Saturday, 31 May 2008

EU TFEU: Competition and public undertakings

Public undertakings and undertakings with exclusive rights are prohibited from discriminating on the grounds of nationality and they are subject to the EU’s competition rules, including state aid.

Although undertakings (firms) operating services of general economic interest and revenue-producing monopolies (‘milk-cows’) are still subject to EU competition rules according to the Treaty of Lisbon ‘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’, continued legislative and court battles loom on the horizon, when the lines have to be drawn between undistorted competition in the single market and the requirements of services for citizens or seemingly bottomless state coffers.


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Article 106 of the Treaty on the Functioning of the European Union (TFEU) is found in the consolidated version of the Treaty on European Union and the Treaty on the Functioning of the European Union, published in the Official Journal of the European Union, OJ 9.5.2008 C 115/90–91:

Part Three ‘Policies and internal actions of the Union’

Title VII Common rules on competition, taxation and approximation of laws

Chapter 1 Rules on competition

Section 1 Rules applying to undertakings

Article 106 TFEU
(ex Article 86 TEC)

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 the Treaties, in particular to those rules provided for in Article 18 and Articles 101 to 109.

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 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.

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.

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In Article 2, point 76 of the Treaty of Lisbon (ToL) the intergovernmental conference (IGC 2007) amended Article 85 TEC and in point 77 it made changes to Article 87 TEC. Thus, there were no specific amendments to Article 86 TEC. Cf. OJ 17.12.2007 C 306/68–69.

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The TFEU table of equivalences tells us that Article 86 TEC first became Article 86 TFEU (ToL) in the original Treaty of Lisbon, but later renumbered Article 106 TFEU in the consolidated version (OJ 17.12.2007 C 306/211).

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The current Article 86 of the Treaty establishing the European Community (TEC) is found under Title VI ‘Common rules on competition, taxation and approximation of laws’, Chapter 1 ‘Rules on competition’, Section 1 ‘Rules applying to undertakings’, in the latest consolidated version of the treaties in force (OJ 29.12.2006 C 321 E/76).

In Article 106 TFEU the Articles referred to were renumbered. According Article 2, horizontal amendment 2(b) ‘this Treaty’ became ‘the Treaties’ and in line with horizontal amendment 2(a) ‘the Community’ was replaced by ‘the Union’. Cf. OJ 17.12.2007 C 306/41.

The EC Treaty in force reads like this:

Article 86 TEC

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, 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 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.

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For the sake of a systematic comparison, we look at the Article during the previous treaty reform stages.

First, we turn to the European Convention, the nearest thing we as EU citizens have had to a constituent assembly, which located the provisions on competition in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 5 ‘Rules on competition’, with Subsection 1 ‘Rules applying to undertakings’.

The attentive reader notices minor differences compared to the current TEC in all three paragraphs of Article III-55 of draft Treaty establishing a Constitution for Europe, but none of them had any material impact (OJ 18.7.2003 C 169/36):

Article III-55 Draft Constitution

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 provision contrary to the provisions of the Constitution, in particular Article I-4(2) and Articles III-55 to III-58.

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 provisions of the Constitution, 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 Union's interests.

3. The Commission shall ensure the application of this Article and shall, where necessary, adopt appropriate European regulations or decisions.

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In the Treaty establishing a Constitution for Europe the provisions on competition were located in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 5 ‘Rules on competition’, with Subsection 1 ‘Rules applying to undertakings’.

Article III-166 of the Constitutional Treaty was materially the same as the corresponding provision of the draft, although the Articles referred to were naturally numbered differently and there were small differences in the wording.

As a matter of curiosity, for some reason the Constitutional Treaty used the term ‘income-producing monopoly’ in the second paragraph, where all the other versions speak of a ‘revenue-producing monopoly’. Since the TFEU is based on the current TEC, bypassing the draft Constitution and the Constitutional Treaty, this is not a real issue, but it would be interesting to know how such a change came about during the IGC 2004.

Without an explanation I am at a loss to see how this could have been an improvement on current terminology. As far as I understand, all companies want to generate income. The peculiarity of (state) monopolies has been their task to generate revenue for the state, by the strength of their privileged position, setting aside the ‘normal’ rules of competition in the national market and therefore potentially harmful in the context of an extended common market (later named internal market).

Anyway, here is how the IGC 2004 tried to strike the balance between the requirements of competition in the internal market and the privileged position of public undertakings with exclusive rights, services of general economic interest and ‘revenue-producing’ monopolies (OJ 16.12.2004 C 310/70–71):

Article III-166 Constitution

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 Constitution, in particular Article I-4(2) and Articles III-161 to III-169.

2. Undertakings entrusted with the operation of services of general economic interest or having the character of an income-producing monopoly shall be subject to the provisions of the Constitution, in particular to the rules on competition, insofar as the application of such provisions 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 Union's interests.

3. The Commission shall ensure the application of this Article and shall, where necessary, adopt appropriate European regulations or decisions.

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We have seen that Article 106 TFEU, as many other Articles where the (draft Constitution and) the Constitutional Treaty made no substantive difference, is a technical adjustment of the current TEC Article.

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What has been said about Article 106 TFEU?


United Kingdom

Professor Steve Peers covered the Treaty of Lisbon in a number of Statewatch Analyses. ‘EU Reform Treaty Analysis no. 3.3: Revised text of Part Three, Titles I to VI of the Treaty establishing the European Community (TEC): Internal Market and competition’ (Version 2, 23 October 2007) includes the current Title VI Common rules on competition, taxation and approximation of laws.

