The legal framework of services of general economic interest in the ...

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This paper is aimed to identify the European legal framework of services of general economic interest. It also seeks to determine whether and to what extent European law has contributed to their liberalization and to privatization of their providers. Firstly, it analyzes the impact of European law on privatization of public undertakings. Secondly, it offers a definition, which is not provided by European law, of services of general economic interest. Thirdly, it examines the impact of European law on liberalization of these services. Finally, it evaluates the relationship between liberalization of services of general economic interest and privatization of their supplier. This would lead to understand whether, under the supervision of the European institutions, there is a substantial change of the role of Member States from the suppliers of the services to the regulators of the market forces that guarantee them. 2. Impact of European law on privatization of public undertakings European law does not offer an accurate legal framework for the alienation of public enterprises, consecrated by an explicit norm 1 . In fact, art. 345 TFEU provides that the “Treaty shall in no way prejudice the rules in Member States governing the system of property ownership” 2 . Member States may take over, control and sale a company under the same conditions as private operators, with the exclusive limitation of not violating the law which may be applicable in specific circumstances 3 . The absence of a regulation or a directive in this context leads to not be ruled out, at present, a turnaround, since domestic provisions have remained unchanged. Therefore, privatization does not represent a principle firmly acquired in European law. They do not find their immediate genesis in the aspiration to implement in a concrete manner the precept enshrined in the Treaty of the European market economy by removing the differences between public and private enterprises. They result from particular situations related to individual domestic contexts. The existence of rules related to the specific needs of reduction of the space reserved for public intervention in the economy can be considered merely an external factor. The impossibility to identify a standard development of the privatization processes is due precisely to the inherent limitations of unifying power of European law and, as a result, from the absence of its uniform impact on them. Nevertheless, the lack of an express provision requiring them is not in contrast with the orientation that European law favours them. It contains some principles which, by disregarding the conditions of existence or maintenance of State-owned enterprises, indirectly promote them. This position is based on a fundamental argument that can be explained in the form of a syllogism. Firstly, pursuant to art. 106, para. 1 TFEU: «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,…». The 1 EHLERMANN, C.D. (1992) “The Contribution of EC Competition Policy to the Single Market”, Common Market Law Review, 29: 257-282. 2 AKKERMANS, B. AND RAMAEKERS, E. (2010) “Article 345 TFEU (ex Article 295 EC), Its Meanings and Interpretations”, European Law Journal, 16: 292-314. 3 DEVROE, W. (1997) “Privatizations and Community Law: Neutrality versus Policy”, Common Market Law Review, 34: 267-306; VERHOEVEN, A. (1996) “Privatisation and EC Law: Is the European Commission “Neutral” with Respect to Public versus Private Ownership of Companies”, International Comparative Law Quarterly, 45: 861-887. 2
principle of equal treatment enunciated in this provision requires the existence of identical situations between enterprises, regardless of the nature of their owner, i.e. private legal entities or national government authorities. Furthermore, it admits different treatments, albeit proportional, when the undertaking themselves are different from each other, especially with regard to the features of the business. Secondly, one can individualize detectable differences between public and private enterprises. The focus is on the assertion that the State-owned enterprises are generally used as an instrument of economic policy and, because of their role, they divert from the fees described by the internal regulations for private undertakings and valid for European law. This consideration entails the conclusion of the syllogism: there is an intrinsic need of a different rule for public undertaking who are employed as an instrument of economic policies. The statement which it seems possible to derive strong propensity of the European law for privatization is less immediate than the previous. The difference of treatment between public and private enterprises would imply the occurrence of competitive disadvantages for those entities which also supply services of general economic interest. Market forces would lead these operators to give up the conduct of such services, if not profitable. The purposes of society relief would be achieved in another way, e.g. through the regulation mechanism, rather than a direct involvement of entrepreneurial nature. Within this ambit it seems that liberalization of specific sectors implies the loss of one of the traditional justifications for the existence of public undertakings. As a result, the presence of the State in some relevant sectors, as well as in companies already in a monopoly position, should be reduced. In fact, the renewed competitive economic environment, generated by the European Union has made desirable or inevitable the retreat of government from direct management of certain economic activities. It therefore, reveals the nature of implicit and underlying incentive for privatization. Until the beginning of privatization, it was believed that the management of the company by public authorities would allow the immediate identification, without economic selection mechanisms, of the best competitive service provider for society. This principle, on which it was considered unnecessary to launch a tender for the concession of the service, is no longer legitimate. Theoretically, any company, regardless of its owner, is likely to be the best operator for the service. The identification of the latter can only take place through a competition organized according to the criteria of efficiency and economy. Under these conditions, the new business risk for public undertakings is exactly the same as that faced by private operators acting in the market. Indeed, as it has been specified, European law seeks to ensure the effective playing field between all enterprises. Thus, the elimination of the indisputable privileges enjoyed by public undertakings poses Member States in front of a business risk that, although ordinary, is far superior than the previous. The exclusivity of the management of certain activities or the presence of special conditions for derogation to market rules is permissible only if the monopolistic management of the demand or, conversely, the monopolistic structure of the supply, is indispensable. This is particularly required in economic systems which are already not flexible because of the existence of economies of scale for infrastructures or the insufficient capacity of the demand to interact according to the ordinary rules. Where these needs are not evident, the European law imposes the necessary minimum to limit obstacles towards the freedom of enterprise. In competitive and liberalized markets public service obligations may be fulfilled by a variety of undertakings, both public and private, in competition with each other, which were entitled 3
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