OPINION OF ADVOCATE GENERAL

M. POIARES MADURO

delivered on 8 May 2007 ( )

Case C‑162/06

International Mail Spain SL

v

Administración del Estado

and

Correos

(Reference for a preliminary ruling from the Tribunal Supremo (Spain))

(Postal services – Cross-border mail – Assessment criteria – Financial balance of the universal service provider)

1. The Third Chamber in plenary session of the Chamber for Contentious Administrative Proceedings of the Tribunal Supremo (Supreme Court, Spain) has referred a question to the Court concerning the interpretation of Article 7(2) of Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service, ( ) in the version before its amendment by Directive 2002/39/EC of the European Parliament and of the Council of 10 June 2002. ( )

I – The legal background, the facts of the dispute and the question referred for a preliminary ruling

2. Article 7(2) of Directive 97/67 authorises the maintenance of a reserved service in the following terms:

‘…

2. To the extent necessary to ensure the maintenance of universal service, cross-border mail and direct mail may continue to be reserved within the price and weight limits laid down in paragraph 1.

...’.

3. Article 18(1)(C) of Law 24/1998 of 13 July 1998 on the universal postal service and the liberalisation of postal services, ( ) which transposed Directive 97/67, states in the version in force at the material time:

‘1. Under Article 128(2) of the Constitution and under the conditions laid down in the next chapter, the following services, which are included in the universal postal service, are reserved exclusively to the universal postal service provider:

…

(C) the incoming and outgoing cross-border postal service for letters and postcards, with the weight and price limits established in paragraph (B). For the purposes of this Law, cross-border postal service means the service beginning or ending in other States’.

4. Under Article 41(2)(b) of Law 24/1998, ‘supplying postal services reserved to the universal postal service provider, without its authorisation, undermining the latter’s supply of the service’ constitutes a very serious infringement. Article 41(3)(a) states that ‘the following are considered as serious infringements: (a) the infringements covered by points (a) to (i) of paragraph 2 above where they are not committed in circumstances which would enable them to be categorised as very serious’.

5. Since 1988, International Mail Spain SL (formerly TNT Express Worldwide Spain SL) provided outgoing cross-border postal services for postcards collected in the main Spanish tourist locations. For this purpose, letterboxes had been placed in hotels, camping sites, apartment blocks, supermarkets and so forth to collect postcards being sent abroad which were stamped with adhesive labels which could be purchased at the same points of sale as the postcards.

6. The Secretaría General de Comunicaciones (Ministerio de Fomento) (Secretariat-General of Communications, Ministry of Development) took the view that the provision of those services constituted a serious infringement of administrative law pursuant to Article 41 of Law 24/1998. By decision of 16 June 1999, it imposed a fine of ESP 10 million (approximately EUR 60 100) on International Mail Spain SL and ordered it to cease offering and supplying such services.

7. International Mail Spain SL brought an action before the Chamber for Contentious Administrative Proceedings of the Tribunal Superior de Justicia de Madrid (High Court of Justice, Madrid). The Tribunal Superior de Justicia de Madrid dismissed the action on 6 June 2002, holding, inter alia, that Law 24/1998 complies with Directive 97/67. International Mail Spain SL brought an appeal before the Tribunal Supremo which, on 7 March 2006, referred the following question for a preliminary ruling:

‘Does Article 7(2) of Directive 97/67 … , which authorises Member States to include cross-border mail in the reserved postal services, allow them to establish that reservation only in so far as they are able to prove that, without it, the economic equilibrium of the universal service provider is at risk, or, instead, does it also allow them to retain it for other reasons, among them reasons of expediency, relating to the overall situation in the postal sector, including the degree of liberalisation in that sector at the time the reservation is decided?’

8. The Tribunal Supremo considered that, if Article 18(1)(C) of Law 24/1998 infringed the conditions laid down in Article 7(2) of Directive 97/67, the fact that private operators did not comply with the provision of Spanish legislation could not give rise to the administrative penalty imposed.

