences, as the recipient of such aid has to pay the interest for the time of the unjustified use of the aid, i.e., from the moment of the unlawful granting of the aid to the moment of issuance of the aforementioned positive decision, and claims for damages are also possible from competitors that incurred losses on that account. 470 The European Commission has the exclusive competence to decide on the compatibility of State aid with the internal market. Member States, or more precisely their courts of law, have the competence for deciding on whether State aid was granted lawfully (here it is significant that Art. 108(3) TFEU has direct effect, and consequently competitors of the recipient of allegedly unlawful State aid and other persons that demonstrate a legal interest are able to file various claims before competent national courts, as discussed in the chapter on the main consequences of breaches of obligation in relation to State aid), and for executing the European Commission’s decisions. When executing European Commission decision, it is very important in practice that EU law be applied consistently, including the fundamental principles such as the principle of primacy and the principle of effectiveness (which limits the principle of national procedural “autonomy”). 471 Of course this does not exclude any subsequent judgements, in which it can be found that not all of the conditions for a block exemption were met at the time of the granting of the State aid, and in such case the State aid is deemed to have been granted unlawfully and all of the aforementioned applies. 472 Some add a third exception to the notification and standstill obligation, i.e., de minimis aid, but this is in fact not an exception to the aforementioned obligations; as stated, de minimis aid is not State aid in the sense of Art. 107(1) TFEU, and therefore this obligation never arises, and no exception is needed.

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European Commission is also competent to decide on State aid (and its compatibility with the internal market) that was granted unlawfully, i.e., through a breach of the notification and standstill obligation, but as already pointed out the breach of this obligation does not eliminate the need to assess the compatibility of the State aid in question with the internal market, nor does it prejudice the results of that assessment. 5.1.5.2.3. Main Legal Consequences of Breaches of Obligations Relating to State Aid The main legal consequences of breaches of obligations relating to State aid should first be discussed in relation to the breach of the notification and standstill obligation, which is assessed before the competent national courts when they apply Art. 108(3) TFEU. The typical consequences are: prevention of the payment of unlawful aid; recovery of unlawful aid (regardless of compatibility); recovery of interest; damages for competitors and other third parties; and interim measures against unlawful aid.473 We should also examine the situation in which the European Commission issues a decision in which it finds a breach of the EU State aid rules, where a finding that the unlawfully granted State aid is incompatible with the internal market is merely the top of the iceberg, and consequently the Member State is ordered to carry out the immediate and effective recovery of the contested State aid from the recipient of this aid together with interest for the unjustified use of the contested State aid for the period from the date of the unlawful granting of the State aid to the date of its recovery or return. A Member State that grants unlawful State aid or even State aid that is incompatible with the internal market is not sued for this breach before the Court of Justice of the EU by the European Commission, but can be sued before this court if it fails timely and effectively to recover the contested aid from the recipient. This can occur particularly if the recipient does not want to return the contested State aid and recovery has to be effected by legal means, whereby the judges in such proceedings occasionally unjustifiably cite procedural “autonomy,” and forget about its 473

See the Commission's notice on the enforcement of State aid law by national courts, OJ C 85, 9. 4. 2009, p. 1–22.

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limits as set out e.g., under the principle of effectiveness. In such case, the Member State can be found to be in breach of EU law and can be imposed the classical sanctions laid down for breaches of EU law, as well as the additional separate sanction of a blockage of State aid, which could otherwise be approved by the European Commission. Here again it is possible that the Member State is sued for damages by the injured parties, particularly the recipient’s competitors. On the other hand, we should also note that the recipient of the contested State aid is not a party to the proceedings before the European Commission relating to the contested State aid, but is a party to the proceedings before the competent national bodies when the state demands the reimbursement or recovery of the contested State aid and the payment of the accompanying interest. In some Member States it is also possible for the recipient to be liable to its competitors for the damages, but this is more the exception than the rule. With regard to the above, it is clear that breaches of obligation in relation to State aid can lead to far-reaching legal consequences, which is all the more important in the area of services of general economic interest, in which no such breaches should be allowed to occur due to the importance of these services to the normal operation of society.

5.2. Exceptional Non-Application of Competition Rules and of Other Internal Market Rules in Order to Achieve the Politically Desired Provision of Services of General Economic Interest: An Analysis of Art. 106(2) TFEU 5.2.1. Introduction to Art. 106(2) TFEU Art. 106(2) TFEU reads as follows: “Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Union.”

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As pointed out at the beginning of this chapter, this provision is among the most controversial provisions of the Treaties because of its flexible 474 character and even more because of its importance for the effective provision of services of general economic interest, in the context of which it demands the balancing of conflicting interests or aims, approaches and even ideologies.475 The provision in question is part of Art. 106 TFEU, and must be interpreted in connection with Art. 106(1) and 106(3) TFEU as well as with other provisions of the Treaties. Art. 106(2) TFEU explicitly demands the application of the rules contained in the Treaties, and in this regard it underlines importance of the competition rules.476 The wording of the provision has been practically477 the same from the very beginning, i.e., since the end of the nineteen-fifties, while some other provisions of the Treaties were subsequently modified or even drafted anew. Moreover, the political orientation has also changed over time, which at least in some cases has led to a change in the interpretation of this as well as of other provisions.478 Old habits die hard, indeed. But the interpretation of Art. 106(2) TFEU must always be carried out with due consideration of the current legal, socio474

However, even those who are highly critical of the predominant interpretation and application of Art. 106(2) TFEU usually do not blame the provision itself; cf. Burke 2018, xii. 475 Some argue the provision is there solely to redress market failures (in the narrow sense) while some (still) believe its sole mission is to prevent government failures. For me, both kind of failures are problematic, yet I understand the provision in question primarily as a safeguard for special services which are essential but which the market is not capable of delivering in a desired way, and therefore an appropriate market intervention is needed. Hence, I favor interpretations of the provision which enable its primary function while I oppose to those which can de facto deprive the provision of its effect. Moreover, the “new context” after the Lisbon Treaty which is discussed in this chapter suggests the obligation of market intervention, i.e., a duty to intervene, where the intervention is needed in order to ensure the effective provision of services of general economic interest. Thus, nowadays even passive behavior can be considered as a kind of government failure. 476 Moreover, Art. 106(2) TFEU is part of the chapter which contains the rules on competition. 477 Strictly speaking, one can find minor differences between Art. 106(2) TFEU and Art. 90(2) TEEC, since the wording of the latter was as follows: “Undertakings entrusted with the operation of services of general economic interest or having the character of a revenueproducing monopoly shall be subject to the rules contained in this Treaty [now: the Treaties], in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community [now: Union].” 478 In this regard, case C-320/91, Corbeau, ECLI:EU:C:1993:198, seems to be a good example.

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economic and political environment which can lead us to a departure from the old approaches in favor of new ones.479 For example, the Lisbon Treaty introduced several new aims of the EU, and in this regard a new balancing of the aims is needed, in particular between economic and non-economic aims. This is important since services of general economic interest are in principle also related to various noneconomic aims, e.g., social and territorial cohesion, solidarity, social inclusion, social justice and protection etc. We should point out once again that after the Lisbon Treaty it became “official” that the concept of social market economy is to be pursued, which could be interpreted such that at the abstract level there is no hierarchy between economic and non-economic aims of the EU. In other words, economic aims do not automatically prevail over non-economic aims in the event of a conflict between the two. The ranking of aims is only allowed in each particular case on the basis of the careful prior analysis of all relevant facts. Moreover, the Amsterdam Treaty introduced a new provision on services of general economic interest, namely Art. 16 of the former TEC,480 which was modified by the Lisbon Treaty and now appears as Art. 14 TFEU. The latter is more clear than its predecessor, in particular when it is read in conjunction with Protocol (No 26) on services of general interest. This provision is discussed in a separate section of this chapter,481 but also at this point it is worth pointing out once again that it strengthens the position of services of general economic interest in EU law, which in my opinion should also be considered when interpreting Art. 106(2) TFEU.482

479

Thus, a dynamic approach applies when interpreting the hard law of the EU, and in this regard it is crucial to be familiar with the relevant case law and soft law. Cf. Krajewski, Neergaard, and van de Gronden 2009, 1–267; Nistor 2011, 208–240 and 283–392; Neergaard, Nielsen, and Roseberry 2009, 29–307. 480 The introduction of this provision triggered a lively debate regarding its meaning and actual function. See more in Prosser 2005a, 159–161. 481 See supra, section 3 of this chapter. 482 The fact that Art. 14 TFEU explicitly states “Without prejudice to Article 4 of the Treaty on European Union or to Articles 93, 106 and 107 of this Treaty […]” does not exclude consideration of this provision when interpreting Art. 106(2) TFEU and vice versa. Moreover, in addition to Art. 14 TFEU, in my opinion also Art. 36 CFREU strengthens the position of services of general economic interest and should be considered when interpreting Art. 106(2) TFEU.

