Abstract
This paper tackles postal services as one of the most widespread examples of services of general economic interest (SGEI) in order to highlight the specificity of the network industries and their contribution to EU harmonisation in this field. It also tries to position the notion of universal services in relation to the notion of SGEIs. The paper addresses the different views of various Member States on the perception of a public service and stresses the divergences that are inherent in the topic since different legal cultures, traditions and social and historic features affect the subject matter. In the absence of sectoral Union rules governing the matter, the Member States have a wide margin of discretion in defining services that could be classified as services of general economic interest. The Commission’s task is to ensure that there is no manifest error with regard to the definition of SGEIs. The paper further analyses the role of the Commission’s soft (law) approach, which has ended up in quite a coherent SGEI legal framework, including especially the SGEI package, but also primary law instruments such as Articles 14 and 106 TFEU, Protocol No 26 and the Charter on Fundamental Rights. This paper also presents the applicable rules that the Commission has applied in its recent Post Office Decision.
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Notes
- 1.
Universal postal services refer to the provision of basic postal services to the UK population, including delivery to any address throughout the UK six times per week, and a sufficient network of letter boxes and post offices or postal partner offices.
- 2.
On 15 October 2013, Royal Mail became a quoted company with shares traded on the London Stock Exchange.
- 3.
As Advocate General Tesauro opines in Case C-320/91 Paul Corbeau of 19 May 1993[1993] ECR 1-2563: ‘in the context of postal services, the concept of universal service obligation is founded on a basic principle of fairness, according to which it is the State’s duty as far as practicable to create equal opportunities and living conditions for all its citizens, including the provision of a means of inter-personal communication, in order to promote social cohesion’.
- 4.
The definition of a specific USO is set at EU level as an essential component of the market liberalisation of certain sectors, such as electronic communications, post and transport.
- 5.
‘Services of general economic interest would not be provided if pure market economy logics were applied. This is why they are linked to the notion of – market failure’ (Popović 2013).
- 6.
As the Commission itself admits in its 2011 ‘Quality Framework for Services of General Interest in Europe’, the debate on services of general interest suffers from a lack of clarity of terminology. Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – A Quality Framework for Services of General Interest in Europe, Brussels [2011] COM(2011) 900 final.
http://ec.europa.eu/services_general_interest/docs/comm_quality_framework_en.pdf. Accessed 8 Jun 2015, Concepts are used interchangeably and inaccurately. The basic concepts are: Service of General Interest (SGI), Service of General Economic Interest (SGEI), Social Services of General Interest (SSGI), Universal Service Obligation (USO), Public Service Obligation (PSO) and Public Service. All these concepts will be explained further in the text.
- 7.
At its session of 14 November 2014, the Council of HAKOM adopted a decision on the amount of net cost representing unfair financial burden on the universal service provider, Croatian Post.
- 8.
‘The sectoral legislation adopted at EU level has always carefully balanced the need to increase competition and the use of market mechanisms with the need to guarantee that every citizen continues to have access to essential services of high quality at prices that they can afford. This has been the case, for instance, in the network industries from telecommunications and postal services to transport and energy’ (Quality Framework for Services of General Interest in Europe 2011).
- 9.
Where EU harmonisation rules refer only to certain specific services, the Member States have considerable discretion in defining additional services as SGEIs. For example, in the electronic communications sector, Member States are required to lay down the universal service obligations provided for by the Directive, but they have discretion to go further than the Directive in defining electronic communication services as SGEIs.
- 10.
The public service obligation (PSO) represents a common mechanism for the provision of services of general economic interest throughout the Member States of the European Union, but is not a thoroughly defined concept of law within the EU and its legal framework (Henning 2011). Henning argues that the concept has received significantly less attention from law practitioners and academia than the terms SGEI or USO. Indeed, the term PSO is mostly discussed in connection with Article 93 TFEU with regard to EU transport law.
- 11.
It is possible to draw a conclusion that a certain entity is an undertaking with regard to the fact that the activities concerned could be performed in competition (Sauter 2008).
