Select Committee on European Union Fourteenth Report


30.  The Working Group recommended that the Convention should consider the revision of Article 16 EC relating to services of general interest. "Services of general interest" is a term used in EC law to refer (broadly) to public services.[40] Provisions relating to them are controversial because of conflicting pressures either to protect public services from, or subject them to, competition. They have traditionally been examined in EC law from a competition law perspective. Under certain circumstances national services of general economic interest are exempted from EC competition rules.[41] However, as a result of increasing litigation attacking the provision of public services by public undertakings, the negotiations leading to the Amsterdam Treaty were marked by a debate on whether services of general interest should be covered more extensively by EC law.[42] In its 1996 Communication on the subject, the Commission argued that these services form a central element in European societies, stating that:

"European societies are committed to the general interest services they have created which meet basic needs. These services play an important role as social cement over and above practical considerations. They also have a symbolic value, reflecting a sense of community that people can identify with. They form part of the cultural identity of everyday life in all European countries".[43]

31.  The Commission's task was complicated by the substantial differences of view between Member States on how services of general interest should be defined and regulated, and whether the EC should have greater competence in this field. The result was the insertion in the Amsterdam Treaty of a compromise provision on services of general interest—Article 16 EC. Commenting on this provision, Andrew Duff commented that "… there is no more stark exposure in the Treaty of the division … between those who wish to regulate to protect public utilities and those who wish to make them competitive".[44]

32.  The wording of Article 16 is vague. It states that, without prejudice to the Treaty provisions on transport, competition and state aids,

"  and given the place occupied by services of general economic interest in the   shared values of the Union as well as their role in promoting social and   territorial cohesion, the Community and the Member States, each within their   respective powers and within the scope of the application of this Treaty, shall   take care that such services operate on the basis of principles and conditions,   which enable them to fulfil their tasks."

33.  The lack of clarity in the wording of Article 16 has led to differences of view about its scope and legal nature.[45] It is not clear where the line is, or should be, drawn between Community competence and the Member States' powers in the field of public services. Where the activity is seen to be the purely "social" provision of such services by the State, it may fall outside the competence of the EC Treaty altogether.[46] But where the activity is deemed to be "economic", the provision of public services may be caught by the Treaty rules but still be exempted (or "justified") under either Article 86(2) EC or the internal market rules.[47] It has been argued that Article 16 already imposes a positive duty upon the Community to promote services of general interest providing a greater social citizenship dimension to the free market rules of the EC Treaty.[48] But it may detract from the Member States' sovereignty to define services of general interest and the way in which such services are delivered.

34.   At present it appears that the definition of services of general interest is left to Member States. This is the view taken by the Court of Justice, the Court of First Instance and the various Communications from the Commission. The revised 2000 Commission Communication states that "it is above all the responsibility of public authorities at the appropriate local, regional or national level and in full transparency to define the missions of services of general interest and the way they will be fulfilled".[49] The Commission further notes that compatibility of national action with EC law in this field is based on Member States' freedom to define services of general interest.[50] The Communication does, however, provide a general criterion for distinguishing such services from ordinary services "in that public authorities consider that they need to be provided even where the market may not have sufficient incentives to do so".[51]

35.  Peter Hain told us that proposals made in the Working Group to extend the legal base of Article 16 would entail a substantial expansion of EU competence in fields such as social security and education, and that the Government did not want competence in the area of public services to be introduced "by the back door". He added that, "The public services are an intimate part of the relationship between national governments and their citizens and so individual Member States should have the right to define their own services of general economic interest and the way in which they are delivered".[52]

36.  In its evidence to the Committee's inquiry into its work programme for 2003, the Commission explained that it was proposing to produce a green paper on services of general interest and, in the light of reactions to it, to decide whether to propose a framework directive.[53] The Committee understands that the Commission has suspended work in the area because of uncertainty as to how the Community State Aid rules should be applied to fund services of general interest.[54] This is because several Advocates General have questioned earlier rulings of the Court of Justice which have held that such funding is exempt from notification under the State Aid rules by virtue of the exemption in Article 86 (2) EC. The Commission is waiting for the outcome of cases currently before the Court. [55] The Opinion of Advocate General Léger in one of these cases was delivered on 14 January 2003 and a final ruling from the Court of Justice is expected in the next month or so.