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5.2.2. Genesis of Art. 106(2) TFEU The history of the development of what is now called Art. 106(2) TFEU reveals various scenarios in the background of this provision, which allow an easier understanding of its role with respect to its (intentionally)483 ambiguous, or let us rather say flexible, wording. To begin with we should note that considerable conceptual differences among the Member States appeared during the development of the original text of this provision. Two of these are worth focusing on here. First, there were (and still are) differences among the Member States in the understanding of and the role of the national concepts of “public services.”484 This is probably why they decided on the term services of general economic interest,485 which differed substantially from the terms that the original Member States had used in this area, and even at a symbolic level indicated its supranational character. It is sufficiently broad as to continue to allow the Member States to develop their national concepts within its scope, but they must ensure that they do not overstep the external borders of the supranational concept. Thus on one hand it ensures a certain Moreover, it seems this view is now also accepted in the case law. Namely, in his opinion in the case C-121/15, ANODE, ECLI:EU:C:2016:248, Advocate General Mengozzi explicitly pointed out the importance of the new (constitutional) context when interpreting Art. 106(2) TFEU or to quote his view: “More generally, I think that, according to a systematic and coherent approach in EU law, the condition laid down by Directive 2009/73/EC that public service obligations in the gas sector must be imposed ‘in the general economic interest’ should be interpreted in the light of the other relevant provisions of EU law, in particular of primary law. In that respect, it is inevitable to set that interpretation in the new context resulting from the entry into force of the Treaty of Lisbon, which includes, as well as Article 106 TFEU, Article 14 TFEU, the new Protocol No 26 on services of general interest (‘Protocol No 26’) and Article 36 of the Charter of Fundamental Rights of the European Union concerning access to services of general economic interest, which has acquired the same legal value as the Treaties.” The Court of Justice of the EU seems to endorse this view since it pointed out “[…] the interpretation of the condition relating to general economic interest must be set in the new context following from the entry into force of the Treaty of Lisbon […]; see case C-121/15, ANODE, ECLI:EU:C:2016:637. 483 Following this line of thought, the Treaty should not to be too clear because it would have been difficult to pass it through Parliament. Cf. Wernicke 2013, 4; Ambrosius 2000, 26. 484 As noted above, e.g., the French concept “service public,” the German concept “Daseinsvorsorge” or “öffentliche Dienstleistungen” and the English concept “public service” are not identical. 485 Ironically, this is a concept that in translation is similar to a concept used in Slovenia for this purpose up to the end of the eighties, when it was a part of the Socialist Federal Republic of Yugoslavia (and perhaps elsewhere), but this circumstance has no effect on the interpretation of the concept of services of general economic interest in the sense of Art. 106(2) TFEU.

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degree of flexibility, which allows Member States to develop their national specificities at least to a certain extent, while at the same time it provides an adequate level of standardization required for the integration of the internal market. In this respect it is in fact an effective compromise. Second, the original Member States understood the role of the state on the market differently, both in the sense of classical interventionism and in the sense of participation in (public) entrepreneurship.486 It is therefore no surprise that during the negotiations they had different ideas about how to address public (and privileged) undertakings authorized to provide services of general economic interest, i.e., under a general or a special legal regime.487 The founding countries that had a large number of powerful public undertakings endeavored to remove them from the scope of the then Community law, which was of course opposed by those countries that did not have large numbers of such companies. In the end, the position of the latter prevailed, and in principle, the then Community law was applicable to public (and privileged) undertakings or undertakings that carry out specific tasks in the general interest, however, only to the extent that its application did not obstruct the performance, in law or in fact, of the particular tasks assigned to them. So, exceptions to or the limited application of the then Community law were acceptable under strict conditions, but it was not acceptable a priori or automatically to exempt the entrusted undertaking entirely from the application of the Treaty rules.488 Furthermore, it is worth noting that during the negotiations on the wording of the provision in question, various other elements of the current Art. 106(2) TFEU were contested, in particular “general interest”, “granting of rights”, “obstruct”489 and “the interests of the EU.” 486

The presence of public undertakings operating on some markets on which competition was entirely or severely restricted was most characteristic of France and Italy, but substantially less characteristic of the other original Member States. 487 During the negotiations among the original Member States there was in principle a consensus that all (unprivileged) private undertakings were subject to the competition rules. 488 This was also in line with the Spaak Report (1956), which listed the prevention of distortion of competition by public authorities as a precondition for the establishment of the Common Market. 489 The Germans e.g., relatively clearly advocated the phrase “nicht unzumutbar erschwert” but in the end the word “verhindert” was used (cf. Ambrosius 2000, 34; Essebier, 233) which makes the exception less applicable. Moreover, the word “verhindert” seems to be stricter than the word

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It can be seen in the records and the results of the negotiations that the drafters of the Treaty did not want to infuse the Member States’ national concepts into the provision, but to restrict it in principle to sui generis concepts, which are an expression of compromise, which has to be taken into account in its interpretation. In this connection it is also important to point out various problems that existed upon the signing of the Treaty or occurred during its subsequent application, which were not just a logical consequence of the compromise and the tendency towards an unclear formulation that was intended to ease the Treaty’s ratification process in the national parliaments; some of them were apparently a consequence of the fact that the drafters of the Treaty were in some cases probably not aware of all of the dimensions that they had created through this provision and through the Treaty in general.490 In these cases it is difficult to advocate for an interpretation that accords (solely) with the will of the drafters of the provision, and furthermore it is reasonable491 to take all of the available explanatory or interpretative methods strictly into account when interpreting this provision. This thesis indicates that the interesting story of Art. 106(2) TFEU continues. Indeed, the story did not end with the codification of the provision discussed above, since its codification merely signals the end of the introductory chapter, while the core of the story follows in the chapters discussing its interpretation and application from the early years of the European integration process up to the present time. It is anything but a boring story, particularly in the last three decades,492 since it has been very “behindert” (the latter, however, seems to be closer to the English word “obstruct” than the former). 490 See Rottmann 2007, 336–342. 491 Of course taking into account all of the aspects that could be derived from case law. 492 In general, the beginning of the dramatic part of the story seems to coincide with the process of liberalization of certain infrastructure sectors (i.e., with its early years), which is probably most clear in case C-320/91, Corbeau, ECLI:EU:C:1993:198. The latter is often described as the start of the new era and it seems to suggest that the then ECJ was ready to depart from its earlier position according to which market competition was considered an end in itself, and to accept services of general economic interest as a concept of equal importance to competition within the internal market, i.e., as a building block of the European social model and part of the internal market, and more broadly, of EU law. It seems that after this case, services of general economic interest were no longer considered a “persistent irritant” or an obstacle to competition and the establishment of the internal market, but rather as a concept

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dramatic, full of battles between supranational and national interests, between the interests of different Member States, between economic and non-economic aims, between different ideologies, and even between intellect and emotions as explained below.

5.2.3. Function of Art. 106(2) TFEU The function of Art. 106(2) TFEU is to ensure the normal or let us say effective provision of services of general economic interest and in this sense to prevent the application of the EU's (economic) rules, in particular the competition rules, in cases where they would obstruct the performance, in law or in fact, of the particular tasks, i.e., public service obligations, assigned to undertakings entrusted with operation of services of general economic interest. Art. 106(2) TFEU thus provides for an exception; if the strict conditions are met, in certain cases it is possible to waive the application of “obstructive” EU rules. In this respect we could speak of a compromise and the need to seek a balance between economic and non-economic public objectives. 5.2.4. Beneficiaries of Art. 106(2) TFEU There are several beneficiaries of Art. 106(2) TFEU, including in the final analysis users of services of general economic interest. However, at this point we shall focus purely on the legal sphere or more precisely, on the having a value in itself (cf. Prosser 2005, 174; Schweitzer 2001, 97–170). As a consequence, as pointed out by Melcher (and discussed in section 5.2.6.4. of this chapter), “Art. 106(2) TFEU was not used as an exemption rule strictu sensu (anymore), but is rather applied as a balancing provision for the welfare (and economic) interests of the Member States and the EU regarding the operation of services of general economic interest on the one hand and the establishment and functioning of the internal market on the other hand. This interpretation is much more in line with the original purpose of Art. 106(2) TFEU as a compromise between the more public service-oriented and the more market-oriented systems of the Member States. It is also supported by the ‘new’ (legal) context of services of general economic interest, namely Art. 14 TFEU, the Protocol [No. 26] and Art. 36 CFREU, which the CJEU now explicitly takes into account when interpreting Art. 106(2) TFEU. Finally, the interpretation of Art. 106(2) TFEU as a balancing rule together with the reference to a “social market economy” that was introduced by the Treaty of Lisbon shows that (undistorted) competition should not been seen as an overarching objective of EU law, but rather as a tool that is used to enhance the functioning of the market, including its more welfare oriented aspects.”; see Melcher 2017, 10.

