A Critical Account of Article 106(2) TFEU : Government Failure in Public Service Provision, Jarleth M. BURKE

Jarleth M. Burke

Cette rubrique recense et commente les ouvrages et autres publications en droit de la concurrence, droit & économie de la concurrence et en droit de la régulation. Une telle recension ne peut par nature être exhaustive et se limite donc à présenter quelques publications récentes dans ces matières. Auteurs et éditeurs peuvent envoyer les ouvrages à l’intention du responsable de cette rubrique : stephane.rodrigues-domingues@univ-paris1.fr

After a decade (2002–2012) of intense debate on the place of services of (economic) general interest in the European Union, including a revision of the founding treaties (Lisbon Treaty of 2007), the book of Jarleth M. Burke is welcome to stand back to make a critical account of Article 106(2) of the Treaty on the functioning of the European Union (TFEU). Pursuant to this provision, “Undertakings entrusted with the operation of services of general economic interest (…) 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.” As explained by the European Court of Justice (ECJ), “in allowing derogations to be made from the general rules of the Treaty on certain conditions, that provision seeks to reconcile the Member States’ interest in using certain undertakings, in particular in the public sector, as an instrument of economic or fiscal policy with the Community’s interest in ensuring compliance with the rules on competition and the preservation of the unity of the Common Market” (ECJ, 19 March 1991, France v. Commission, C-202/88, EU:C:1991:120, para. 12). Stated differently, Article 106(2) TFEU is the derogatory exception justified by striking the balance between the legitimate existence of national public services and the duty to comply with EU obligations. Taking into consideration this balance, the analysis of the author is focused on the concept of government failure as concerning “situations where state interventions in markets are not necessary or are ineffectual in terms of the trade-off in between cost and benefit, including as to competitive distortions” (see page 1). This concept is explored within the context of both qualification exercise (presented as “SGEI verification,” i.e., verification of the existence of a SGEI) and exemption exercise (presented as “disapplication review,” i.e., review of whether and to what extent an exemption from EU provisions is necessary).

Regarding the SGEI verification, Mr. Burke explains the “pathology of Government Failure” (see chapter 2) in light of different economic approaches (from Wolf to Röller) and by insisting on the various ways to identify and address a market failure : externalities, public or merit goods, information asymmetries, natural monopoly… That leads to a sensitive issue : the “indeterminacy” of Article 106(2) TFEU (see chapter 3). The evolution of primary EU law, from Amsterdam to Lisbon, has complicated the analysis in light of the new Article 14 TFEU, the Protocol No. 26 on SGI and Article 36 of the EU Charter of Fundamental Rights, which, taken into account together, give to SGEI a positive statute, departing from the derogatory approach of Article 106(2) TFEU. However, the impact of such “constitutional” evolution is less effective than expected, notably due to the “Commission’s SGEI Containment Strategy” (see page 55) : soft law guidance, no legislative proposal based on Article 14 TFEU (rejecting the idea of a Framework Directive), control of the manifest error, etc.

Concerning the disapplication review, Mr. Burke recalls first the scope of Article 106(2) TFEU, which is potentially very large, and underlines an interesting element : this provision is competing with others, notably with the concept of solidarity for identifying an undertaking within the meaning of competition rules and with the Free Movement Derogations, as a means of excusing compliance with EU rules (see chapter 4). According to the author, “Article 106(2) is not always an attractive option” and “there are also signs of judicial aversion to Article 106(2)” (see page 91). Then, the author makes a critique of the extent of government failure in invoking exemption, using three sectors to illustrate the elasticity of the Commission and ECJ control in assessing Market Feasibility : telecommunication, environmental protection and broadcasting (see chapter 5). In another chapter (chapter 6), Mr. Burke is suggesting a historical chronology of the way Article 106(2) may be operated, distinguishing three periods of time : during the first phase (since 1957 to 1993, date of the Corbeau ECJ case), “SGEIs were largely untouched by EU law” (see page 142), even if the Commission has adopted a pragmatic approach already based on transparency, proportionality and efficiency (see the interesting developments on the “Manifest Incapacity Doctrine,” pp. 148–150) ; from 1993 to 2003 (before the Altmark ECJ case), the second phase was characterized by using Article 106(2) as a “Permissive Derogation” (see page 150), with a regression of the efficiency test. Finally, with the 2003 Altmark case, a third phase paved the way to the “transformation” of Article 106(2) TFEU (see page 164), more particularly in the area of State Aids’ control with a “general permissibility of a much less exacting approach to efficiency” (see page 173).

This book is not only a critical account of Article 106(2) TFEU. The last chapter (chapter 7) offers some proposals for a “Reorientation of the Law with Respects to SGEIs.” Considering that “greater deference is required from the Commission in the supervision of general interest interventions that are not market failure related” (see page 180), Mr. Burke is insisting on : clarifying the nature of manifest error control, establishing market feasibility testing as the basis of SGEI verification, distinguishing between existing and new special or exclusive rights underpinned by SGEIs, making compliance with relevant sectoral legislation a condition of Article 106(2) qualification and, last but not least, revisiting the public authority and solidarity exclusions.

Even if some analysis is sometimes biased by a kind of prevalence given to a market-oriented approach on the necessity to preserve some general interest objectives, the Burke’s book is very stimulating and would be useful for the next incoming Commission (after June 2019) in view to consolidate or reconsider its doctrine expressed in the SGEI Package of 2011. Just maybe one regret : the sector of maritime transport was not deeply scrutinized ; yet, some recent developments in this area seem to validate various proposals made by the author, both in terms of SGEI verification and of disapplication review (see, e.g., the “SNCM saga” with the last case T-1/15 and the initiative taken by the local public authorities of Corsica to open two public consultations in 2016 and 2018 with a market test to identify public service needs).