Break out session 1: State owned enterprises and competition neutrality

1. Break out session 1: State owned enterprises and competition neutrality Sam Pieters International Relations Unit DG COMP 12/11/2012

2. 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)

3. 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

4. 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) General principles:1. Neutrality private/public ownership

5. General principles:2. 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.

6. 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.

7. 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 ».

8. 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.

9. 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 The international context

10. Conclusion Maintaining a level playing field for competition between companies is a key component of the EU’s 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.

11. Thank you for your attention!