London’s views on the role of services of general interest in the future European Union

1. Introduction 

The quality of life in regions and cities across Europe depends in large part on the provision of public services. The question of how best to achieve effective public services delivery is central to the political debate in London. The key challenge is how to improve public services in a rapidly developing city and reverse the trend of under-investment in some public services over the last two decades in London. Similar challenges are clearly being faced by other European cities. 

This objective is obviously influenced by EU legislation and in particular by the relative emphasis this gives to services of general interest and to competition principles.  At present primary legislation - the Treaties - is ambiguous on this subject.  This gives rise not only to legal uncertainty but also, potentially, to services of general interest being subject to quite inappropriate competition rules to the detriment of the quality of the services provided. There is also particular concern as to the continuing admissibility of State Aids to allow better quality services to be provided.  

Three EU initiatives are currently under way or in prospect which could have a strong bearing on the future of services of general interest in the EU.  They are the Green Paper on Services of General Interest now in preparation, the Convention on the Future of Europe, and a possible Framework Directive on Services of General Interest. 

London[1] wishes to take a full part in the ongoing debate in the EU on services of general interest through this paper. 

2. The status of services of general interest in the EU Treaties 

Over the last few years the importance of services of general interest and their role in promoting social and territorial cohesion has been recognised by the EU, notably in article 36 of the Charter of Fundamental Rights and article 16 of the Treaty establishing the European Community. 

Nevertheless, the future of these services is unclear in light of the continuation and, in some cases, the intensification of the liberalisation process. Indeed, the development of the single market and the EU competition policy are opening to competition the provision of services traditionally considered to belong to the public domain. 

The EU Treaties tend to focus on the opening of markets and competition, while giving only passing recognition to the requirements of services of general interest:

-    Providers of such services “shall take care that such services operate on the basis of principles and conditions which enable them to fulfil their missions” (article 16). 

-   “Services of general interest shall be subject to the rules contained in this Treaty, in particular to the rules on competition, insofar as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them” (article 86). 

In practice – in particular in decisions by the Court of Justice - competition has tended to take priority.  Meanwhile it is far from clear how far regional and local authorities can go in departing from competition/single market rules in their efforts to improve public services.  This leads such authorities to face major legal and economic uncertainties in relation to the provision of these services. 

Urgent action is needed to ensure adequate recognition of services of general interest as a key aspect of the European social model, to give such services the priority they deserve in relation to competition considerations and to clarify the legislation under which the authorities work. 

3. Focus of the Green Paper 

We welcome the announcement of a Green Paper on Services of General Interest and hope that it will launch a broad debate on the role of these services in the future European Union that will go beyond the remit of the Green Paper itself and will feed into the work of the Convention on the Future of Europe.  

We hope that the Green Paper will provide the basis for a move towards full recognition of services of general interest as a key aspect of the European social model and recommend that it will address the following considerations: 

-   The process of liberalising services of general interest to include competition in the hope of reaping efficiency gains has brought some benefits, but at the same time has also given rise to some difficulties in specific sectors, as in many cases these services operate in sectors where the market fails to provide and where competition does not come naturally. 

-    A unified solution for services of general interest is complicated by the fact that they are managed differently in different European countries due to differences in history, geographic conditions, access to resources and political choices. 

-    In addition, within the same country, the characteristics of each territory should be taken into account for the provision of these services. This means that the principle of subsidiarity should be fully implemented by recognising that regional and local authorities should be free to decide on the manner in which these services are to be provided, on the basis of overall principles. 

-   The concept of services of general interest is defined in different ways in the different countries. While for instance in some countries it is based on the type of service in others it is based on the nature of the provider. In addition, some countries have developed a precise definition of these services, while others have not. A clear overall definition of services of general interest and services of general economic interest is necessary. 

-   Article 16 of the Treaty, in its current wording, represents the synthesis of two opposite views advanced by different member states at the Intergovernmental Conference that led to the adoption of the Amsterdam Treaty. Some states thought that a modification of the Treaty was necessary as community law is too much in favour of competition principles, disregarding other general interests; while other countries did not share that view. For this reason, article 16 has not in practice provided a clear basis for solving the potential conflict between general interest and competition principles. Settling this conflict requires a trade-off between the two principles. The optimal trade-off should be based on in-depth study of practical experience against the criterion of achieving the greatest possible value for money in the provision of high quality services. This study should be followed by policy and legal analyses to identify appropriate and effective wording for the new Treaty. This should be carried out on behalf of the Convention on the Future of Europe and of the following Intergovernmental Conference.  

-   The analysis and decisions for the new Treaty should take into account the current “democratic deficit” of the EU and the need to reconnect Europe with the citizen. This means promoting a EU that balances consideration of market principles with taking greater account of the general interest and citizens’ needs. 

4. A Framework Directive? 

The European Council of Laeken in December 2001, asked the European Commission to consider the feasibility of a Framework Directive on Services of General Interest. The forthcoming Green Paper will certainly focus upon the usefulness and feasibility of such a Directive. 

Our view in this respect is that, under the present Treaties, a Framework Directive will not ensure legal certainty to providers of services of general interest. There is a danger that, in seeking to clarify the interpretation of Treaties which tend to give precedence to competition, it will merely strengthen this precedence. In particular, in looking at general principles it will overlook the practical, local realities which may make the application of competition rules counter-productive or even impractical in particular sectors and places. Great care would also be required to ensure that such a Directive does not result in modifications having to be made in existing sectoral Directives, potentially causing serious disruption. 

Even if some specific aspects could be clarified by such a Directive, it would nevertheless continue to be the provisions of the Treaties rather than secondary legislation that will instruct court rulings. 

We therefore believe that a Framework Directive should be proposed only if and when the legal base in the Treaties is changed in the direction indicated above and made more solid. Such a Directive would have to be flexible enough to allow local variations and the characteristics of individual sectors to be taken into account. In addition, it should be based on fair social rules and affirm the importance of information and consultation of staff and their representatives. 

5. Convention on the Future of Europe 

We believe that legal certainty for the providers of services of general interest will only be possible through changes in the EU Treaties. We therefore urge the Convention on the Future of Europe to address the relationship between competition and services of general interest principles in view to proposing the necessary changes to the Treaties. 

We welcome the creation of a working group on social issues within the Convention as the appropriate platform to address these issues. 

London supports the proposals for changes to the Treaties put forward by CEEP (European Centre of Enterprises with Public Participation and Enterprises of General Economic Interest) in its paper “CEEP proposals to the Convention on the Future of Europe” of 6 November 2002. 

A distinction needs to be clearly drawn between services of general economic interest and the other ‘non-market’ services of general interest.  It should be completely clear that for non-market services of general interest there is no EU competence and thus no relation to EU competition rules.  For services of general economic interest their relationship to competition rules should be clearly outlined in the section of the Constitutional Treaty dealing with the internal market. 

These proposals, which have been articulated on the basis of the structure of the Preliminary draft Constitutional Treaty presented by the President of the Convention on 28 October 2002, are as follows: