**Case C-546/07**

**European Commission**

**v**

**Federal Republic of Germany**

(Failure of a Member State to fulfil obligations – Freedom to provide services – Article 49 EC – Annex XII to the Act of Accession – List referred to in Article 24 of the Act of Accession: Poland – Chapter 2, paragraph 13 – Possibility of derogation by the Federal Republic of Germany from the first paragraph of Article 49 EC – ‘Standstill’ clause – Agreement of 31 January 1990 between the Government of the Federal Republic of Germany and the Government of the Republic
of Poland on the posting of workers from Polish undertakings to carry out works contracts – Exclusion of the possibility for undertakings established in other Member States to conclude works contracts with Polish
undertakings for work to be carried out in Germany – Extension of the restrictions existing at the date of signature of the Treaty of Accession relating to the access of Polish
workers to the German labour market)

Summary of the Judgment

1.        *Actions for failure to fulfil obligations – Commission’s right to bring judicial proceedings – Time-limit for exercise of
that right*

*(Art. 226 EC)*

2.        *Member States – Obligations – Failure to fulfil obligations – Justification – Principle of the protection of legitimate expectations*

*(Art. 226 EC)*

3.        *Freedom to provide services – Restrictions – Posting of workers in the framework of the provision of services*

*(Arts 49 EC and 307 EC)*

4.        *Accession of new Member States to the Communities – Act of Accession of 2003 – Transitional measures – Freedom to provide
services*

*(Art. 49, first para., EC; Act of Accession of 2003, Annex XII, Chapter 2(13))*

1.        In the context of an action under Article 226 EC, it is for the Commission to judge at what time it will bring an action for
failure to fulfil obligations; the considerations which determine its choice of time cannot affect the admissibility of the
action. The rules set out in that article must be applied and the Commission is not obliged to act within a specific period,
save where the excessive duration of the pre-litigation procedure in that provision is capable of making it more difficult
for the Member State concerned to refute the Commission’s arguments and of thus infringing the rights of the defence. It is
for the Member State concerned to provide evidence that it has been so affected.

(see paras 21-22)

2.        The procedure for a declaration of a failure on the part of a Member State to fulfil its obligations is based on the objective
finding that a Member State has failed to fulfil its obligations under Community law, and the principle of protection of legitimate
expectations cannot be relied on by a Member State in order to preclude an objective finding of a failure on its part to fulfil
its obligations, since to admit that justification would run counter to the aim pursued by the procedure under Article 226
EC.

The fact that the Commission did not take further action on a reasoned opinion immediately or shortly after its issue cannot
create, on the part of the Member State concerned, a legitimate expectation that the procedure has been closed. That is *a fortiori* the position where efforts were made during the alleged period of inactivity to find a solution which would put an end to
the alleged infringement. Furthermore, as no position was adopted by the Commission indicating that it was going to close
the procedure instituted for a declaration of a failure to fulfil obligations, the Member State concerned cannot validly claim
that the Commission infringed the principle of protection of legitimate expectations by not closing that procedure.

(see paras 25-27)

3.        A Member State, by interpreting, in its administrative practice, the term ‘undertaking from the other side’ in the provision
at issue of a bilateral agreement on the posting of workers from undertakings established in another Member State to carry
out works contracts as meaning ‘an undertaking established in the first Member State’, fails to fulfil its obligations under
Article 49 EC.

Such an interpretation of that provision creates direct discrimination, contrary to Article 49 EC against service providers
established in other Member States wishing to conclude a works contract with an undertaking established in the other Member
State party to the agreement in order to provide services in the first Member State.

The disputed administrative practice cannot be justified by the fact that the provision in question is contained in a bilateral
international agreement, for, when giving effect to commitments assumed under international agreements, be it an agreement
between Member States or an agreement between a Member State and one or more non-member countries, Member States are required,
subject to the provisions of Article 307 EC, to comply with the obligations that Community law imposes on them. Admittedly,
disturbing the balance and reciprocity of a bilateral international agreement concluded between a Member State and a non-member
country may constitute an objective justification for the refusal by a Member State party to that agreement to extend to nationals
of other Member States the advantages which its own nationals derive from that agreement. Nevertheless, application of the
bilateral agreement in question concerns, as from the accession of the other Member State party to that agreement to the Union,
two Member States, with the result that the provisions of that agreement can apply to relations between those Member States
only in compliance with Community law, in particular with the Treaty rules on the free provision of services

In addition, there is nothing to support the view that an undertaking established in another Member State is in a situation
different from that of undertakings established in the first Member State so far as concerns the possibility of entering into
works contracts with undertakings established in the other Member State party to the agreement with a view to providing services
in the first Member State.

Furthermore, economic considerations and mere practical difficulties in the implementation of that agreement cannot, in any
event, justify restrictions on a fundamental freedom or, *a fortiori*, a derogation under Article 46 EC, which presupposes the existence of a genuine and sufficiently serious threat affecting
one of the fundamental interests of society.

