The senate of the Netherlands has recently adopted a bill that protects private undertakings against unfair competition of public authorities (and public enterprises) conducting business activities. The bill imposes several rules of conduct on these public authorities. This article looks at the background to these changes and discusses the way in which the rules of conduct will be enforced in the Netherlands.
For years, there has been a discussion in Dutch politics about unfair competition created by public authorities being active on the market and the lack of legislation to prevent this. Public authorities can have competitive advantages over private undertakings, for example when using tax revenues to fund their business activities or taking advantage of (non-public) information they have acquired. Public authorities can also take bigger risks than private competitors, as public authorities can de facto not go bankrupt.
Efficient private undertakings could therefore lose market share or even have to cease their business as the result of the business activities of the public authority. This might discourage private undertakings from innovating and expanding, and could force the taxpayer to pay for the supply of goods or services by public authorities, which could be provided by private undertakings in a more efficient way.
Increasingly, private undertakings have been complaining about and litigating against public authorities conducting business activities, claiming unfair competition. A recent example is a civil procedure initiated by a (small) private undertaking that specialised in selling second-hand clothes against the local community for starting a competing business. After ceasing business, the private undertaking held the local community responsible and claimed damages. Another example is the complaint to the Netherlands Competition Authority (NMa) by two tennis court owners against a local community that rented ground for a symbolic amount to create a competing tennis court. In both cases, the courts ruled that the public authorities did not violate competition law or any other law.
To address the complaints of the private sector, the Dutch government had already proposed a bill in 2001, introducing several conditions for public authorities relating to business activities and rules of conduct, including the obligation to separate its accounts. The bill was criticised and finally withdrawn in 2004 because it would impose too heavy an administrative burden on the public authorities and would infringe the autonomy of the local authorities. The bill as recently adopted by the senate only contains rules of conduct for public authorities (and public enterprises) without the obligation to separate their accounts. These rules of conduct focus on fair competition and are laid down in the Dutch Competition Act.
RULES OF CONDUCT
The aim of the rules of conduct is to realise a level playing field between private undertakings and public authorities conducting business activities. Four rules of conduct are introduced.
CHARGING INTEGRAL COSTS
The first rule obliges public authorities (and public enterprises) to charge the integral costs to customers. Selling goods or services below the integral costs and obtaining a competitive benefit with public funds is no longer allowed. Secondary legislation will provide further guidance for public authorities on how to calculate the integral costs.
NO PREFERENTIAL TREATMENT
The second rule prohibits public authorities to favour public enterprises above private undertakings. It is no longer allowed for public authorities to provide public enterprises with benefits that are not in accordance with market conditions. For example, public authorities will no longer be able to provide goods or services to public enterprises below the integral costs, or allow public enterprises to use the name and logo of public authorities.
NO USE OF PUBLIC DUTY DATA
The third rule prohibits public authorities conducting business activities from using data that is acquired by exercising a public duty and not available to private undertakings. This prevents public authorities from taking an unfair competitive advantage by using non-public data.
SEPARATION OF FUNCTIONS
The fourth rule obliges public authorities to prevent civil servants from being involved in any business activity that is (closely) related to their public duty. This means civil servants cannot use their professional experience for the business activities of public authorities.
Some exceptions apply to the rules of conduct. First of all, they only apply to public authorities and public enterprises that are established by public law. Consequently, the rules of conduct are not applicable to private undertakings that are mandated by public law to exercise certain (public) competences (for example the Dutch Central Bank).
The rules of conduct are not applicable to certain sectors, such as education, scientific research, public broadcasting and, to some extent, sheltered workshops. Furthermore, the rules of conduct do not apply to undertakings entrusted by the public authorities to serve general economic interests. Examples are: mail delivery, broadcasting services, employment-finding, energy, telecommunication, low-cost housing programs and certain healthcare services.
To safeguard the public interest, several obligations can be imposed on such undertakings, for example the obligation to provide services or goods in the whole country and not only in densely populated areas. It is up to the public authorities, including the local authorities, to entrust an undertaking with a service of general economic interest. This means that, in practice, public authorities themselves determine the scope of the rules of conduct.
The rules of conduct will be enforced by the NMa. The NMa has been given the power to decide that a public authority or public enterprise infringed the rules of conduct. The NMa can also impose periodic penalty payments on the public authority or public enterprise not complying with the rules of conduct. However, the NMa is not allowed to impose fines on public authorities and public enterprises, as this would not fit in the framework of administrative relationships. The NMa is also not permitted to review whether a public authority has lawfully entrusted an undertaking with a service of general economic interest (but solely empowered to issue a report on the effects on competition). Only the Dutch government – and under certain circumstances an administrative court – can review this.
Private undertakings can file a complaint to the NMa about public authorities infringing the rules of conduct. They can also start litigation before a civil court against public authorities. If the court determines that the rules of conduct have been breached, the court can order a public authority to cease the infringement and to pay damages to the private undertaking(s) in question.
The rules of conduct will in principle be in force for five years. After three years they will be evaluated. So far, the rules of conduct have been criticised by legal experts, as it would give public authorities too many possibilities to avoid the rules and not fundamentally change the status quo. However, the rules of conduct do restrict public authorities conducting business activities, and do give the NMa and private undertakings several tools to prevent public authorities from distorting competition. Time will tell whether this is sufficient.
Boekel De Nerée is a leading independent Dutch law firm of advocaten and civil law notaries.
Boekel has a leading and highly reputed EU and competition practice in the Netherlands. The team consists of two experienced partners, Frederieke Leeflang, who also worked at the NMa earlier in her career, and Martijn van de Hel, who was awarded a prize for most talented Dutch competition lawyer of his generation by a panel of experienced Dutch competition lawyers. The team also has four experienced associates and two junior associates.