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3.4 Revenue-Running Industries
This is a reference to undertakings which exploit their exclusive rights to raise revenue for the State. The interpretation of Article 86 by the European Commission and Court has required undertakings seeking to benefit from the exclusion as a revenue-producing monopoly to have a principal objective of raising revenue for the state through the provision of a particular service. However, there are very few positive examples of revenue-producing monopoly obtaining successfully justification from the Court or the Commission. Even in terms of public heath aim Swedish national monopoly on the retail of alcoholic beverages still not got derogation from the Court in case Harry Franzen .
Therefore given the Court’s consistent rulings which permit state monopolies to exist only to the minimum extent necessary to the public interest objectives in question, it is difficult to see how a profitable revenue-producing monopoly can be justified, since it scarcely can be of a non-economic nature. The main reason is that revenue producing monopolies would normally fail to satisfy the proportionality test, as there are less restrictive means available for obtaining such revenue, such as fiscal measure. Consequently there is a general consensus that exclusive rights whose only objective is the generation of revenue would never be justified under Article 86(2).
4. Proportionality Test
For the optimum allocation of resources at the benefits of society at large the EC Treaty presupposes that fair competition is the best means to operate the Common Market. It is generally accepted to date that undertakings entrusted with services of general economic interest basically can not escape the effectiveness of the Treaty. However for reconciling Member States’ interest with the Community interest , Article 86(2) provides such undertakings a limited derogation to the extent that the application of the Treaty rules would obstruct the performance , in law or in fact, of the particular tasks assigned to them.
In the name of services of general economic interest, the entrusted undertakings in question just provide a causation and in virtue of it they can only have the opportunity to launch on Article 86(2) and can not certainly benefit from it. So the subsequent examination consequently should be the conditions where undertaking operating services of general economic interest can justify their activities prohibiting competition.
Moreover concerning the balance characteristics of Article 86(2) the general principle of proportionality is indeed necessary to be invoked by the Community regarding this article. According to the most popular definition of proportionality by the Court in the Fromancais case, to satisfy the principle of proportionality it is necessary to establish, in the first place, whether the means employing to achieve the aim correspond to the importance of the aim and, in the second place, whether they are necessary for its achievement.
Yet the general principle of proportionality must be translated into concrete doctrines for applying Article 86(2) in a specific case. Herein the means points to the exclusive rights to operate services of general economic interest and the aim indicates general economic interest. In virtue of Article 86(2) and according to the definition of proportionality above, the proportionality in Article 86(2) can be embodied as analyzing whether the behaviors of undertakings operating services of general economic interest are proportionate to derogation of effectiveness of competition law, though not limited to competition law. Furthermore this means that [T]he operator of services of general economic interest is required to prove that its exclusive operation not only can efficient satisfy general economic interest (suitability principle), but also is a better way to achieve it than other means, in particular than competitive market operation (necessity principle).
Unfortunately the two requirements are presumed only by a linguistically rational way and they can not provide a conclusive solution. Hence it is necessary for us to investigate the pre-existing practice of the Community to find whether their actual existence or not and, if so, how the Court implemented them in the following. As regards this question, we should admit such circumstances in advance as the Treaty itself does not provide any helpful reference and the answers developed from the practices of the Community are full of ambiguity which makes synthesis of principles more difficult. Nevertheless access could exist in three remarkable cases, Hofner , Corbeau and Netherlands Electricity Monopoly .
Last but not the least, before one step into the case law of ECJ, it would be very helpful to always bear in mind that what the Court concerned in proportionality test is the ‘manifest error’ of the exclusive rights and ‘the proof of the (dis-)proportionality of a measure is all a question of degree not substance’ , though that does not mean the Court would not concern the question of substance at all.
4.1 Failed Market Principle: Hofner Case
Within the framework of proportionality, the suitability test concerns the appropriateness of the means (restrictions on competition by the conferral of exclusive rights) to the ends (the provision of public services). It also entails a debate concerning the efficiency of means for attaining ends. Under such principle the Court created fail market principle in Hofner, which dictates that if the exclusivity in question cannot meet market demands it cannot get derogation.
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