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question of who can invoke the exception set out in Art. 106(2) TFEU; i.e., undertakings entrusted with the operation of services of general economic interest, Member States, or both. It is relatively indisputable that the aforementioned “entrusted” undertakings can invoke this exception.493 This is supported in particular by the fact that the provision in question refers directly to “entrusted” undertakings, and that it appears in the TFEU’s section on Rules Applying to Undertakings. The circumstances that could potentially negate this position – i.e., that the first paragraph refers expressly to Member States and that the third paragraph also stipulates that the directives and decisions be addressed to the Member States – do not seem to constitute a sufficient reason not to recognize these “entrusted” undertakings’ right to invoke this exception. In theory it was initially somewhat disputed whether the Member States could invoke the exception in question, but later the established position, under the influence of case law, came to be that they could.494 However, here we should point out the difference, when invoking the exception, between the rules relating to undertakings and the rules relating to Member States. In principle there is no doubt that undertakings can invoke the exception, but there are various complications with regard to Member States, as there are several reservations, but not so many as to be able to speak of the absolute impossibility of invoking the exception.495 This can be seen, inter alia, 493

Taking into consideration every decision that comprises the primary law of the EU that is binding on them. The situation is slightly more complicated for the provisions that comprise the EU’s secondary law. Some authors e.g., believe that the content of the secondary source has to reviewed in each case, and only on that basis is it possible to determine whether the exception set out in the primary law can be invoked for them. The essential circumstance in this connection is the “concretization” of the secondary source. If it completely concretizes the primary source or an individual provision within it, it is known as lex specialis, which supplants the general provisions of the primary source (the circumstance that it is not the same hierarchical rank of regulation is not essential in this respect, but it is by all means relevant for any judicial review of the secondary source due to its alleged incompatibility with the primary source). Some authors have expressed doubts as to whether secondary sources can completely concretize the primary sources to which they relate, and only if those doubts are overcome can the exception set out in primary law be invoked. Cf. Essebier 2005, 280-283; Buendia Sierra 1999, 292; and case C-280/00, Altmark, ECLI:EU:C:2003:415. 494 Cf. Buendia Sierra 1999, 273; Kämmerer 2001, 122. 495 See for example case 72/83, Campus Oil, ECLI:EU:C:1984:256; case C-53/00, Ferring, ECLI:EU:C:2001:627; case C-280/00, Altmark, ECLI:EU:C:2003:415.

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(taking account of the EU’s State aid rules) in Commission Decision 2012/21/EU of 20 December 2011 on the application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest,496 and the Communication from the Commission — European Union framework for State aid in the form of public service compensation (2011).497

5.2.5. Direct Effect of Art. 106(2) TFEU The direct effect of Art. 106(2) TFEU is not a straightforward issue. The first sentence of the provision is not in principle problematic and can be ascribed a direct effect.498 The second sentence, however, is somewhat more problematic.499 In the case law one can find indicators500 that suggest a direct effect of the entire provision, but here one could justifiably ask how the national courts should rule on the interests of the EU. While it is true that contours of the interests of the EU can be deducted from the EU’s aims, which are expressly set out in the Treaties, this is not sufficient, and the ranking of these objectives with respect to every new circumstance is a neverending story which in the first place must be written over and over again by the EU (institutions). 5.2.6. Elements of Art. 106(2) TFEU The elements of Art. 106(2) TFEU are: “undertaking entrusted with the operation of services of general economic interest”; “undertaking having the character of a revenue-producing monopoly”; the rule demanding “application of the rules contained in the Treaties, in particular of the rules on competition”; the exception from the rule which is applicable “in so far as the application of rules obstruct the performance, in law or in fact, of the 496

OJ L 7, 11. 1. 2012, p. 3–10. OJ C 8, 11. 1. 2012, p. 15–22. 498 See for example case 127/73, BRT, ECLI:EU:C:1974:25; and case C-260/89, ERT, ECLI:EU:C:1991:254. 499 Cf. Jones and Sufrin 2011, 617. 500 See case C-19/93 P, Rendo, ECLI:EU:C:1995:339. 497

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particular tasks assigned”; and the limitation of this exception, which demands that “the development of trade must not be affected to such an extent as would be contrary to the interests of the EU”. 5.2.6.1. Undertaking Entrusted with the Operation of Services of General Economic Interest The concept of an undertaking entrusted with the operation of services of general economic interest is an element of Art. 106(2) TFEU that comprises several supranational concepts, i.e., “undertaking”, “entrusted” and “service of general economic interest”. Since two of these concepts, undertaking and service of general economic interest, have already been discussed in this book, before we briefly address the concept of entrustment, we shall refer to the corresponding sections of this book while underlining the importance of the EU’s competence to (also)501 interpret these two EU concepts autonomously.502 The concept of entrustment is an autonomous concept in EU law, which refers to a combination of obligations503 and rights, and is established through an entrustment act, which is the embodiment of a Member State’s political decision to transfer the responsibility504 for supplying users with

501

In principle, all concepts, terms or notions which are included in the EU (hard) law are considered autonomous elements of the EU law and, as a consequence, all of them must be interpreted according to definitions provided by the supranational hard law or case law while leaving aside national laws. This is logical since this is the only way one can expect the uniform application of EU law in all Member States. 502 Of course, the competence to interpret these concepts autonomously gives the EU great power in the field of services of general economic interest. Let us point out once again that the EU competition rules are applicable to economic activities, which is of particular importance in the case of “gray areas,” such as some parts of healthcare, health insurance, education and research (bearing in mind their sensitive character). Moreover, the EU’s competence to foster the liberalization process of certain sectors also affects the division between economic and non-economic activities; this is easy to demonstrate in the energy, e-communications, postal services and rail sectors. Indeed, in the last few decades the category of economic activities has been expanding while the category of non-economic activities has been shrinking. As a consequence, more activities are now subject to EU competition rules and, in principle, this leads to more frequent application of Art. 106(2) TFEU (and of genuine balancing tests). 503 This is closely linked to the concept of special tasks, which are in fact public service obligations. 504 This does not mean that the state or public authority completely divests itself of responsibility for the transferred task. What is essential is that the undertaking also becomes responsible for the task. The state essentially “hires” a certain company for a certain special task, and therefore retains a liability. This is a principal-agent relationship, and the state also selects the undertaking

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certain goods or services in a certain territory to a particular undertaking, such that the enforcement act binds the selected undertaking to carry out a certain task associated with a service of general economic interest,505 including or more precisely especially in cases where that task is not profitable. An act of enforcement is an action by a public authority which by its very nature means the execution of the function of public authority, which means that it is not (or is no longer) only the formal aspect that is decisive, but also the substantive one. The public service task must be assigned by way of an act that, depending on the legislation in Member States, may take the form of a legislative or regulatory instrument or a contract;506 the point is that this is an exercise of the function of public authority (jure imperii).507 Thus in the legal508 sense, the undertaking is charged with carrying out a specific task, and in this sense at least some obligations and responsibility are transferred to it. In order for a particular act to qualify as an enforcement act, it must contain the minimum required content.509 Here we should note the imperative of the separation between authorizations and “general” regulations, where the adjective “general” indicates that the responsibilities are set out for an indeterminate group of subjects. Thus, for example a regulation or a permit for the carrying out of a certain task issued on its basis, in which each permit holder that receives its permit on the basis of objective conditions determined in advance in order to prevent discretionary conduct is assigned the task of the fulfillment of

and assigns it tasks in the role of an authority, and thus at least “culpa in eligendo” is established. 505 Here once again we see the difference between a service that has special characteristics and public service obligations attached thereto. 506 It may also be laid down in several acts. 507 Cf. Erhardt 2003, str. 297; Buendia Sierra 1999, 284– 285; Koenig and Jürgen Kühling, 673. 508 If the undertaking already (on its own initiative) provides services of general economic interest, it cannot invoke the exception if it is not bound to do so by a legal act (this also applies to undertakings in which the state holds a participating interest). 509 See Commission Decision 2012/21/EU of 20 December 2011 on the application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest, OJ L 7, 11. 1. 2012, p. 3–10; and the Communication from the Commission — European Union framework for State aid in the form of public service compensation (2011), OJ C 8, 11. 1. 2012, p. 15–22.

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certain obligations associated with a certain economic activity or monitoring certain economic activities or operations on a particular market, does not constitute an authorization, as that would mean that the undertaking, in deciding whether or not to appear on the market, could make its own decision regarding the fulfillment of those obligations. For public authorization (enstrusment) this is not the case. Special tasks must be primary, and not secondary, obligations, and may not be ceded to the autonomy i.e., the will of the undertaking. 5.2.6.2. Undertaking Having the Character of a Revenue-Producing Monopoly Undertaking having the character of a revenue-producing monopoly is the second subtype of undertaking in the provision in question, which is nowadays of minimal importance,510 at least from the perspective of the provision in question, if we consider that it refers to an undertakings that by their nature usually fall under the scope of Art. 37 or 106(1) TFEU, while within the framework of Art. 106(2) TFEU they are hard to justify in the context of open competitive markets from the perspective of the principle of proportionality, as the state is able to generate revenues through the collection of taxes, through which it can in principle achieve a (sufficiently) identical effect without directly obstructing competition on the market. 5.2.6.3. The Rule: The Duty to Apply the Rules Contained in the Treaties The rule demanding the application of the rules contained in the Treaties (and in principle also in the acts derived from the Treaties), in particular of the rules on competition, i.e., Art. 101–109 TFEU, is an expression of the general idea that rules are there to be followed, and in this context a competitive market and its mechanisms are considered as a primary tool for effective provision of services of general economic interest. However, as explained below, under certain conditions a limited exception to this principle is in line with the Treaties. 510

In the past, revenue-producing monopolies were present in sales of tobacco, alcohol, matches and salt.