9. In order to have a complete picture of the context within which the question referred by the Tribunal Supremo has arisen, it may be useful to bear in mind that the content of Article 7(2) of Directive 97/67 has been reworded (and placed in Article 7(1)) by Directive 2002/39 as follows:

‘...

To the extent necessary to ensure the provision of universal service, for example when certain sectors of postal activity have already been liberalised or because of the specific characteristics particular to the postal services in a Member State, outgoing cross-border mail may continue to be reserved within the same weight and price limits.

...’ .

II – Analysis

A – Admissibility

10. The Kingdom of Spain expressly pleaded the inadmissibility of the referral made by the Tribunal Supremo. It is possible to distinguish two grounds of inadmissibility raised by the Kingdom of Spain: (i) the request for a preliminary ruling is framed incorrectly, appearing to concern the assessment of the validity of a national legislative act; and (ii) the question referred serves no purpose and is hypothetically constructed.

11. The Spanish Government claims in its observations that, in the present case, by referring the question or questions at issue to the Court for a preliminary ruling, the Tribunal Supremo is asking the Court to assess whether Article 18(1)(C) of Law 24/1998 on postal services complies with Directive 97/67, or whether it goes beyond the limits laid down by that directive.

12. To my mind, that plea does not seem convincing. Let us simply recall that, ‘whilst the Court does not have jurisdiction under Article 234 EC to apply the rules of Community law to a particular case or to judge the compatibility of provisions of national law with those rules, it may provide a national court with all the elements relating to the interpretation of Community law which may be useful to it in assessing the effects of the provisions of that law’. ( ) The Court is called upon to provide an interpretation of Community law and to provide the national courts with all the elements necessary for determining whether the provision of national legislation is compatible with Community law.

13. The Kingdom of Spain also claims that the question – or, if preferred, the two questions – referred for a preliminary ruling are inadmissible because they serve no useful purpose in deciding the dispute before the referring court and, moreover, they are hypothetically constructed. That argument cannot be upheld, either.

14. The Court has pointed out on a number of occasions that an approach consistent with the division of jurisdiction as between the Court and the national courts presupposes that, ‘in the context of the cooperation between the Court of Justice and the national courts provided for by Article 177 of the Treaty, it is solely for the national court before which the dispute has been brought, and which must assume responsibility for the subsequent judicial decision, to determine in the light of the particular circumstances of the case both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the questions which it submits to the Court’. ( ) Accordingly, as the questions referred by the Tribunal Supremo concern the interpretation of a provision of Community law, the Court is, in principle, required to give a ruling. ( )

15. In fact, the line of reasoning proposed by Spain, according to which the question is inadmissible because the reply of the Court of Justice is not capable in itself of deciding the dispute before the referring court, could prompt the question: in what situations would a reference for a preliminary ruling be admissible? The outcome of the dispute in the main proceedings always depends on a judgment based on the facts and on the national legal rules, which is the responsibility of the national court. The fact that a reply given by the Court of Justice does not, in itself, enable a ruling to be given in the dispute before the referring court does not mean that it may not be necessary and useful for those purposes. To my mind, the reference is therefore admissible.

B – Interpretation of Article 7(2) of Directive 97/67

16. The question referred by the Spanish court concerns the interpretation of the wording of Article 7(2) and, in particular, the definition of the parameters delimiting the possibility, provided for in Directive 97/67, of reserving certain services, including ‘cross-border mail’, to the universal service provider.

17. The Tribunal Supremo wishes to know whether Directive 97/67 must be interpreted as meaning that the Member States may allow the reservation of services only if they establish that, in the absence of such a reservation, the financial balance of the universal service provider would be in danger, or if they may also retain the reservation on the basis of other considerations, particularly considerations linked to expediency or to the general situation of the postal sector, including the degree of liberalisation of that sector at the time when the decision to reserve certain services is taken.

18. The positions of the interveners can be summarised as follows. On the one hand, the applicant (International Mail Spain SL) and the Commission of the European Communities have argued for a strict interpretation of Article 7(2) of Directive 97/67. According to the Commission, Article 7(2) must be interpreted as meaning that the reservation of services is permitted only in so far as is necessary to ensure the operation of the universal service in balanced financial conditions. In order to determine this need, it is necessary to take into account, inter alia, the degree of liberalisation of the postal service and the specific characteristics of the various national postal services.

