Examination of Witnesses (Questions 20
- 32)
MONDAY 10 DECEMBER 2007
Professor Michael Waterson
Q20 Lord Whitty:
In the UK it is a private one but it is a private one which is,
within any given area, a monopoly one, subject to a very small
bit of competition.
Professor Waterson: Yes, but I would put that
very much in the commissioning category.
Q21 Lord Whitty:
For the consumer the effect of those is roughly similar. You are
dealing with something which is a big body maybe owned by the
state in one case but appointed or commissioned by the state in
another.
Professor Waterson: I would distinguish between
a body which always inevitably provides the service and a body
which is providing it subject to potential competition or competition
for the field. If you think about rail services, for example—I
know that transport is not particularly relevant here but we can
use it as an example—then at any one time there may be only
one operator but the operator is changed from time to time and
so we have commissioning and provision, but not providing in the
sense of providing forever. That is why I am slightly surprised
at seeing the word "providing" which seems to me necessitates
an absence of competition which seems to cause some conflict.
Q22 Chairman:
Could I just mention new Article 14? I will just read it out for
the benefit of the Committee. This is only dealing with Services
of General Economic Interest. What it says is that "Care
should be taken that such services operate on the basis of principles
and conditions, particularly economic and financial conditions,
which enable them to fulfil their missions". These principles
will be set by the European Parliament and the Council acting
by means of regulations in accordance with the ordinary legislative
procedures. Can you help us with what these principles are? We
can guess at what some of them are, or are we into yet another
area of ambiguity?
Professor Waterson: I am afraid it does seem
to be somewhat ambiguous. I am sorry not to be able to offer more
clarification. I am not able to help a great deal on that.
Q23 Chairman:
Clearly the implication is that these principles will be established
in due course.
Professor Waterson: Yes.
Chairman: We can only surmise and guess
what they might be. Lord James?
Q24 Lord James of Blackheath:
There has been a degree of contention in the past concerning the
application or Brussels' attitude towards allegations of state
aid. I am concerned as to how far this might be either clarified
or improved for further administration in the future. Given the
ambiguity of the definitions of the Services of General Interest,
what is a Service of General Interest in this context and where
will any changes of attitude by Brussels be taken as to when or
when not state aid is provided? As a broad example of a peg on
which to hang it, consider perhaps the airline industry which
has been a very contentious area in the past.
Professor Waterson: I can see very much your
point. It is certainly clear that Services of General Economic
Interest are not defined in the Treaty. However, they are defined
in the White Paper on Services of General Interest. There is at
least a moderately useful definition of these, the moderate definition
being services provided by the big network industries such as
transport, postal services, energy and communications. Then unfortunately
there is vagueness when it says, "However, the term also
extends to any other economic activity subject to public service
obligations". There are network aspects to some parts of
the airline industry, for example the provision of the air traffic
control system, but other aspects I would argue do not necessarily
have a network element and so it is there where the vagueness
comes in.
Q25 Lord James of Blackheath:
The vagueness has been extremely prejudicial to competition interests
in the past. At times the manner of the financial support has
been quite direct. There have been huge subsidies given to at
least two of the major European airlines by their national governments
which appear to run completely counter to the spirit of the Treaty
as it has stood in the past and which must surely to be in breach
in the future, but which have been sanctioned and allowed according
to the biggest at winning their arguments to the detriment of
the smaller. Is anything going to happen as a result of the Treaty
in its new form which is going to bring about any elimination
of that unfairness and bring us all back to a standard on which
we can trust and understand transparently from the beginning?
Professor Waterson: My understanding is that
Commissioner Neelie Kroes is very interested in working hard in
this particular area of state aid and sees it very much as a competition
issue like you do. I would have thought that in carrying out the
activities of ensuring a constant competitive market that her
office will be determined to pursue these things. However, I think,
as I see it, the Treaty does not provide any particular comfort
in that area.
Q26 Lord James of Blackheath:
I am going to push the envelope slightly further if I may on a
very sensitive area. I want to try to put it in terms of not the
sort of case we are talking about where we have one airline competing
with another across its own national boundaries with another.
We can all visualise that quite easily. What about the case where
there is a one-off industry, a one-off company, almost trading
exclusively in an industry within a national boundary. This is
an actual case; I am not going to identify it because I do not
want to pin us down to discussion on the specific, so I depersonalise
it. You have a one-off company trading which is in government
ownership and the government wants to sell it. On what basis does
Brussels, under the Treaty as it stands and the Treaty as it will
emerge, claim the right to intervene to dictate the price at which
that one-off company may be disposed of by the government concerned,
even though it serves a local national interest so to do? This
is an actual case; I will not name it.
