Competition between public and private undertakings

Abstract

Competition between public and private undertakings

“When the State harms competition”

An undistorted competition regime can only be achieved on the condition of equality of opportunity among different businesses. The principle of equal treatment among market players means that all entities (private and public) that are active within a specific market, irrespectively of their legal nature, ownership regime or privileges they may enjoy must operate under the same rules and have the same opportunity for access to and action within the market. This principle is known in the EU Competition Law as Competitive neutrality. Basic criteria of this principle are met, when the State is not unjustly favorable towards certain businesses, either public or private, nor do they undermine the same as regards competition. According to OECD (2012), Eight Structural Elements (Building Blocks) are required for the accomplishment of competitive neutrality such as rationalization of public undertakings’ activities, transparency, accountability, transparent and measurable compensation.

Legal Framework for State Measures Monitoring is based on two pillars, on the rules referring to undertakings (art. 101 and 102 TFEU) and the rules referring to member states (art. 106 par. 1 TFEU in conjunction with art. 101 and 102 TFEU and 107 et. seq. TFEU – provisions on national aids). Basic lever for the EU case law development and evolution, with regard to the State’s participation/involvement in competition restraints, is the conjunction of provisions 4 par. 3 in conjunction with art. 3 (3) TEU and art. 101 and 102 TFEU.

A state measure restraining competition is scrutinized by the conjunction of provisions of 106 par. 1 and 102 TFEU, and whenever it may potentially lead an undertaking to abuse of dominant position. The provision of art. 106 par. 1 does not originally prohibit the granting of special or exclusive rights, however it orders member states to abstain from legislating and preserving measures that are contrary to the Treaty and especially to competition regulations. In this article there is a critical analysis of EU Case Law. Inter alia, it is thoroughly analysed that the assignment of administrative agreements may fall within the prohibitive scope of art. 106 par. 1 TFEU, if through such agreement a special or exclusive right is granted to the benefit of the selected contractor and against the rest of undertakings. Similarly, the provision of art. 106 par. 1 TFEU could be applicable in the case of assignment of concession agreements and the execution of administrative agreements.

Violation of the provisions 106 par. 1 and 102 TFEU is admited also whenever a member state, which is awarded with exclusive or special rights, creates the conditions for a conflict of interests. The conflict of interests is examined in the liberalization sector and important decisions of Hellenic Conseil d’Etat regarding the privatization of Athens Water Supply Company, Piraeus Port Organisation and Greek Organisation for Football Prognostics are analysed.

The dilemma between the theory of conduct v. theory of effect (automatic abuse of dominant position or Result similar to the one of dominant position abuse) is also analysed in this article. The recent judgment of ECJ in the PPC – Lignite case is highlighted which is held that it is enough for the state measures at issue merely to affect the market’s structure, regardless of whether there is any abuse or not. This decision is intensively and reasonably criticized though it concludes that inequality of opportunity alone equals with dominant position abuse without any abusive conduct required. In our opinion, the Competition Agency should verify a specific kind of actual or potential abusive conduct on behalf of an undertaking holding exclusive or special rights. The Treaty’s systematic interpretation is not supportive of a general prohibition for all state measures, which affect competition and business activity. Besides, one must note that it is dogmatically inconsistent for a causal link to be required for the establishment of art. 102 and for a certain kind of causal link to be unnecessary in the conjunction of art. 106 and 102 TFEU.

The neutrality principle must be also applicable in favor of public sector undertakings. According to OFT study dated 2010, the neutrality principle must be also applicable in favor of public sector undertakings. Said undertakings are indeed burdened with major responsibilities and liabilities, are obligated to provide the universal service, enjoy a limited administrative autonomy, are obligated to comply with governmental requirements/dictations, to fight unemployment and observe the general governmental social and industrial policy. In addition many public undertakings, due to asymmetrical regulations (the so called “weights”) imposed against them, fell in a disadvantageous status compared to the arising, mainly private, competition. It is also known that Supervisory Authorities focus sometimes their interest on the ideal structural designing of the market. This is the conflict Market regulation v. Market design. Such design is contrary most of the times to the market’s operation principles.

In comparative analysis with other legal orders (Italy, Spain and Australia), the relevant legislations provide the Competition Agencies and the Governements power to ensure and protect the neutrality competition. In Australia there is express provision for the competitive neutrality of the State towards both public and private businesses. Also the Australian Competition Agency when ascertains a violation, then notifies the Government for the consequences and proceeds with recommendations. The competent Minister must attempt the restoration of the neutrality principle.

World Trade Organisation is the new forum for international regulation of public restraints? It is a question to be answered. One could counter-argue that the WTO can interfere in eliminating regulatory obstacles, the fact that WTO has already done so quite successfully by way of the TRIPS agreement. Surely, different and often conflicting interests between the states discourage the idea for an international judicatory mechanism. Especially, since the legalization of a transnational Competition Agency appears to be problematic.

A “soft” solution (soft law), either in the framework of the International Competition Network (ICN) or in the framework of OECD or of the UNCTAD seems realistic. Perhaps more effective, in our own opinion, seems to be the cultivation of a competition culture (competition advocacy). As justly asserted in competition law, “second best” solutions are the rule. Thus, competition advocacy may as well be the most effective solution in the market for removing competition’s state restraints. State interventions in favor of public interest may be filtered with the use of the proportionality principle, which must weigh the inalienable right of the state to regulate the market. One should seek for an idealquota between Freedom and Control,Regulation and Deregulation.