European Community regulation

European Community regulation refers to the body of European Union law involved in the regulation of state support to commercial industries, and of certain industry sectors and public services. The industries currently subject to regulation and liberalisation are, for the time being, postal services, telecommunications and energy. To a lesser extent, transport, the legal profession, social services and even health care are affected by EU law. EC regulation is a part of the body of European Community competition law. Under Article 4 of the Treaty of the European Community (EC),

"the activities of the Member States and the Community shall include, as provided in this Treaty and in accordance with the timetable set out therein, the adoption of an economic policy which is based on the close coordination of Member States' economic policies, on the internal market and on the definition of common objectives, and conducted in accordance with the principle of an open market economy with free competition.

The emphasis therefore, since the 1980s [Chalmers (2006) p.1114] is that in the European Union, state intervention is taken to be the exception rather than the rule. The first prong of EU action has been in dismantling state protection of national industry, and the second prong, positive action in liberalising certain economic sectors.

Anti-competitive state regulation

Article 10 EC states,

"Member States shall take all appropriate measures, whether general or particular, to ensure fulfillment of the obligations arising out of this Treaty or resulting from action taken by the institutions of the Community. They shall facilitate the achievement of the Community's tasks. They shall abstain from any measure which could jeopardise the attainment of the objectives off this Treaty.

This means that a member state must not allow or assist businesses (or "undertakings" in EU jargon), state or non-state run, to infringe European Community competition law. [see, C-311/85 "Vereniging van Vlaamse Reisbureaus v. ASBL Sociale Dienst van de Plaatselijke en Gewestelijke Overheidsdiensten" [1987] ECR 3801, where a Belgian Royal decree incorporated a travel agent association code of conduct, which prohibited discounts (i.e. [Price fixing|fixed prices)]

The more specific obligation, and more potent is found in Article 86 EC, which states,

"(1) 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 this Treaty, in particular to those rules provided for in Article 12 and Articles 81 to 89.

(2) 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 this Treaty, in particular to the rules on competition, insofar 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.

(3) 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 provision, unlike Article 10, only applies to firms with "special or exclusive rights" (para (1)). In other words, firms affected are those which are state owned, [see, Art. 2 Directive 80/723/EC; a "dominant influence" of a firm's management by a state body is required] given a legal monopoly (e.g. only the Student Loans Company in the U.K. administers loans at a government guaranteed rate), or given special rights (e.g. only seven boat companies have concessions to use public ferry wharves for services on the Thames). The leading case in 1991, "RTT v. GB", [C-18/88 "Régie des Télegraphes et des Téléphones, v. GB-Inno-BM SA" [1991] ECR 5941] involved a small telephone equipment maker, GB and the Belgian state telephone provider, RTT, which had the exclusive power to grant approved phones to connect to the tele-network. GB was selling its phones, which were unapproved by RTT, and at lower prices than RTT sold theirs. RTT sued them, demanding that GB inform customers that their phones were unapproved (which would lose GB many customers). GB argued that the special rights of RTT infringed Article 86, and the case went to the European Court of Justice (ECJ). The ECJ held that,

"A system of undistorted competition... can be guaranteed only if equality of opportunity is secured as between various economic operators. To entrust an undertaking which markets terminal equipment [i.e. RTT] with the task of drawing up the specifications for such equipment... is tantamount to... placing that undertaking at an obvious advantage over its competitors [i.e. GB] ." [para 25, "RTT v. GB"]

The ECJ recommended that the Belgian government have an independent body to approve phone specifications, [para 26, "RTT v. GB"] because it was wrong to have the state company both making phones and setting standards. RTT's market was opened to competition. An interesting aspect of the case was that the ECJ interpreted the effect of RTT's exclusive power as an "abuse" of its dominant position under Article 82 EC [para 23-4, "RTT v. GB"] so no abusive "action" as such by RTT needed to take place. The issue was further considered in "Albany International" [see para 388-439, C-67/96 "Albany International BV v. Stichting Bedrijfspensioenfonds Textielindustrie" [1999] ECR I-5751] Albany was a textile company, which found a cheap pension provider for its employees. It refused to pay contributions to the “Textile Trade Industry Fund”, which the state had given the exclusive right to. Albany argued that the state’s scheme was contrary to Article 86, in conjunction with Article 82 under EC Competition law. The ECJ ruled that the scheme did infringe Art. 86(1), because “undertakings are unable to entrust the management of such a pension scheme to a single insurer and the resulting restriction of competition derives directly from the exclusive right conferred on the sectoral pension fund.” [’’Albany’’ [1999] ECR I-5751, para 97] But the scheme was justified under Art. 86(2), being a service of general economic interest.

ervices of general interest

Services of general economic interest is more technical term for what are commonly called public services. The settlement under the European Treaties was meant to preserve Europe’s social character and institutions. Article 86 refers first of all to “undertakings”, which has been defined to restrict the scope of competition law’s application. In "Cisal" [C-218/00 Cisal di Battistello Venanzio and C. Sas v. Instituto nazionale per l'assicurazione contro gli infortuni sul lavoro (INAIL) [2002] ECR I-691, para 31-45] a managing director challenged the state’s compulsory workplace accident and disease insurance scheme. This was run by a body known as "INAIL". The ECJ held that the competition laws in this instance were not applicable. “Undertaking” was a term that should be reserved for entities that carried on some kind of economic activity. INAIL operated according to the principle of solidarity, because for example, contributions from high paid workers subsidise the low paid workers. ["Cisal", para 42] Their activities therefore fall outside competition law’s scope.