19. On the other hand, the Spanish and Belgian governments both interpret Article 7(2) of Directive 97/67 more broadly, contending that it is possible for the Member States, for the purposes of the allocation of reserved services, to act on the basis of considerations linked to the general situation on the postal services market, such as the degree of liberalisation of the sector or the specific characteristics of the postal services of a Member State, in accordance with the guidance provided by Directive 2002/39. According to the Kingdom of Spain, Directive 2002/39 allows the choice as to whether or not to reserve the services listed in Article 7 to the universal service provider to be made on the basis of an assessment of expediency undertaken by the Member States (and not linked simply to the maintenance of financial balance).

20. First, as regards the dichotomy between financial balance and other considerations to be taken into account, it must be stated that – contrary to what the question may suggest – there is not necessarily any contradiction between them. As will subsequently be examined, what is important is to determine the conditions in which the other considerations may be taken into account. The key lies in the interpretation of the concept of ‘necessary for maintenance of the universal service’ and its relationship with the concept of the financial balance of the universal service provider.

Legal assessment

21. The postal sector has been subject to a progressive process of opening up and liberalisation of the market. That development was regulated, for the first time, by an instrument of secondary legislation: Directive 97/67. The possibility, provided for in Article 7 of that directive, of reserving certain services constitutes an exception to the application of fundamental rules of the Community legal order laid down in the EC Treaty. Exceptions must be narrowly construed. ( ) Furthermore, it is clear that Directive 97/67 cannot introduce a framework of rules different from the framework provided for in the Treaty. Recital (41) in the preamble to Directive 97/67 states that: ‘this Directive does not affect the application of the rules of the Treaty, and in particular its rules on competition and the freedom to provide services’.

22. The progressive nature of the liberalisation process is revealed clearly in Recitals (8) and (19) in the preamble to Directive 97/67. According to Recital (8), ‘measures seeking to ensure the gradual and controlled liberalisation of the market and to secure a proper balance in the application thereof are necessary in order to guarantee, throughout the Community, and subject to the obligations and rights of the universal service providers, the free provision of services in the postal sector itself.’ Recital (19) continues in the same vein: ‘it is reasonable to allow, on an interim basis, for direct mail and cross-border mail to continue to be capable of reservation within the price and weight limits provided; … as a further step towards the completion of the internal market of postal services, a decision on the further gradual controlled liberalisation of the postal market, in particular with a view to the liberalisation of cross-border and direct mail as well as on a further review of the price and weight limits, should be taken …’.

23. Article 7 of Directive 97/67 provides for the possibility of reserving, ‘[t]o the extent necessary’ certain services, inter alia (as indicated in Article 7(2)), that of cross-border mail, within the price and weight limits laid down in that directive. By the same token, Recital (42) in the preamble to Directive 97/67 clearly states that ‘nothing shall prevent Member States from maintaining in force or introducing measures for the postal sector which are more liberal than those provided for by this Directive, nor, should this Directive lapse, from maintaining in force measures which they have introduced in order to implement it, provided in each case that such measures are compatible with the Treaty.’

24. That clearly goes to show that Directive 97/67 establishes the limits within which restrictions on competition which are compatible with Community law may be introduced in the postal sector; the point submitted to the Court for clarification concerns the exact interpretation of the expression used in the directive: ‘[t]o the extent necessary to ensure the maintenance of universal service’. The reply seems to me to be provided by the provisions of the directive itself and by its recitals, preference being given to the interpretation which renders the provision of secondary legislation consistent with the Treaties. ( )

25. Directive 97/67 provides a finalised framework for the general liberalisation of the postal services market and the body of rules which it lays down does not allow the Member States to limit the application of the competition rules set out in the Treaty. Recital (16) in the preamble to Directive 97/67 is very explicit in that regard, stating that ‘the maintenance of a range of those services that may be reserved, in compliance with the rules of the Treaty and without prejudice to the application of the rules on competition, appears justified on the grounds of ensuring the operation of the universal service under financially balanced conditions’. This makes it clear that the directive envisages a very strict link between the operation of the universal service and the provision of reserved services; those reserved services play an ancillary role in the maintenance of the universal service, that of enabling it to operate in a state of ‘financial balance’. ( )

