Sam Pieters

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Break out session 1 State owned enterprises
and competition neutrality

• Sam Pieters
• International Relations Unit
• DG COMP
• 12/11/2012

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State Owned Enterprises

• Can engage in economic activities
• Do not necessarily offer public services (SOE ?
  SGEI)
• Not necessarily non-profit organisations
• Free to operate as private undertakings
• then also same treatment as private undertakings
• also subject to competition rules
  (antitrust/merger and state aid control)

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Competitive neutrality level playing field for
all undertakings engaged in economic activity

• Undertaking entity engaged in an economic
  activity
• Economic activity offering goods and/or
  services on a market
• regardless of its legal status (in-house
  activity by a public authority, SOE, private
  undertaking )
• regardless of the way it is financed
• regardless of profit-making or non-profit making
• Substantive test, not formalistic no definitive
  list of criteria assessment on case by case basis

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General principles1. Neutrality private/public
ownership

• EU example Treaty is neutral as to company
  ownership
•  The Treaty shall in no way prejudice MS rules
  governing the system of property ownership 
  (Article 345 TFEU).
• No preference expressed for either private or
  public ownership of companies level playing
  field for all!
• ? includes public procurement rules taxation
  transparency directive competition policy
  (antitrust, mergers, state aid)
• Therefore it is up to each MS to decide to what
  extent it remains the owner of the traditionally
  state-owned industries (e.g. post, transport,
  energy, telecom). ? different traditions
  respected (e.g., UK-Ireland v. continental
  Europe)

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General principles2. Equal treatment public
and private firms

• Neutrality on company ownership, also implies
  that the same Treaty obligations apply to public
  and private companies no discrimination.
• Rationale
• Allow private and public companies to compete on
  an equal footing maintain level playing field
• Preserve European internal market
• Benefit to consumers.

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Legal Framework Article 106 TFEU

• Equal treatment principle is reflected in Article
  106
• Article 106(1) TFEU all Treaty obligations apply
  to
• public companies, and to,
• private companies to which MS grant special or
  exclusive rights (e.g. Telecom operators, energy
  providers).
• Emphasis on respect for
• the competition rules (i.e. both anti-trust and
  State aid) and,
• the non discrimination provision of the EU
  Treaty.
• Obligation for companies and MS no public
  measures favouring public or private companies
  with special or exclusive rights.

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Article 106(2) TFEU General interest exception
a balancing act

• EU Treaty recognizes that the national public
  interest may require that the competition rules
  and non-discrimination principle do not apply.
• Article 106(2) TFEU provides for a narrow
  exception, balancing the public interest argument
  against respect for the Treaty provisions (e.g.
  on competition)
•  Undertakings entrusted with the operation of
  services of general economic interest () shall
  be subject to the rules contained in this Treaty
  (), in so far as the application of such rules
  does not obstruct the performance () 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 Community .

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3 cumulative conditions for the exception of
Article 106(2)

• (1) The company must be in charge of the
   operation of a service of general economic
  interest  (SGEI)
• SGEI mainly concern  network  activities (e.g.
  public utilities)
• in practice, wide discretion for MS to define the
  scope of SGEI.
• (2) Causal link the application of the Treaty
  would obstruct the performance of the tasks
  assigned
• the restriction of competition must be necessary
  for fulfilment of the SGEI.
• (3) Proportionality  Trade must not be
  affected in a manner contrary to EU interest .
  No less restrictive alternatives available.

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The international context

• EU competition rules are applied in a
  non-discriminatory manner
• Irrespective of ownership status (private/public)
• Irrespective of nationality of the company
• Non-discriminatory application of public
  interest provisions of Art 106(2)
• The situation is different in many other
  jurisdictions
• Large-scale exemptions for SOEs and for entire
  sectors of industry (e.g. telecom, air transport)
• Discriminatory treatment on the basis of
  nationality.
• Lack of reciprocity is problematic in a
  globalised economy
• Overly broad exemptions from competition rules
  distort the level-playing field.
• EU companies complain that companies from third
  countries have full access to EU markets, whilst
  the markets in these countries remain closed to
  them because of exemptions or discriminatory
  application of competition rules

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Conclusion

• Maintaining a level playing field for competition
  between companies is a key component of the EUs
  internal market policy. It is also seen as a
  driver to enhance the competitiveness of EU
  industry on world markets.
• Therefore no widespread exemption from
  competition rules
• No distinction between private and public
  companies
• No discrimination on the basis of nationality
• EU recognises the need for States to provide
  services of public interest.
• Sometimes this may require an exemption from the
  application of competition rules
• Such exemptions are to be decided on a case by
  case basis (balancing between the public interest
  argument and the competition interests).
• The EU is part of a globalised world. Therefore
  it is important that outside the EU a level
  playing field is maintained as well.

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• Thank you for your attention!