With regard to the alleged risk of circumvention of the transitional provisions favourable to the Member State concerned which
were inserted into the Treaty of Accession in order to prevent serious disturbance to the labour market of that Member State,
the extension to undertakings established in other Member States of the right to enter into works contracts with undertakings
established in the other Member State party to the agreement, in order that the former may benefit from the quota for workers
from that other Member State party to the agreement set pursuant to the bilateral agreement in question, is not liable to
have such an effect, since the number of work permits granted to those workers is not, in any event, altered by the fact of
such an extension in favour of undertakings established in other Member States.

(see paras 40, 42-44, 46, 51-52, 68 and operative part)

4.        Chapter 2, paragraph 13, of Annex XII to the Act concerning the conditions of accession of the Czech Republic, the Republic
of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic
of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on
which the European Union is founded authorises the Federal Republic of Germany to derogate from the first paragraph of Article
49 EC with a view to limit, in the context of the provision of services by companies established in Poland, the temporary
movement of workers whose right to take up work in Germany is subject to national measures. That derogation is designed to
enable the Federal Republic of Germany to address serious disturbances, or the threat thereof, in specific sensitive service
sectors on its labour market, which could arise in certain regions from the transnational provision of services and as long
as that Member State applies, by virtue of the transitional provisions, national measures or those resulting from bilateral
agreements to the free movement of Polish workers.

The fact that, after the date of signature of the Act of Accession, new districts were added to the list of those in which
works contracts under the German-Polish Agreement are not authorised does not amount to contravention of the ‘standstill’
clause under that paragraph 13.

That clause prohibits the creation of ‘conditions ... which are more restrictive’ for the temporary movement of workers than
those existing at the date of signature of the Treaty of Accession. That is manifestly not the case where the reduction in
the number of Polish workers liable to be posted in the context of the provision of services in Germany is simply the consequence
of the application, after that date, of a clause, the terms of which have remained identical, to a factual situation which
has developed in the labour market. Thus, the list, which is updated every quarter, of districts subject to the prohibition
under the labour market protection clause in the national legislation is, in that context, purely declaratory, since there
has not been any deterioration in the legal situation or any unfavourable change to German administrative practice. That interpretation
is confirmed by the purpose of such ‘standstill’ clauses, which prohibit generally the introduction of any new measure by
a Member State having the object or effect of creating more restrictive conditions than those which applied before the date
from which those clauses come into force.

(see paras 62, 64-66)


JUDGMENT OF THE COURT (Third Chamber)

21 January 2010 ([\*](#Footnote*))

(Failure of a Member State to fulfil obligations – Freedom to provide services – Article 49 EC – Annex XII to the Act of Accession – List referred to in Article 24 of the Act of Accession: Poland – Chapter 2, paragraph 13 – Possibility of derogation by the Federal Republic of Germany from the first paragraph of Article 49 EC – ‘Standstill’ clause – Agreement of 31 January 1990 between the Government of the Federal Republic of Germany and the Government of the Republic
of Poland on the posting of workers from Polish undertakings to carry out works contracts – Exclusion of the possibility for undertakings established in other Member States to conclude works contracts with Polish
undertakings for work to be carried out in Germany – Extension of the restrictions existing at the date of signature of the Treaty of Accession relating to the access of Polish
workers to the German labour market)

In Case C‐546/07,

ACTION under Article 226 EC for failure to fulfil obligations, brought on 5 December 2007,

**European Commission,** represented by E. Traversa and P. Dejmek, acting as Agents, with an address for service in Luxembourg,

applicant,

supported by

**Republic of Poland,** represented by M. Dowgielewicz, acting as Agent,

intervener,

v

**Federal Republic of Germany,** represented by J. Möller, M. Lumma and C. Blaschke, acting as Agents, with an address for service in Luxembourg,

defendant,

THE COURT (Third Chamber),

composed of J.N. Cunha Rodrigues (Rapporteur), President of the Second Chamber, acting as President of the Third Chamber,
A. Rosas, U. Lõhmus, A. Ó Caoimh and A. Arabadjiev, Judges,

Advocate General: J. Mazák,

Registrar: R. Grass,

after hearing the Opinion of the Advocate General at the sitting on 30 September 2009,

gives the following

**Judgment**

1        By its application, the Commission of the European Communities requests the Court to declare that:

–        by interpreting, in its administrative practice, the term ‘undertaking from the other side’ in Paragraph 1(1) of the Agreement
of 31 January 1990 between the Government of the Federal Republic of Germany and the Government of the Republic of Poland
on the posting of workers from Polish undertakings to carry out works contracts, as amended on 1 March and 30 April 1993 (BGBl.
1993 II, p. 1125; ‘the German-Polish Agreement’), as meaning ‘a German undertaking’, and

–        by having extended, pursuant to the labour market protection clause contained in Leaflet 16a of the Federal Employment Agency
of the Federal Republic of Germany, entitled ‘Employment of foreign workers from the new Member States of the European Union
under works contracts in the Federal Republic of Germany’ (Merkblatt 16a, ‘Beschäftigung ausländischer Arbeitnehmer aus den
neuen Mitgliedstaaten der EU im Rahmen von Werkverträgen in der Bundesrepublik Deutschland’; ‘Leaflet 16a’), regional restrictions
on access to the labour market after 16 April 2003, the date of signature of the Treaty of Accession of the Republic of Poland
to the European Union (OJ 2003 L 236, p. 17; ‘the Treaty of Accession’),

the Federal Republic of Germany has failed to fulfil its obligations under Article 49 EC and has infringed the ‘standstill’
clause in Chapter 2, paragraph 13, of Annex XII to the Act concerning the conditions of accession of the Czech Republic, the
Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the
Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties
on which the European Union is founded (OJ 2003 L 236, p. 33; ‘the Act of Accession’).