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5.2.6.4. The Limited Exception: The “Right” or Authorization to Disapply the Rules Contained in the Treaties and Its Limits The exception to the abovementioned rule,511 which allows the disapplication of the rules contained in the Treaties, seems to be the core of Art. 106(2) TFEU. Of course, it is only applicable under certain conditions, i.e., “in so far as the application of the rules contained in the Treaties obstructs the performance, in law or in fact, of the particular assigned tasks.” The conditions must be interpreted restrictively, as is generally the case for exceptions. Moreover, the exception is limited by the condition that “the development of trade must not be affected to such an extent as would be contrary to the interests of the European Union.” Below we present a brief overview of the individual concepts or elements that make up this exception, or its core. Since the disapplication of the rules contained in the Treaties,512 in particular of those dealing with market competition, departs from the market mechanisms (which are used as a rule in the model of social market economy) it is very important to avoid a government failure.513 In other words, we do not want to go from one failure to another kind of failure. For this reason, we pay special attention to the balancing test and more generally to the principle of proportionality. 5.2.6.4.1. Elements of the Limited Exception The elements of the limited exception as defined in Art. 106(2) TFEU are: “in so far as,” “the application of the rules contained in the Treaties,”

Namely, “undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition.” 512 Mainly because of a market failure or a situation where the market cannot deliver one or more legitimate aims which are a part of public policy. 513 Government failure in the context of Art. 106(2) TFEU (regarding the definition of services of general economic interest and further conditions for the disapplication of the Treaty provisions) was recently analyzed in detail by Burke; see Burke 2018. I am not aware of any more recent work in this field, and for this reason alone Burke’s book deserves special attention. Moreover, I can recommend his book though I would have preferred a bit more of a neutral approach; in some cases, the book indicates an a priori favoring of efficiency over equity (broadly speaking). For me, at least after the Lisbon Treaty, there should be no a priori favoring of economic aims over non-economic aims as explained at several points in this book, and at the end of the day, services of general economic interest should also no longer be considered, either de jure or de facto, a “persistent irritant.” 511

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“obstructs the performance,” “in law or in fact,” “assigned tasks,” “the development of trade must not be affected,” and “to such an extent as would be contrary to the interests of the EU.” Some of them are further discussed, individually or jointly (where more appropriate), right below.514 First we shall address the concept of an assigned task (often called a special task), specifically in relation to the concept of services of general economic interest. The concept of a special task includes special public law obligations (public service obligations) that the Member State or competent public authority specifically assigns to one or more entrusted undertakings in order to ensure the performance of a certain service of general economic interest in a specifically defined manner and under precisely defined conditions; it thus constitutes a special regime of public law. In contrast, the concept of a service of general economic interest is a special type of service which by its nature is one for which there is a general interest in its proper performance, since a certain essential good and/or service is thereby provided, and a (public) need is satisfied.515 In short, they are subject to public service obligations because they are so important for the normal functioning of society.516 Then we shall address the element “obstructs the performance,” which indicates the conflict between the performance of a special task and the application of certain rules contained in the Treaties, which arises from the fact that the consistent application of certain rules contained in the Treaties would obstruct the performance, in law or in fact,517 of the particular assigned task.518 If there was no such conflict, there could not be any exception. The interpretation of the concept of obstruction seems to be 514

Let us once again note that the then ECJ changed its approach towards Art. 106(2) TFEU in case C-320/91, Corbeau, ECLI:EU:C:1993:198; see section 5.2.2. of this chapter. I believe that after the Lisbon Treaty there are even more objective reasons for the interpretation in favor of services of general economic interest. This thesis is reflected in the remainder of this section. 515 See supra, chapter 3.2. 516 See Chapter 2 in which the difference between the narrow and broad interpretation of the term services of general economic interest is discussed. 517 What is in mind here are cases in which EU rules (expressly) prohibit certain conduct that is intended for the performance of a special task, and cases in which this is not true from a legal standpoint, but their indirect or actual effect is identical or comparable to formal prohibition; cf. Schweitzer 2001, 108. 518 This element is usually associated with the necessity test; cf. Burke 2018, 10.

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crucial here, whereby it is worth noting that some of the national versions of this concept connote hindrance or impediment, while some of them connote prevention.519 The difference is clear; in the former a (significant) hindrance or impediment to the performance of a special task is sufficient for an exception, while in the latter case only the impossibility of its performance is sufficient. Initially a strict approach could be seen in the case law,520 but it seems that it has gradually been at least slightly relaxed.521 Here we should note that the ultimate focus is not on the undertaking, but on the performance of the special task. In other words, what is really protected is the performance of the service as such and not the service provider as such, unless only it, and no other undertaking, is able to provide the respective service.522 However, this should not be understood in an absolute sense, as even in cases where there are several providers on the market that are capable of performing the special task, difficulties in the performance of the special task can arise if the current provider of the special task that has been entrusted (i.e., to which the task was entrusted) is unable to perform the task under economically fair or sustainable conditions.523 To sum up, we should bear in mind that for some Treaty rules not to be applicable to an undertaking entrusted with a service of general economic interest under Art. 106(2) TFEU, it is sufficient that the application of those rules obstruct the performance, in law or in fact, of the special obligations incumbent upon that undertaking. It is not necessary that the survival of the undertaking itself be threatened. Moreover, the second sentence of Art. 106(2) TFEU defines (further) limits to the exceptional disapplication of the rules contained in the Treaties. This is a relatively flexible part of the discussed provision, which is open to 519

This would seem to be in line with the prevailing view during the process of the formulation of the wording of this provision, during which the German delegation put forward a proposal that the phrase “nicht unzumutbar erschwert” (not unreasonably difficult) should be used, but instead the word “verhindert” was used (which is not the same as “behindert”). The original French version contains the phrase “ne fait pas échec à l'accomplissement” (do not fail to fulfill). 520 See for example case 155/73, Sacchi, ECLI:EU:C:1974:40. 521 See for example case C-320/99, Corbeau, ECLI:EU:C:1993:198; case C-340/99, TNT Traco, ECLI:EU:C:2001:281. 522 Cf. Frenz 2016, 1418. 523 See for example case C-475/99, Ambulanz Glöckner, ECLI:EU:C:201:577.

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several interpretations.524 That is, it is already unclear how we are supposed to approach the definition and assessment of the interests of the EU.525 I tend to believe that this has to be done by taking into consideration the aims of the EU as they are currently defined in the TEU (and TFEU). Thus, not only economic aims but also non-economic aims must be considered.526 That is, the wording of the provision is not limited to the development of the trade (between Member States). The “development of trade” could, at least at first sight,527 indicate that the establishment of the internal market is the supreme aim of the EU when interpreting the discussed provision.528 However, in my opinion, nowadays this position seems to be too narrow. First, the provision itself emphasizes the interests of the EU and not the development of trade (which can be interpreted, inter alia, as the establishment of internal

524

The case law in this part of Art. 106(2) TFEU is relatively sparse and unclear as to its content and scope; cf. the opinion of Advocate General Léger in case C-309/99, Wouters, ECLI:EU:C:2001:390. 525 This is probably the most important argument against the direct effect of the whole of Art. 106(2) TFEU as discussed in Chapter 5.2.5. 526 In one recent case, i.e., case C-121/15, ANODE, ECLI:EU:C:2016:637, the Court first referenced its standard clause, i.e., that Art. 106(2) TFEU aims to reconcile the Member States’ interest in using certain undertakings as instruments of economic or social policy with the EU’s interest in ensuring compliance with the rules on competition and preserving the unity of the internal market, however, it then went beyond this (apparently obsolete) “delimitation of interests” by considering aims of the EU to be different from those of the establishment of the internal market, such as territorial cohesion. It explicitly stated that, “[…] in the assessment which the Member States must carry out, in accordance with Directive 2009/73/EC, to determine whether, in the general economic interest, public service obligations should be imposed on undertakings operating in the gas sector, it is for the Member States to reconcile the objective of liberalization with the other objectives pursued by the directive.” This “balancing” was carried out in the context of the definition of the service of general economic interest, but this is not to preclude the application of that logic when interpreting second part of Art. 106(2) TFEU. Thus, when dealing with services of general economic interest one should not reduce the interests of the EU to mere compliance with the rules on competition and the preservation of the unity of the internal market, since to me the interests of the EU nowadays go beyond purely economic aims related to the internal market. The interests of the EU must be deduced from all aims of the EU of both an economic and a non-economic nature, which are defined in the Treaties as explained below. 527 But a closer look reveals that even some non-economic aims can support the trade between Member States (and vice versa). Moreover, the wording of the provision does not contain only one element, i.e., the development of trade, but rather establishes a link between the latter and the interests of the EU as discussed in this section. 528 Even if this was the initial purpose or intention of the provision's drafters, the Treaty should be considered a living organism.