37.  In view of this uncertainty, which may reflect the need to accommodate different national approaches, any recommendation to revise Article 16 EC in order to further enable EU legislation in the field of services of general interest would be a bold and potentially controversial step. It would have wide implications, transferring more competence for the regulation of public services to the Union. The Government point out that such a development would entail a substantial extension of Union competence in fields such as social security and education and argue that changes to Article 16 are not necessary since there is already an acceptable Treaty base for Community action on services of general economic interest in Article 86 EC, paragraph 3 of which provides that the Commission shall ensure the application of the provisions of this article…".[56]

38.  However, Article 86(2) EC is a derogation from general EC law principles and does not provide a legal base for Community action. Whether there is a need for Community action is questionable, especially in view of the lack of clarity as to what constitutes a service of general interest. We note, however, that some aspects of Member States' sovereignty in this area have already been eroded through the liberalisation programmes of the Union and the case law of the Court of Justice. The risk therefore is that, without a specific provision in the Treaty, the Community will simply continue to chip away at this area of competence. The Committee concludes that a better approach is to give support to the Commission's current strategy of using Communications which clarify the position in general terms and propose Community action in the social policy field in specific sectors, only where there is a high degree of consensus on the need to establish a Community definition and the basis upon which such public services are delivered.

40   Services of general interest are "services considered to be in the general interest by the public authorities and accordingly subjected to specific public-service obligations. They include non-market services (e.g. compulsory education, social protection), obligations of the State (e.g. security and justice) and services of general economic interest (e.g. energy and communications)". (Commission glossary). Back

41   The legal base for this derogation is Article 86 (2) EC (which prohibits Member States from enacting or maintaining anti-competitive measures on public undertakings unless they can be shown to be necessary to provide a service of general economic interest). Back

42   Jose Luis Buendia Sierra, Exclusive Rights and State Monopolies under EC Law, Oxford, OUP, 1999; E. Szyszczak, "Public Services in Competitive Markets" (2001) 20 Yearbook of European Law 35. Back

43   Services of General Interest in Europe, [1996] OJ C281/03, paragraph 6. Back

44   A. Duff, The Treaty of Amsterdam, (Federal Trust, Sweet and Maxwell, London, 1997) 84. Back

45   M. Ross, "Article 16 E.C. and services of General Interest: From Derogation to Obligation?" (2000) 25 European Law Review 22; L. Flynn, "Competition and Public Services in EC Law after the Maastricht and Amsterdam Treaties" in D. O'Keeffe and P. Twomey (eds), Legal Issues of the Amsterdam Treaty, Hart Pub, Oxford, 1999. Back

46   Case C-343/95 Diego Cali v Servizi ecologici porto di Genova SpA [1997] ECR I-1580. Back

47   Case C-67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, [1999] ECR I-5751. Back

48   Ross, op citBack

49   COM (2000) 508 final, paragraph 2. Annex II of the Communication states that the term covers "market and non-market services which the public authorities class as being of general interest and subject to specific public service obligations". Back

50   Ibid, paragraph 3. Back

51   The Communication also contains an indicative list of sectors where services of general economic interest operate: electronic communications, postal services, transport, energy, and radio and television. Back

52   Q 9. Back

53   The Commission's Annual Work Programme 2003, 38th Report 2001-2002, HL Paper 188, QQ 39-42. Back

54   European Commission, Non-Paper, Services of General Economic Interest and State Aid, 12 November 2002. Back

55   Case C-126/01 GEMO and Case C-280/00 ALTMARKBack

56   p 2. Back

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