**Legal context**

*Community legislation*

 The Act of Accession

2        Article 24 of the Act of Accession stipulates:

‘The measures listed in Annexes V, VI, VII, VIII, IX, X, XI, XII, XIII and XIV to this Act shall apply in respect of the new
Member States under the conditions laid down in those Annexes.’

3        Annex XII to the Act of Accession is entitled ‘List referred to in Article 24 of the Act of Accession: Poland’. Chapter 2
of that annex, entitled ‘Freedom of movement for persons’, provides, in paragraph 13:

‘In order to address serious disturbances or the threat thereof in specific sensitive service sectors on their labour markets,
which could arise in certain regions from the transnational provision of services, as defined in Article 1 of Directive 96/71/EC,
and as long as they apply, by virtue of the transitional provisions laid down above, national measures or those resulting
from bilateral agreements to the free movement of Polish workers, Germany and Austria may, after notifying the Commission,
derogate from the first paragraph of Article 49 of the EC Treaty with a view to limit, in the context of the provision of
services by companies established in Poland, the temporary movement of workers whose right to take up work in Germany and
Austria is subject to national measures.

...

The effect of the application of this paragraph shall not result in conditions for the temporary movement of workers in the
context of the transnational provision of services between Germany or Austria and Poland which are more restrictive than those
prevailing on the date of signature of the Treaty of Accession.’

*The German-Polish Agreement*

4        In accordance with Article 1(1) of the German-Polish Agreement:

‘Work permits shall be issued to Polish workers who are detached for temporary employment on a works contract between a Polish
employer and an undertaking from the other side (contractual workers) regardless of the situation and trends of the labour
market.’

5        Article 2(5) of that agreement provides:

‘In implementing this Agreement in cooperation with the Ministry of Labour and Social Policy of the Republic of Poland, the
Federal Employment Agency of the Federal Republic of Germany shall ensure that the concentration of employed contractual workers
in a given region or sector does not occur. The present Agreement shall not apply to workers in the fire-retardant and chimney
construction sector.’

*Implementing instructions of the Federal Employment Agency of the Federal Republic of Germany*

6        The implementing instructions adopted by the Federal Employment Agency include those set out in Leaflet 16a, which concerns
employment of foreign workers from the new Member States of the European Union under works contracts in the Federal Republic
of Germany. Leaflet 16a contains a labour market protection clause. Under that clause, works contracts involving foreign workers
are in principle prohibited in cases where the work is to be carried out in districts of the Federal Employment Agency in
which the average unemployment rate for the previous six months has been at least 30% higher than the unemployment rate for
the Federal Republic of Germany as a whole. The list of the districts to which that clause applies is updated every quarter.

**Pre-litigation procedure**

7        By letter of formal notice of 3 April 1996, the Commission drew the attention of the Federal Republic of Germany to the fact
that German administrative practice with regard to application of the German-Polish Agreement was incompatible with Article
49 EC, in that the competent German authorities interpreted the term ‘undertaking from the other side’ in Article 1(1) of
that agreement as referring only to German undertakings. As a result of that practice, unlike German undertakings, undertakings
from Member States other than the Federal Republic of Germany supplying services in the construction sector in that Member
State were prevented from concluding works contracts with Polish undertakings.

8        By letter of 28 June 1996, the Federal Republic of Germany informed the Commission that it did not share that institution’s
point of view as set out in its letter of 3 April 1996.

9        On 12 November 1997, the Commission sent a reasoned opinion to the Federal Republic of Germany in which it reiterated that
point of view and called on it to take the measures necessary to comply with that opinion.

10      Following a meeting between representatives of the Commission and of the Federal Republic of Germany on 5 May 1998, the latter
stated, in a letter of 19 July 1998, that efforts were being made to find a political solution in the context of the Europe
Agreement establishing an association between the European Communities and their Member States, of the one part, and the Republic
of Poland, of the other part, signed in Brussels on 16 December 1991. However, those efforts proved to be unsuccessful.

11      In reply to an enquiry from the Commission of 15 June 2004, the Federal Republic of Germany stated, by letter of 6 December
2004, that it stood by its interpretative practice with regard to the German-Polish Agreement and that, in view of the lack
of action on the part of the Commission for almost seven years, it was entitled to suppose that the procedure for failure
to fulfil obligations would no longer be continued.