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market).529 Second, one must consider that the catalog of the EU’s aims pursuant to the Lisbon Treaty has changed so much that there are now significantly more of them, that the number of non-economic aims of the EU is approximately equal to the number of its economic aims, that there is no a priori hierarchy between the EU’s aims which means the establishment of internal market does not have a supreme position (anymore),530 and that it is now formally inscribed that some of them can be directly linked to services of general economic interest.531 The idea that the provision in question reflects a compromise defined by the balance between the economic objectives of the former Community and the non-economic objectives of the Member States, which was predominant for decades, now seems to be obsolete. I therefore believe that services of general economic interest are nowadays also in the interest of the EU, since they serve or are served by various economic and non-economic aims of the EU,532 and that this has to be taken into account in the interpretation of the provision in question. And last but certainly not least, although the provision in question does not explicitly demand the application of the principle of proportionality, the wording of Art. 106(2) TFEU as well as the nature of the action which is covered by this provision indicate that this principle has to be taken into consideration, however, the manner of its application is at least to a certain extent disputable, as discussed below.

529

The development of trade is included in the provision since it is logical that the disapplication of internal market rules can have at least some impact on it, or in other words, on the establishment of the internal market. But the emphasis of the provision is on the EU's interests or aims which have changed over years, which is most obvious after the Lisbon Treaty. 530 A hierarchy or ranking of the EU's aims is only possible on case-by-case basis. Moreover, economic aims do not a priori prevail over non-economic aims and vice versa, as suggested by Art. 3 TEU and its concept of social market economy. The TFEU's provisions on economic policy which endorse the principle of an open market economy with free competition, such as Art. 119 and 120 TFEU, do not devaluate Art. 3 TEU. Moreover, Art. 119 and 120 TFEU do not devaluate Art. 14 and 106(2) TFEU. Thus, as already pointed out above, the market is the primary instrument for the provision of goods and services as long as it is able to deliver the desired public policy outcome. The same is true for services of general economic interest, however, the market has limits since it is not capable of ensuring all legitimate public policy aims. Where this is the case, the disapplication of the internal market rules can take place (under certain conditions as explained in this section). 531 See in particular Art. 14 TFEU and Protocol (No 26) on services of general interest. 532 Services of general economic interest must not be considered as a “persistent irritant” (anymore).

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5.2.6.4.2. The Balancing or Proportionality Test: Preventing Failure by Using the Strict(est) Approach? The balancing or proportionality test of Art. 106(2) TFEU, its structure and elements and the required intensity of control are still subject to lively debate and varying opinions.533 According to some scholars, the case law and corresponding analyses vary to a considerable degree534 (which is usually criticized).535 At least at first glance, this is not good news, since multi-level balancing of interests is essential and seems to be more complex than ever since the beginning of the European integration process.536 But before we draw any conclusions in this regard we have to check if the case law actually varies, and if the answer is affirmative, whether there are any objective reasons for such an approach.537 Of course, the best starting point for this analysis are the basics of the principle of proportionality.538 In principle, a public measure which is adopted in order to achieve at least one legitimate public aim is proportional if it is suitable (appropriate), necessary and proportional strictu sensu. According to the general understanding, first, a measure is considered as suitable (appropriate) if it is capable of leading to the desired legitimate aim; second, it is considered as necessary if it is the least onerous of all the available appropriate measures; 533

Cf. Burke 2018, 4–5. See Melcher 2019, 11. 535 Some scholars even question whether the Court, although claiming to do so, is really applying the principle of proportionality in the first place; cf. Harbo 2010, 160. 536 Nowadays, this balancing is not just about reconciling the EU’s economic interest attached to the highly competitive internal market with the Member States’ non-economic interests attached to services of general economic interest. The situation is much more complex. Let us point out again that the EU, which must pursue numerous economic and non-economic aims, now also bears responsibility for the effective provision of services of general economic interest, which means the EU itself has to reconcile efficiency and equity, and the same is true for the Member States. Moreover, after the Lisbon Treaty, (undistorted) competition should not been seen as an overarching objective of EU law, but rather as a tool that is used to enhance the functioning of the market, including its more welfare-oriented aspects; see Melcher 2019, 10. 537 Namely, a different treatment of different situations does not run counter to the principle of equal treatment if the different treatment is appropriate or proportional when considering all relevant circumstances of each case. 538 The principle of proportionality is among the most important constitutional principles in the Member States’ legal systems. It is a component of the rule of law. As such, it is also recognized in the EU legal system. However, as correctly pointed out by Sauter, in the latter the integration context adds a dimension to proportionality review that clearly differs significantly from the purely national context; see Sauter 2013, 445. 534

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and third, it is considered as proportional strictu sensu if it has more positive than negative effects, so that its overall (net) effect or balance is positive when compared with the “collateral damage.” Thus, the principle of proportionality, if properly applied, can exclude or at least significantly minimize the chances of a government failure.539 The principle of proportionality is a part of EU law540 and applies to the acts of EU institutions as well as the acts of Member States.541 The proportionality test as applied in EU law appears to consist of a series of partly overlapping tests that are applied as alternatives rather than cumulatively.542 For practical reasons,543 in this book the emphasis is on the proportionality of Member States’ acts. Moreover, since in this book we are not exploring the application of the principle of proportionality in general but rather in the field of services of general economic interest, we focus on the latter, bearing in mind the wording of Art. 106(2) TFEU. An analysis of the relevant case law544 in fact reveals some variety in the application of the

539

Art. 106(2) TFEU was primarily designed in order to enable interventions in case of a market failure or where the market is not able to deliver goods and/or services, or at least not at the desired continuity, consumer protection, quantity, quality and price. However, its application is not intended to result in a government failure. The latter is applied in a broad sense, e.g., “unwarranted departure from market mechanisms, which includes situations where regulation seeks to achieve a legitimate (non-market-provided) outcome but where the means used disrupt the functioning of markets in ways that are avoidable” (see Burke 2018, xi). In fact, bearing the “new concept” in mind, government failures should also include passive behavior, i.e., the inaction of a public authority when the market cannot deliver a legitimate public policy aim. It is true, however, this new logic is easier to find in Art. 14 TFEU than in Art. 106(2) TFEU. 540 The principle of proportionality was considered in the early stages of the European integration process; see for example case 11/70, Internationale Handelsgesellschaft, ECLI: ECLI:EU:C:1970:114. On one hand, the acceptance of the principle of proportionality as being a part of EU law is a logical consequence of the rule of law. On the other hand, however, it can also be explained (together with the recognition of fundamental rights) as a measure to gain legitimacy for the principle of primacy and direct effect in relation to Member States. 541 Yet, it is applied differently at these two levels and with variations at each level; see Sauter 2013, 440 and 445. 542 See Sauter 2013, 465. 543 Since we are mainly discussing Member States’ measures in the field of services of general economic interest. 544 See for example cases: C-121/15, ANODE, ECLI:EU:C:2016:637; C-1/12 Ordem dos Técnicos Oficiais de Contas, ECLI:EU:C:2013:127; C-265/08, Federutility, ECLI:EU:C:2010:205; C242/10, Enel Produzione, ECLI:EU:C:2011:861; C-437/09, AG2R Prévoyance, ECLI:EU:C:2011:112; T-289/03 BUPA, ECLI:EU:T:2008:29; C-393/92, Almelo, ECLI:EU:C:1994:171; C-320/91 Corbeau, ECLI:EU:C:1993:198; C-41/90 Höfner,

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proportionality (balancing) test, which is confirmed in the legal theory.545 This is probably most obvious when comparing the case law before and after the Corbeau case,546 however, even in the post-Corbeau era the variety seems to be a fact.547 Thus, the first question can be answered in the affirmative,548 and we have to move to the second question, i.e., is there any objective reason for variety in application of the test in question. After analyzing the case law in the context of the relevant internal and external circumstances, it seems the variety can be attributed, inter alia, to the different types of competences (exclusive549 and shared550 competences), to the different levels of integration (unification, full harmonization and minimal harmonization),551 to the different national values or public policy preferences,552 and to the different levels of potential to jeopardize the aims of the EU.553 These reasons are capable of affecting the application of the principle in question, which to me is not a problem per se as long as the principle is interpreted and applied according to the wording of Art. 106(2) TFEU and consistently (an equal approach in equal cases and appropriately different approach in different cases). Certain other general principles of EU law, developed in national legal systems and included in the EU legal system, are subject to some adaptation according the special features and

ECLI:EU:C:1991:161; 155/73 Sacchi, ECLI:EU:C:1974:40; C-260/89 ERT, ECLI:EU:C:1991:254; 41/83 Italy v Commission, ECLI:EU:C:1985:120. 545 Cf. Melcher 2019, 11–15; Davies 2009, 66. 546 C-320/91, ECLI:EU:C:1993:198. 547 The post-Corbeau period can be further fragmented, since the Altmark judgement (2003) and the Lisbon Treaty (2009) can be considered as additional milestones. 548 But we should point out that in some cases the CJEU has applied the test quite imperceptibly (without explicitly mentioning proportionality), which can send the wrong signal to a superficial reader. 549 In the field of competition; see Art. 3(1)(b) TFEU. 550 In the field of the internal market (free movement, since in the field of competition, which is also part of the internal market, the EU has exclusive competence to establish competition rules necessary for the functioning of the internal market); see Art. 4(2)(a) TFEU. 551 This reason is closely connected with the previous one. The logic is simple: less sovereignty for the Member States leads to stricter CJEU control. 552 Here the CJEU seems to show at least some sensitivity; see Craig 2006, 709. 553 This was particularly obvious in the times when the then European (Economic) Community was predominantly focused on the internal (common) market and its associated economic aims, from the perspective of which services of general economic interest were by their very nature a “persistent irritant.” However, this has changed over time, particularly after the Lisbon Treaty.

