The Application of Article 106(2) TFEU

In order for a measure to be exempted by Article 106(2) TFEU, three conditions have to be fulfilled. Firstly, the undertaking in question must have been entrusted with an SGEI by the Member State. The Member States have a wide margin of discretion regarding what they consider to be an SGEI, but, as it is an EU concept, the Commission and the Court can review their decisions for manifest errors[1] and Member States may not abuse the concept of SGEIs to avoid the competition rules.[2] Generally it seems that the service needs to be associated with a public duty and be provided in the general, rather than satisfying only particular, interests. Additionally, a ‘uniform’ and ‘binding nature’ of the service seems to be required.[3] These criteria are, however, not interpreted strictly. The ‘uniform nature’, does not mean that the service has to be supplied in the whole territory of the Member State or be applicable to the whole of the population and the ‘binding nature’ does not require prescribing the details of the service to the provider.[4] In particular, utilities, telecommunications and transport services are considered to be SGEIs.[5] If they are seen as economic services in the first place, services such as health insurance,[6] pension schemes or services including elements of environmental protection have also been regarded as SGEIs.[7] The undertaking has to be entrusted with the SGEI by the Member State in an official act (for example, by legislation)[8] which also should include a description of the SGEI.[9] The classification of an undertaking as being entrusted with an SGEI is, as when deciding if an entity is an undertaking in the first place, relative.[10] It might therefore be that an undertaking provides an SGEI in one market, but is not exempted from the application of competition law in another.[11]

Secondly, according to Article 106(2), the application of the competition rules would have to ‘obstruct the performance, in law or fact, of the particular tasks assigned’ to the undertaking and the setting aside of the competition rules would have to be proportional to the aim pursued. Concerning the criterion of ‘obstruction’ it appears that the Court has become much more lenient. Whilst in the initial judgments on the issue the viability of the undertaking had to be threatened in order for its performance to be ‘obstructed’,[12] the Court, in more recent judgments, deems an ‘obstruction’ to be present if it would not be possible for the undertaking to perform the particular tasks entrusted to it under ‘economically acceptable conditions’.[13] Whilst the Court occasionally conducts a strict proportionality test focussing on necessity,[14] such a strict test is not undertaken in every case. Sometimes the Court does not explicitly conduct a proportionality test at all and sometimes it seems to focus rather on overall proportionality than on strict necessity.[15] Neergaard[16] assumes this might be the case because of the controversial nature of such a strict test and Sauter[17] concludes that the question of EU ‘preemption’ in the field might play a role here.[18]

Finally, the development of trade must not be affected in such a way that it would be contrary to the EU’s interests. Obviously, this condition requires more than an ‘effect on trade between Member States’ since the cross border element is generally necessary for there to be an infringement of the Treaty provisions in the first place as will be discussed below. Thus, if any effect on trade between

Member States meant that the exemption could not be applied, this would render the exemption useless.[19] Yet, what exactly this condition pertains to, is, thus far, not entirely clear.[20]

  • [1] 10/71 Muller (Judgment of 14 July 1971, EU:C:1971:85) para 13 seq, C-67/96 Albany para103 seq and T-17/02 Olsen (Judgment of 15 June 2005, EU:T:2005:218) para 216.
  • [2] T-309/12 Zweckverband Tierkorperbeseitigung (Judgment of 16 July 2014 EU:T:2014:676)para 106, T-295/12 Germany v Commission (Judgment of 16 July 2014, EU:T:2014:675) para 46.
  • [3] T-289/03 BUPA (Judgment of 12 February 2008, EU:T:2008:29) para 172 seq.
  • [4] Ibid para 186 seq.
  • [5] SGEIs in Europe Communication (n 41) Annex II.
  • [6] On the problematic classification of health care see van de Gronden 2004; Prosser 2010.
  • [7] See, for example, case T-289/03 BUPA.
  • [8] 10/71 Muller (n 58) para 10 seq.
  • [9] Commission Decision 2012/21/EU on the application of Article 106(2) of the Treaty on theFunctioning of the European Union to State aid in the form of public service compensationgranted to certain undertakings entrusted with the operation of services of general economicinterest OJ [2012] L 7/3 Article 4. In recital 4 of the preamble the Commission refers to theAltmark judgment (C-280/00, Judgment of 24 July 2003, EU:C:2003:415) in which the Courtrequired, inter alia, that a public service obligation must be clearly defined for the compensationof such a service not to constitute state aid. The General Court in T-461/13 Spain v Commission(Judgment of 26 November 2015, EU:T:2015:891) para 63 seq equally made clear that thereneeds to be a clearly defined public service obligations that has been entrusted to certain undertakings. The case is currently being appealed (C-81/16 P Spain v Commission). See further onrelevant case law Szyszczak 2016 (forthcoming).
  • [10] See, for example, 18/88 RTT para 22.
  • [11] On the first criterion see further Prosser 2005, p. 550; Sauter 2008 (in particular p. 178 seqon the universal service obligation as part of SGEIs), Neergaard 2009b, p. 211 seq, 219 seq;Neergaard 2011, pp. 185, 191 seq; Chalmers et al. 2014, Chapter 25 (online resource), p. 18 seq;Sauter 2015, p. 10, 13 seq, 27. For a different take on the first criterion see Mestmacker andSchweitzer 2004, § 34, para 17 seq who argue in favour of a strict European definition and a tightmargin of discretion for the Member States.
  • [12] See, for example, 155/77 Sacchi para 15 and C-41/90 Hofner para 24 both referring to the‘incompatibility’ of the undertaking to comply with competition rules and to fulfil its tasks.
  • [13] See, for example, C-475/99 Ambulanz Glockner para 57.
  • [14] See, for example, C-203/96 Dusseldorp (Judgment of 25 June 1998, EU:C:1998:316) para 67where the Court held that the national government had to show that the SGEI mission, if given atall, ‘cannot be achieved equally well by other means’ for the measure to be proportional.
  • [15] See, for example, C-475/99 Ambulanz Glockner para 62 seq. Whilst the Court does not explicitly conduct a proportionality test, and, even if it does, it is not a very strict one focussing onnecessity, it seems to come to the conclusion that the extension of a right into a connected marketwould be disproportionate if demand in the connecting market could not be satisfied.
  • [16] Neergaard 2011, p. 190 seq.
  • [17] Sauter 2008, p. 186; Sauter 2015, p. 227.
  • [18] See, for a more detailed analysis of the second criterion, Mestmacker and Schweitzer 2004,§ 34, para 19, Prosser 2005, p. 550; Sauter 2008; Neergaard 2009b, p. 211 seq; Prosser 2010,p. 325; Neergaard 2011, p. 185 seq, 190 seq; Chalmers et al. 2014, Chapter 25 (online resource),pp. 18, 21 seq; Sauter 2015, pp. 27, 227.
  • [19] See C-157/94 Commission v Netherlands (Judgment of 23 October 1997,EU:C:1997:499)para 67. In this case a Dutch company’s exclusive right of electricity imports had been challenged by the Commission. A potential effect on trade between Member States was given, asit would have been theoretically possible that the exclusive right led to reduced imports compared to a situation where every potential customer could have imported electricity directly.As the Commission had not shown, however, that ‘the development of intra-Community tradein electricity had been and continued to be affected to an extent contrary to the interests of theCommunity’ the Court dismissed the case.
  • [20] For more on the final criterion see Neergaard 2009b, p. 211 seq; Neergaard 2011, p. 185;Chalmers et al. 2014, Chapter 25 (online resource), p. 18 seq.
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