Concessions, Competition, and SGEI: The Changing Legal Framework

1. Concessions, Competition, and SGEI: The Changing Legal Framework • Ulla Neergaard • CLEEN WORKSHOP 11-13 June 2007: • ESRC Centre for Competition Policy. University of East Anglia

3. Outline • The Increased Pressure on National Concessions • What about the Welfare Services? • Some Critique • Some Conclusions

4. The Increased Pressureon National Concessions

5. 1. The Increased Pressure on National Concessions EU internal market law EU- procurement law EU- competition law National Granting of Concessions Tendency: granting of concessions and activities in accordance therewith by now more and more often will be viewed as contrary to EU law unless justified.

6. 1. The Increased Pressure on National Concessions • EU competition law – especially Articles 86 and 82 EC • From: Case 155/73 (Sachhi): ”…the interpretation of Articles [82] and [86] taken together leads to the conclusion that the fact than an undertaking to which a member state grants exclusive rights has a monopoly not as such is incompatible with Article [82]” To: Sag C-41/90 (Höfner): ”Consequently, any measure adopted by a Member State which maintains in force a statutory provision that creates a situation in which a public employment agency cannot avoid infringing Article 86 [now Article 82 EC] is incompatible with the rules of the Treaty.”

7. 1. The Increased Pressure on National Concessions • EU internal market law – especially Articles 43 and 49 EC • From: Case law: Presumption about legality. To: Case law: Presumption about prohition unless justified, e.g. Case C-451/03 (SADC) and Case C-338/04, etc. (Placanica). Especially about the Services Directive: Authorisation schemes may only be set up if certain conditions are satisfied. If they are applied, certain criteria have to be fulfilled in order to preclude the competent authorities from exercising their power of assessment in an arbitrary manner.

8. 1. The Increased Pressure on National Concessions • EU public procurement law – especially Telaustria case law From: Presumption: no obligation to undertake a tender procedure. To: Obligation to have some kind of call for competition

9. ”Me first” Me First!

10. 2. What about the Welfare Services?

11. 2. What about the Welfare Services? • ”We then that are strong ought to bear the infirmities of the weak, and not to please ourselves. • Let every one of us please his neighbour for his good to edification.” • (The Epistle to the Romans)

12. 2. What about the Welfare Services? • An Example of an expression of this worry: • ”Men lige nu befinder vi os i et vadested, hvor det er relevant at spørge, om velfærdsstaten skal fortsætte eller dø ud.” • My translation: • ”Right now we are in a midstream, where it is of relevance to ask, whether the welfare state shall continue or die out.” • (prof. Jørn Henrik Pedersen, SDU, ”Velfærdsstatens overlevelse kræver en kursændring)

13. 2. What about the Welfare Services? • Political Agreement on Danish EU Policy in a Globalised World -21 February 2008 (The Danish Government and the majority of the remaining parties of the Parliament): • ”We must use the EU to promote an economically and socially sustainable development. The EU must be used to secure the framework for the European welfare states. Through this framework, the EU must strengthen the opportunities for us to preserve the Danish welfare model. The organisation of the welfare state will remain a national responsibility. The parties to the Agreement place emphasis on maintaining the basis for financing the welfare state, including by fighting tax evasion.” • Noteworthy: • The Danish welfare model should be preserved! • The organisation of the society of welfare will continue to be a national task!

14. 2. What about the Welfare Services? Many welfare services are in a welfare state like Denmark provided on the basis of concessions and the like. The ”releasing” word is: ”services of general economic interest”. Pursuant to Article 86(2) EC there will in this case be a possibility of exemption.

15. 2. What about the Welfare Services? • Uncertainty as to interpretation – the BUPA Case of CFI (Case T-289/03), 12 February 2008, Para. 165 • “[I]n Community law and for the purposes of applying the EC Treaty competition rules, there is no clear and precise regulatory definition of the concept of an SGEI mission and no established legal concept definitively fixing the conditions that must be satisfied before a Member State can properly invoke the existence and protection of an SGEI mission, either within the meaning of the first Altmark condition or within the meaning of Article 86(2) EC”.

16. 2. What about the Welfare Services?Regarding definitions - A Bit about Methodology • Primary concern is the concept ”SGEI”. • Although originating from Article 86(2) EC it is asserted that also other areas of law than competition law are of interest, thus: • A Cross-disciplinary or universal approach is taken • Analysed sources derive primarily from: • EU competition law, including in particular Articles 86 and 87 EC. • Internal market law, including in particular Articles 43 and 49 EC, and the Services Directive. • Both ”hard” law and ”soft law” is taken into consideration. • No sector-specific regulation is taken into consideration.

