Prices fixed by the state do not necessarily confer control to the state over the private resources which are used to pay those prices.
Introduction
Judging from how many times EU courts have been asked to interpret the concept of state resources, it seems that one of the most difficult aspects of Article 107(1) TFEU is to determine whether funding that does not come from the budget of a public authority constitutes State aid. The means by which the state can exercise control over private resources can be very subtle.
The Court of Justice had to decide in its judgment of 21 October 2020, in case C‑556/19, Eco TLC v Ministre d’État and others, whether fixing of prices by the state resulted in control by state over the resources used to pay for those prices.[1]
The case before the Court arose from a request for a preliminary ruling by the French Conseil d’État. The Conseil d’État had to adjudicate a dispute between Eco TLC, a French company, and the French authorities concerning the legality of an order for the revaluation of financial support paid by Eco TLC to companies which treated waste from clothing, textile products and footwear [the so-called “TLC” products].
French law makes companies that sell clothing and footwear responsible for the treatment of the waste from those products. These companies can avail themselves of either of two options: they can do the treatment themselves or pay a qualified third part to do it on their behalf.
Eco TLC is an approved body for collecting financial contributions from companies that sell TLC products in compliance with their legal obligation to treat the waste originating from those products. For that purpose, Eco TLC contracts with sorting operators and pays them a fee.
The fee per unit of sorting or recycling is determined by the state. Recently, the relevant French authorities raised the financial support for the sorting and recycling from EUR 65 per tonne to EUR 82.5 per tonne. Eco TLC lodged legal proceedings against the increase.
The proceedings were stayed by the national court which asked the Court of Justice whether Article 107 TFEU applied to payments by clothing & footwear companies to Eco TLC which it then transferred to third parties to sort and recover the waste from TLC products.
The gist of this case is whether prices fixed by the state [e.g. EUR 82.5/tonne] can be considered to be state resources. If we recall that Germany, in the case that led to the landmark judgment in PreussenElektra [C-379/98], had legally obliged electricity distributors to pay a tariff to green electricity producers that covered their costs and, in addition, enabled them to make some profit, then it appears unlikely that the state acquires control over private resources simply because it fixes prices.
Were the payments by clothing & footwear companies state resources?
After defining the concept of State aid, the Court of Justice recalled that “(19) in order for it to be possible to categorise advantages as ‘State aid’ within the meaning of Article 107(1) TFEU, they must be granted directly or indirectly through State resources and be attributable to the State”.
“(23) In the first place, in order to assess whether a measure may be attributed to the State, it is necessary to examine whether the public authorities were involved in the adoption of that measure”.
“(24) In this case, it is clear […] that the provision relating to the increased responsibility of producers in the management of waste from the TLC products has been established by documents of a legislative and regulatory nature, […]. That provision must therefore be considered to be attributable to the State, within the meaning of the case-law cited in the previous paragraph of the present judgment.”
“(25) In the second place, in order to determine whether the advantage has been granted directly or indirectly through State resources, it should be borne in mind that, according to the Court’s settled case-law, the prohibition laid down in Article 107(1) TFEU covers both aid granted directly by the State and aid granted through a public or private body appointed or established by that State to administer it”.
“(26) The distinction established in that provision between ‘aid granted by a Member State’ and aid granted ‘through State resources’ does not mean that all advantages granted by the State constitute aid, whether they are financed with State resources or not, but is intended merely to bring within that definition both advantages which are granted directly by the State and those granted by a public or private body designated or established by the State”.
“(27) EU law cannot permit the rules on State aid to be circumvented merely through the creation of autonomous institutions charged with allocating aid”.
“(28) In the present case, […] those who place the TLC products on the market, be they producers, importers or distributors, are required [by law] to provide or contribute to the treatment of waste from those products.”
“(29) To meet that requirement, they must either themselves provide waste treatment for the TLC products or make financial contributions to an eco-body approved by public authorities with the purpose of ensuring the management of that waste by entering into contracts with sorting operators and providing them with financial support for recycling operations and the treatment of that waste.”
