Primary and Case Law Between Competition and General Interest
Due to the European tradition of regional integration through law, political conflicts over the respective scope of market competition and state protection of the general interest have translated into legal controversies concerning the distinction between economic and non-economic services. This distinction is crucial because it determines the application of EU Treaty rules to services activities, in particular competition policy. Technical aspects have often obscured the fundamental issues at stake in the policy debates at the EU level. Legal scholars specialized on these issues agree that the intrinsically political—not to say ideological—nature of this debate has prevented any clear and satisfactory legal settlement of when, how and why EU competition should or should not apply to welfare services. The various labels designating different categories of services have developed in an erratic fashion across primary, secondary and case law since the origins of European integration. These developments have fed a very profuse body of legal literature, to which it is impossible to do justice here (Krajewski 2003; Prosser 2005b ; Rodrigues 2006; van de Gronden 2009; Hatzopoulos 2012 ; Szyszczak and van de Gronden 2013). The main argument in this chapter is that legal provisions could not provide answers to conflicts of values, and most of the time they even failed to provide legal security. Rather, changing legal definitions have been instrumentally and/or ideologically shaped by political debates. Thus, they have changed as the sphere of the markets has extended at the expense of public law and the public sector, as depicted in Fig. 2.1.
The specific role of welfare services with regard to social cohesion was recognized in the Treaty of Rome which founded the European Economic Community in 1957. From the outset, the treaties have not really succeeded to strike an impossible balance between competition and general interest. Article 90 EC stipulated that ‘services of general economic interest’ (SGEI) should be subject to the competition rules enshrined in the Treaty only insofar as it does not impede them in the accomplishment of their task. This calls for two observations. First, the reference to SGEI means that welfare services of a non-economic nature are left untouched by the Treaty provisions, while those of economic nature must be considered in the framework of the Treaty. Second, in the latter case, the articulation between the three different paragraphs in Article 90 gives a priority to competition which shall be the rule rather than exception where restriction to competition can be acceptable if it is necessary to protect missions of general interest. After remaining dead letter for about three decades, these provisions acquired a new significance when a vast liberalization programme was launched by the 1986 Single European Act. No later than in the early 1990s, conflicts between market competition and the protection of general interest arose where the ECJ had to decide what constitutes an economic activity subject to Treaty rules in a number of famous foundational cases. As mentioned above, a key issue in competition policy affecting welfare services is the lawful nature of financial public support, or compensation, to services providers which carry out tasks of general interest (also called universal service or public services mission). Jurisprudence is versatile by nature, hence difficult to assess. According to Prosser (Prosser 2005a), the Court took a pro-market approach by prompting integration through competition (in the pioneer sectors for liberalization such as telecommunications and air transport rules) in the 1970s and 1980s. This first phase has nevertheless been followed in the 1990s by a second period where it issued a series of judgements giving Member States a greater autonomy in supporting welfare services. The judgement Altmark mentioned above provided a broader framework defining the parameters for a legitimate government support to SGI. In February 2014, a judgement on the large scope of public support for social housing in the Netherlands settled the famous ongoing case (since 2002!) in a way which asserts the autonomy of the Dutch government to define the importance of the social housing sector which may not be reserved to the most vulnerable section of the population (defined by an income threshold). Throughout the intricacies of EU law, the decisions of the ECJ have been consistently ambivalent. On the one hand, the Court has adopted a very wide definition of the notions of ‘undertaking’ and ‘economic activity’ encompassing virtually all services offered on a market regardless of whether on the part of a public or private organization. This consequently opened up a very wide scope for the application of competition rules contained in the EU Treaty. On the other hand, however, the Luxembourg judges have used different arguments related to specific cases in order to preserve Member States’ capacity to regulate SGEI. Thus, they seemed to aim at middle ground, putting competition and general interest on an equal footing (Baquero Cruz 2005). In fact, it seems that the ECJ has avoided ruling in an irrevocable way by giving clear-cut contours to Treaty provisions on this matter; rather, it left enough leeway for the legislator to decide on the deeper political and ideological dilemmas involved (Baquero Cruz 2005; Wernicke 2009b ; Hatzopoulos 2012), namely ‘the tensions (...) made more acute by the fundamental differences between the underlying values of competition law as the legal expression of open markets on the one hand, and rights and social solidarity, on the other’ (Prosser 2005a, p. 544). The consequence of this unsettled situation has been that various political actors were able to invoke different legal arguments present in case law in order to legitimize their normative positions.
In this regard, the debates leading to the adoption of the Treaty of Amsterdam in 1997 can be seen as a milestone. In its Communication from 1996 (1996), the European Commission had worked forward a clarification between economic and non-economic service activities by dealing for the first time with the category of SGI as being not necessarily economic (as opposed to SGEI). As a result of a debate led notably by France (Heritier 2001), the Treaty agreed by the Amsterdam intergovernmental conference included a new Article 16 recognizing ‘the place occupied by services of general interest in the shared values of the Union as well as their role in promoting social and territorial cohesion’ and calling the Community as well as Member States to ensure that their missions could be fulfilled. Contrasted interpretations have been given to the practical effect of this new provision beyond its political and declaratory value. As it stated again that the SGI tasks should be promoted ‘without prejudice’ to competition rules and ‘within the scope of application of the Treaty’, it did not clarify the question of priority of competition over general interest or vice versa.