17. ”Services of General Interest” ”Market Services” ”Services of General Economic Interest” ”Exercise of Public Authority” + ”Non-Under-takings” ”Grey Area” ”Non-Economic Services of General Interest” ”Social Services” ”Health Services” ”Education and Training Services”

18. 2. What about the Welfare Services?Regarding definitions - Services of General Interest (SGI) • In general: • Not mentioned in the Treaty itself. • Not mentioned in any of the provisions themselves of the Services Directive, however mentioned in Recital 17. • In the Treaty of Lisbon, it is stated in Protocol 26 that the high contracting parties wish to emphasise the importance of “SGI”. • Truly came to the fore of Community law when the Commission adopted the Communication carrying the title “Services of general interest in Europe in 1996”. • Also treated in subsequent communications.

19. 2. What about the Welfare Services? Regarding definitions - Services of General Interest (SGI) • Possible meaning: • In 1996, the Commission understands “SGI” as: • “...market and non-market services which the public authorities class as being of general interest and subject to specific public service obligations.” • Viewed as including the concepts ”SGEI” and ”NESGI”. • The element “general” may be considered to indicate the public’s interest that the service in question is provided.

20. 2. What about the Welfare Services? Regarding definitions - Services of General Economic Interest • In general: • Included within the wording of Article 86(2) EC. • Included within the wording of Article 16 EC. • Included within the wording of the Treaty of Lisbon, Protocol 26. • Included within the wording of the Services Directive. • Included within the wording of Article 36 of the Charter of Fundamental Rights of the European Union.

21. 2. What about the Welfare Services?Regarding definitions - Services of General Economic Interest • Possible meaning: • Normally considered to be a Community concept. • Pursuant to the first Communication on the subject (1996), the term “SGEI” is defined as: • “...referring to market services which the Member States subject to specific public service obligations by virtue of a general interest criterion.” • Pursuant to the second Communication on the subject (2000), “SGEI” are: “...different from ordinary services in that public authorities consider that they need to be provided even where the market may not have sufficient incentives to do so.” • Examples mentioned as included are: transport networks, energy, and communications.

22. 2. What about the Welfare Services?Regarding definitions - Non-Economic Services of General Interest • In general: • Not known from the EC Treaty itself. • A “younger” concept than “SGEI”. • Clearly stipulated in the Services Directive that it does not apply to “NESGI” (Art. 2(2)(a)). • Mentioned in the Protocol 26, Article 2, of the Lisbon Treaty, as it is here stipulated that the provisions of the Treaties do not affect in any way the competence of the Member States to provide, commission and organise “NESGI”.

23. 2. What about the Welfare Services?Regarding definitions - Non-Economic Services of General Interest • Possible meaning: • May be understood in the direction of: • * non-market services; or • * welfare state activities, or • * activities, which can not be taken care of commercially, or which are not performed for an economic counterpart. • Examples may be found e.g. within the social, health and educational spheres. • The Commission seems to include activities of “public authority”.

24. 2. What about the Welfare Services?Regarding definitions - ”Public Authority” and ”Non-undertakings” • In General: • Classic internal market law and competition law concepts respectively. • Interrelated concepts. • Brings the activity in question outside the scope of the Treaty. • Possible meaning: • “Non-economic activities”; often classified as traditional ius imperii activities. • The Commission seems to place these activities under “NESGI”. • Examples which have been mentioned are within fields such as administration of tax systems, justice, internal and external security, diplomacy and defence, execution of punishment of citizens, registration of births.

25. 2. What about the Welfare Services?Regarding definitions - ”Market Services” • In General: • Have from the very beginning of the Community’s life stood in the very centre of regulation (“economic activities”). • Possible meaning: • More “normal market services” (or “economic services of no general interest”). • Examples: accounting and legal advice.

26. 2. What about the Welfare Services? • Tensions Related to the Treaty Itself • 1957/58: Article 86 EC itself may be read as representing unsolved conflicts between different competing visions (economic aims >< social aims). • 1996: Commission fails on insertion of a new paragraph in Article 3 EC concerning “SGI”. • 1997/99: Article 16 EC inserted. New attempts from Member States to gain protection. • 2000: Article 36 of the Charter of Fundamental Rights. May be viewed as a certain kind of attempt from Member States to gain protection. • 2007: LisbonTreaty. Commission fails attempt to get a clear legal basis in Article 16 EC on “SGEI”. However modified legal basis. A Protocol will be annexed again emphasising the protection of Member State competence. “Social Market Economy”!

27. 2. What about the Welfare Services? • New Winds Blowing… • The European Social Model? • Social Market Economy?

28. 2. What about the Welfare Services? • “European Social Model” • Was for the first time applied by the Commission in 1994. • Has been characterised as: “...a rather diffuse amalgam of ideas and principles constructed principally by the Commission to justify social policy interventions on the part of the EU”. • Others view it as the result of a compromise between the neo-liberal and the more socially-oriented governments of Member States.

29. 2. What about the Welfare Services? • “Social Market Economy” • Article 2 on the Union’s objectives, will be renumbered 3 in the Lisbon Treaty: • “The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy….” • May be viewed as an expression of a compromise between the opposing views (hard core liberalism ctr. forces aiming at keeping a kind of status quo/the more socially worried forces). • Neither common nor clear picture of what could be in a “social market economy”, nor what constitutes appropriate steps to advance towards it.