It is not clear to me why the Court refers to payments by the eco-bodies to sorting operators as “financial support” and not as straightforward payment for services. The term “financial support” is normally used in connection to funding by public bodies, which is intended to achieve a public policy objective and is considered to be State aid, if all of the other criteria of Article 107(1) are fulfilled.
“(30) Although it is clear […] that, […] those who place on the market the TLC products have chosen to work with Eco TLC, a body approved for that purpose […], such a circumstance in and of itself does not allow for the contributions made by them to that eco-body to be considered as compulsory charges imposed by the legislation of a State.”
It is also not clear to me why the payments by clothing & footwear companies are called “contributions” instead of just payments for services. The term contribution implies either some form of compulsion by the state [e.g. social insurance contributions] or payment of fees for membership in an organisation.
At any rate, the clarification that the payments are not compulsory is important. When a charge is compulsory it also means that the state has determined the amount to be paid, who pays it and to whom it is paid. In other words, the state identifies or earmarks a specific resource to be used for a specific purpose. This is sufficient to confer control to the state over that resource and to bring it into the realm of state resources.
“(31) Furthermore, Eco TLC has collected financial contributions from those who place on the market the TLC products in return for a service consisting in fulfilling their legal obligation to treat the waste originating from those products. To that end, Eco TLC has entered into contracts with eligible sorting operators and given them financial support for recycling and waste treatment operations resulting from those products.”
“(32) In that context, it must be established that the provision at issue in the main proceedings requires, first, the transfer of financial contributions from private undertakings to a company governed by private law and, second, the transfer of these contributions from that company to other private undertakings.”
“(33) These contributions remain private throughout their life cycle. The funds created by the payment of those contributions never pass through the State budget or that of another public entity, nor at any point do public authorities have access to them. Furthermore, it is apparent from the file before the Court that the Member State in question has not relinquished any resources, in whatever form, such as taxes, duties, charges and so on, which, according to national legislation, should have been paid into the State budget.”
“(34) It follows that the provision at issue does not result in any direct or indirect transfer of State resources.”
“(35) However, it follows from the Court’s settled case-law that measures which do not include a transfer of State resources may fall within the concept of ‘aid’, within the meaning of Article 107(1) TFEU”.
“(36) Article 107(1) TFEU covers all the financial means by which public authorities may actually support undertakings, irrespective of whether or not those means are permanent assets of the public sector. Even if the sums corresponding to the aid measure concerned are not permanently held by the Treasury, the fact that they constantly remain under public control, and therefore available to the competent national authorities, is sufficient for them to be categorised as ‘State resources’”.
Could the state exercise control over the resources of eco-bodies?
“(37) It must be determined whether the funds used by Eco TLC to provide financial support to contractually bound sorting operators remain constantly under public control, and thus available to the competent national authorities.”
“(38) In that regard, in the first place, as was pointed out at paragraph 33 of the present judgment, those funds never passed through the State budget, nor at any point did public authorities have access to them.”
“(39) Besides, […] (i) those funds are not subject to any particular requirement as to their deposit, (ii) in the event of the discontinuance of activities of the eco-body, the amounts that might be available, after the attribution of costs connected to the discontinuance of activities and after the deduction of debts owed by that eco-body to the State and its collective creditors, are not paid to the public authorities, and (iii) disputes regarding the revaluation of contributions owed by those who place products on the market by way of the provision at issue in the main proceedings fall within the jurisdiction of civil or commercial courts.”
“(40) It follows that the State does not, at any moment, have effective access to those funds, and that the eco-body has no prerogatives of the public authorities.”
“(41) In the second place, the funds used by Eco TLC pursuant to the provision at issue in the main proceedings are exclusively used for carrying out the tasks which have been legally assigned to them. The legal principle of exclusive allocation of those funds tends rather to show, in the absence of any other evidence to the contrary, that the State is specifically not entitled to dispose of those funds, that it is say to decide on an allocation which differs from that laid down by law”.