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needs of the EU and its law. However, in the case at hand the Court seems to go beyond such reasonable adaptation. Leaving aside the cases in which the Court did not explicitly refer to the principle of proportionality but rather considered it tacitly (because the result was obvious) and cases in which the Court checked the necessity of the measures in different way (because the provision is flexible enough to deal differently with different cases),554 there are cases where the Court ignores the wording of Art. 106(2) TFEU, in particular its second sentence, which limits the application of the exception in question through the explicit condition that “the development of trade must not be affected to such an extent as would be contrary to the interests of the Union.” This demands a complex weighing of the relevant interests or aims.555 This is not to say that the Court should come to a different conclusion in cases where it did not carry out such weighing, yet the lack of such weighing somehow leaves a bad taste in one’s mouth, not only because of the purely legal aspects but also because of those individuals who do not understand the limits of the competitive market while by definition declaring (almost) every public intervention as a government failure (since they can easily use the lack of weighing to negate the legitimacy of the public intervention).

5.2.7. Burden of Proof Regarding Art. 106(2) TFEU The burden of proof regarding Art. 106(2) TFEU lies initially with the party that wishes to invoke an exception, i.e., on the entrusted undertaking or Member State, but here we should note that this burden is not unlimited.556 This can be deduced from the case law, “Whilst it is true that it is incumbent 554

As explained earlier in this section, there are several reasons which are capable of affecting the application of this principle within Art. 106(2) TFEU, and the scope of application is not problematic as long as the principle is interpreted and applied according to the wording of Art. 106(2) TFEU and consistently. The case law seems to follow this logic (but unfortunately not in all cases as explained in this chapter). For example, one can notice a relatively mild approach in cases dealing with systems which are built on high level of solidarity, and a (more) strict approach in cases in which Member States are closely bound by the EU rules which significantly limit their maneuvering space. 555 This is, inter alia, in line with the thesis expressed above that at the abstract level all aims of the EU are equal and their ranking is only possible on a case-by-case basis after being weighed against each other. 556 Cf. Frenz 2016, 1428–1429.

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upon a Member State which invokes Article 90(2) [now Art. 106(2) TFEU] to demonstrate that the conditions laid down by that provision are met, that burden of proof cannot be so extensive as to require the Member State, when setting out in detail the reasons for which, in the event of elimination of the contested measures, the performance, under economically acceptable conditions, of the tasks of general economic interest which it has entrusted to an undertaking would, in its view, be jeopardized,557 to go even further and prove, positively, that no other conceivable measure, which by definition would be hypothetical, could enable those tasks to be performed under the same conditions. In proceedings under Article 169 of the Treaty [now Art. 258 TFEU] for failure to fulfil an obligation, it is incumbent upon the Commission to prove the allegation that the obligation has not been fulfilled and to place before the Court the information needed to enable it to determine whether the obligation has not been fulfilled […].”558

557

The ECJ explicitly pointed out in case C-157/94, Commission of the European Communities v Kingdom of the Netherlands, ECLI:EU:C:1997:499, “[…] for the Treaty rules not to be applicable to an undertaking entrusted with a service of general economic interest under Article 90(2) of the Treaty, it is sufficient that the application of those rules obstruct the performance, in law or in fact, of the special obligations incumbent upon that undertaking. It is not necessary that the survival of the undertaking itself be threatened.” 558 See case C-157/94, Commission of the European Communities v Kingdom of the Netherlands, ECLI:EU:C:1997:499.

CONCLUSION The EU’s legal framework for services of general economic interest is composed of numerous provisions of the Treaties and other primary law sources, as well as of secondary law sources as explained above. The extent, scope and variety of the legal framework by their very nature create some of the legal challenges, but the relatively broad and often ambiguous wording of the relevant provisions, in particular of those which explicitly deal with services of general economic interest, seems to be an even greater challenge. This is probably most obvious in the case of Art. 106(2) TFEU.559 The case law shows at least three approaches to its interpretation and application. However, before making “final”560 conclusions regarding this (controversial) provision, which certainly ranks among the core building blocks of the discussed legal framework, the main features of the latter must be borne in mind, since Art. 106(2) TFEU is not the only provision which explicitly addresses services of general economic interest, nor it is isolated from the remaining provisions of the Treaties which are relevant for services 559

However, this is not to deny changes in the interpretation of some other provisions of the TEU and TFEU. For example, due to the more economic approach, the competition rules left less space for the special needs of services of general economic interest. Predictably, this has led to increased pressure on the provisions defining “exceptions” (Art. 90(2) TEEC, 86(2) TEC and Art. 106(2) TFEU). 560 The word “final” means the time of publication of this book. There will of course be developments in the field of Art. 106(2) TFEU and of the EU legal framework for services of general economic interest in general, since this is a neverending story of the search for a balance.

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of general economic interest. In short, when interpreting and applying Art. 106(2) TFEU, the rest of the legal as well as the entire socio-economic and political environment must be considered. The discussed legal framework is part of the supranational corpus of law, i.e., the acquis communautaire or the EU acquis. As such, it is binding on institutions and other bodies of the EU as well as the authorities of the Member States (in this regard it is worth noting that the EU law is not just another integral part of the national legal systems but rather their essential part due to its constitutional character in the Member States’ legal systems).561 Initially, this corpus of law merely defined the limits, mainly through prohibitory free movement and competition rules,562 on the Member States’ activities relating to services of general economic interest. Their effective provision was certainly not among the core aims of the then Community, since the latter was predominantly focused on economic aims, at the center of which was the establishment of the then common market.563 On the contrary, due to the non-economic aims that are associated with services of general economic interest by their very nature, the latter were often considered a “persistent irritant” (looking from the Community perspective at the time). Indeed, in the political and legal environment of the time it was easy to recognize the tensions between the Community’s (economic) aims on one hand and the Member States’ (non-economic) aims on the other.564 However, the situation has gradually changed over time. It seems that in the eyes of the European Commission and the Court, and of the then Community in general, the growing importance of services of general economic interest (and of universal services in particular) was a side effect of, or let us say a counterweight to, the liberalization process, which is by 561

In principle, it also affects, directly or indirectly, persons under private law. Whose application were only modestly limited by the discussed “balancing provision.” 563 Art. 2 of the EEC Treaty defined the following aims: “It shall be the aim of the Community, by establishing a Common Market and progressively approximating the economic policies of Member States, to promote throughout the Community a harmonious development of economic activities, a continuous and balanced expansion, an increased stability, an accelerated raising of the standard of living and closer relations between its Member States.” 564 The conflicting aims were balanced on the basis of Art. 90(2) TEEC or Art. 86(2) TEC (both correspond to Art. 106(2) TFEU). 562

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nature oriented towards a (more) competitive internal market (as supported mainly by competition rules and by pro-competition ex ante regulation).565 In this regard it is possible to recognize a bottom-up approach, since the new constitutional elements of the discussed legal framework, i.e., Art. 14 TFEU,566 Protocol (No 26) on services of general interest and Art. 36 CFREU (which explicitly address and strengthen the role of such services at the supranational level), were introduced later.567 Moreover, one can easily detect a trend of the growing importance of non-economic aims (among which some are closely related to services of general economic interest) at the supranational level which, is particularly obvious after the Lisbon Treaty. To me, this leads to a legal and political environment which is friendlier than ever to services of general economic interest and enables their growing importance at the supranational level. Nowadays, the EU and the Member States, each within their respective powers and within the scope of application of the Treaties, must ensure that services of general economic interest operate on the basis of principles and conditions, particularly economic and financial conditions, which enable them to fulfill their missions. In other words, the EU and the Member States have the joint responsibility to ensure the effective provision of services of general economic interest. It seems that now, since the Lisbon Treaty further strengthened the position of services of general economic interest, which can no longer be considered as a “persistent irritant” but rather as a building block of the European social model and even of the internal market,568 the