Professor Waterson: One of the problems which
may arise in this case is what the notion of the market price
may be.
Q27 Lord James of Blackheath:
Yes, except for the fact that the government has expressed satisfaction
with the price but has been overruled by Brussels as to what that
price should be because of its perception of the fact that there
ought to be competition where there is not in fact competition
because it is the only company trading in that field in the country
concerned at the time.
Professor Waterson: In a sense if something
is offered for sale and it is clear what is offered for sale and
yet it only attracts one bid, then that is essentially the market
price.
Q28 Lord James of Blackheath:
In this case it actually attracted five bids but one was considered
acceptable by the government concerned until it was overruled
by Brussels to the extent that it was not an acceptable bit, and
yet it was the best and only bid that they wanted to take. I think
that is interference beyond the level of competition because it
serves no competition process.
Professor Waterson: As long as the criteria
of the competition were clear I would agree with you. It depends
how the criteria of the competition were drawn up.
Q29 Lord James of Blackheath:
I think the bad news in your answer to me is that if it was wrong
before it is going to be wrong in the future because nothing is
going to change.
Professor Waterson: I would say that, yes.
Lord James of Blackheath: I am dismayed.
Who should we press buttons with to see whether there can be some
re-think?
Q30 Chairman:
Can I suggest that our trip to Brussels on Thursday might generate
some heat and I think we might get some light. If I may I will
just try to sum up because we are coming to the end of this particular
session. This has been very helpful because you have confirmed
what I think the Committee was already beginning to feel, that
in this issue—Services of General Interest, both economic
and non-economic—there are a great number of ambiguities
and what the Treaty does not say is probably more significant
than what it does say. You have outlined five and for the record
and perhaps for the Committee's benefit, you pointed out that
there is not perhaps a clear difference between Services of General
non-Economic and Economic Interest. We know that there is not
great clarity about how the shared responsibility between Member
States and the organs of the European Union will operate, who
shares responsibility. Thirdly, we have dealt with the principles
of regulation of Services of General Economic Interest and they
are to be set but we do not know precisely what they are. Lord
James has dealt with the key issues of state aid and competition
and whether the Treaty makes any difference to what is an unacceptable
state of affairs in certain sectors of the European economy. Finally,
although we have not dealt with it, perhaps you might end with
any comment on the perverse effects of those countries that are
already liberalised or planning to liberalise and seeing perhaps
the exercise of legitimate responsibilities of the European Union
in terms of Services of General Economic Interest. They might
step back from liberalisation perversely rather than going ahead.
Professor Waterson: Yes, although in that last
area it seems to me that countries—I suppose the UK is an
obvious example here—in liberalising activities have done
so on a sort of `go-it- alone' basis and therefore by and large
have done it on the basis of it being in the interests of that
nation as well as, possibly, in the interests of the Community.
If it was in the interests of the nation at that time then for
the most part I would say it would be unlikely that this coming
within the purview of Brussels would necessarily be a bad thing.
Q31 Chairman:
You have helped shine a few lights in dense fog.
Professor Waterson: There is one other thing
I could perhaps say. There is one other piece of material from
Brussels which may assist a little but, on the other hand, I suspect
it does not have any legal force, that is the Handbook on the
Implementation of the Services Directive which contains a definition
of a service from which, of course, the definition of a Service
of General Economic interest is drawn. Given that it is a handbook
it is obviously an interpretation of the law rather than the law
itself.
Q32 Chairman:
I think we are aware of it. We will refer that to our special
advisor to advise us in due course on that specific issue. I must
say I was none the wiser with the handbook but perhaps I have
read it incorrectly.
Professor Waterson: There was one particular
element that helped me and it relates to case law: "The essential
characteristic of remuneration lies in the fact that it constitutes
consideration for the service in question. Whether the remuneration
is provided for by the recipient of the service or by a third
party is not relevant". It then goes onto a "However"
but that is, I think, of some assistance in defining the nature
of a service and in particular the nature of a Service of General
Economic Interest.
Chairman: Thank you very much. That concludes
that part of the evidence session. We will be sending you a draft
of the session; please correct it and help clarify any issues
that remain outstanding. Thank you very much.
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