It is difficult to understand the reasoning of the Court here and the meaning of the “legal principle of exclusive allocation”, apart from that it confirmed that the state could not exercise control over those resources. In paragraph 41 the Court cited the landmark judgment on Germany’s EEG 2012 [support of green electricity] in case C-405/16 P, Germany v Commission, paragraph 76. That judgment referred to the previous judgments in Stardust Marine [C-482/99] and ENEA [C-329/15], but did not explain what “exclusive allocation” meant, although it too used that term. In fact, it appears that only the present and EEG 2012 judgments refer to “exclusive allocation”, but with no additional clarification.
“(42) In the third place, it is true that the scale of financial support paid by the approved eco-body to sorting operators is set by the State.”
“(43) However, […] the approved bodies determine the global amount of the financial contribution collected from those placing products on the market, so as to cover, each year, the expenses resulting from the application of the standard terms, namely the payment of financial support to sorting operators, running costs and various awareness-raising and prevention activities.”
“(44) Second, […] the French Government notes that, […] the scale of the financial support paid by the approved eco-body to the sorting operators corresponds to the average net cost of sorting. As regards, more particularly, the revaluation made by the Order of 19 September 2017, this would have been determined by the public authorities on the basis of proposals contained in the annual report of the Observatoire environnemental, économique et social du tri et de la valorisation des déchets de TLC (Observatory responsible for the environmental, economic and social monitoring of the sorting and recovery of TLC waste). That observatory, established by Eco TLC, has identified, for the purposes of that report, the sorting operator’s expenses and revenue, and has noted an underpayment of sorting activities.”
“(45) The approved eco-body thus has a leading role in setting and developing the scale of financial support paid to sorting operators, which is however for the referring court to determine.”
“(46) In the fourth place, although it follows from the order of reference that the Order of 3 April 2014 lays down certain eligibility conditions which sorting operators must observe in order to benefit from that financial support, the French Government has however made clear, […] that the approved eco-body has a degree of contractual freedom in its relationship with sorting operators with regards to setting additional eligibility conditions. Moreover, according to the that government, Eco TLC used that discretion to make more restrictive eligibility conditions than those set by the State.”
“(47) Eco TLC has, as a consequence, influence in choosing the beneficiaries of financial support which may be granted by way of the system at issue in the main proceedings. It is, however, for the referring court to determine whether that is in fact the case.”
“(48) In the fifth and final place, it is clear […] that a State representative, appointed by the State, attends the meetings of the board of directors of Eco TLC, is informed of the terms of the financial investments proposed by Eco TLC prior to their validation by the board of directors and is entitled to receive all documents relating to the financial management of the body so that, in the event of its failure to observe the rules of sound financial management, he or she may inform the relevant public authorities which may issue a fine or decide to suspend the approval or even to withdraw it.”
“(49) However, it is apparent from the file before the Court, that first, that State representative does not have a right to vote within the board of directors of Eco TLC that would allow him or her to exert influence over the administration of the funds used by Eco TCL to grant financial support to sorting operators. Second, it is clear that the role of that representative is solely to ensure that the financial capacities of Eco TLC are maintained.”
“(50) It follows from the foregoing that, subject to the determinations which are for the referring court to carry out, the funds used by Eco TLC to pay financial support to sorting operators are not under constant public control within the meaning of the case-law cited in paragraph 36 of the present judgment, and that they therefore do not constitute State resources within the meaning of Article 107(1) TFEU.”
Conclusion
On the basis of the above analysis, the Court concluded that “(51) Article 107(1) TFEU must be interpreted as meaning that a system whereby a private, non-profit eco-body, approved by the public authorities, receives contributions from those who place on the market a particular category of product and who enter into a contract with it to that effect, in return for a service consisting in the organisation on their behalf of the treatment of the waste from those products, and redistributes to operators responsible for the sorting and recovery of that waste, subsidies the amount of which is set out in the approval, in the light of environmental and social targets, does not constitute an intervention through State resources within the meaning of that provision, as long as those subsidies are not constantly under public control, which is for the referring court to determine.”
[1] The full text of the judgment can be accessed at:
Photo by Engin Akyurt on Pixabay
