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Advanced EU Law

Advanced EU Law. Prof. Massimiliano Montini European Internal Market: C ompetition law (III) Lecture 16, 9 /12/2013. Application of EU Competition law to States.

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Advanced EU Law

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  1. Advanced EU Law Prof.MassimilianoMontini European Internal Market: Competition law (III) Lecture 16, 9/12/2013

  2. Application of EU Competition law to States • EU competition law does not only apply to undertakings, but it also applies to Member States’ behaviours that, directly or indirectly, affect or contribute to affect competition: • Art. 101-102 TFEU: Member States must refrain from behaviours which may impose, induce or reinforce the violation of art. 101 and 102 TFEU by undertakings • Art. 106-109 TFEU: directly regulates State measures which may negatively affect competition within the internal market

  3. Application of EU Competition law to States • The Court of Justice, by interpreting the duty of loyal cooperation (art. 4 TEU) jointly with the competition law provisions applicable to undertakings (art. 101-102 TFEU) affirmed that Member States must not adopt nor apply legislative or regulatory measures, which are likely to affect competition rules applying to undertakings • Consequently, a State’s measure imposing or facilitating the conclusion of agreements banned by art. 101 TFEU or giving rights to undertakings which may lead to a violation of art. 102 may be incompatible with EU competition law. • Such State’s measures must be assessed in connection with the specific behaviour of undertakings, in order to determine their compatibility/incompatibility with EU law.

  4. Special or exclusive rights: art. 106(1) TFEU • Art. 106(1) TFEU establishes that: ‘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, ’ • Art. 106 TFEU aims at avoiding public intervention in the economy which hinders competition law and negatively affects the functioning of the internal market • According to Art. 106(1) TFEU, special or exclusive rights concerning imports or the commercialization of goods and services may be unlawful

  5. Art. 106(2) TFEU: partial exception (I) • ‘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.’

  6. Art. 106(2) TFUE: partial exception (II) • Undertakings which perform services of general economic interest or having the character of a revenue-producing monopoly can be exempted from the application of competition law, as far as: • the exception is necessary for the performance of the particular tasks assigned to them; • trade is not affected to such an extent as would be contrary to the interests of the Union. • Such undertakings may enjoy special and exclusive rights as far as such rights limit free competition only to the extent necessary to enable the undertakings to perform their pubic service functions.

  7. Art. 106(2) TFUE: European Commission’s monitoring power • Art. 106(3) TFEU confers to the European Commission the power to monitor the application of art. 106: ‘The Commission shall ensure the application of the provisions of this Article and shall, where necessary, address appropriate directives or decisions to Member States.’ • This is a specification of the Commission’s more general monitoring power on the application of EU law • The Court of Justice clarified that the Commission has, on the basis of art. 106(3) TFEU, the power to evaluate a State’s provision and declare it incompatible with EU law, as well as to identify what measures are necessary to eliminate the violation

  8. State Aids: art. 107-109 TFEU • State Aids rules (art. 107-109 TFEU) are based on the assumption that State Aids (to undertakings) are not compatible with the common market (principle of incompatibility) • Therefore, State Aids must be subjected to prior mandatory authorization issued by the Commission (and, in exceptional situations, by the Council), pursuant to art. 108-109 TFEU

  9. Art. 107 TFEU • ‘Save as otherwise provided in the Treaties, 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 shall, in so far as it affects trade between Member States, be incompatible with the internal market.’

  10. Notion of Aid (I) • The notion of Aid under art. 107 TFEU is rather broad • It encompasses not only direct measures of support, but all measures that directly or indirectly produce economic benefits for undertakings • E.g.: fiscal exemptions, preferential tariffs, etc. • The Treaty TFEU does not consider State interventions on the basis of their object or scope, but according to the effects they produce

  11. Notion of Aid (II) • The form of an aid is not relevant: the source of the aid can be a law or an administrative act; • Private forms of providing or delivering aids can also be taken into account for the purpose of art. 107 TFEU • The participation of the State or of a public administration in the shareholding of an undertaking may be a State Aid • The criterion of the ‘private investor operating under normal market economy conditions’ applies: when the public intervention is not similar to the intervention that a private investor operating under normal market economy conditions would make, this may be an evidence of a forbidden State Aid

  12. Transparency • In order to regulate the relationship between the State and public companies, legislation to ensure transparency has been adopted (starting from Directive 80/723, now replaced by Directive 2006/111/EC) • The principle of transparency is particularly relevant in order to assess whether public service compensation ensured by the State to undertakings performing services of general economic interest is proportional to the aim (activity) pursued (Altmark case)

  13. Origin of the aid • The aid must be given by the State or through State resources • Two specific requirements are needed: • Use of State resources • Measure adopted by the State

  14. Beneficiary of the aid • Beneficiary of the aid must be a (public or private) undertaking: • any legal entity performing relevant economic activities and which is present on the market of goods or services

  15. Relevant conditions (I) • ‘Selectivity criterion’: in order to be relevant under art. 107 TFUE, the aid must be favouring certain productions rather than others which operate under the same conditions • A case by case assessment (taking into account the general situation of the market) is needed in order to evaluate whether a measure can be held compatible • The evaluation of the effects on trade and competition is facilitated by the presumption that aids normally produce anti-competitive effects

  16. Relevant conditions (II) • As far as it concerns the impact on trade, also in this case the notion of ‘potentialprejudice’ is the relevant one: in fact, it is enough that the aid is adequate to affect trade between Member States, without the need to ascertain the real impact on trade • The deminimis criterion applies also in the case of State aids

  17. Derogations: compatible aids (I) • According to art. 107(2), ‘the following shall be compatible with the internal market: • aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned; • aid to make good the damage caused by natural disasters or exceptional occurrences; • aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division.’

  18. Derogations: compatible aids (II) • On the basis of art. 107(3), ‘the following may be considered to be compatible with the internal market: • aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation; • aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;

  19. Derogations: compatible aids (III) c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest; d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest; e) such other categories of aid as may be specified by decision of the Council on a proposal from the Commission.’

  20. State Aids’ review: art. 108 TFEU (I) The procedure for the review of State Aids is determined by art. 108 TFEU. ‘1) The Commission shall, in cooperation with Member States, keep under constant review all systems of aid existing in those States. It shall propose to the latter any appropriate measures required by the progressive development or by the functioning of the internal market.’

  21. State Aids’ review: art. 108 TFEU (II) 2.) If, after giving notice to the parties concerned to submit their comments, the Commission finds that aid granted by a State or through State resources is not compatible with the internal market having regard to Article 107, or that such aid is being misused, it shall decide that the State concerned shall abolish or alter such aid within a period of time to be determined by the Commission. If the State concerned does not comply with this decision within the prescribed time, the Commission or any other interested State may, in derogation from the provisions of Articles 258 and 259, directly refer the matter to the Court of Justice of the European Union.

  22. Art. 109 TFEU: the Council’s role • ‘The Council, on a proposal from the Commission and after consulting the European Parliament, may make any appropriate regulations for the application of Articles 107 and 108 and may in particular determine the conditions in which Article 108(3) shall apply and the categories of aid exempted from this procedure.’

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