Relaxing whilst doing Competition Law is not an Oxymoron

String Theory and the Notion of Advantage in State aid

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Ed Witten

As promised, I am back with a few more comments on Eventech (more about it here). I am sure the State aid diehards will appreciate. One of the interesting aspects of the case is that there are questions both on the notion of State resources and on the notion of selectivity. As raised by the national court, these are not mutually interdependent, in the sense that the answer given to one of them does not determine the outcome of the other, and vice versa. I did not immediately realise the significance of this aspect of the reference. Looking back at some early landmark rulings, one sees that, typically, questions before the Court either relate to whether a given measure qualifies, in general, as State aid or they assume as undisputed that the contentious measure confers an advantage within the meaning of Article 107(1) TFEU.

What happens when the issue of selectivity is examined in isolation by a national court, as in Eventech? The impression one gets when reading AG Wahl’s opinion is that it may be a source of major confusion. From the national court’s perspective, the question of whether the regulatory advantage conferred upon London taxis is selective depends on whether it favours some firms over others that are in a comparable factual and legal situation. If this is the case, the national court assumes that it would be necessary to determine whether the differential treatment can be justified by reference to the objective of the regulatory regime in question before concluding that it is caught by Article 107(1) TFEU.

Why would it be necessary to identify firms that are in a comparable situation, let alone define the relevant market, to establish whether a measure is selective within the meaning of Article 107(1) TFEU? That is the question I asked myself when reading the opinion. Even though he diligently provides an answer to the national court, paragraph 50 of the opinion suggests that AG Wahl asked himself the question too.

It is clear from decades of case law that a measure can be selective irrespective of whether disadvantaged firms are in a comparable situation to those being favoured by the State. Of course it can. This is what the notion of selectivity is all about. Article 107(1) TFEU applies, inter alia, to measures that favour some sectors of the economy over others, or firms in one region over others. The fact that firms do not compete in the same market is immaterial in this respect. Using market definition as a tool to establish the ‘comparability’ of firms can only add to the misunderstanding. It may be the case that minicabs and London taxis only compete to a limited extent (for pre-bookings, as the opinion suggests). But how can this factor be relevant, if it only reflects the fact that London taxis benefit from even more regulatory advantages than those considered in the case?

It is remarkable that, after so many years, the notion of advantage (of which, as I understand Article 107(1) TFEU, and as the Court held in Altmark and many other cases since, selectivity is an element) can still be a source of major confusion. Which brings me to string theory (and impossibly complex topic that provides, alas, a suitable analogy here). The geekier readers will know that, in the early 1990s, there were five competing versions of string theory. In 1995, Ed Witten surprised everybody at a conference by suggesting that each of these five versions were in fact different ways of looking at a single, unifying theory (which was labelled M-theory).

This is how I feel about the notion of advantage in EU State aid law. The Commission and EU courts look at different dimensions of the notion depending on the needs of the case. Sometimes, the compensation for public service obligations is at stake and one issue acquires prominence. Sometimes, the relevant question is whether the measure is justified by the nature and the logic of the system and it is another aspect that becomes relevant in the analysis. But we do not seem to have a comprehensive and coherent framework to assess the issue systematically. It is therefore inevitable to end up with awkward situations like the one in Eventech, where the national court does not seem to dispute that the measure in question confers an advantage on some firms and at the same time raises questions about the selectivity of the same measure (!?). If only Ed Witten could take a break from Princeton and his equations and teach us some State aid.

Written by Pablo Ibanez Colomo

31 October 2014 at 10:54 am

Posted in Uncategorized

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