Category: Article

Energy Efficiency in EU law: A Conundrum?

 

Gianni Lo Schiavo

LL.M., College of Europe


PhD Candidate, the Dickson Poon School of Law, King’s College London

 

1. Introduction

Energy efficiency constitutes the third pillar of the “20+20+20” initiative of 2009 aimed at reforming climate change and energy policy by 2020 in the European Union (EU)[1]. The adoption of the Commission’s proposal on a directive for energy efficiency by the Council in October 2012[2] and its publication on 14 November 2012[3] are the ultimate achievements of the EU in the field of energy efficiency.

The Directive repeals two directives on energy efficiency[4] and is intended to attain the target of “20% primary energy savings in 2020”.[5]

This article aims at analysing the most important developments contained in the Directive, taking into account their impact in light of the 2020 target.

 

2. Energy efficiency and EU law

Energy efficiency is not defined in the European Treaties. The only reference to it is contained under the new Article 194 TFEU included by the Lisbon Treaty.[6] This provision, establishes that, among other objectives, the EU promotes energy efficiency. This is not a new objective of EU policies.[7] However it is only with the new “20+20+20” initiative that energy efficiency has acquired a primary role in EU policy-making.

 

2.1 The “20+20+20” initiative and energy efficiency

EU law has already pioneered energy efficiency in the 90s.[8] More recently, energy efficiency has acquired more importance. Already in a 2006 Communication, the Commission foresaw a number of measures to achieve the 20% increase in energy efficiency.[9] However, it was only with the “20+20+20” initiative that energy efficiency has assumed a central role. Following the 2007 Spring European Council conclusions,[10] the European Commission adopted the seminal EU Climate and Energy Package in 2009.[11] It establishes a number of proposals which aim to achieve three objectives by 2020: the reduction of greenhouse gases emissions by 20%, the increase in the use of renewable energies by 20% and the improvement in energy efficiency by 20%. The reference year to achieve these objectives has been set in 2020.

Hence, energy efficiency constitutes one of the three pillars of the initiative and aims at saving “the EU some € 100 billion and cut emissions by almost 800 million tonnes a year”. [12] As part of this pillar, the Commission published a Communication[13] in 2008 named “Energy Efficiency: Delivering the 20% Target” which contained specific measures to be addressed to achieve the target.[14] A strong emphasis in the document was put on the obstacles to energy efficiency improvements consisting in “the poor implementation of existing legislation, the lack of consumer awareness and the absence of adequate structures to trigger essential investments in and market uptake of energy efficient buildings, products and services” and the ways to overcome them in the near future.

Notwithstanding the ambitious programme put forward by the Commission, current achievements have not been as effective as hoped. As shown by the European Council Conclusions of 4 February 2011,[15] the 20% energy efficiency target is currently not on track and further measures are needed in order to achieve the energy efficiency goal.

 

2.2 The Directive on energy efficiency

The Commission made a legislative proposal on a Directive on energy efficiency on 22 June 2011 on the basis of Art.194(2) TFEU. As stated in the Impact Assessment, the policy choices followed by the Commission were three: set indicative targets to be achieved by the Member States, evaluate the nature and impact of individual policy measures, and extend the scope of the two former instruments to be merged into one directive. Overall, according to the Commission, these policy objectives were favoured with a view to achieve strong energy savings and reinforce action for energy services.

After first reading amendments, the European Parliament and the Council approved the proposal in October 2012. The directive has been published on 14 November 2012. According to Art.28, Member States shall transpose the Directive eighteen months after its entry into force. So the delay of transposition is set by the end of the first half of 2014.

The directive is divided into four main chapters: the first on subject matter, scope, definitions and energy efficiency targets; the second on efficiency in energy use; the third on efficiency in energy supply; the fourth on horizontal provision; and the fifth on final provisions. In the preamble, the Directive states a number of targets which the directive aims at achieving.

Through referring both to the European Council Conclusions of 4 February 2011[16] and to the 2011 Energy Efficiency Plan,[17] the Directive recalls that Member States are not yet on target to achieve the 2020 energy efficiency goals. On the contrary, these goals require that Member States set strict indicative national energy efficiency targets, schemes and programmes.

The Directive defines energy efficiency in “terms of the ratio of output of performance, services, goods or energy, to input of energy”.[18] Energy efficiency targets are related to primary energy consumption as “gross inland consumption, excluding non-energy uses”, and final energy consumption as “all energy supplied to industry, households, services and agriculture”. To that extent, Member States shall notify their targets to the Commission taking into account the “absolute level of primary energy consumption and final energy consumption in 2020”.[19]

The Directive puts great emphasis on the public sector to achieve targets of energy efficiency. In particular, it provides that 3% of public bodies’ buildings shall be renovated to respect minimum energy performance requirements. Similarly, public bodies are required to purchase products, services and buildings with high energy-efficiency performance. Further, the Directive states that Member States shall set up energy efficiency obligation schemes with a view to achieve the energy efficiency goals.

The consumers are entitled to receive intelligent metering system indicating competitive prices, reflecting accurately the consumer’s actual energy consumption and providing information on actual time of use.[20] Similarly, billing information shall be accurate and based on actual consumption. This system of billing information shall be free of charge and be easy to access.[21]

Finally, the chapter on energy efficiency in supply contains provisions on energy auditing, energy transformation, transmission and distribution, energy services and incentives to reduce energy consumption.[22] The primary objective of these provisions is to allow a smart use of energy and to promote energy efficiency in the Member States.

 

3. A commentary to the Directive: critical remarks

The Directive stands out as the most important piece efficiency of legislation in European energy law. Its content, admittedly much more detailed as compared with the Commission’s initial proposal, has been fairly modified. On the whole, as shown also by a Commission Non-paper,[23] the amendments to the Directive have not been beneficial to reach the energy efficiency target.

First, contrary to the initial attempts of the Commission, the Directive follows the policy objective of reaching indicative national targets on Member States rather than the binding targets. This policy choice reflects the need not to impose an excessive burden on Member States and is motivated by the difficulties of accepting “binding terms” in the Council. Admittedly, indicative targets do not share the same guarantees as the binding ones and they appear problematic from the point of view of compliance.

Second, the setting up of an energy efficient obligation scheme where Member States need to indicate at least 1.5% annual energy savings is a positive development because it will induce Member States to save energy. Nonetheless, a number of provisions limit the general scope of the obligation scheme and provide for some alternatives to energy saving calculations that do not contribute to energy efficiency on the whole.[24]

Further, important innovations refer to obligations on the part of the public sector. For instance, public bodies should play an exemplary role in energy savings. Accordingly, the directive contains two provisions on the public sector.[25] First, a percentage of 3% in annual renovation for public bodies’ buildings respectful of energy efficient performance is a positive requirement to assure that energy is not wasted by public bodies. As affirmed in the preamble,[26] both the fact that a considerable share of buildings in the Member States is public and that public buildings have high visibility in public life suggest that effective energy saving can be achieved in future. Second, the provision requiring public bodies of the central government to purchase services and buildings with high energy-efficiency performance stands out as a sound condition to assure energy savings. However, at a more careful reading, one aspect strongly limits the scope of this provision: the obligation to purchase does not apply to local authorities as long as the purchase does not have a value equal or greater than the threshold established in Art.7 of directive 2004/18/EC.[27] Admittedly, this limitation on scope contained in the Directive does not contribute to far-reaching energy savings.

Conversely, from the point of view of the consumer, the directive appears a significant improvement in transparency and access to information. In fact, consumers will be informed on energy consumption through intelligent metering systems and sound billings. Nonetheless, the insertion of conditionalities to metering and billing obligations strongly reduces the potential benefit for energy efficiency.

As for undertakings, the directive establishes, on the one side, incentives for Small and Medium Enterprises (“SMEs”) to promote energy audits and, on the other side, obligations for large companies to carry out energy audits. These could prove to be effective measures to assure that the private sector respects appropriate standards of energy consumption. However, given the voluntary nature of audit for SMEs, it appears less probable that SMEs will make use of audits if the Member States do not provide for substantial incentives to the benefit of the undertaking itself. Conversely, the audit obligation on the part of non-SMEs will take place only from 5 December 2015. Hence, one may question whether these provisions are actually effective in contributing to reach the 2020 targets of energy efficiency.