The last constitutional episode of the SGI legal saga occurred with the adoption of the Lisbon Treaty, which entered into force in 2009 and includes three new provisions on welfare services. Again, these provisions constitute an ambivalent legal response to unsettled political battles. First, the Charter of Fundamental Rights annexed to the Treaty (and which has legal binding force) acknowledges access to SGI as a fundamental right. However, this provision is rather symbolic and it is dubious that it can have any impact on hard competition rules. Second, and most importantly, a new Article 14 TFEU gives the EU institutions a clear legal basis (in the second paragraph of the article) to issue legislation on SGEI if they wish to do so. At first glance, this seems to be a response to those who have long advocated the adoption of an EU framework directive re-regulating all SGI at the EU level in order to re-establish a balance to liberalization policies (a debate which is tackled in Chap. 5). However, it is argued that the article conceived centralized regulation only as an alternative to decentralized regulation resulting from the shared competence between the EU and the Member States, that is, the EU being responsible for the enforcement of competition rules while the Member States define the conditions for the operation of SGEI in the constraining framework provided by the Treaty (Hatzopoulos 2012). And in fact, the lengthy debates surrounding possible legislation on SGI have ended in deadlock, leaving the situation in a status quo (see Chap. 4, Sec. 2). Light may be shed on this by examining the third new provision introduced in the Lisbon Treaty, namely the Protocol No. 26 on SGI. Article 1 of the Protocol puts a strong emphasis on subsidiarity (i.e. Member States’ competences) by mentioning ‘the wide discretion of national, regional and local authorities in providing, commissioning and organising services of general economic interest as closely as possible to the needs of the users’ as well as ‘the diversity between various services of general economic interest and the differences in the needs and preferences of users that may result from different geographical, social or cultural situations’. In addition, Article 2 offers the first explicit recognition of non-economic SGI in EU primary law without, however, defining further the content of this category.
So what should we conclude from all this? Controversies about legal categories have reflected the very much conflicting nature of SGI regulation.
Meanwhile, two new terms had been crafted to deal with different categories of welfare services. First, the above-mentioned Services Directive mentioned non-economic services of general interest (NESGI), a fairly redundant notion in the sense that core government services have always been excluded from EU Treaty rules. Second, the social services of general interest (SSGI) were acknowledged by the EU Commission in communication from 2007. These two categories have no constitutional treaty- based recognition and the boundaries among the various SGI concepts remain blurred. Typically, social services are not considered a priori as non-economic. The Commission has recently confirmed this point of view by explaining that:
whether a service which a Member State considers to be of general interest is of an economic or a non-economic nature has to be determined in the light of the case law of the ECJ ... In any case, it will not be possible for Member States to consider all services in a specific field, for example all education services, as non-economic services of general interest. (European Commission 2007a, p. 11)
These legal and policy developments therefore lead to a situation where the scopes of application of EU competition and market rules have continuously been extended leaving only a small number of core government services in the realm of non-economic services, while network industries are virtually fully liberalized and today their belonging to the sphere of the market is no longer contested. In between, a vast number of welfare services remain a grey area and hence potentially ‘liberalizable’ (see Fig. 2.2). A good example is provided with services related to mandatory social security schemes, which had been long considered as a noneconomic service and a core governmental task. In the recently revised
Fig. 2.2 Types of service activities in EU law
directive on public procurement, it was nevertheless included in the list of services which could be outsourced, which would bring about a displacement in the realm of market activities subject to EU competition rules. As Hatzopoulos has interestingly pointed out, this implies a shift from the historic national logic of welfare system to a logic dealing with individual services where even the notion of sector becomes irrelevant (2012, pp. 95-96). The ongoing marketization of various services has thus almost mechanically widened the scope of EU law and competences. The pro-regulation camp (left-wing and social democratic parties, governments from countries with a strong tradition of regulated capitalism, trade unions and interest groups representing the sectors affected) has increasingly lost political weight and an increasing number of Member States have adopted a defensive position by trying to limit more clearly the competences of the EU institutions.
In a nutshell, this section has echoed F. Scharpf’s argument that the legal and institutional features of the EU have served to promote negative integration. The purpose of this book is not to assess whether the rationale behind marketization is economically well grounded or to demonstrate why marketization is ‘wrong’. Rather, it is assumed that decisions affecting the allocation of resources within society (in the form of public goods) are bound to affect various social groups in a way that reflects a certain balance of powers between them. The dominant discourse about marketization is well known: its proponents depict it as a process of modernization which enhances efficiency hence benefits to consumers in the form of lower prices for better services. The following section looks into evidence which contradicts this narrative. The purpose is to provide elements for understanding the reasons for political disagreements and the motives invoked by the advocates of a more regulated capitalism to resist the ongoing trend towards marketization. The often complex and mixed evidence on the effects of marketization only confirms that the debate on welfare services certainly has a strong political—if not ideological— dimension, hence the primacy given to politics in this book.
-  This article was then for a long time known as theArticle 86 of the Economic Community Treaty(ECT) and it is now Article 106 of the Treaty on the Functioning of the European Union (TFEU).
-  Hofner (C-41/90), Corbeau (C-320/91), Amelo (C-393/92), Albany (C-67/96), DeutschePostAG(C-147/97).
-  See in particular the cases C-320/91 Corbeau, 19 May 1993; and C-393/92 Almelo, 27 April1994.
-  See C-132/12 P—Stichting Woonpunt and Others v. Commission, 27 February 2014. With thisjudgement, the ECJ cancelled a decision of the Commission from 2009 which aimed at imposingupon the Dutch government to establish an income threshold for selecting the beneficiaries ofsocial housing.