12      In a supplementary letter of formal notice of 10 April 2006, the Commission drew the attention of the Federal Republic of
Germany to the fact that it was maintaining its allegation that Article 49 EC was being infringed. In addition, it claimed
that that Member State was also contravening the ‘standstill’ clause set out in Chapter 2, paragraph 13, of Annex XII to the
Act of Accession (‘the “standstill” clause’) in so far as the extension of the regional restrictions imposed under the labour
market protection clause, based on Article 2(5) of the German-Polish Agreement and contained in Leaflet 16a, infringed the
prohibition on extending restrictions existing at the date on which the Act of Accession was signed.

13      By letter of 8 June 2006, the Federal Republic of Germany, in response to the first complaint, submitted to the Commission
that application of the German-Polish Agreement to all Member States and their undertakings was not appropriate. In addition,
it referred to the public-order reservation laid down in Article 46 EC, submitting that it was appropriate to ensure that
that agreement was applied correctly, that the necessary review of compliance with the rules in force was carried out and
that infringements were efficiently dealt with. It was, however, in the submission of that Member State, impossible to recover,
in a rapid and reliable manner, social security debts from undertakings established in other Member States. With regard to
the second complaint, the Federal Republic of Germany submitted that the extension of the regional restrictions based on the
labour market protection clause to areas not covered in April 2003 did not infringe the ‘standstill’ clause, as the updating
of the list of regional restrictions imposed pursuant to Article 2(5) of that agreement did not constitute an amendment to
the rules as such, but was simply the result of changes noted in the regional labour markets.

14      In its supplementary reasoned opinion of 15 December 2006, the Commission repeated its complaints, while, in its reply of
19 February 2007, the Federal Republic of Germany maintained its point of view.

15      In those circumstances, the Commission decided to bring the present action.

**The action**

*Admissibility*

 Arguments of the parties

16      The Federal Republic of Germany submits that the action must be declared inadmissible, at least with regard to the complaint
alleging infringement of Article 49 EC.

17      In that regard, that Member State claims that it was entitled legitimately to suppose that the Commission’s inaction between
November 1997 and June 2004, that is to say, over a period of almost seven years, amounted to abandonment of that complaint.
The legitimate expectation of the German authorities that that complaint would be abandoned was all the more justified because,
according to a letter which Mr Monti, a Member of the Commission, had sent to them in July 1998, the institution was not favourable
to termination of the German-Polish Agreement and would wait until November 1998 in order to determine whether there were
any other possible solutions. Since the Commission did not take any action thereafter, the German authorities were entitled
to assume that the Commission had abandoned its complaint alleging infringement of Article 49 EC.

18      It was only after signature of the Treaty of Accession, that is to say, at a time when the Federal Republic of Germany was
no longer in a position to rescind the German-Polish Agreement without failing to fulfil its ‘standstill’ obligation, that
the Commission unreasonably took further procedural measures, even though it was specifically at the request of the Commission
that Germany had agreed not to rescind that agreement.

19      The Commission contends that although, in certain cases, excessive duration of the pre-litigation procedure provided for in
Article 226 EC may make it more difficult for the Member State concerned to refute the Commission’s arguments and thus infringe
its rights of defence, that is not the situation in the present case. In addition, the fact that further action on a reasoned
opinion was not taken immediately or shortly after it had been issued cannot create, on the part of the Member State concerned,
a legitimate expectation that the procedure has been closed.

20      The Commission adds that Mr Monti’s letter, referred to in paragraph 17 of the present judgment, stated expressly that the
procedure could not be closed in the light of the rules of the internal market and that the institution did not at any time
give reason for a belief that it would abandon the first complaint.

 Findings of the Court

21      In accordance with settled case-law, it is for the Commission to judge at what time it will bring an action for failure to
fulfil obligations; the considerations which determine its choice of time cannot affect the admissibility of the action (see,
inter alia, Case C‐317/92 *Commission* v *Germany* [1994] ECR I‐2039, paragraph 4).

22      The rules of Article 226 EC must be applied and the Commission is not obliged to act within a specific period, save where
the excessive duration of the pre-litigation procedure in that provision is capable of making it more difficult for the Member
State concerned to refute the Commission’s arguments and of thus infringing the rights of the defence. It is for the Member
State concerned to provide evidence that it has been so affected (see, inter alia, Case C‐490/04 *Commission* v *Germany* [2007] ECR I‐6095, paragraph 26).

23      In the present case, the Federal Republic of Germany has not proved that the inhabitual duration of the procedure has had
any effect on the manner in which it organised its defence.

24       As the Advocate General observed in point 21 of his Opinion, the fact that, while the pre-litigation procedure was under
way, the ‘standstill’ clause entered into force, which, according to the Federal Republic of Germany, prevented it from rescinding
the Agreement with Poland, could not, as such, make it more difficult for that Member State to refute the arguments advanced
by the Commission with regard to the complaint alleging infringement of Article 49 EC. In addition, as the Commission notes,
the fact that it issued the supplementary letter of formal notice of 10 April 2006 and the supplementary reasoned opinion
of 15 December 2006, the purpose of which was, in particular, to repeat the original complaint, enabled the Federal Republic
of Germany to set out, in full knowledge of the facts, the reasons why it was contesting that complaint.

