In two recent Judgments of 4 December 2013 (C-111/10, Commission v Council) and 10 December 2013 (C-272/12, Commission v Ireland and Others), the CJEU has ruled on the distribution of powers between the Council and the Commission in the area of State aid enforcement. In one of the cases (C-111/10), the CJEU made a substantive finding and upheld the Council authorisation of State aid for agricultural support in Lithuania. In the other case (C-272/12) the CJEU refused to engage in an analysis of the distribution of competences between the institutions due to a procedural flaw (the GC had raised the issue of its own motion, in breach of art 21 of the Statute of the Court of Justice of the European Union), but stressed the same underlying principles.
It is worth highlighting that, in both Judgments, the CJEU clearly stressed the exceptional powers that the Council holds in the area of State aid enforcement--which, in my view, comes to further strengthen, consolidate and perpetuate the monopoly of State aid enforcement held by the Commission.
This is particularly clear in certain passages of the reasoning followed by the CJEU, which:
39 [...] held, after recalling the central role which the FEU Treaty reserves for the Commission in determining whether aid is incompatible with the internal market, that the third subparagraph of Article 108(2) TFEU covers an exceptional and specific case, meaning that the power conferred upon the Council by that provision is clearly exceptional in character (see, to that effect, Case C‑110/02 Commission v Council [2004] ECR I‑6333, paragraphs 29 to 31) and, accordingly, that the third subparagraph of Article 108(2) TFEU must necessarily be interpreted strictly (see, by analogy, Case C‑510/08 Mattner [2010] ECR I‑3553, paragraph 32, and Case C‑419/11 Česká spořitelna [2013] ECR I‑0000, paragraph 26)
72 [...] the power granted to the Council under the third subparagraph of Article 108(2) TFEU applies only within the limits indicated by that provision, namely where exceptional circumstances exist (see, to that effect, Case C‑122/94 Commission v Council [1996] ECR I‑881, paragraph 13) [C-111/10 at paras 39 and 72, emphasis added].
And further stressed that:
48 As the Court held in paragraphs 29 to 31 of Case C‑110/02 Commission v Council [2004] ECR I‑6333, the intention of the EC Treaty, in providing through Article 88 EC for aid to be kept under constant review and monitored by the Commission, is that the finding that aid may be incompatible with the common market is to be arrived at, subject to review by the General Court and the Court of Justice, by means of an appropriate procedure which it is the Commission’s responsibility to set in motion. Articles 87 EC and 88 EC thus reserve a central role for the Commission in determining whether aid is incompatible. The power conferred upon the Council in the area of State aid by the third subparagraph of Article 88(2) EC is exceptional in character, which means that it must necessarily be interpreted strictly (see also, to that effect, the judgment of 4 December 2013 in Case C‑111/10 Commission v Council [2013] ECR I‑0000, paragraph 39) [C-272/12 at para 48, emphasis added].
This renewed emphasis on the (almost) exclusive powers of the European Commission in the area of State aid policy and enforcement is probably a necessity in terms of ensuring institutional balance and the proper working of the EU institutions (as the CJUE stresses in para 47 of C-111/10: 'That interpretation seeks to maintain the coherence and effectiveness of European Union action'), but it can also create difficulties when it comes to ensure the proper integration of State aid enforcement with policy in other areas of EU economic law where the balance of powers between EU Institutions, or between the EU and Member States, is different.
This is something that case C-272/12 clearly brings to light. In that case, there was a tension between the Decisions adopted by the Council in the area of national fiscal legislation and the Commission's powers in State aid enforcement. The tension derived from the circumstance that the Council could authorise Member States to provide tax exemptions from the excise duty for mineral oils used for the production of alumina. Such exemptions could (at least theoretically, although this was challenged in C-272/12 but the CJEU declined to provide an answer on the basis of the ultra petita argument mentioned before) constitute State aid. In order to try to sort out that potential conflict, recital 5 of the relevant instrument (Council Decision 2001/224) indicated thatthat decision was without prejudice ‘to the outcome of any procedures relating to distortions of the operation of the single market that may be undertaken, in particular under Articles [107 TFEU] and [108 TFEU]’, and that it did not override ‘the requirement for Member States to notify instances of potential State aid to the Commission under Article [108 TFEU]’.
Such 'coordination' provision was bound to create difficulties, despite the fact that the European Commission was involved in the assessment of the Member States' requests for authorisation to provide exemptions. The GC had sought to create a functional balance that could overcome the difficulties of subjecting the Council authorisation (and, consequently, the Member States' exemptions) to a second analysis by the European Commission under the State aid rules (despite the wording in recital 5 of Decision 2001/224). Indeed,
the General Court held, first, that, in the light of the fact that the rules governing the harmonisation of national fiscal legislation and the rules on State aid have a shared objective, namely to promote the proper functioning of the internal market, by combating, inter alia, distortions of competition, the concept of distortion of competition had to be regarded as having the same scope and the same meaning in both those areas, in order to ensure the consistent implementation of those rules. The General Court stated, in that regard, that Article 8(4) and (5) of Directive 92/81 confers in particular on the Commission, which submits a proposal, and the Council, which enacts a measure, the responsibility for assessing whether there is any distortion of competition, in order to decide whether or not to authorise a Member State to apply or continue to apply an exemption from the harmonised excise duty and that, if the assessments differ, the Commission has the option of bringing an action for annulment of the Council’s decision [C-272/12 at para 39, emphasis added].