565

At the early stage, it seems this can be mainly attributed to the desire to achieve the legitimacy in the eyes of Member States and to assuage their fears and reduce their opposition to the liberalization process. In this regard it was a crucial question, first, how to transform previously closed and non-competitive markets of certain (essential) goods and services into open and (more) competitive markets, and second, how to ensure that despite such a transformation there will be no politically undesirable side effects for consumers or users of those services. 566 And its predecessor, i.e., Art. 16 TEC. 567 The bottom-up approach reminds us that the Treaty has to be considered as a living organism, not only in the context of its formal modernization but also in the context of new interpretations of the relevant Treaties’ provisions. 568 The European Commission indicated their importance for the internal market already in the Green Paper on Services of General Interest (COM/2003/0270 final) by pointing out, inter alia, their weight in the economy and their importance for the production of other goods and services, and further by pointing out that the efficiency and quality of these services is a factor

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Member States and the EU have positive (promotional) obligations as well as negative (standstill) obligations. Of course, these obligations are not the same and, as a consequence, the role of the Member States is not identical to the role of the EU, as explained in this book. The Member States have retained relatively broad autonomy to define and provide services of general economic interest, while the biggest limitations are imposed by the EU market rules (by the competition rules in particular). They have also retained a more or less free hand to make use of public assets, in particular public undertakings, while special and exclusive rights seem to be allowed only as a measure of last resort.569 Accordingly, the EU retained a focus on negative integration in the field in question. In other words, the EU’s legal framework for services of general economic interest mainly consists of prohibitory rules. This is not to say, however, that there are no commendatory rules. In fact, the existing primary law of the EU allows for more such rules, yet in this regard it seems that the approach of taking small steps is being applied, which at least to me is in principle a good idea. A competitive market is (still) the primary mechanism for the effective provision of services of general economic interest. Yet, while market forces can contribute substantially to this aim, they can also exclude or deprive many users, in particular those in rural areas and those with low income, which clearly runs against several of the EU’s non-economic values and aims. In fact, some cases even go beyond this situation. Therefore, EU competition law, or economic law in general, must have limitations placed on it, which became even more clear after the adoption of the Lisbon Treaty, which holds that a competitive internal market does not a priori outweigh public concerns relating to services of general economic interest. More generally, in a social market economy in the sense of the Lisbon Treaty, economic and non-economic values and aims are of equal importance at the abstract level, while their ranking or hierarchical positioning can only be made on a case-by-case basis. By underlining this, we return to the starting

569

for competitiveness and greater cohesion, in particular in terms of attracting investment in less-favored regions. Yet, in some cases the case law seems to follow a less strict approach regarding special or exclusive rights; see case C-437/09, AG2R Prévoyance v Beaudout Père et Fils SARL, ECLI:ECLI:EU:C:2011:112.

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point, i.e., to the interplay between various values and aims and their balancing, which is a neverending story. However, due to the explicit provision of the Treaty (e.g., Art. 14 TFEU) and the related documents (e.g., Protocol No 26 on services of general interest), and due to the catalog of values and aims of the EU (e.g., Art. 2 and 3 TEU),570 the EU now also has the responsibility to ensure the effective provision of services of general economic interest (as well as to ensure related non-economic values and aims), and therefore one can reasonably expect that this should result in the interpretation and application of the EU’s existing legal framework for services of general economic interest,571 in particular of Art. 106(2) TFEU, in a way that is even more favorable towards the services in question. After all, even the Court referred to the “new context” after the Lisbon Treaty, which mirrors the interplay between the economic and non-economic aims of the EU and at the same time also of the Member States. This is important since the concept in question is of a mixed nature; on one hand, it has an economic nature and is therefore market based, while on the other, by its very nature it reflects public policy considerations, which are often incompatible with market logic. In such case a complex weighing and balancing is required, which is mainly carried out within the controversial Art. 106(2) TFEU. Indeed, Art. 106(2) TFEU is certainly not a straightforward provision and it leaves room for different aims, approaches and even ideologies. Some believe its sole mission is to prevent government failures, while some argue that the provision is there to correct market failures in the narrow sense. For me, both kinds of failures are problematic, yet I understand the provision in question primarily as a safeguard for special services which are essential but which the market is not capable of delivering in a desired way, and therefore appropriate market intervention is required. Hence, bearing in mind the provision’s mission, I favor interpretations of Art. 106(2) TFEU which go beyond the formalistic approach focused exclusively on the provision. Article 106(2) TFEU is not an island, but a part of the discussed legal 570 571

Which has to be reconciled with the social market economy model. Or someday in the future even to its expansion due to new legislative acts also according to Art. 14 TFEU.

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framework, and therefore one has to take a step back in order to see the bigger picture. This is particularly important after the Lisbon Treaty, pursuant to which the internal market and other economic aims may not a priori outweigh non-economic aims, since they are of equal importance at the abstract level and their ranking or hierarchical positioning is only possible on case-by-case-basis. Moreover, also non-economic values and aims of the EU must be considered when discussing its interest. As explained above, this is of particular importance when interpreting second sentence of the Art. 106(2) TFEU.572 Thus, to point out once again at the end of this book, Art. 106(2) TFEU is very important but not the only relevant provision in the field of services of general economic interest. It is an integral part of the large system which is consisted of several elements which explicitly address services of general economic interest as well as of elements which are not limited to those services but can nevertheless significantly affect their provision. For example, the more economic approach in the interpretation of competition rules clearly affected the provision of services of general economic interest and, as a consequence, the search for a new balance with(in) Art. 106(2) TFEU (and beyond) was initiated which indicates a kind of neverending story. Ergo, when interpreting and applying Art. 106(2) TFEU also the remaining elements of the discussed EU’s legal framework for services of general economic interest must be properly taken into consideration (together with the relevant socio-economic and political environment), in particular Art. 3 TEU, Art. 14 TFEU and the related Protocol (No 26) on services of general economic interest, and Art. 36 CFREU, which underline the non-economic aims of the EU and strengthen the position of services of general economic interest at the supranational level in order to enable their desired or effective provision.573

572

The traditional perception in the field of services of general economic interest, according to which Member States follow non-economic aims while the EU follows economic aims (relating Internal market), is obsolete. The new situation is not black and white but far more complex. 573 Which can reduce the traditional tensions between the interests of the EU and Member States.

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ABOUT THE AUTHOR Aleš Ferčič University of Maribor, Faculty of Law, Maribor, Slovenia Email: [email protected]

Aleš Ferčič, Doctor of Juridical Science, is an Associate Professor of law at the University of Maribor, Faculty of Law, where he holds the Jean Monnet Chair of Energy Law and Policy, and is head of the Institute of Public Law. He is also a member of the European Law Institute. The author’s main teaching and research areas are European Union law, constitutional and administrative law, and specifically public economic law relating to (energy) market regulation, competition and public services, and complex challenges of energy and environmental issues.

INDEX A abuse of dominant position, 37, 105, 106, 113, 114, 116, 117, 118, 126 access to services of general economic interest, 21, 82, 98, 101, 102, 148, 174, 178, 180, 182 affordability, 36, 57, 58 Almunia package, 81, 86, 137, 142 Altmark Principle, 133, 134, 135 Amsterdam Treaty, ix, 60, 97, 147 Art. 101 TFEU, 37, 107, 108, 110, 111, 112, 114 Art. 101(1) TFEU, 107, 108, 110, 111, 112, 181 Art. 101(2) TFEU, 111 Art. 101(3) TFEU, 107, 111, 112 Art. 102 TFEU, 37, 76, 105, 110, 113, 114, 115, 117, 118 Art. 106(1) TFEU, 91, 105, 107, 114, 121, 122, 123, 124, 126, 127 Art. 106(2) TFEU, xxxiii, 5, 6, 7, 15, 38, 49, 60, 61, 62, 68, 69, 71, 73, 76, 78, 83, 84, 95, 96, 101, 102, 108, 120, 121, 127, 135, 142, 145, 146, 147, 148, 149, 150,

151, 153, 154, 156, 157, 158, 159, 160, 161, 162, 163, 165, 167, 168, 171, 172 Art. 106(3) TFEU, 17, 50, 70, 80, 83, 127 Art. 107(1) TFEU, 87, 128, 129, 132, 133, 135, 138, 139, 140, 141, 142, 143 Art. 107(3) TFEU, 70 Art. 108(3) TFEU, 138, 142, 143, 144 Art. 14 TFEU, xxxiii, 4, 9, 13, 35, 39, 60, 61, 68, 69, 71, 83, 95, 96, 98, 99, 100, 101, 120, 147, 151, 161, 163, 169, 171, 172 Art. 3 TEU, 8, 9, 20, 70, 75, 103, 104, 161, 172 Art. 345 TFEU, 49, 77, 79, 123 Art. 36 CFREU, 57, 68, 82, 98, 101, 147, 151, 169, 172