The substance of Article 86(2) also makes clear that competition law will be applied generally, but not where public services being provided might be obstructed. An example is shown in the ‘’Ambulanz Gloeckner’’ case. [C-475/99 "Ambulanz Gloeckner v. Landkreis Suedwestpfalz" [2001] ECR I-8089, para 52-65] In Rheinland Pfalz, Germany, ambulances were provided exclusively by a company that also had the right to provide some non-emergency transport. The rationale was that ambulances were not profitable, not the other transport forms were, so the company was allowed to set profits of one sector off to the other, the alternative being higher taxation. The ECJ held that this was legitimate, clarfiying that,

”the extension of the medical aid organisations’ exclusive rights to the non-emergency transport sector does indeed enable them to discharge their general-interest task of providing emergency transport in conditions of economic equilibrium. The possibility which would be open to private operators to concentrate, in the non-emergency sector, on more profitable journeys could affect the degree of economic viability of the service provided and, consequently, jeopardise the quality and reliability of that service.” ["Ambulanz Gloeckner", para 61]

The ECJ did however insist that demand on the subsidis’’ing’’ market must be met by the state’s regime. In other words the state is always under a duty to ensure efficient service. Political concern for the maintenance of a social European economy was expressed during the drafting of the Treaty of Amsterdam, where a new Article 16 was inserted. This affirms, “the place occupied by services of general economic interest in the shared values of the Union as well as their role in promoting social and territorial cohesion.” The ongoing debate is at what point the delicate line between the market and public services ought to be drawn.Article 86(2)

Article 87

Article 87 EC, similar to Article 81 EC, lays down a general rule that the state may not aid or subsidise private parties in distortion of free competition, but then grants exceptions for things like charities, natural disasters or regional development. The law under these provisions has developed through individuals and businesses challenging state norms through individual cases.

Liberalisation directives

The EU liberalisation programme entails a broadening of sector regulation, and extending competition law to previously state monopolised industries. The EU has also introduced positive integration measures to liberalise the internal market. There has at times been a tension between introduction of competition and the maintenance of universal and high quality service. [Chalmers (2006) p.1145]

In the "Corbeau" case, [ C-320/91 "Corbeau" [1993] ECR I-2533] Mr Corbeau had wanted to operate a rapid delivery service for post, which infringed the Belgian "Regie des Postes" exclusive right to operate all services. The ECJ held the legislation would be contrary to Article 86 where it was excessive and unnecessary to guarantee the provision of services of general economic interest. It pointed out however that the postal regime (as was the case in most countries) allowed the post office to "offset less profitable sectors against the profitable sectors" of post operations. To provide universal service, a restriction of competition could be justified. The court went on to say,

"to authorise individual undertakings to compete with the holder of the exclusive rights in the sectors of their choice corresponding to those rights would make it possible for them to concentrate on the economically profitable operations and to offer more advantageous tariffs than those adopted by the holders of the exclusive rights since, unlike the latter, they are not bound for economic reasons to offset losses in the unprofitable sectors against profits in the more profitable sectors."

This meant a core of economic sectors in postal services could be reserved for financing the state industry. This was followed by Directive 97/67/EC on Postal services, [OJ L15/14, amended by Directive 2002/39/EC of 10 June 2003, OJ 2002 L176/21] which required Member States to "ensure that users enjoy the right to a universal service involving the permanent provision of a postal service... at all points in their territory." [Directive 97/67/EC Art. 3(1)] This means once a working day deliveries and pickups, and that services which could be reserved for state monopolies include "clearance, sorting, transport and delivery of items of domestic correspondence and incoming cross-border correspondence". [Directive 97/67/EC Art. 7(1)] For countries which had not liberalised postal services in any measure, the directive contained provisions to gradually open up to competition. It was intended to strike a balance between competition and continued quality service. [see Directive 97/67/EC Praemble, "the reconciliation of the furtherance of the gradual, controlled liberalisation of the postal market and that of a durable guarantee of the provision of universal service."] In the "Deutsche Post" decision [OJ 2001 L125/27] the Commission took strong enforcement action. Deutsche Post was accused of predatory pricing in the business parcel delivery sector (i.e. not one of the services "reserved" under the directive) by the private firm UPS. The Commission ordered the structural separation of the normal postal services from business deliveries by Deutsche Post. [see also, T-175/99 "UPS Europe v. Commission [2002] ECR II-1915, para 66]

Criticism

There is also some scepticism about the effectiveness of competition law in achieving economic progress and its interference with the provision of public services. France's president Nicholas Sarkozy called recently for the reference in the preamble to the Treaty of the European Union to the goal of "free and undistorted competition" to be removed. ["Removal of competition clause causes dismay", Tobias Buck and Bertrand Benoit, Financial Times p.6 June 23rd 2007] Though competition law itself would have remained unchanged, the other goals of the praemble which include "full employment" and "social progress" have the perception of greater specificity and as being ends in themselves, while "free competition" is merely a means.

ee also

*Public services
*Electricity liberalisation
*Water law

Notes

References

*Damien Chalmers, Christos Hadjiemmanuil, Giorgio Monti, Adam Tomkins (2006) "European Union Law", Cambridge University Press, ISBN 9780521527415
*Szyszczak (2007) "The Regulation of the State in Competitive Markets in the EU"
*Arnull et al (2006) "Wyatt and Dashwood's European Union Law", 5th edn, chs 26 and 27
*Geradin (Ed) (2000) "The Liberalisation of State Monopolies in the European Union and Beyond"
*Monti, Giorgio (2007) "EC Competition Law"
*Quigley & Collins (2007) "EC State Aid Law"
*Biondi et al (2003) "The Law of State Aids in the European Union"