25      Furthermore, the procedure for a declaration of a failure on the part of a Member State to fulfil its obligations is based
on the objective finding that a Member State has failed to fulfil its obligations under Community law, and the principle of
protection of legitimate expectations cannot, in a case such as the present, be relied on by a Member State in order to preclude
an objective finding of a failure on its part to fulfil its obligations, since to admit that justification would run counter
to the aim pursued by the procedure under Article 226 EC (see, inter alia, Case C‐523/04 *Commission* v *Netherlands* [2007] ECR I‐3267, paragraph 28).

26      It is apparent from the Court’s case-law that the fact that the Commission did not take further action on a reasoned opinion
immediately or shortly after its issue cannot create, on the part of the Member State concerned, a legitimate expectation
that the procedure has been closed (see, inter alia, Case C‐317/92 *Commission* v *Germany*, paragraph 4). That is *a fortiori* the position where, as in the present case, it is not in dispute that efforts were made during the alleged period of inactivity,
inter alia in the context of the Europe Agreement referred to in paragraph 10 of this judgment, to find a solution which would
put an end to the alleged infringement.

27      Finally, as no position was adopted by the Commission indicating that it was going to close the procedure instituted for a
declaration of a failure to fulfil obligations, whether in the letter from Mr Monti referred to in paragraphs 17 and 20 of
the present judgment or at any other stage of the procedure, a fact which the Federal Republic of Germany does not contest,
that Member State cannot validly claim that the Commission infringed the principle of legitimate expectations by not closing
that procedure.

28      It follows that the plea of inadmissibility raised by the Federal Republic of Germany must be rejected and that the action
brought by the Commission is admissible.

*Substance*

 The first complaint

–       Arguments of the parties

29      The Commission submits that, by interpreting the expression ‘undertaking from the other side’ in Article 1(1) of the German-Polish
Agreement as referring only to German undertakings, the German authorities are preventing undertakings from other Member States
which wish to carry out work in Germany from concluding contracts with a Polish contractor, unless the undertakings from those
other Member States establish a subsidiary in Germany. Such an interpretation, which does not necessarily follow, would have
the effect of dissuading the latter undertakings from exercising their right under article 49 EC freely to provide services
with a view to concluding, in accordance with the German-Polish Agreement, works contracts for the performance of works in
Germany using the quota of Polish workers provided for by that agreement.

30      The Commission submits that such an interpretation of Article 1(1) of the German-Polish Agreement constitutes discrimination
directly based on the nationality of the undertaking or the location of its registered office, which cannot be justified other
than on grounds of public policy, public security or public health. Recourse to such grounds presupposes that it is necessary
to maintain a discriminatory measure in order to prevent a genuine and sufficiently serious threat affecting one of the fundamental
interests of society. That, the Commission submits, is not the case here.

31      The mere fact that undertakings which wish to conclude a works contract with a Polish entrepreneur are not established in
Germany does not prevent monitoring of the proper application of the German-Polish Agreement. As regards the need to ensure
effective enforcement of the undertaking’s liability in the event of non-payment of social security contributions, the Commission
observes that purely administrative considerations do not constitute an overriding requirement in the public interest and
cannot therefore justify restrictions on a fundamental freedom guaranteed by the Treaty. Furthermore, contrary to the assertions
of the Federal Republic of Germany, there is no reason to fear that an extension of the German-Polish Agreement to undertakings
from other Member States will entail or encourage the inappropriate application or circumvention of the transitional provisions
of the Treaty of Accession, in addition to the fact that such a fear in no way constitutes a sufficiently serious and real
risk to public order or security such as to justify a discriminatory restriction on the freedom to provide services.

32      Finally, the Commission points out, referring in this regard to, inter alia, Case C‐55/00 *Gottardo* [2002] ECR I‐413, paragraph 34, that, when a Member State concludes a bilateral convention with a non-member country, the
fundamental principle of equal treatment requires that that Member State grant nationals of other Member States the same advantages
as those which its own nationals enjoy under that convention unless it can provide objective justification for refusing to
do so. That, however, is not the case here.

33      The Republic of Poland, intervening in support of the form of order sought by the Commission, submits, inter alia, that, by
reason of the interpretation of Article 1(1) of the German-Polish Agreement enshrined in German administrative practice, Polish
undertakings cannot carry out, on German territory, contracts concluded with undertakings from Member States other than the
Federal Republic of Germany, in the same way as undertakings established in those other Member States and providing services
in Germany cannot use Polish undertakings as subcontractors. Like the Commission, the Republic of Poland concludes that that
practice amounts to an infringement of the principle of national treatment which cannot be justified on any of the grounds
set out in Article 46 EC and that there is nothing to prevent extension of the advantages of that agreement to undertakings
from Member States other than the Federal Republic of Germany.

34      The Federal Republic of Germany argues that the disputed interpretation is consistent with the wording of the German-Polish
Agreement. The fact that that agreement confers rights only on German undertakings does not, it contends, constitute a prohibited
restriction within the meaning of Article 49 EC. Entrepreneurs from other Member States are, in principle, entitled to provide
services in Germany, but are merely not able to take advantage of Article 1(1) of that agreement to have Polish undertakings
carry out work in performance of a contract.

35      Moreover, the German undertakings which can take advantage of the German-Polish Agreement are all undertakings established
in Germany, including branches of undertakings from other Member States.