B block exemption, 87, 111, 138, 143, 176

C cartel, 176, 181

188

Index

Charter of fundamental rights of the European Union (CFREU), ix, xxxv, 20, 26, 81, 82, 98, 100, 101, 148 citizenship (citizen), xxx, 35, 36, 66, 70, 71, 82, 176, 179 cohesion, 6, 8, 9, 21, 32, 34, 51, 55, 64, 71, 77, 95, 98, 101, 102, 147, 160, 170 compensation, 21, 91, 111, 118, 135, 136, 137, 153, 155 competition law, xxv, xxxi, 32, 36, 37, 38, 44, 52, 59, 100, 104, 105, 109, 114, 115, 116, 170, 176, 177, 179, 181, 182 concerted practices, 107, 108 concession, xii, 48, 85, 114 consumers, 39, 65, 88, 90, 92, 93, 103, 112, 113, 115, 117, 169

D de minimis, xv, 87, 135, 138, 139, 140, 141, 143 deregulation, 41, 42, 46, 48, 49, 51 direct effect, 24, 27, 28, 29, 121, 143, 153, 160, 163, 176 dominant position, 113, 114, 115, 116, 117, 118, 126

E economic activity, 36, 48, 58, 83, 109, 125, 156 effect on trade, 106, 108, 140 energy, ix, xi, xiv, xxi, xxv, xxxi, xxxv, 39, 53, 58, 59, 63, 71, 72, 77, 80, 85, 87, 92, 93, 109, 132, 154, 174, 185 enforcement, xii, xxxii, 1, 2, 23, 24, 27, 28, 30, 44, 80, 81, 86, 104, 114, 115, 144, 155 Entrustment Act, 135, 154 equal treatment, 13, 32, 36, 55, 57, 58, 85, 102, 123, 139, 162

european integration process, 3, 6, 24, 26, 37, 39, 55, 83, 97, 102, 103, 128, 150, 162, 163 european social model, xxx, xxxiii, 7, 32, 34, 36, 102, 150, 169 exception, 16, 49, 69, 73, 90, 121, 127, 142, 143, 145, 149, 151, 152, 153, 155, 156, 157, 158, 165, 178 exclusive competence, 12, 13, 14, 70, 104, 106, 120, 143, 164 exclusive rights, 41, 47, 105, 115, 118, 121, 122, 124, 125, 126, 132, 170, 175

F free movement of capital, 79 free movement of goods, 7, 72, 73, 85, 114, 127 free movement of persons, 54 free movement of services, 83 freedom of establishment, 75, 79, 83, 85

G general economic interest, iv, xxv, xxvi, xxxii, 2, 5, 11, 17, 19, 21, 24, 30, 38, 60, 61, 62, 63, 64, 66, 67, 68, 72, 77, 82, 83, 84, 85, 86, 87, 95, 96, 97, 99, 100, 101, 102, 113, 120, 135, 138, 147, 148, 150, 151, 152, 154, 155, 157, 158, 159, 160, 161, 162, 166, 167, 168, 169, 170, 172, 179 government failure, xxxi, 10, 146, 157, 163, 165, 171, 175

H harmonization, 7, 13, 23, 50, 51, 90, 164

Index

189

I

N

incumbent, 159, 165, 166 internal market, xi, xii, xiii, xxx, xxxi, 6, 7, 9, 10, 13, 20, 30, 35, 38, 49, 55, 65, 70, 71, 72, 73, 75, 76, 78, 81, 83, 85, 87, 99, 102, 103, 104, 106, 107, 108, 112, 113, 114, 120, 128, 138, 139, 140, 141, 142, 143, 144, 145, 149, 150, 160, 161, 162, 164, 169, 170, 172, 174, 178

nationalization, 78, 123 natural monopoly, 40 negative integration, 35, 38, 70, 76, 98, 170 non-discrimination, 8, 22, 54, 70, 71, 85, 102, 112 non-economic activity, 59

J

Paris Treaty, ix positive integration, 35, 38, 70 postal services, xi, xii, xiii, xxxi, 39, 53, 58, 59, 65, 72, 80, 85, 87, 91, 92, 109, 154 principle of direct effect, 3, 26 principle of effectiveness, 29, 143, 145 principle of primacy, 3, 24, 25, 26, 29, 106, 143, 163, 181 principle of procedural autonomy, 29 principle of proportionality, 14, 15, 22, 34, 74, 156, 157, 161, 162, 163 principle of subsidiarity, 14, 20 privatization, 40, 47, 49, 78, 79, 84, 123 proportionality, 13, 14, 15, 69, 85, 162, 163, 164, 177, 180 public interest, xxix, 24, 49, 53, 55, 60, 62, 92, 95, 103, 108 public property, 48, 55, 77, 78 public service obligations, 10, 49, 51, 58, 60, 61, 62, 63, 64, 66, 75, 76, 84, 87, 92, 93, 94, 95, 99, 106, 135, 136, 148, 151, 154, 155, 158, 160 public undertaking, xiii, 52, 53, 77, 78, 86, 105, 121, 122, 123, 124, 130, 131, 142, 149, 170, 174, 175, 179, 183

joint responsibility, xxvi, 13, 39, 96, 99, 100, 169

L liberalization, xxv, xxvi, xxx, xxxi, 13, 32, 37, 39, 40, 41, 42, 44, 49, 51, 52, 56, 59, 65, 72, 75, 80, 83, 84, 88, 89, 91, 97, 101, 109, 120, 122, 150, 154, 160, 168, 169 Lisbon Treaty, ix, xxvi, 3, 6, 7, 10, 26, 61, 96, 98, 101, 146, 147, 157, 158, 161, 162, 164, 169, 170, 172, 175

M Maastricht Treaty, ix, 97 market concentration, 44, 105, 118, 119 market economy operator principle, 133, 134 market failure, xxxi, 10, 36, 43, 52, 88, 103, 146, 157, 163, 171 market intervention, xxix, 10, 33, 36, 45, 90, 106, 128, 146, 171 market power, 115 monopoly, 5, 140, 145, 146, 153, 156, 157

P

190

Index R

rail, xiv, xv, xxxi, 53, 72, 76, 80, 87, 93, 94, 109, 154 reasonable profit, 134, 135, 136 regulation, xii, xiii, xiv, xv, xvi, 25, 40, 41, 42, 43, 44, 45, 46, 47, 49, 51, 53, 57, 73, 83, 86, 91, 93, 94, 95, 105, 106, 107, 112, 118, 119, 120, 128, 135, 138, 140, 141, 152, 155, 163, 169, 185 Rome Treaties, ix rule of reason, 108

S services of general economic interest, v, xv, xxv, xxvi, xxvii, xxxi, xxxii, xxxiii, 1, 4, 5, 6, 7, 8, 9, 10, 11, 13, 15, 16, 17, 19, 20, 21, 22, 23, 24, 26, 28, 29, 31, 32, 36, 38, 39, 43, 47, 51, 53, 54, 57, 58, 59, 60, 61, 62, 63, 64, 66, 67, 68, 69, 70, 71, 72, 73, 75, 77, 78, 80, 81, 82,83, 84, 85, 86, 87, 88, 89, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 106, 108, 109, 112, 114, 116, 118, 119, 120, 122, 128, 133, 134, 135, 136, 137, 140, 142, 145, 146, 147, 148, 149, 150, 151, 153, 154, 155, 156, 157, 158, 160, 161, 162, 163, 164, 167, 168, 169, 170, 172, 174, 175, 176, 179, 180, 181 services of general interest, xxxv, 20, 34, 35, 38, 54, 57, 58, 61, 63, 64, 68, 81, 83, 84, 98, 120, 147, 148, 161, 169, 171, 174, 180 shared competence, 12, 13 social market economy, xxix, 7, 9, 32, 36, 96, 99, 120, 124, 147, 151, 157, 161, 170, 171 social services of general interest, xxxv, 34, 54, 64

soft law, xxvi, xxvii, 19, 22, 23, 57, 67, 82, 83, 86, 107, 111, 114, 116, 118, 128, 134, 137, 138, 141, 147 special right, 41, 91, 124, 135 state aid, xxxi, xxxii, 30, 37, 44, 54, 68, 69, 76, 78, 83, 84, 85, 86, 90, 105, 106, 112, 123, 127, 128, 129, 130, 131, 135, 136, 137, 139, 140, 141, 142, 143, 144, 145, 153, 155, 173, 177, 179

T telecommunications, xii, xiii, xxxi, 39, 53, 59, 72, 75, 77, 80, 87, 89, 109 transparency directive, 81 transport, xi, xiv, xv, xvi, xviii, xx, xxi, xxiii, 53, 58, 71, 72, 76, 77, 84, 85, 93, 94 Treaty on European Union, ix, xxxv, 69, 96, 147

U undertaking, 30, 58, 79, 86, 105, 107, 108, 109, 110, 112, 113, 115, 116, 118, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 132, 133, 134, 135, 136, 137, 140, 149, 153, 154, 155, 156, 159, 165, 166, 179 universal service, xii, xiii, 13, 36, 39, 51, 54, 63, 65, 66, 72, 87, 89, 90, 91, 92, 93, 94, 100, 120, 168, 173, 181

W welfare state, xxix, 32, 33, 34, 35, 174, 176, 178, 181