Finally, the Directive contains a provision on efficiency in heating and cooling that should promote cogeneration. Once again, this provision refers to an obligation to carry out a cost-benefit analysis rather than an obligation of cogeneration as envisaged in the proposal. Hence, even if the proposal attempted at assuring that cogeneration took place in the EU, the final Directive is less stringent in achieving cogeneration as a way to reduce energy consumption.

 

4. Conclusion

The Directive contains important improvements to raise energy efficiency in Europe but, unfortunately, its content is not as stringent as expected to reach the 20% target by 2020. Even if Member States duly implement the provisions of the Directive, which is still difficult to preconize, the EU does not have realistic chances to attain the planned 20% increase in energy efficiency by 2020 with the new Directive. Hence, it is still open to debate whether the EU should refocus energy efficiency on less ambitious goals or promote stricter policy solutions to reach the 2020 target.

 

[1] Communication “20 20 by 2020 – Europe’s climate change opportunity”, COM (2008)30.

[2] See the speech “Commissioner Oettinger welcomes final adoption of Energy Efficiency Directive”, IP/12/1069, 4.10.2012.

[3] Directive 2012/27/EU on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC, [2012] OJ L315 p.1 (“the Directive”).

[4] Directive 2004/8/EC of the European Parliament and of the Council of 11 February 2004 on the promotion of cogeneration based on a useful heat demand in the internal energy market; and Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services.

[5] The Directive, recital 2.

[6] On the impact of the Lisbon Treaty on energy policy see L. HANCHER and F. SALERNO, “Energy Policy after Lisbon”, in A. BIONDI, P. EECKHOUT and S. RIPLEY, EU law after Lisbon, Oxford, 2012, pp.367-402.

[7] For a reconstruction of past energy efficiency initiatives in the EU see V. BRUGGEMANN, Energy efficiency as a criterion for regulation of the European Community, (2004), EELR, pp.141-147.

[8] As starting point on energy efficiency in the EU see the Council Resolution of 7 December 1998 on energy efficiency in the European Community, OJ 17.12.1998 C394/01.

[9] Commission Communication, Action plan for energy efficiency: Realizing the potential, COM(2006)545 final.

[10] 7224/1/07 REV 1, 02.05.2007.

[11] On the 20 20 20 package see more extensively K. KULOVESI, E. MORGERA and M. MUNOZ, “Environmental integration and multi-faceted international Dimensions of EU law: Unpacking the EU’s 2009 Climate and Energy Package”, (2009), CMLR, pp.829-891.

[12] COM (2008) 30.

[13] Communication from the Commission of 13 November 2008 – Energy efficiency: delivering the 20% target COM(2008) 772.

[14] The consumption of energy is generally calculated in “Mtoe” which can be defined as the equivalent amount of energy released by burning one Million tonne of crude oil.

[16] The Directive, recital 2.

[17] Ibidem, recital 8.

[18] Ibidem, art. 2 par. 1 n. 4.

[19] Ibidem, art.3.

[20] Ibidem, art. 9.

[21] Ibidem, art.10.

[22] Ibidem, art.8, 14, 15, 16, 18.

[23] See the Commission Non-paper on the Energy Efficiency Directive available at http://ec.europa.eu/energy/efficiency/eed/doc/20120424_energy_council_non_paper_efficiency_en.pdf, 19-20 April 2012.

[24] See the Directive, art.7 par.2. However, as stated in art. 7 par.3, the reduction on energy savings “shall not lead to a reduction of more than 25% of the amount of energy savings”.

[25] The Directive, art.5 and 6.

[26] Ibidem, Preamble 17.

[27] Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts, OJ  L 134, 30.4.2004, p.114.

Accession to the ECHR: The Never Ending Story

Amanda Spalding

LLM student at King’s College London

 

On the 1st of December 2009 the new Treaty on the European Union came into force. Article 6(2) of that treaty provided that the EU shall accede to the European Convention on Human Rights and Fundamental Freedoms. In July 2010 negotiations began between the Council of Europe and the European Union in the form of an informal working group to draft an agreement regarding the accession of the European Union to the ECHR. These negotiations are the fruition of many years of debate over this issue and their outcome will likely have a fundamental impact on the EU. Two years have passed since the beginning of the negotiations, in this article I will explore some of the obstacles faced which may explain this delay.

Article 218 of TFEU sets out the procedure, which must be followed by the EU for accession to the European Convention of Human Rights and Fundamental Freedoms (ECHR). It requires the consent of all the Member States of the EU and of the Council of Europe. The Constitutional Treaty[i] had allowed for consent of the EU by qualified majority but this was changed at the request of Denmark in order to avoid the public perception that the EU could extend its powers without unanimous consent from the Member States. As Article 6 TEU specifically states that accession will not extend the competences of the Union, this seems unnecessary. However, as all EU Member States are also members of the Council of Europe, their consent would have been needed anyway. This has proven to be an obstacle to accession.

The accession process has already faced some difficulties on both sides. Russia held up the beginning of negotiations by being uncooperative regarding Protocol 14 to the ECHR, which allowed for accession of the EU. Now that negotiations have been ‘rebooted’, Russia feels that it will have to consent to any amendments made to the Draft Agreement[ii], if it does not it will withdraw its support for accession.[iii] This ‘rebooting’ of negotiations allows for representatives from all of the Council of Europe states to also propose amendments[iv] which may reveal more reservations on that side.

In the EU the reluctance to accede can be inferred already from the fact that the Court of Justice of the European Union (CJEU) in its Opinion of 1996[v] stated that the Treaties needed to be amended for accession to occur, yet it took over ten years for such a provision to be put in place. This shows a lack of enthusiasm, which is starting to reappear at present stage of accession. In 2010 the French government has expressed a desire to exclude the primary law of the EU from the jurisdiction of the European Court of Human Rights (ECtHR) as it may force Member States to amend the Treaty.[vi] It has also been keen to omit the Common Foreign and Security Policy from the ECtHR’s jurisdiction.[vii] The draft negotiations released reveal that there are obviously other Member States that also have issues with accession:

‘In the absence of a common position among the European Union Member States, some delegations from Member States of the European Union informed the CDDH that they were not in a position to express substantive views in the CDDH at the present stage and that more time was necessary for discussion at European Union level’[viii]

The paper then goes on say that it cannot resolve all conflicts that have arisen ‘given the political implications of some of the pending problems.’[ix] Several governments currently in power in the EU have already voiced issues with the current regime of rights in place. The Polish Constitutional Court is of the opinion that the EU is merely an international agreement[x] and the Polish Government has obtained a derogation of the Charter of Fundamental Rights.[xi] The UK also has derogation from the Charter[xii] and the Government currently in power has expressed interest in repealing the Human Rights Act 1998 and limiting the powers of the EU.[xiii] The current Government has also indicated that it wishes to narrow the jurisdiction of the ECtHR especially in light of accession to the ECHR by the EU.[xiv] These governments are unlikely to be supportive of yet another layer of rights protection in the EU. This appears to be the case as on the 25th of January 2012, Representatives of the Parliamentary Assembly of the Council of Europe and the European Parliament have urged national governments, particularly France and the UK not to stand in the way of the EU signing up to the ECHR.[xv]

As all the Member States are already signatories to the ECHR and people under their jurisdiction[xvi] may challenge their acts, the Member States may argue that this accession is unnecessary: “…one might say that Europe currently has a rich, fertile or perhaps even an excessive, focus on human rights.”[xvii] Again, this appears to be factoring into the opinion of the UK government.[xviii] Thus more negotiation and discussion will clearly be needed, which is likely to delay accession. Even without the already evident dissenting states, accession was unlikely to be straightforward given the number of states involved. ‘Even if we were all desperately anxious to get this through tomorrow, my experience of 47 Governments negotiating documents of this kind is you can be into years and years.’[xix]