36      In addition, according to the Federal Republic of Germany, German undertakings and foreign undertakings are not in comparable
situations, which in principle rules out the existence of any prohibited discrimination. Furthermore, the German-Polish Agreement
is a balanced agreement, based on reciprocity, from which it is not possible simply to detach specific rights in order to
benefit nationals of a Member State which is not a party to that agreement. With regard to those two arguments, the Federal
Republic of Germany refers, in particular, to Case C‐376/03 *D.* [2005] ECR I‐5821, paragraph 61 et seq.).

37      What is more, an extensive interpretation of Article 49 EC would have the effect of rendering meaningless the transitional
provisions in the Act of Accession, the context and purpose of which were to bring an end to the repercussions resulting from
differences in conditions of competition in strongly service-oriented sectors and to prevent imbalances in the labour market.

38      In any event, even if the interpretation of Article 1(1) of the German-Polish Agreement enshrined in German administrative
practice were considered to constitute a restriction within the meaning of Article 49 EC, that would be justified by virtue
of the combined provisions of Articles 55 EC and 46 EC on the ground that the extension of the benefit of that agreement to
undertakings not established in Germany would no longer ensure adequate control, without incurring disproportionate administrative
costs, of the proper performance of that agreement, and would not make it possible to ensure effective enforcement of the
liability of an undertaking which engages a Polish subcontracting undertaking to carry out works in the event of non-payment
of social security contributions by the latter.

–       Findings of the Court

39      It is clear from settled case-law that the freedom to provide services implies, in particular, the abolition of any discrimination
against a service provider on account of its nationality or the fact that it is established in a Member State other than that
in which the service is provided (see, inter alia, C‐490/04 *Commission* v *Germany*, paragraph 83 and the case-law cited). The requirement that an undertaking create a permanent establishment or branch in
the Member State in which the services are provided runs directly counter to the freedom to provide services since it renders
impossible the provision of services, in that Member State, by undertakings established in other Member States (see, to that
effect, inter alia, Case 205/84 *Commission* v *Germany* [1986] ECR 3755, paragraph 52; Case C‐279/00 *Commission* v *Italy* [2002] ECR I‐1425, paragraph 17; and Case C‐496/01 *Commission* v *France* [2004] ECR I‐2351, paragraph 65).

40      In that regard, it must be held that Article 1(1) of the German-Polish Agreement, as interpreted in German administrative
practice, creates direct discrimination, contrary to Article 49 EC, against service providers established in Member States
other than the Federal Republic of Germany which wish to conclude a works contract with a Polish undertaking in order to provide
services in Germany.

41      According to the interpretation of that article applied in German administrative practice, only undertakings which have their
registered office or a permanent establishment in Germany may conclude works contracts with a Polish undertaking and thus
benefit, by providing services in Germany, from the quota for Polish workers guaranteed under the German-Polish Agreement,
notwithstanding the transitional provisions in the Act of Accession.

42      In so far as the Federal Republic of Germany submits that the disputed administrative practice is justified by the fact that
the provision in question is contained in a bilateral international agreement, it must be noted that, when giving effect to
commitments assumed under international agreements, be it an agreement between Member States or an agreement between a Member
State and one or more non-member countries, Member States are required, subject to the provisions of Article 307 EC, to comply
with the obligations that Community law imposes on them (see, inter alia, *Gottardo*, paragraph 33).

43      The Court has, admittedly, held that disturbing the balance and reciprocity of a bilateral international agreement concluded
between a Member State and a non-member country may constitute an objective justification for the refusal by a Member State
party to that agreement to extend to nationals of other Member States the advantages which its own nationals derive from that
agreement (see, inter alia, Case C‐307/97 *Saint-Gobain ZN* [1999] ECR I‐6161, paragraph 60, and *Gottardo*, paragraph 36).

44      Nevertheless, contrary to the situations at issue in those cases and that which gave rise to the judgment in *D.*, on which the Federal Republic of Germany relies, application of the German-Polish Agreement concerns, since the accession
of the Republic of Poland to the Union, two Member States, with the result that the provisions of that agreement can apply
to relations between those Member States only in compliance with Community law, in particular with the Treaty rules on the
free provision of services (see, by analogy, inter alia, Case 235/87 *Matteucci* [1988] ECR 5589, paragraphs 16 and 19 to 21, and Case C‐478/07 *Budĕjovický Budvar* [2009] ECR I‐0000, paragraphs 97 and 98).

45      To that must be added, as the Republic of Poland rightly points out, that the extension, to undertakings established in Member
States other than the Federal Republic of Germany, of the right to conclude works contracts with subcontracting Polish undertakings
is not liable to affect, as such, the quota fixed pursuant to Article 2(5) of the German-Polish Agreement.

46      Likewise, contrary to the submissions of the Federal Republic of Germany, there is nothing to support the view that an undertaking
established in another Member State is in a situation different from that of undertakings established in Germany so far as
concerns the possibility of entering into works contracts with Polish undertakings with a view to providing services in Germany.

