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European Union regulation refers to the body of European Union (EU) 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 Union competition law. Under TFEU Article 119 of the EU treaties;
The activities of the Member States and the Union shall include, as provided in the Treaties, 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[1] 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.
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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 Union competition law.[2]
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, affected firms are those that are state owned,[3] 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,[4] 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 that 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]."[5]
The ECJ recommended that the Belgian government have an independent body to approve phone specifications,[6] 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[7] so no abusive "action" as such by RTT needed to take place. The issue was further considered in Albany International[8] 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.”[9] But the scheme was justified under Art. 86(2), being a service of general economic 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[10] 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.[11] 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.[12] 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 that 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.”[13]
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)
Articles 107 - 109 of the TFEU set out State Aid law.
The general definition of State Aid is set out in Article 107(1) of the TFEU [1].
Measures which fall within the definition of State Aid are unlawful unless provided under an exemption or notified [2].
For there to be State Aid under Article 107(1) of the TFEU each of the following must be present:
There is the transfer of Member State resources;
Which creates a selective advantage for one or more business undertakings;
That has the potential to distort trade between in the relevant business market; and
Affects trade between the Member States.
Where all of these criteria are met, State Aid is present and the support shall be unlawful unless provided under a European Commission exemption [3]
The European Commission applies a number of exemptions which enable aid to be lawful[4]. The European Commission will also approve State Aid cases under the notification procedure[5].
State Aid law is an important issue for all public sector organisations and recipients of public sector support in the European Union[6] because unlawful aid can be clawed back with compound interest.
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.[14]
In the Corbeau case,[15] 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,[16] 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."[17] This means once a working day deliveries and pickups, and that services that could be reserved for state monopolies include "clearance, sorting, transport and delivery of items of domestic correspondence and incoming cross-border correspondence".[18] For countries that 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.[19] In the Deutsche Post decision[20] 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.[21]