30. 2. What about the Welfare Services? • “Undistorted competition” • For the sake of completeness: • The present Article 3(1), litra g) EC stipulates that the activities of the Community shall include: • “…a system ensuring that competition in the internal market is not distorted” • In the Lisbon Treaty this aim will be ”moved” to Protocol 26 with the following content: • “The High Contracting Parties, considering that the internal market as set out in Article 3 of the Treaty on European Union includes a system ensuring that competition is not distorted….” • What the future aim really will be about, therefore seems a bit difficult. Under all circumstances, it seems as if hard core liberalism will no longer – if ever – be the sole load star of the Union.

31. 2. What about the Welfare Services? • “Social Market Economy” • A certain guidance may be found in Laval: • ”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 harmonisation while improvement is being maintained, proper social protection and dialogue between management and labour.”

32. 2. What about the Welfare Services? • New initiative on its way? • I.a. the present unclearness as to the legal situation both at the general level and at the level of the SD … • …forces are working on establishing a legal framework, for instance a directive, regarding “SGEI”.

33. 2. What about the Welfare Services? • Possible subjects in a legal framework: • 1) objectives; • 2) scope of application; • 3) links with existing sector-specific legislation as well as with the SD; • 4) distribution of competences between the Member States and the Community, including the role of the Member States, also regarding the regional and local levels, and the Community; • 5) definitions of central concepts; • 6) rules on the granting of special or exclusive rights, including a clear and transparent framework for the selection of undertakings entrusted with a “service of general economic interest”; • 7) general principles regarding the provision of “services of general economic interest” (universality and equality of access, continuity, security and adaptability; quality, efficiency and affordability, transparency, protection of less well-off social groups, protection of users, consumers and the environment, and citizen participation, non-discrimination, etc.); • 8) clarification regarding the compensation of public service obligations; • 9) the organisation and regulation of these services; • 10) the role of regulators; • 11) clarification as to the application of competition and internal market rules to these services including a point of view as to the balance between market and public service principles; • 12) control issues; • 13) benchmarking and quality measurement mechanisms at national and European level; • 14) exchange of experience and the promotion of best practices; and • 15) entry into force.

34. 3. Some Critique

35. 3. Some Critique Lack of Clarity Regarding the Definitions Themselves • Observation: • Despite being of great importance, at present a lack of clarity dominates the impression left. • Question: • The Commission is in favour of ”dynamic” definitions, but is that acceptable?

36. 3. Some Critique The Competence to Decide What Constitutes ”SGEI” • Observation: • Uncertainty as to how far the freedom of Member States to define “SGEI” goes. • Question: • How to reconcile this freedom of Member States to define “SGEI” with the classification of this concept normally as a Community concept to be strictly interpreted?

37. 3. Some Critique Distinction between ”SGEI” and ”NESGI” • Observation: • Uncertainty as to the exact distinction between “SGEI” and “NESGI”. • Question: • Should “NESGI” only contain “exercise of public authority”/”Non-undertakings”?

38. 3. Some Critique The Link between ”SGEI” and ”USO” • Observation: • Uncertainty as to the exact link between “SGEI” and “USO”. • Questions: • Should “SGEI” only constitute of services provided pursuant to “USO”? • How should “USO” more exactly be defined?

39. 3. Some Critique The Link Between ”SGEI” and ”Public Goods” • Observation: • Uncertainty as to exactly which services are considered different from ordinary services in that public authorities consider that they need to be provided even where the market may not have sufficient incentives to do so. • Question: • Does this aspect need to be developed further, perhaps taking into consideration economic theory concerning “public goods”?

40. 3. Some Critique ”ESM” and ”social market economy” • Observation: • The ”European Social Model” and the new objective in Article 3 EU of the Lisbon Treaty on a ”social market economy” - considered as a result of a compromise between more liberal and more socially-oriented governments in the Member States - may be of importance to the definitions. • Question: • How will/should this ”compromise” between more liberal and more socially-oriented governments in the Member States influence on the definitions?

41. 4. Some Conclusions

42. 4. Some Conclusions • Blurred, risky and uncertain borderlines between the concepts. • Growing legal uncertainty regarding these services. • Not clear what the freedom of Member States to define “SGEI” means. • Equalising “SGEI” with “USO” might be problematic. • Not clear what the implications of a “ESM” and “social market economy” will mean.

43. 4. Some Conclusions • Some issues to consider: • Is a rethinking of the terminology needed? • Should the real test be which services have such a character that they need a particular protection from market economic principles? • Should an elaboration of improved definitions be based on economic theory? • Should an elaboration of improved definitions be based on how a distribution of competences in this field is desired to be? • Should a general framework concerning “SGEI” including clear definitions be adopted?