The negotiations have also unmasked another possible anti-accession party, the CJEU. This may at first seem odd given that it was the Court itself that first incorporated rights into the EU and began referring to the Convention in its caselaw. However it must be remembered that in Opinon 2/94 the Court was unusually narrow in its interpretation of the Treaties. The CJEU may have perceived accession to the ECHR as a threat to its own power.  This can be seen in the defensive tone of the Court of Justice in its discussion document on accession.[xx] The Court seems almost petulant here, emphasising its own role and takes the view that accession is unnecessary as human rights in the EU are already protected:

‘…under the supervision of the Court of Justice, that human rights as guaranteed by the Convention are observed, even in the absence of an express obligation to that effect. As its case-law bears witness, the Court of Justice regularly applies the Convention and refers in that connection, more and more precisely in recent years, to the case-law of the European Court of Human Rights.’ [xxi]

It goes onto be very protective of its role in the EU system: ‘The Court of Justice has the task of ensuring that in the interpretation and application of the Treaties, the law is observed and it alone has jurisdiction … to declare if appropriate that an act of the Union is invalid.’[xxii]  The Court claims that giving the ECtHR the power to invalidate acts of the EU must avoided where possible. This will be potentially prove to be a dealbreaker in the negotiations. ‘From the very start of the negotiations it has been clear that that autonomy, which is jealously policed by the Court of Justice of the European Union, would be a major issue for the negotiators.’[xxiii]  Thus it seems the Court of Justice may voice strong opposition where it feels the mechanisms to be put in place will challenge its authority over Union law.

The other institutions of the EU shall have to take into account the views of the CJEU as it is very likely that at least one Member State will ask for a CJEU opinion as to the accession agreements compatibility with the Treaties.[xxiv] The CJEU has already shown that it may be uncooperative where it feels threatened.[xxv] There will almost undoubtedly be some effect on the EU’s autonomy as joining the ECHR has been assessed as resulting in ‘European States no longer embody insular, autonomous, self-defined legal systems.’[xxvi] The EU will need the CJEU as a contributor because if it does declare the accession agreement incompatible with the Treaties, then negotiations will have to begin again. Given the already evident reluctance of some of the parties,[1] this would be an undesirable delay. If any kind of incompatibility were found the Union would be forced to revise the Treaties before concluding the agreement; it is unlikely that the EU institutions would take such a risk, given the political importance..’’[2] Thus the views and input of the CJEU will likely be a significant consideration for the negotiators.

Given the already evident dissatisfaction with accession, obtaining consent from all the Member States and the Council of Europe states is likely to be a drawn out and convoluted process. The CJEU has also shown it is weary of the effects of accession and will be unlikely to be cooperative if it feels its position is threatened. Thus throughout the negotiations there will be many different considerations present which means the current draft negotiations are relatively unlikely to mirror the final agreement.

[1] See above.

[2] J. P. Jacque ‘The accession of the European Union to the European Convention on Human Rights and Fundamental Freedoms’ (2011) 48(4) CMLR 995 p. 997

[i]  See the draft at http://european-convention.eu.int/docs/treaty/cv00850.en03.pdf

[iii] See Appendix VI, Statement by the Russian Federation in the working document ‘Relevant excerpts of the Report of the 75th meeting of the CDDH (19-22 June 2012)’ available at http://www.coe.int/t/dghl/standardsetting/hrpolicy/Accession/Working_documents_en.asp

[iv] See para 3 of Report of the first negotiation meeting between the CDDH and the European Commission on the accession of the European Union to the European Convention on Human Rights 21 June 2012, Strasbourg available at http://www.coe.int/t/dghl/standardsetting/hrpolicy/Accession/Meeting_reports_en.asp

[v] Opinion 2/94 [1996] ECR I-1783

[vi] Communication de M. Robert Badinter sur le mandat de négociation (E 5248) May 25, 2010, at: http://www.senat.fr/europe/r25052010.html#toc1

[vii] See I. Smirnova Godoy ‘EU Accession to the ECHR: Talks Enter Final Stretch.’ http://www.europolitics.info/eu-accession-to-echr-talks-enter-final-stretch-art338208-40.html

[viii] CDDH) Report to the Committee of Ministers on the elaboration of legal instruments for the accession of the European Union to the European Convention on Human Rights October 2011 p. 4

[ix] ibid p. 4

[x] Judgement of the Polish Constitutional Court 11 May 2005 available in English at www.trybunal.gov.pl/eng/summaries/wstep_gb.htm Last accessed 11/11/11

[xi] Protocol No 30 to TEU

[xii] Ibid

[xiv] Response to Question 34 European Scrutiny Committee – Minutes of Evidence HC 1492-I http://www.publications.parliament.uk/pa/cm201012/cmselect/cmeuleg/1492/11090701.htm

[xvi] Art 25 ECHR provides ‘The Commission may receive petitions addressed to the Secretary-General of the Council of Europe from any person, non- governmental organization or group of individuals claiming to the victim of a violation by one of the High Contracting Parties of the rights set forth in this Convention, provided that the High Contracting Party against which the complaint has been lodged has declared that it recognizes the competence of the Commission to receive such petitions’

[xvii] S. Douglas-Scott ‘A tale of two courts: Luxembourg and Strasbourg and the growing human rights acquis; (2006) 43 (3) CMLR 629, p. 630

[xviii] Response to Question 34 European Scrutiny Committee – Minutes of Evidence HC 1492-I http://www.publications.parliament.uk/pa/cm201012/cmselect/cmeuleg/1492/11090701.htm

[xix] Kenneth Clark, Oral Evidence to the European Scrutiny Committee, 7 September 2011 available at http://www.publications.parliament.uk/pa/cm201012/cmselect/cmeuleg/uc1492-i/uc149201.htm

[xx] Court discussion document on accession 5/5/10, available at

http://curia.europa.eu/jcms/upload/docs/application/pdf/2010-05/convention_en_2010-05-21_12-10-16_272.pdf

[xxi] ibid p.2

[xxii] ibid p. 3

[xxiii] T. Lock ‘Walking on a tightrope: the draft ECHR Accession Agreement and the autonomy of the EU legal order” (2011) 48 CMLR 1025, p.1028

[xxiv] Under Art 218(11) TFEU

[xxv] ‘an international agreement may affect its own powers provided that the indispensable conditions for safeguarding the essential character of those powers are satisfied and, consequently, there is no adverse effect on the autonomy of the European Union legal order.’ Opinion 1/09 [2011] ECR I-02099

[xxvi] H. Keller and A. Stone Sweet A Europe of Rights  (Oxford University Press, Oxford, 2008) p. 677.

EU Competition Policy’s Broad Application

 

Robert Miklós Babirad

 

1          Introduction

On October 18, 2012, Mr. Joaquín Almunia, Vice President of the European Commission responsible for Competition Policy delivered a speech entitled “Competition Enforcement in the EU: Beyond the Integration of Markets”[1] at the twentieth anniversary of the Academy of European Law.  Mr. Almunia’s speech reflects the important idea that EU competition policy has a broad application and impact on the EU’s citizenry.  Additionally, the scope of EU competition policy necessarily extends beyond furthering development of the Single Market and economic efficiency objectives.  It may be argued that a broad and diverse application of EU competition policy, which is not limited solely in its employment to increasing economic efficiency, will lead to greater diversity and abundance of derived benefits for all EU citizens as well as furthering the Union’s development as a whole.  A key example of an expanded application for competition policy provided by the speech is that of its use as a tool for effectively responding to the present financial crisis.[2]

 

This article will begin by briefly discussing the debate concerning the role of competition policy.  EU competition policy as a unique tool, which differs from that which may be available in other competition systems will then be discussed.  The views set forth in Mr. Almunia’s speech concerning the historical, present and future application of EU competition policy will be offered.  The article will conclude by suggesting that Mr. Almunia’s speech demonstrates the continued importance and need for competition policy to be applied in context and its necessity as an instrument with broad application for enhancing the welfare of all EU citizens.  It will also be argued that placing competition policy in the greater context of the Union’s goals as a whole, and affording competition policy the opportunity to be an instrument responsive to its societal context, is preferable over an approach that is solely concerned with generating economic efficiency.