47      Furthermore, it is apparent from the case-law of the Court that provisions such as those of the German-Polish Agreement here
at issue will not be consistent with Community law unless they fall within an express derogating provision such as Article
46 EC, to which Article 55 EC refers (see, inter alia, Case C‐490/04 *Commission* v *Germany*, paragraph 86).

48      It follows from Article 46 EC, which must be interpreted strictly, that discriminatory rules may be justified only on grounds
of public policy, public security or public health (see, inter alia, Case C‐490/04 *Commission* v *Germany*, paragraph 86).

49      None the less, recourse to such justification presupposes the existence of a genuine and sufficiently serious threat affecting
one of the fundamental interests of society (see, to that effect, inter alia, Case C‐114/97 *Commission* v *Spain* [1998] ECR I‐6717, paragraph 46, and Case C‐567/07 *Woningstichting Sint Servatius* [2009] ECR I‐0000, paragraph 28).

50      In order to justify the prohibition of the posting by Polish undertakings of Polish workers under works contracts concluded
with undertakings which do not have their registered office or a permanent establishment in Germany, the Federal Republic
of Germany argues in particular that it is necessary to ensure efficient monitoring of the proper application of the German-Polish
Agreement, which, in its view, can be ensured in respect of undertakings established in other Member States only by incurring
excessive additional administrative costs, and that there are potential problems in the recovery of social security debts
from undertakings responsible for paying amounts corresponding to those debts under the German rules if they do not have a
permanent establishment in Germany.

51      In so doing, the Federal Republic of Germany has failed to put forward any convincing argument which could be based on one
of the grounds set out in Article 46 EC, since economic considerations and mere practical difficulties in the implementation
of the German-Polish Agreement are not, in any event, sufficient to justify restrictions on a fundamental freedom (see, by
analogy, inter alia, Case C‐18/95 *Terhoeve* [1999] ECR I‐345, paragraph 45) or, *a fortiori*, a derogation under Article 46 EC, which presupposes the existence of a genuine and sufficiently serious threat affecting
one of the fundamental interests of society.

52      Finally, with regard to the alleged risk of circumvention of the transitional provisions favourable to the Federal Republic
of Germany which were inserted into the Treaty of Accession in order to prevent serious disturbance to the German labour market,
suffice it to note that the extension to undertakings established in other Member States of the right to enter into works
contracts with Polish undertakings, in order that the former may benefit from the quota for Polish workers set pursuant to
Article 2(5) of the German-Polish Agreement, is not liable to have such an effect, since the number of work permits granted
to Polish workers is not, in any event, altered by the fact of such an extension in favour of undertakings established in
other Member States.

53      In those circumstances, the first complaint must be upheld.

 The second complaint

–       Arguments of the parties

54      The Commission submits that, apart from the fact that it is doubtful whether it can find a basis in Article 2(5) of the German-Polish
Agreement, the labour market protection clause in Leaflet 16a infringes the ‘standstill’ clause.

55      That ‘standstill’ clause prohibits any intensification of the restrictions existing at the date of signature of the Treaty
of Accession, namely 16 April 2003, whether it is based on the application of existing legislation or of legislation adopted
after that date, as to hold otherwise would render that clause ineffective. After 16 April 2003, however, new districts, including
Bremerhaven, Bochum, Dortmund, Duisburg, Essen, Wuppertal, Dresden, Cologne, Oberhausen and Recklinghausen, were added to
the list of districts subject to the labour market protection clause in Leaflet 16a. Application of that clause has therefore
resulted, for Polish workers, in an effective deterioration of access to the German labour market in comparison with the situation
which existed before the date on which the Treaty of Accession was signed, something which manifestly runs counter to the
‘standstill’ clause.

56      The Republic of Poland observes, inter alia, that the labour market protection clause in Leaflet 16a does not constitute implementation
of Article 2(5) of the German-Polish Agreement, since that clause does not seek to make the number of workers in a given district
dependent on whether there is already a concentration of employed contractual workers there, but rather precludes the conclusion
of any works contracts for that district. Furthermore, the inclusion of a district on the list drawn up by the Federal Employment
Agency of the Federal Republic of Germany is subject to the level of unemployment in that district and not to the concentration
of Polish workers posted there to carry out works contracts.

57      In reply, the Federal Republic of Germany contends that, with regard to the assessment of the situation under Community law,
even though it is immaterial whether Article 2(5) of the German-Polish Agreement has been correctly implemented by the labour
market protection clause in Leaflet 16a, that is in fact the case.

58      Furthermore, the Federal Republic of Germany claims, that labour market protection clause does not contravene the ‘standstill’
clause. It argues that the only important point for the purpose of compliance with that clause is that there has been no negative
change in the legal situation or administrative practice since signature of the Treaty of Accession, referring in that regard
to the following judgments: Case C‐37/98 *Savas* [2000] ECR I‐2927, paragraph 69; Case C‐16/05 *Tum and Dari* [2007] ECR I‐7415, paragraph 49; Joined Cases C‐317/01 and C‐369/01 *Abatay and Others* [2003] ECR I‐12301, paragraph 81; Case C‐302/97 *Konle* [1999] ECR I‐3099, paragraph 52 et seq.; and Case C‐157/05 *Holböck* [2007] ECR I‐4051, paragraph 41.