- 12.
Such services can also be performed in-house, as explained in the 2011 SGEI Communication.
- 13.
As set in Article 345 TFEU.
- 14.
The 2006 Communication Implementing the Community Lisbon programme, ‘Social services of general interest in the European Union’, identified two main groups of SSGIs in addition to health services: statutory and complementary social security schemes, organised in various ways (mutual or occupational organisations), covering the main risks of life, such as those linked to health, ageing, occupational accidents, unemployment, retirement and disability and other essential services provided directly to the person. These services that play a prevention and social cohesion role consist of customised assistance to facilitate social inclusion and to safeguard fundamental rights.
- 15.
E.g. Court judgment in Case C-179/90 Merci convenzionali porto di Genova [1991] ECR I-5889, para 27.
- 16.
‘If the services are not supplied to the general public, as in the case of GEMO, then there may be an indirect granting of state aid due to the distortion of competition among the users of the services in question’ (Nicolaides 2003).
- 17.
Sauter (2008) notes that vertically integrated services provided by public authorities tend to be ignored by the Treaty, whereas ‘introducing even a modicum of competition among undertakings providing the same services can lead to the competition rules being applied to the point where legitimate national public interest may be threatened’ which, in his view leads to the ‘central paradox’ where the same services are provided by undertakings on one hand (then the competition rules apply in full) or, on the other hand, by entities which are not considered as undertakings but are ‘solidarity based’ (they are excluded from competition rules altogether).
- 18.
Cremona (2011) states that the fragmented nature of EU rules on services of general economic interest is probably inevitable given the diverse nature of these services in themselves and their regulation in different Member States.
- 19.
Illustrative in this sense is also the writing of a former Commissioner for Competition, Mario Monti, in 2010: ‘Since the 1990s, the place of public services within the single market has been a persistent irritant in the European public debate.’
- 20.
This is today Article 106 TFEU. Its paragraph 2 sets out 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.’
- 21.
According to Szyszczak (2011) services of general economic interest were for a long time derogations from the European rules of competition and internal market. New concepts have gradually been introduced into the framework of EU law and official documents, firstly through the liberalisation processes starting in the 1980s and, secondly, through the Commission’s soft law.
- 22.
Szyszczak (2011) explains that the increased attacks on public services using the competition and free movement rules of the Treaty led the Member States to give services of general economic interest greater prominence in the Treaty by the insertion of a new article 16 EC. ‘This Article was a melting pot of different preferences from the Member States. Its purpose is to define a shared competence between EU and Member States and the need to integrate, or harness, the important roles such services play in European integration, ensuring social and territorial cohesion as well as ensuring that national patriotism does not offend the principles of a competitive and integrated market.’
- 23.
Until that moment the only appropriate legal base for the SGEI legislation was today’s Article 106(3) TFEU (‘The Commission shall ensure the application of the provisions of this Article and shall, where necessary, address appropriate directives or decision to Member States.’) This legal base was used for the 1991 Telecommunications directives, but as the Court held that Article 106(3) does not give the Commission general legislative power, but only a specific one to deal with State measures concerning legal monopolies, the Commission was reluctant to use it more often.
- 24.
At the same time, Sauter (2008) sensed that the fact that it was felt necessary to adopt the Protocol highlighted the deep concerns held by the Member States that something essential may slip from their control on that issue. He added that, in reality, the Protocol appeared to add little of substance as regards SGEIs themselves.
- 25.
The Charter of Human Rights was proclaimed in December 2000. Article 36 of the Charter: ‘The Union recognises and respects access to services of general economic interest as provided for in national laws and practices, in accordance with the Treaty establishing the European Community, in order to promote the social and territorial cohesion of the Union’.
- 26.
The concept of SGEIs now appears in Articles 14 and 106(2) TFEU, in Protocol No 26 and in Article 36 of the Charter of Human Rights.
- 27.