 

2          The Role of EU Competition Policy

 It is interesting to read Mr. Almunia’s speech in the context of the debate over the “correct” role for EU competition policy.  The majority of global competition law systems presently consider the enhancing of economic efficacy to be their primary goal.[3]  Objectives related to public policy have diminished as an important consideration in these systems.[4]  The U.S. antitrust model provides an example of this approach where all effective discourse must be presented in terms of economics and no provision is made for successful, non-economic, policy related arguments.[5]  A solely economic approach would not be effective under the EU system, because different societal values including that of the Single Market, as well as the attendant policy considerations of the Treaties are at stake.

 

The alternative and perhaps more helpful viewpoint, particularly with regard to the EU, is that competition policy should apply broadly and also promote a nation’s policy objectives, or in this case those of the Union as a whole, objectives which may not be related solely to increasing economic efficiency.[6]  However, the European Commission is restricting the consideration of policy objectives within EU competition policy.[7]  Mr. Almunia notes in his speech that one important change has been a trend toward an approach that is to a greater degree economically oriented and this is reflected in the regulations for block exemptions and establishment of guidelines relating to policy in varying fields.[8]

 

Dr. Townley states that competition policy is “not an end in itself,” but is rather more appropriately employed as a tool for achieving the objectives set forth in the Treaties.[9]  Additionally, the EU competition provisions do not operate independently and it is preferable to view them instead as “part of a web of inter-related Treaty articles.”[10]  The EU Treaties and their embedded objectives provide the context in which competition policy must be interpreted.[11]  Mr. Almunia’s speech also indirectly alludes to this contextual approach for EU competition policy, but stops short of directly calling for the greater incorporation of policy under the competition provisions.  It is this contextual approach, which appears to be of the greatest helpfulness if EU competition policy is to be used as an effective tool for promoting the values of the Treaty as well as those of the EU and its citizens as a whole.

 

An example of the Commission’s limitation on considering objectives other than economic efficiency under EU competition policy is demonstrated by its statement that the objective of Article 101 TFEU (previously Art. 81 EC) is to protect competitive conditions on the Single Market with the goal of promoting consumer welfare as well as the allocation of resources in an efficient manner.[12] Goals relating to policy expressed in the Treaties, may only be considered under Article 101 TFEU if they fall within the limited conditions of Article 101(3) TFEU.[13]  However, it has also been argued that Article 101(3)’s conditions for exemption of otherwise prohibited agreements are not necessarily meant for the incorporation of policy, but are rather “economic efficiency” considerations.[14]

 

It may be argued that EU competition policy has necessarily gone beyond the role of considering solely economic efficiency and must continue to do so moving forward.  The need for its broad application as a tool not only for creating economic efficiency, but also as a contextually responsive instrument for responding to the present economic crisis appears to be evident.[15]  It is in this application that competition policy may have the greatest effect and benefit the largest number of individuals.

 

3          EU Competition Policy’s Unique Nature

Mr. Almunia’s speech demonstrates that EU competition policy differs from other competition law systems and therefore necessarily takes a different approach in its application.[16]  The European Commission, as a competition authority, is in a unique position, because its enforcement powers extend broadly to both bodies of a private as well as public nature.[17] It is important for both public and private actors to be made accountable to the competition rules and as such not only is competition increased, but greater consideration may be given to advancing the Treaty’s policy considerations with regard to both the public and private sector. Additionally, it is only through applying competition policy to both public and private actors that the Single Market and increased welfare of all EU citizens can become a functional reality.

 

Competition is safeguarded in the private sector by rules concerning antitrust, which seek to prevent the development of private restrictions to trade by businesses.[18]  Additionally, these rules operate with the objective of establishing equal operating conditions for businesses within the Single Market.[19]  In the public sector, rules concerning State aid inhibit governments from altering competitive conditions and ensure equality of opportunity in the ability of Member States to provide subsidies.[20]  The European Commission, because of its broad application of rules regulating competitive conditions is empowered with a “formidable tool,” which benefits both citizens of the EU as well as the Single Market as a whole.[21]  It is noted in the speech that neither other nations outside of the EU nor organisations operating at the international level have at their disposal the tools available within the EU competition system.   It is therefore important that these tools not be restricted by the establishment of a narrower application for EU competition policy. Additionally, a competition policy less insistent on policy will subsequently result in decreased societal benefits (namely, those advocated by the Treaties) that would have otherwise been available.

 

The application of EU competition policy is broader than that employed in most other jurisdictions and bases itself not only upon the unique situation of fostering development of a Single Market, but also upon the underlying idea of promoting the welfare of its citizens by monitoring competitive effects by both private as well as public actors.  The EU competition system’s broad application to both public as well as private actors thereby creates overall better conditions for the economy as well as its citizens than that which may occur under a more restricted interpretation.

 

 4          Application of EU Competition Policy

EU competition policy has traditionally embodied and continues to take on a broad role, not limited solely to creating economic efficiency in its application or corresponding benefits.  This is reflected by Mr. Almunia’s speech.  It appears that this is the most helpful approach and most in line with the goals of the Treaty, which necessitate the consideration of policy in applying the competition rules.[22]  The Single Market can only be effectively integrated if competition policy applies broadly, not only to public and private actors, but also through its application as an instrument for advancing the Union’s larger policy objectives.

 

The application of competition policy may focus upon and be predominantly motivated by economic considerations, but its broad application and derived impact as well as benefits have suggested a much greater influence.  The suggestion is put forth that competition policy does not operate in an isolated manner, which would insulate it from the surrounding social and economic situation.[23]  The present social and economic situation since the onset of the global financial crisis is comprised by a lack of growth, an increase in unemployment, and an elevated public debt situation.[24]  Competition policy must not only operate in this difficult context, but has the responsibility to aid in the creation of growth that is sustainable while also assisting Europe in its ability to withdraw from the present crisis.[25]  This in itself recognises an extended role for competition policy beyond that of generating economic efficiency and is clearly reflective of the important and necessary role of policy considerations.  However, it is not clear from the speech as to how competition policy should proceed in this regard nor is it evident how the competition provisions should be applied as a tool for addressing the present financial crisis.

 

Policy concerns are being implicated and alluded to in Mr. Almunia’s speech, such as that of competition policy serving a contextual purpose and being employed as a tool for responding to the present financial crisis, but how this is to be done remains unclear.  However, competition policy necessarily emerges as a tool that is most productive if enabled to be responsive to its context, rather than one which is isolated and solely focused upon the attainment of economic efficiency at the exclusion of considering the Union’s policy related Treaty objectives.

 

Competition policy is an essential tool in Mr. Almunia’s view for the continued integration of the EU, but its role is not restricted to “the preservation of a level playing field” within the Single Market.[26]  The historical development of the EU’s unique competition policy regime as well as the support, which is offered by the Treaties and its accompanying policy objectives provide substantiation for this viewpoint.[27]  Mr. Almunia states, “[w]e all know that the call of Europe’s founding fathers for economic integration had a more profound and more noble motive.”[28]  Subsequently, it may be inferred that EU competition policy goes beyond protecting economic efficiency in its application and this is demonstrated by its role as an essential instrument for Europe’s institutional and political development.[29]  One is led to believe that policy considerations remain important in the application of competition policy, particularly if it is to be used as a tool for effective political and institutional construction.  However, one is left unsure as to whether an expanded role for policy is actually being advocated or whether Mr. Almunia’s remarks relate solely to economic efficiency.

 

Competition policy has also been used as an essential tool for development of the Single Market and the EU Courts’ manner of interpreting the competition provisions have occurred in a way that furthers integration.[30]  An example includes the EU Courts’ interpretation of concepts such as “effect on trade,” “concerted practices,” and the definition of an “undertaking” being afforded an interpretation that is generous and based upon the overriding policy interest of the Single Market’s development.[31]  As such, we see another example of competition policy being broadly applied.  It was traditionally necessary and continues to be essential for the EU Courts to follow this broad manner of interpretation if advancement of the Single Market is to be successful.