The implications of this reasoning would be, rather clearly, that the European Commission should not have a second bite of the cherry under the State aid rules because it would have already expressed its views on the (absence of a) distortion of competition derived from the excise duty exemption within the fiscal harmonisation mechanism. However, the CJEU had none of this and declared that
46 It must be borne in mind that Directive 92/81 was adopted on the basis of Article 99 of the EEC Treaty (which became Article 99 of the EC Treaty, which itself became Article 93 EC [and is now art 113 TFEU]) which conferred on the Council the power to adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that that harmonisation was necessary to ensure the establishment and functioning of the internal market.
47 The authorisation decisions were adopted pursuant to Article 8(4) of Directive 92/81, which granted to the Council, acting unanimously on a proposal from the Commission, the power to authorise any Member State to introduce exemptions or reductions other than those laid down by that directive ‘for specific policy considerations’. The purpose and the scope of the procedure laid down in that article differ from those of the rules established in Article 88 EC.
48 As the Court held in paragraphs 29 to 31 of Case C‑110/02 Commission v Council [2004] ECR I‑6333, the intention of the EC Treaty, in providing through Article 88 EC for aid to be kept under constant review and monitored by the Commission, is that the finding that aid may be incompatible with the common market is to be arrived at, subject to review by the General Court and the Court of Justice, by means of an appropriate procedure which it is the Commission’s responsibility to set in motion. Articles 87 EC and 88 EC thus reserve a central role for the Commission in determining whether aid is incompatible. The power conferred upon the Council in the area of State aid by the third subparagraph of Article 88(2) EC is exceptional in character, which means that it must necessarily be interpreted strictly (see also, to that effect, the judgment of 4 December 2013 in Case C‑111/10 Commission v Council [2013] ECR I‑0000, paragraph 39).
49 Consequently, a Council decision authorising a Member State, in accordance with Article 8(4) of Directive 92/81, to introduce an exemption of excise duties could not have the effect of preventing the Commission from exercising the powers conferred on it by the Treaty and, consequently, setting in motion the procedure laid down in Article 88 EC in order to review whether that exemption constituted State aid and on the conclusion of that procedure, if appropriate, to adopt a decision such as the contested decision [C-272/12 at paras 46 to 49, emphasis added].
Moreover, the CJEU went as far as to expressly exclude any estoppel-like argument by stressing that
53 [...] the concept of State aid corresponds to an objective situation and cannot depend on the conduct or statements of the institutions (Commission v Ireland and Others, paragraph 72). Consequently, the fact that the authorisation decisions were adopted on a proposal from the Commission could not preclude those exemptions being classified as State aid, within the meaning of Article 87(1) EC, if the conditions governing the existence of State aid were met. That fact however had to be taken into consideration in relation to the obligation to recover the incompatible aid, in the light of the principles of protection of legitimate expectations and legal certainty, as was done by the Commission in the contested decision when it declined to order the recovery of aid granted before the date of publication in the Official Journal of the European Communities of the decisions to initiate the procedure laid down in Article 88(2) EC [C-272/12 at para 53, emphasis added].
In my view, the final caveat clearly indicates that the problems derived from the extreme protection of Commission's powers in which the CJEU has engaged are intractable. The requirements of the principles of protection of legitimate expectations and legal certainty will almost always deactivate any legal effects of the Commission's second analysis of the situation under the State aid rules--so one can wonder if it would not be preferable to create a framework where the powers of the Commission under State aid rules could be restricted in order to promote a better integration of different EU/Member States economic policies and different areas of EU economic law.
Otherwise, the 'dominance' of State aid enforcement could significantly diminish the effectiveness of other policies and, as long as those policies are designed and implemented with due regard for the competitive distortions they can create (as was clearly the case in C-272/12, where the Commission was itself entrusted with that analysis), that would be a superior working framework. This is not to say that State aid (or competition) should rank as a secondary consideration. To the contrary, this advocates for an integration of competition concerns at the phase of policy design and implementation, rather than as an ex post (re)analysis of the situation that can create significant disruptive effects--eventually (luckily) barred by the principles of protection of legitimate expectations and legal certainty.
All these considerations are clearly relevant in the area of integration of State aid and public procurement rules, particularly in the financing of Services of General Economic Interest (SGEI), where the Almunia package creates a dual relationship between procurement and State aid rules by stressing that only certain procurement procedures will be acceptable under State aid rules and, at the same time, stressing that State aid exemptions do not alter the obligations created by public procurement rules themselves in the first place. If no clear criterion is established to prefer State aid analysis over procurement enforcement, or otherwise, the enforcement landscape looks rather complicated [for further discussion, see my "The Commission’s Modernization Agenda for Procurement and SGEI"].