59      Application of that labour market protection clause, the content of which has not changed since 4 January 1993, has, however,
in the submission of the Federal Republic of Germany, led neither to an unfavourable alteration in the legal situation nor
to a change in the administrative practice as regards the Republic of Poland. The situation on the German labour market is
the only factor which has changed since the entry into force of the ‘standstill’ clause. There can be no infringement of such
a clause because, as in the present case, the administration is applying, in the same way as previously, a provision which
has not been amended.

–       Findings of the Court

60      Under the labour market protection clause in Leaflet 16a, the content of which, it is common ground, has not been amended
since 1993, contracts involving foreign workers are in principle prohibited in cases where the work is to be carried out in
districts of the Federal Employment Agency in which the average unemployment rate for the previous six months has been at
least 30% higher than the unemployment rate for the Federal Republic of Germany as a whole. The list of the districts to which
that clause applies is updated every quarter.

61      As the Federal Republic of Germany has correctly pointed out, the Court is not being called upon, by the present complaint,
to determine whether that clause and its application by the German administrative authorities constitute a correct implementation
of Article 2(5) of the German-Polish Agreement but to examine whether, as the Commission submits, that clause, as applied
by the German administrative authorities, contravenes the ‘standstill’ clause.

62      Chapter 2, paragraph 13, of Annex XII to the Act of Accession authorises the Federal Republic of Germany to derogate from
the first paragraph of Article 49 EC with a view to limit, in the context of the provision of services by companies established
in Poland, the temporary movement of workers whose right to take up work in Germany is subject to national measures. That
derogation is designed to enable the Federal Republic of Germany to address serious disturbances, or the threat thereof, in
specific sensitive service sectors on its labour market, which could arise in certain regions from the transnational provision
of services and as long as that Member State applies, by virtue of the transitional provisions, national measures or those
resulting from bilateral agreements to the free movement of Polish workers.

63      Furthermore, the abovementioned paragraph 13 contains a ‘standstill’ clause, pursuant to which application of that provision
may not result in conditions for the temporary movement of workers in the context of the transnational provision of services
between Germany and Poland which are more restrictive than those prevailing on the date of signature of the Treaty of Accession.

64      Contrary to the Commission’s argument, the fact that, after that date, new districts were added to the list of those in which
works contracts under the German-Polish Agreement are not authorised does not amount to contravention of the ‘standstill’
clause.

65      That clause prohibits the creation of ‘conditions ... which are more restrictive’ for the temporary movement of workers than
those existing at the date of signature of the Treaty of Accession. That is manifestly not the case where the reduction in
the number of Polish workers liable to be posted in the context of the provision of services in Germany is simply the consequence
of the application, after that date, of a clause, the terms of which have remained identical, to a factual situation which
has developed in the labour market. As the Federal Republic of Germany has correctly pointed out, the list, which is updated
every quarter, of districts subject to the prohibition under the labour market protection clause in Leaflet 16a is, in that
context, purely declaratory, since there has not been any deterioration in the legal situation or any unfavourable change
to German administrative practice.

66      That interpretation is confirmed by the purpose of such ‘standstill’ clauses, which prohibit generally the introduction of
any new measure by a Member State having the object or effect of creating more restrictive conditions than those which applied
before the date from which those clauses come into force (see, to that effect, inter alia, *Savas*, paragraph 69, and Case C‐242/06 *Sahin* [2009] ECR I‐0000, paragraph 63).

67      In those circumstances, the second complaint must be rejected as unfounded.

68      In the light of all the foregoing considerations, it must be held that, by interpreting, in its administrative practice, the
term ‘undertaking from the other side’ in Paragraph 1(1) of the German-Polish Agreement as meaning ‘a German undertaking’,
the Federal Republic of Germany has failed to fulfil its obligations under Article 49 EC.

**Costs**

69      Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been
applied for in the successful party’s pleadings. Under Article 69(3) of those Rules, where each party succeeds on some and
fails on other heads, or where the circumstances are exceptional, the Court may order that the costs be shared or that the
parties bear their own costs.

70      In the present case, it is appropriate that the Commission and the Federal Republic of Germany bear their own costs.

71      In accordance with Article 69(4) of the Rules of Procedure, the Republic of Poland is to bear its own costs.

On those grounds, the Court (Third Chamber) hereby:

1.      **Declares that, by interpreting, in its administrative practice, the term ‘undertaking from the other side’ in Paragraph 1(1)
of the Agreement of 31 January 1990 between the Government of the Federal Republic of Germany and the Government of the Republic
of Poland on the posting of workers from Polish undertakings to carry out works contracts, as amended on 1 March and 30 April
1993, as meaning ‘a German undertaking’, the Federal Republic of Germany has failed to fulfil its obligations under Article
49 EC;**

2.      **Dismisses the remainder of the action;**

3.      **Orders the European Commission and the Federal Republic of Germany to bear their own respective costs;**

4.      **Orders the Republic of Poland to bear its own costs.**

[Signatures]

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[\*](#Footref*) Language of the case: German.