 

The importance of the relationship between competition policy and Europe’s public services is also noted.[32]  The public institutions of the community have the obligation of carrying out one of the most central tenets and fundamental values of the European model, that of providing for “certain social needs and public goods.”[33]  Mr. Almunia states that in looking at the field of public services in Europe, we are provided with “no better example to illustrate the link between competition controls and our fundamental values.”[34]  However, although a link is made between key European values and the competition provisions, the actual role of policy remains uncertain.  Policy is essential and must be considered to a greater degree in the application of the competition rules if there is to be such a link.  Applying competition policy to the provision of community public services clearly goes beyond the concern of generating economic efficiency.  It reflects important policy considerations, one example being that of Member States having the support of a competition law system, which assists in their ability to provide such services in a fair, effective, and cost efficient manner.  Unfortunately, the speech again stops short of directly supporting policy under the competition provisions.  However, the need for an expanded application of competition policy does appear to emerge as an important consideration in the continued development of the EU competition law system.

 

Competition policy has also assisted the Commission’s efforts to eliminate those existing obstacles, which may obstruct the development of unified European markets in areas as diverse as the telecommunications industry, the provision of postal services, railway networks, energy distribution and air travel with the goal of furthering the development of a single and unified EU marketplace.[35] Additionally, competition policy has made the principles of the free movement rules effective in practice.[36] It is essential for policy to be considered in applying competition policy broadly, particularly because of a propensity by the Commission and EU Courts to apply similar reasoning in their application of both the free movement and competition rules.[37] Unified markets and effective free movement rules are not only positive economically, but also foster a greater sense of European national, institutional and political unity, which are policy concerns.  The strengthening of the EU has in many ways been due to its competition policy and the broad application of that policy.[38]  The EU competition system has also delivered “practical benefits” to its citizens, because of its broad application and perhaps it may be argued that these have been derived, because of the recognition of policy and an application that has traditionally been contextually responsive.[39]

 

In the field of mergers, the EU Courts have afforded the Commission the ability to inquire into practices of an anticompetitive nature as well as mergers within the Single Market with the key requirement being merely that an impact upon the EU occurs even though a company may not have a physical headquarters within the European Union.[40]  EU competition policy has necessarily had a wide application and this is demonstrated by its application to foreign companies operating within the EU.  It is important that undertakings from outside of the Union are not provided with the opportunity to escape liability for actions, which lead to the distortion of competition on the Single Market, because of a narrow application of EU competition policy.

 

A unified and shared body of law that all EU citizens are able to rely upon has also been provided by the unique application and interpretation of EU competition policy.[41]  Legal precedents have applicability throughout Europe providing a common body of law for its citizens, businesses and national competition authorities.[42]  The competition rules are also universally applicable to all undertakings and it is possible for these rules to be invoked directly by citizens as well as businesses at the Member State level.[43]  Businesses are able to operate effectively and freely across Member States, because of competition policy and its enforcement against anti-competitive practices, which provides protection and universal applicability to companies throughout the European Union.[44]  A uniform body of law that applies throughout all of the Member States has economic, societal and political benefits and is possible, because of a broad and policy cognizant application of competition policy.

 

Mr. Almunia also states that in 2008 at the onset of the financial crisis, competition policy was employed as the only shared available device for confronting and preventing the collapse of the financial system in Europe.[45]  Government bail-outs were also controlled by the timely creation of a system concerning State aid and plans presently exist for a banking union’s future development.[46]  Additionally, State aid has been flexibly employed as an integral part of the EU’s competition policy.[47]  These actions clearly demonstrate the importance of a competition policy that is necessarily wide, contextually responsive, cognizant of policy, and subsequently varied in its scope, application and derived benefits.

 

5          Conclusion

The contributions of EU competition policy have improved the standard of living within Europe because of their broad application to a wide array of areas, resulting in the improved development of the Union’s structural, political and legal composition.[48]  EU competition policy should not be limited to solely attaining economic efficiency and now more than ever must be an instrument cognizant of greater European policy concerns.  Competition policy in the EU has not been traditionally restricted in its application or corresponding benefits to economics or the objective of advancing the Single Market, which may itself be looked upon as a predominantly economic concern.[49]  It continues to be important for EU competition policy to serve as a multipurpose instrument that is aware of its operating context and Treaty obligations, particularly if it is to be an effective tool for responding to the present financial crisis and the attainment of its timely resolution.

 

[1] Almunia, P, Competition Enforcement in the EU: Beyond the Integration of Markets, The citizen at the heart of EU law: 20th anniversary of the Academy of European Law (ERA) Trier, Speech /12/742, 18 October 2012.  <http://europa.eu/rapid/press-release_SPEECH-12-742_en.htm>  Accessed 12th of November 2012.

[2] See Almunia, p. 5.

[3] Townley, C. Article 81 EC and Public Policy (Hart Publishing, Oxford, 2009), p. 14.

[4] Ibid., p. 313.

[5] Monti, G. EC Competition Law (Cambridge University Press, New York, 2007), p. 79.

[6] Townley, p. 14.

[7] Ibid., p. 11.

[8] Almunia, p. 3.

[9] Townley, p. 314.

[10] Ibid., p. 48.

[11] Ibid.

[12] Commission Notice, Guidelines on the Application of Article 81(3) of the Treaty OJ 2004 C101/97, para. 13.

[13] Ibid., para. 42.

[14] Monti, p. 45.

[15] Almunia, p. 5.

[16] Ibid., p. 3.

[17] Ibid.

[18] Ibid.

[19] Ibid.

[20] Ibid.

[21] Ibid.

[22] See Townley, pps. 48-50.

[23] Almunia, p. 5.

[24] Ibid.

[25] Ibid.

[26] Ibid., p. 2.

[27] Ibid.

[28] Ibid.

[29] Ibid.

[30] Ibid., p. 4.

[31] Ibid.

[32] Ibid., p. 6.

[33] Ibid.

[34] Ibid.

[35] Ibid.

[36] Ibid., p. 4.

[37] Mortelmans, K. “Towards Convergence in the Application of the Rules on Free Movement?” (2001) 38 Common Market Law Review 613, pps. 613, 645-46.

[38] Almunia, p. 4.

[39] Ibid.

[40] Ibid., p. 4.

[41] Ibid.

[42] Ibid.

[43] Ibid.

[44] Ibid.

[45] Ibid., p. 5.

[46] Ibid.

[47] Ibid., p. 6.

[48] Ibid.

[49] See Commission, Article 81(3) Guidelines, para. 13.

‘(I Can Live) With or Without You’, the Opinion of Advocate General Bot in Joined Cases C-274/11 and C-295/11, Spain and Italy v Council, on the use of the enhanced co-operation procedure for the establishment of the EU patent system

Jose Manuel Panero Rivas

MA in Economics for Competition Law candidate, King’s College London, LL.M in European Law, College of Europe, Bruges

 

On 11 December 2012, Advocate General Bot delivered his opinion on Joined Cases C-274/11 (Spain v Council) and C-295/11 (Italy v Council).[i] Should the Court follow his reasoning, the case is likely to have a major impact on the enhanced co-operation procedure (hereinafter “the ECP”), allowing Member States a large room of manoeuvre to use the procedure. This is something which, by its very existence, is likely to erode the relevance of veto ‘rights’ in the limited fields where unanimity within the Council is still required.

In the next paragraphs we will: (i) briefly introduce the ECP; (ii) summarily explain the facts of the case and the applicants’ pleas, (iii) expose the conclusions of the AG and (iv) explain the relevance of the Opinion (should this be followed by the CJEU) in a broader context.

a)    Brief introduction to the ECP

As the well-instructed readers of this blog know, the ECP is regulated in both the TEU and the TFEU. On the one hand, Articles 20(1) and (2) the TEU read as follows:

‘1. Member States which wish to establish enhanced cooperation between themselves within the framework of the Union’s non-exclusive competences may make use of its institutions and exercise those competences by applying the relevant provisions of the Treaties, subject to the limits and in accordance with the detailed arrangements laid down in this Article and in Articles 326 to 334 of the Treaty on the Functioning of the European Union.

Enhanced cooperation shall aim to further the objectives of the Union, protect its interests and reinforce its integration process. Such cooperation shall be open at any time to all Member States, in accordance with Article 328 of the Treaty on the Functioning of the European Union.