Services of general interest in Europe (1996), Services of general interest in Europe (2001), Report to the Laeken European Council – Services of general interest (2001), Green paper on services of general interest (2003), White paper on services of general interest (2004), White paper on services of general interest (2004), Implementing the Community Lisbon programme: Social services of general interest of the European Union (2006), Communication on ‘Services of general interest, including social services of general interest: a new European commitment’ (2007), Commission staff working document - Guide to the Application of the European Union Rules on State Aid, Public Procurement and the Internal Market to Services of General Economic Interest, and in Particular to Social Services of General Interest (2010), Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 23 March 2011 – ‘Reform of the EU State Aid Rules on Services of General Economic Interest’ (2011), Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – A Quality Framework for Services of General Interest in Europe (2011), Communication on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest (2012), Commission Staff Working Document – Guide to the application of the European Union rules on state aid, public procurement and the internal market to services of general economic interest, and in particular to social services of general interest (2013).
- 28.
The procedure regarding notified aid is set by Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty as amended in 2013 and Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty.
- 29.
‘…(s)hall be compatible with the internal market’.
- 30.
‘…(m)ay be considered to be compatible with the internal market’.
- 31.
Decision of 19.03.2015. C(2015) 1759 final, State aid SA.38788 (2015/N) – United Kingdom Compensation to Post Office Limited for costs incurred to provide SGEIs 2015-2018.
http://ec.europa.eu/competition/state_aid/cases/256622/256622_1651530_118_2.pdf. Accessed 6 Jun 2015.
- 32.
The Pre-notification phase is described in the Code of Best Practice for the conduct of State aid control procedures, 2009/C 136/04.
- 33.
State Aid Notifications Interactive (SANI) has been developed in order to facilitate the electronic transmission of notifications as required by Regulation 794/2004.
- 34.
It is important to stress that the UK fully respected the stand-still obligation laid down in Article 108(3) TFEU and did not grant the aid until the Commission reached a decision authorising the notified measure.
- 35.
Case C-280/00 Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH [2003] ECR I -07747.
- 36.
In that case, if the measure is not State aid in the sense of Article 107(1), there is also no notification obligation according to Article 108 TFEU.
- 37.
As in a number of other cases. E.g. Bartosch (2006) criticises the Altmark judgment and especially the Commission’s response to the judgment. In his view, the Altmark criteria are ‘completely out of touch with reality’, so, in the eyes of the Commission, hardly any aid scheme fulfilled the requirements set by the judgment. In his view, the benefits of the Altmark ruling itself are, for these reasons, highly questionable. The practical impacts of the Altmark judgement and its theoretical implications are also discussed by Gromnicka (2005) and Louise and Vallery (2004).
- 38.
Klasse (2013) shows that the criteria laid down by the CJEU for public service compensation to be free of State aid elements have been met only on rare occasions in the case law. He notes that this is a consequence of the difficulties the Commission has faced when applying the Altmark test which resulted in a very strict reading by the Commission of the Altmark criteria. Klasse notes that the main challenging factor remains the assessment of the fourth Altmark criterion. Save for in exceptional circumstances, the benchmarking exercise has never been successful. He argues that it is difficult to reconcile the Commission’s approach emanating from its case law with the jurisprudence of the European Courts.
- 39.
Article 106(2) provides for an exception from the rules contained in the Treaty insofar as the application of the competition rules would obstruct, in law or in fact, the performance of the tasks assigned. This exception only applies where the development of trade is not affected to such an extent as would be contrary to the interests of the Union.
- 40.
Communication from the Commission, European Union framework for State aid in the form of public service compensation [2011] OJ C 8/15.
http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52012XC0111(03). Accessed 7 Jun 2015.
- 41.
The 2011 SGEI Package replaced the 2005 SGEI Package (also called the ‘Monti-Kroes Package’), which has been very much inspired by the Altmark case law. Following a public consultation and a thorough revision process, the Commission adopted the first three texts of the new SGEI package (the SGEI Decision, the SGEI Framework and the SGEI Communication) on 20 December 2011 in order to define the conditions under which State aid in the form of public service compensation can be considered compatible with EU rules, and on 25 April 2012 the Commission adopted, as the final pillar of the package, the de minimis Regulation for the field of SGEIs.