Peers highlighted the amendment to Article 86 TEC and TFEU (ToL), to be renumbered Article 106 TFEU in the consolidated version, without comment (page 26).

The analysis 3.3 and other useful Statewatch analyses are available through:

http://www.statewatch.org/euconstitution.htm

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The Foreign and Commonwealth Office (FCO) offers a convenient source of brief annotations on Lisbon Treaty amendments in ‘A comparative table of the current EC and EU treaties as amended by the Treaty of Lisbon’ (Command Paper 7311, published 21 January 2008). It offers the following comment on Article 106 TFEU, Article 86 TFEU (ToL) in the original Lisbon Treaty (page 11):

“In substance the same as Article 86 TEC.”

The FCO comparative table is available at:

http://www.official-documents.gov.uk/document/cm73/7311/7311.asp

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The UK House of Commons Library Research Paper 07/86 ‘The Treaty of Lisbon: amendments to the Treaty establishing the European Community’ (published 6 December 2007) discussed competition on pages 57 to 60. It did not comment on Article 86 TEC and ToL. See page 58.

The Library Research Paper 07/86 is available at:

http://www.parliament.uk/commons/lib/research/rp2007/rp07-086.pdf

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The House of Lords European Union Committee report ‘The Treaty of Lisbon: an impact assessment, Volume I: Report’ (HL Paper 62-I, published 13 March 2008) discussed the internal market and competition on pages 218 and 219.

The main discussion centred on concerns about the removal of ‘free and undistorted competition’ (according to Article I-3(2) of the Constitutional Treaty objectives), but the Committee offered the following general statement on the contents of the competition provisions (page 218):

“9.14. The rules on competition contained in previous treaties would be unchanged by the Lisbon Treaty. Articles 101–103 of the TFEU are the same as Articles 81–83 of the TEC. They give the EU power to legislate to combat practices “which have as their object or effect the prevention, restriction or distortion of competition”.

But I found nothing on Article 106 TFEU (Article 86 TEC and ToL) in this context.

On the other hand, the Committee did, in general terms, discuss Article 14 TFEU on services of general interest, including Protocol (No 26) on services of general interest (on pages 221 and 222). The conclusions were:

“9.40. The impact of the Treaty of Lisbon on Services of General Interest is not significant.

9.41. Given that Article 51 of the TEU, as amended by the Treaty of Lisbon, gives Protocols and Annexes equal weight to the Treaty Articles, the split between Article 14 and the Protocol on Services of General Interest is not one of significance.”

The report is accessible at:

http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeucom/62/62.pdf

My comment: Article 14 TFEU, which is located among the provisions having general application, is meant to operate without prejudice to Article 106 TFEU (and others). Services of general interest include services of general economic interest, one of the categories of undertakings (firms) mentioned in Article 106(2) and subject to more lenient competition rules, as far as required by their tasks. Therefore, Article 106 TFEU has to be read and applied in the context of Article 14 TFEU and Protocol No 26.

Their Lordships may have concluded (possibly correctly) that the impact of the Lisbon Treaty on services of general interest is not significant, but I am not going be overly astonished if a mercantilistic founding member applies pressure based on a contrary assumption.

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Sweden

The consultation paper of the government of Sweden, ‘Lissabonfördraget; Statsrådsberedningen, Departementsserien (Ds), Ds 2007:48’ published 20 December 2007, deals with the internal market on pages 261 to 269, ’22.1 Inre marknaden’. There is a brief description of the existing competition rules, Articles 81 to 89 TEC, on page 262.

On pages 265 to 266 the consultation paper explains the amendments to the competition rules (Konkurrensregler), but Article 86 TFEU (ToL) is not mentioned specifically.

The consultation paper ’Lissabonfördraget’ is available at:

http://www.regeringen.se/content/1/c6/09/49/81/107aa077.pdf

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Finland

The Finnish ratification bill, ‘Hallituksen esitys Eduskunnalle Euroopan unionista tehdyn sopimuksen ja Euroopan yhteisön perustamissopimuksen muuttamisesta tehdyn Lissabonin sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta’ (HE 23/2008 vp), briefly states the unchanged nature of Article 86 TFEU (ToL), renumbered Article 106 TFEU (page 207):

”86 artiklaa (uusi 106 artikla), joka sääntelee julkisten yritysten toimintaa, ei muuteta.”

The Finnish ratification bill is available at:

http://www.finlex.fi/fi/esitykset/he/2008/20080023.pdf


The Swedish language version of the ratification bill ‘Regeringens proposition till Riksdagen med förslag om godkännande av Lissabonfördraget om ändring av fördraget om Europeiska unionen och fördraget om upprättandet av Europeiska gemenskapen och till lag om sättande i kraft av de bestämmelser i fördraget som hör till området för lagstiftningen’ (RP 23/2008 rd), offers the same brief statement about Article 86 TFEU (ToL), the future Article 106 TFEU, on page 210:

”Artikel 86 (blivande artikel 106), som reglerar offentliga företags verksamhet, ändras inte.”

The ratification bill in Swedish can be accessed at:

http://www.finlex.fi/sv/esitykset/he/2008/20080023.pdf



Ralf Grahn
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