2. The decision authorising enhanced cooperation shall be adopted by the Council as a last resort, when it has established that the objectives of such cooperation cannot be attained within a reasonable period by the Union as a whole, and provided that at least nine Member States participate in it. The Council shall act in accordance with the procedure laid down in Article 329 of the Treaty on the Functioning of the European Union.’

At their turn, Articles 326 to 334 TFEU establish in detail the procedure and limits for the use of the ECP.

The idea of establishing the ECP was to allow a group of Member States holding a sufficient “critical mass”, within the framework of the Treaties and without contravening them, to move forward in the integration process, leaving the door open for the remaining Member States to potentially join in the future.

Of course the possibility to resort to such action is not a “blank check” to Member States but it is subject to certain limits – some of them admittedly imprecise. The most relevant are:[ii]

i)     For an ECP to be allowed its outcome should respect the Treaties, in particular concerning the decisional procedure and the jurisdictional control.

ii)   The ECP should remain within the limits of competence of the Union, but not to refer to its exclusive competences.

iii)  The ECP should not hamper either the internal market or the economic and social cohesion.

iv)  The ECP should concern at least one third of EU Member States.

v)    The procedure should remain open to the rest of the EU Member States.

vi)  The decision to go through the ECP should be a “last resort” solution.

However, until now, these limits and their boundaries have been considered mainly by scholars. In the case at stake, the Court, as the supreme interpreter of the Treaties, has been invited to rule and set its doctrine on most of them.

b)   Context of the case and pleas of the Applicants

The adoption of the Regulation to establish an EU-wide intellectual property system[iii] has been a controversial subject in the Council meetings. One of the conflicting points has been the linguistic regime, for which a solution of compromise was advanced: the possibility to file patent applications in any language of the Union (establishing a mechanism for compensating translation costs) but granting the patent having unitary effect only in one of the official languages of the European Patent Office as provided by the European Patent Convention[iv] (hereinafter “EPC”) (namely, English, French or German). However, even this solution of compromise generated the opposition to the system (or, at least, the linguistic regime) of two countries: Italy and Spain.

Once the Council confirmed, after several attempts to reach an agreement, that no unanimity could be reached concerning the language arrangement, the Council started an ECP by means of its Decision of 10 March 2011[v] (“the contested Decision”).

Spain and Italy challenged the Decision under what AG Bot has classified as six pleas:[vi]

i)     The Council was not competent to establish an ECP as, the Applicants consider, the subject of the procedure concerns an exclusive competence of the Union (namely, the establishment of competition rules for the functioning of the internal market, mentioned in Article 3.1 b) TFEU). Accordingly, in adopting the contested Decision the Council infringed Article 20(1) TEU as an ECP can only be used in matters falling within the non-exclusive competencies of the Union;

ii)   The decision adopted by the Council would constitute a misuse of powers. The Applicants maintain that, contrary to Article 20 TEU, the true objective of the decision was not to integrate all Member States by means of multi-speed integration;

iii)  In adopting the contested Decision the Council failed to respect the judicial system of the Union by failing to specify in the contested Decision, the judicial regime envisaged for unitary patents matters;

iv)  In adopting the contest Decision the Council failed to fulfil the ‘last resort’ condition foreseen in in Article 20(2) TEU;

v)   An infringement of Articles 118 and 326 TFEU and Article 20(1) TEU insofar as the Decision undermined the internal market and economic, social and territorial cohesion, constitutes a barrier to and discrimination in trade between Member States and distorts competition between them;

vi)  The Decision failed to comply with Articles 327 and 328 TFEU insofar as (i) the Decision obliges Spain to waive its right under Article 65 of the EPC to require a translation of the patent specification into Spanish in order for it to produce legal effects in Spain; and (ii) the condition that ECP would be open to non-participating Member States laid down in Article 328 TFEU is not fulfilled, as the co-operation makes provision for a language regime Spain cannot accept. 

c)    The Opinion of the Advocate General

In his Opinion, AG Bot advised the CJEU to dismiss the actions of both Spain and Italy.

In his preliminary observations, AG Bot took the position that the review the Court should undertake of decisions establishing ECPs should be limited. He recalled AG Jacobs’ Opinion in Joined Cases C-248/95 and C-249/95[vii] in which he pointed out that such light-touch should be taken or else the Court would risk to “usurp the legislative role of the Council by imposing its own views of the economic policies to be pursued by the [Union]”.[viii]

In that regard, the AG pointed out that the choice of initiating the ECP is made by the Council, which grants authorisation on a proposal of the Commission and after obtaining the consent of the Parliament. In the context of that procedure, the institutions asses the effects of the ECP, weighting the different interests at stake and making political choices. It is in the light of those elements that the Council determines whether an ECP is the appropriate procedure to further the objectives of the Union, protect its interests and reinforce its integration. [ix]

Therefore, AG Bot advises the Court, in general, not to substitute the reasoning of those institutions by its own and confine itself to reviewing whether, in the exercise of the freedom conferred to the legislator, it has not committed a manifest error, misused its powers or manifestly exceeded the limits of its discretion.[x]

Entering into the specific pleas put forward by the contending parties, the AG advises the Court to dismiss all pleas on the following grounds:

i)     The first plea should be dismissed, as the issue does not relate to a matter where the Union has exclusive competences, but instead refers to the functioning of the internal market, which is a shared competence according to the loose wording of Article 4 TFEU.[xi] Specifically, the AG considers that “Since the Treaty of Lisbon Article 118 TFEU has supplied an appropriate legal basis for the creation of intellectual property rights and that provision refers expressly to the establishment and functioning of the internal market, an area which comes within the competence shared between the Union and the Member States.”[xii]

ii)   The second plea should be equally dismissed. Against the argument that the ECP should be considered, in this case, as a ‘solution of exclusion’, the AG is of the view that there was “no objective, relevant and consistent evidence which proves that the contested decision was adopted with the purpose of achieving an end other than stated or evading a procedure specifically prescribed by the Treaties”.[xiii]

iii)  Concerning the third plea, on the lack of establishment of a judicial regime in the Council decision, the AG notes that the authorisation given by the Council is merely an authorisation for the adoption of other legislative acts, which will then have to give specific effect to that ECP. Indeed, in the Council’s proposal for a Regulation implementing the ECP in the area of the creation of unitary patent protection, the question was addressed.[xiv]

iv)  As regards the fourth plea (on the anticipated use of what is a ‘last resort mechanism’), AG Bot notes the different attempts to move forward the mechanisms for the EU Patent system and the recurring conflicts, pointing out in any event the wide discretion that, in his view, should be given to the Council.

v)   On the fifth plea (negative impact of the proposal on the internal market and cohesion), the AG advised the Court to dismiss it, as the contested decision does not foresee the specific regime, which will only be defined (and challenged, if necessary) at a latest stage. In any event, the elements analysed by the AG point indeed to the opposite direction: the proposal does not hamper the internal market and/or cohesion, but goes in the benefit of those objectives.[xv]

vi)  On the sixth plea (concerning specific concerns on the compatibility of the linguistic regime with the EPC), the AG advice to refuse the plea as inadmissible insofar as the specific language arrangements were not part of the contested decision.

d)   Relevance for the specific case and for the future of the enhanced co-operation procedure

In parallel to the procedure before the CJEU, the creation of the EU patent system follows its own legislative course. Indeed, the same day the AG Opinion was delivered, the Parliament approved, in three separate voting sessions, the EU ‘Patent Package’ (integrated by the proposals for legislating on Unitary Patent, Language Regime and Unified Patent Court).[xvi]

However, the importance of the Opinion and the judgment goes well beyond the specific case. As mentioned above, and for the first time ever, the CJEU will have to rule on the legality of a decision authorising the use of the ECP. We will attend to the Court final judgment, but – at the risk of being completely wrong – it seems likely that the CJEU will follow its Advocate General.