- 42.
This threshold is determined by the SGEI Decision which sets out the conditions under which State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest is compatible with the internal market and exempt from the requirement of notification laid down in Article 108(3) of the Treaty (in a way functioning as a block exemption regulation). Commission Decision 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 (notified under document C(2011) 9380) [2012] OJ L 7/3.
http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32012D0021. Accessed 7 Jun 2015.
- 43.
This Decision replaced SGEI Decision 2005/842/EC. Given the development of intra-Union trade in the provision of services of general economic interest, demonstrated for instance by the strong development of multi-national providers in a number of sectors which are of great importance for the development of the internal market, the Commission has deemed it appropriate to set a lower limit for the amount of compensation which can be exempted from the notification requirement in accordance with the 2011 SGEI Decision than what was set by the 2005 SGEI Decision, while allowing for that amount to be computed as an annual average over the entrustment period.
- 44.
The Decision only applies where the period for which the undertaking is entrusted with the operation of the service of general economic interest does not exceed 10 years. Where the period of entrustment exceeds 10 years, the Decision only applies to the extent that a significant investment is required from the service provider that needs to be amortised over a longer period in accordance with generally accepted accounting principles.
- 45.
If, during the duration of the entrustment, the conditions for the application of the Decision cease to be met, the aid shall be notified in accordance with Article 108(3) of the Treaty.
- 46.
The Croatian example of SGEIs exempted through the SGEI Decision is the State Aid Scheme for the period between 2005–2012 in the form of compensation for the services of general economic interest concerning line maritime transport on national lines 338 Valbiska – Lopar and return, 501 Brodarica – Krapanj and return, and 612 Komiža – Biševo and return.
- 47.
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 [2012] OJ C 8/4.
http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52012XC0111(02). Accessed 7 Jun 2015.
- 48.
The Court of Justice has also held that any activity consisting of offering goods and services on the market is an economic activity. However, the question whether a market exists for certain services may depend on the way those services are organised in a certain Member State. So, if the service is provided in a market environment, then the service would fulfil the condition to be regarded as an economic activity, which would make its provider an undertaking and which would trigger the application of the State aid rules.
- 49.
In general, EU courts distinguish between the schemes based on the principle of solidarity and economic schemes.
- 50.
- 51.
As Klasse (2013) explains, even though public procurement is the main rule under Altmark, the Court of Justice has been reluctant to impose an obligation on the Member States to perform tenders every time. Instead, in Altmark, the Court created an alternative test based on the efficiency of the provider of the service and the least cost for the community. However, the Altmark judgment did not specify what constitutes a typical, well-run undertaking. The concept has been criticised for being virtually impossible to accomplish in practice because of a lack of comparable undertakings that could be used as benchmarks. Klasse concludes that the Commission’s practice appears to be based on the premise that the fourth criterion can only be met in its first alternative, i.e. if the provider is chosen on the basis of a competitive tender. However, even in those cases where the choice of undertaking to be entrusted and the amount of compensation are affected by way of a procurement procedure perfectly in line with competition and public procurement rules, the compensation may fail the Commission’s necessity test (or the ‘least cost’ criterion).
- 52.
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 [2012] OJ L 114/8. http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32012R0360. Accessed 7 Jun 2015.
- 53.
The threshold is higher than the general de minimis thresholds in the field of State aid (EUR 200,000 over 3 years) because it can be assumed that the support measures at least in part compensate for the extra costs incurred for the provision of a public service.
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This paper was supported by the Croatian Science Foundation project no 9366 ‘Legal Aspects of Corporate Acquisitions and Knowledge Driven Companies’ Restructuring’.
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Liszt, M., Čulinović Herc, E. (2017). Certain Aspects of State Aid to Services of General Economic Interest. In: Tomljenović, V., Bodiroga-Vukobrat, N., Butorac Malnar, V., Kunda, I. (eds) EU Competition and State Aid Rules. Europeanization and Globalization, vol 3. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-47962-9_14
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