The impact of a judgment dismissing the action would be quite relevant, and this is not purely of academic interest. Indeed, there is a major ECP on the horizon, the one concerning the establishment of the financial transaction tax, where all the previous conditions for the starting of the procedure seem to be in place.[xvii] The final ruling of the Court on this case is likely to affect the position of those Member States which would not opt for it (namely UK) as well as their chances of successfully blocking the ECP procedure. Of course, the circumstances of cases are always different, but it would not be surprising that, when drafting its final judgment in this case, the judges of the CJEU will consider the far-reaching consequences of their judgment in foreseeable ECP cases. We have to wait and see if the CJEU will act (again) as an ‘internal federator’ of the Union, and if its ruling will allow Member States to firmly say to reluctant partners whether they could live with or without them.

[i] Opinion of AG Bot in Joined Cases C 274/11 and C-295/11, Spain (C-274/11) and Italy (C-295/11) v Council, [2012] ECR n.y.r., available here: http://curia.europa.eu/juris/document/document.jsf?text=&docid=131666&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1297429

[ii] See J.P. Jacqué, Droit institutionnel de l’Union européene, (6th ed.) 2010, Dalloz

[iii] Regulation of the European Parliament and of the Council implementing enhanced cooperation in the area of the creation of unitary patent protection (still not published in the OJ, status of the file available at http://www.europarl.europa.eu/oeil/popups/ficheprocedure.do?reference=2011/0093(COD)&l=en). See also Council regulation implementing enhanced cooperation in the area of the creation of unitary patent protection with regard to the applicable translation arrangements  (still not published in the OJ, status of the file available at http://www.europarl.europa.eu/oeil/popups/ficheprocedure.do?reference=2011/0094(CNS)&l=en ) as well as the Draft Agreement of the Council on a Unified Patent Court (latest version available at http://register.consilium.europa.eu/pdf/en/12/st16/st16222.en12.pdf)

[iv] Convention on the Grant of European Patents (European Patent Convention) of 5 October 1973 as revised by the Act revising Article 63 EPC of 17 December 1991 and the Act revising the EPC of 29 November 20001, available at http://documents.epo.org/projects/babylon/eponet.nsf/0/7bacb229e032863dc12577ec004ada98/$FILE/EPC_14th_edition.pdf

[v] Council Decision 2011/167/EU of 10 March 2011 authorising enhanced cooperation in the area of the creation of unitary patent protection, OJ 2011 L 76, p. 53

[vi] See paragraphs 20 to 25 of AG Bot Opinion

[vii] Opinion of AG Jacobs in Joined Cases C 248/95 and C-249/95 SAM Schiffart and Stapf [1997] ECR I-4475

[viii] See paragraph 27 of AG Bot Opinion and point 23 of AG Jacobs Opinion

[ix] See paragraph 28 of AG Bot Opinion

[x] See paragraph 29 of AG Bot Opinion

[xi] See paragraphs 31 to 67 of AG Bot Opinion

[xii] See paragraph 66 of AG Bot Opinion

[xiii] See paragraphs 68 to 91 of AG Bot Opinion

[xiv] See paragraphs 92 to 100 of AG Bot Opinion

[xv] See paragraphs 101 to 153 of AG Bot Opinion

Italian Golden Shares – a Never-Ending Story?

Jelena Ganza

PhD candidate, Dickson Poon School of Law, King’s College London

 

The obligation of sincere co-operation[i] of all Member States entails, inter alia, the national governments to comply with judgements of the Court of Justice of the European Union and adjust national measures accordingly. Timely and appropriate compliance initiatives would be seen as acting in good faith and in line with the sincere co-operation principle. Persistent non-compliance with judgements remains a problem and it particularly arises in cases where national governments’ influence over former strategic state-owned enterprises (SOEs), such as the largest Italian energy/oil company ENI, the former State telecommunication monopoly Telecom Italia and dominant electricity giant ENEL, is at stake.

This non-compliance stems from the basic conflict between the liberalisation aims of the Union and egoistic interests of certain Member States, which sought to retain influence over strategic industries by employing specific Control Enhancing Mechanisms called ‘golden shares’. Golden shares are the special class of shares introduced for the sole benefit of the ‘former owner’ – the State. These mechanisms aim at enhancing governmental control after privatisation, thus protecting important industries from turbulences of the free market. A typical golden share could have the following structure: where direct influence was lost due to privatisation, special powers, such as the power to veto the usage and disposal of strategic assets and the right to appoint directors, is attached to the golden shares held by the State.

These mechanisms are eagerly employed by States and ever so eagerly battled by European Commission and the Court. Golden shares are illegal, unless justified by overriding public interest and the necessity to protect public security, are legally certain, appropriate and non-discriminative.[ii] The justification criterion is narrow, however some governments were not only willing to face the Court, but were also determined to continue using already overruled golden shares post-judgement. Such tactics allow the matters to drag, contributing to a free-rider problem, which in turn means acting in bad faith and contrary to the principle of sincere co-operation, thus causing obstinate non-compliance and undermining the authority of the Court.

There are fifteen cases on golden shares in total and only in one of them they were justified.[iii] After the condemning judgement is passed, the State in question is obliged to comply without delay and either to severely restrict its golden shares or to repeal them altogether. Taking into account the success rate on justifying golden shares, it could be ascertained that following a condemning judgement the State in question is obliged not to try and amend but repeal them, since passing the justification test is a challenging task. Some States have disclosed a remarkable persistence in non-compliance alongside the determination to retain golden shares in spite of condemning judgements and looming sanction threats. Italy could be seen as one of such examples of persistent bad-faith compliance with four cases upon it, three of which relate to obstinate golden share Decree-Law 332/1994.[iv] Italian authorities have not addressed judgements in good faith and the same golden share measures were effective for more than a decade post-judgement.

The first ruling on golden shares has been on Italian Decree-Law 332/1994, which governed privatisation of SOEs.[v] Article 2 of the Decree-Law prescribed the implementation of further Decrees which would create a golden share in certain strategic companies. The Decree-Law did not infringe the Treaty by itself, as it merely empowered certain authorities to ‘activate’ it by further company-specific Decrees, stating which company shall be protected and how. Since the Decree-Law does not infringe the Community law per se – as long as the exercise of golden shares (laid down in further Decrees) passes the justification test – it becomes ‘untouchable’ in a way that it allows for a numerous amendments to ‘activating’ Decrees.  If golden shares ought to be found applied in unjustified manner, the ways in which they are applied could be changed, without the necessity to change the Decree-law itself. The conditions for exercise of golden shares, or more precisely – their absence, have become the subject of the Case C-58/99 in which the Commission sued Italy under what is now Article 258 TFEU. In absence of any justifications, in 2000 the Court found that the application of golden has been illegal. Even though the Italian government has expressed its willingness to comply prior to the judgement, no adequate amendments were undertaken.

The amendments which aimed at justifying the golden shares at stake were transposed into Article 66 of Financial Law No 488 of 23/12/1999 and the ‘activating’ Decree on 11/02/2000.[vi] This compliance measure aimed to provide a detailed explanation under which circumstances and how the Decree-Law 332/1994 should be executed, but failed to do so. These amendments were of declamatory character as they were merely repeating the requirements of the justification, while failing to specify what precisely the circumstances for their exercise are. This in turn retained the possibility of further disputes over legality of golden shares, which inevitably followed. The compliance initiative of Article 66 of No 488 acted as a smoke screen dispersing the attention from active golden shares. Acting in good faith would entail the Italian government, first and foremost, to abstain from vague and inadequate justification attempts which delayed final compliance as well as to abstain from implementation of new golden shares. Nonetheless, in 2001 following the condemning judgement in C-58/99, the Italian government implemented another golden share Decree-Law 192/2001, which has been overruled by the Court in C-174/04.[vii] In that case the Italian government tried once again to fiddle with the golden share amendments, but after being threatened with sanctions under Article 260 TFEU, it has fully abrogated contested provisions in 2006. Italian authorities have complied with the judgement on C-174/04 but it took one unsuccessful amendment and potential of application of penalties to achieve this.

As for the first Italian case on golden shares, the Article 2 of Decree-Law 332/1994 became subject of the preliminary ruling in Federconsumatori and later in C-326/07. In 2007 the Court has once again pointed on the incompatibility of the Decree-Law 332/1994 with the Community law in Federconsumatori, confirming the obstinacy of the golden shares. In this case the golden shares emerge in a newly amended format after yet another justification attempt via Article 4(227) to (231) Law 350 of 24/12/2003 and implementing Decree of 10/06/2004.[viii] This justification attempt emerged as a legislative answer to the Commission’s formal letter sent in February 2003, a second action under Article 258 TFEU on the Decree-Law 332/1994. The Italian authorities undertook to introduce new amendments by the end of 2003. The Law 350 was implemented in time, however, it did not contain justifications, but merely created a platform for further justification, by further Decree which was implemented in June 2004. However, the latter amendments were also insufficient to justify the use of golden shares. The new provisions of Law 350 alongside the Decree of 2004, have limited golden shares and introduced justifications based on ‘real and serious risk’ without specifying what exactly constitutes such risk.

These amendments became subject of the second condemning judgment in 2009 on C-326/07. Since compliance did not follow and no drafts were submitted for a review, the Commission proceeded with sanction-threats under Article 260 TFEU.  On 20 May 2010 Italy’s then Prime Minister Berlusconi has issued a Decree which aimed at addressing the Commission’s concerns and the Court’s ruling(s) by amending the criteria for execution of special powers laid down in ‘activating’ Decree 2004.[ix] The compliance measure of Berlusconi’s Decree of 2010 appears to be even more controversial, as it comprised of just one Article that in turn comprised of a single sentence which repeals contested justifications of Decree 2004! [x]   Berlusconi’s Decree repeals Article 1(2) of 2004 Decree (the one that laid down the criteria for exercise of special powers of Decree-Law 332/1994 and has been overruled by the Court in C-326/07). By eliminating the sole justifications of exercise of golden shares Berlusconi has ‘addressed’ the judgment. The only justification of special powers has now been repealed and this ‘compliance initiative’ does neither justify nor eliminate golden shares as such. Berlusconi’s Decree of 20 May 2010 appears to be a misleading measure that only aimed at further procrastination, acting as another smoke screen.

On 16 February 2011 the Commission has started the second stage of infringement proceedings and issued a reasoned opinion urging Italy to comply. During that time the Italian government has been going through one of the most difficult economic and political situations in its modern history: the European Debt crisis.  It has been a ‘lucky co-incidence’ that the need to adopt new golden share amendments has co-incised with some radical changes within the Italian government. Berlusconi and his government had to resign on 12 February 2011 while the new ‘technocratic government’ had to be formed in order to implement severe austerity measures. A new Prime Minister has been formally appointed – Mario Monti, the former EU Competition Commissioner, known for his tough stance on pro-European integration and competition enhancement. The technocratic government would stay in office until the elections in April 2013. By that time several ‘unpopular’ economic and social reforms have to be introduced and new provisions on golden shares would fall within that scope.

After more than a decade of procrastination, the Italian government seems to have finally addressed the issue of golden shares overruled back in 2000 by significantly amending the original provisions by new Decree-Law No 21 of 15 March 2012.[xi] This new Decree-Law 21/2012 establishes a notion of ‘strategic assets’ which are subject to golden shares and introduces a ‘fit and proper’ test for potential investors who seek participation in control of strategic companies. The golden share provisions now appear to have a considerably narrower scope of application and increased legal certainty. But yet again, the Law has been amended, not repealed, which in turn has the potential to be incompatible with EC law.  The Commission is currently analysing new provisions and awaits the implementation of the ‘activating’ Decrees which would further establish the conditions for the applications of golden shares. Whether or not Italy has finally complied with both C-58/99 and C-326/07 remains to be seen, while the battle for illegal golden shares continues, and State-driven protectionism is on the rise due to economic crisis.

[i] The obligation of sincere co-operation has been previously enshrined by the Article 5 of the Treaty of Rome, then became Article 10 EC and has been in principle replaced by 4(3) TEU which states: ‘Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties. The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union. The Member States shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives.’

[ii] Criminal proceedings against Sanz de Lera and Others (C 163, 165 & 250/94), 14 December 1995, paras. 23-28, the Commission accepted that fundamental freedoms may be restricted by national measures justified on grounds of public policy, public security or public health or by overriding reasons in the public interest, but only in so far as there is no Community harmonising legislation providing for measures necessary to ensure the protection of the fundamental interests of the State. These measures have to meet the requirement of legal certainty and proportionality, see also the Court’s judgement Commission v Italy, C-326/07 of 26 March 2009, at para. 14; Commission v Portugal, C-367/98, judgement of 4 June 2002, at para 48;

[iii] Commission v. Italy, C-58/99, judgment of the CJEU of 23 May 2000; Commission v. France, C-483/99, 4 June 2002; Commission v. Belgium, C-503/99, 4 June 2002 (justified); Commission v. Portugal,  C-367/98, 4 June 2002; Commission v. United Kingdom, C-98/01, 13 May 2003; Commission v. Spain, C-463/00, 13 May 2003; Commission v. Italy C-174/04, 02 June 2005; Joined cases C-282/04 and C-283/04, Commission v. Netherlands, 28 September 2006; Federconsumatori v. Commune di Milano, C-463/04 and C-464/04, referred to the Court for preliminary ruling, 6 December 2007; Commission v. Germany, C-112/05, 23 October 2007; Commission v. Spain, C-274/06, 14 February 2008; Commission v. Spain, C-207/07, 17 July 2008; Commission v. Italy, C-326/07, 26 March 2009; Commission v. Portugal , C-171/06, 8 July 2010; Commission v. Portugal, C-543/08, 11 November 2010

[iv] (Italian Privatisation Law as amended), Decreto del Presidente del Consiglio dei Ministri, definizione dei criteri di esercizio dei poteri speciali, di cui all’art. 2 del decreto-legge 31 maggio 1994, n. 332, convertito, con modificazioni, dalla legge 30 luglio 1994, n. 474; Decree-Law No 332 of 31 May 1994 (GURI No 126 of 1 June 1994), converted, after amendment, into Law No 474 of 30 July 1994, (GURI No 177 of 30 July 1994)

[v] Decreto del Presidente del Consiglio dei Ministri, definizione dei criteri di esercizio dei poteri speciali, di cui all’art. 2 del decreto-legge 31 maggio 1994, n. 332, convertito, con modificazioni, dalla legge 30 luglio 1994, n. 474; Decree-Law No 332 of 31 May 1994 (GURI No 126 of 1 June 1994), converted, after amendment, into Law No 474 of 30 July 1994, (GURI No 177 of 30 July 1994)

[vi] The original text of the Art.66 of Financial Law No 488/1999 (LEGGE 23 dicembre 1999, n.488, Disposizioni per la formazione del bilancio annuale e pluriennale dello Stato (legge finanziaria 2000) could be found in Italian at: http://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:legge:1999;488 Gazzetta Ufficiale, n. 302 del 27-12-1999, for Implementing Decree of the Prime Minister 11/02/2000 see http://gazzette.comune.jesi.an.it/2000/40/5.htm

[vii] The law titled ‘Urgent provisions to ensure the liberalisation and privatisation of specific public service sectors’, GURI No 170 of 24 July 2001, published in Italian Official Gazette No 120 on 25 May 2001, the original text could be found at: http://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto-legge:2001;192,

[viii] Gazzetta Ufficiale No 299 of 27 December 2003 and Gazzetta Ufficiale No 139 of 16 June 2004

[ix] Decreto Del Presidente Del Consiglio Dei Ministri (DPCM) 20 maggio 2010 (published in Italian Official Gazette n.117 del 21-5-2010 ) (10A06506)

[x] Decreto Del Presidente Del Consiglio Dei Ministri 20 maggio 2010 (published in Italian Official Gazette n.117 del 21-5-2010 ) (10A06506)

[xi] Decreto-Legge 15 marzo 2012, n. 21  Norme in materia di poteri speciali sugli assetti societari nei settori della difesa e della sicurezza nazionale, nonche’ per le attivita’ di rilevanza strategica nei settori dell’energia, dei trasporti e delle comunicazioni. (12G0040) (published in Italian Official Gazette n.63 del 15-3-2012)