26. From the wording of Directive 97/67, it is clearly necessary to assess, first, the need to guarantee the economic and financial balance of the supply of the universal service. It is important to note that there is no need for the economic viability of the undertaking entrusted with the general interest objective to be in danger for it to be permissible to reserve certain services to the universal service provider, if that reservation proves necessary in order to guarantee the economic and financial balance of the supply of the universal service; it is necessary only to enable the universal service provider to carry out its task and fulfil its obligations in economically acceptable conditions, so that the maintenance of the universal service is ensured. The reserved rights must be granted only in terms of the needs of the universal service. The concept of financial balance must be understood by reference to the maintenance of the universal service as such, not – as has also been suggested in the reference for a preliminary ruling – by reference to the service provider.

27. The obligations imposed by the universal service, which entail costs for the provider, must be offset by the benefits guaranteed by the grant of exclusive rights in the form – in the case envisaged by Article 7 of Directive 97/67 – of services reserved to the universal service provider. According to that view, it may prove useful and acceptable to allow the universal service provider to offset less profitable sectors against the profitable sectors. ( ) The aim is to avoid what is called ‘skimming’ by the competitor who is not subject to the obligations arising from universal service, that is to say, the practice of concentrating on sectors of economic activity, within those covered by the universal service, which are financially profitable. The competitors of the universal service providers may have more competitive prices for the simple reason that, unlike the universal service provider, they are not obliged to use the profits gained in the profitable sectors to cover, in whole or in part, the losses suffered in the non-profitable sectors. ( )

28. Through the mechanism of allocating reserved services, the States ensure that the undertaking providing the universal service is able to achieve its goal (with regard only to the obligations arising from the universal service) in economically acceptable conditions. That is to say, the allocation of reserved services is permitted only in cases where the reservation of profitable activities is necessary to offset the costs of carrying out unprofitable activities, thus guaranteeing financially balanced conditions. That allocation of reserved rights must not ‘adversely effect the conditions of competition’, as Recital (28) in the preamble to Directive 97/67 makes clear. This means that cross-subsidies from the reserved sector to the non-reserved sector must not adversely affect the conditions of competition in the non-reserved sectors for undertakings which have not been granted special rights.

29. Linking the granting of reserved services to the maintenance of the universal service, rather than the financial balance of the undertaking providing the services, means ensuring that special rights are granted in accordance with an objective criterion closely linked to the costs imposed by the universal service. The use of that objective criterion will lead either to the allocation of reserved services to offset the costs entailed in carrying out the task of providing a universal service, even though such compensation is not essential for the economic survival of the undertaking supplying the service, or, on the contrary, it will serve to prevent, in principle, the reservation of services which are not strictly necessary in order to offset financially the costs imposed by the provision of the universal service, but which are designed rather to ensure the economic viability of the universal service provider.

30. In the first situation, where there is no risk to the economic viability of the universal service provider, the offsetting brought about by means of reserved services serves the purpose of not putting that undertaking in an economically unfavourable position by comparison with other undertakings which are not required to discharge the obligations arising from the provision of the universal service. Indeed, without compensation for the provision of non-profitable services within the universal service, undertakings would have no economic incentive to carry them out, and consequently, the very survival of the universal service would be placed in jeopardy.

31. In the second situation, the aim is to prevent States from continuing to finance inefficient undertakings indirectly and thereby to distort competition on the market, in so far as the undertakings benefiting from reserved services are in competition with other undertakings in the sectors left open to competition. However, although it is necessary, in principle, to distinguish between the financial balance of the universal service and the financial balance of the undertaking providing the service, it cannot be ruled out that in certain cases the objectives underlying the maintenance of the universal service may be closely linked to ensuring the survival of the universal service provider. Besides, such a concern also explains the progressive nature of liberalisation in the sector. In that case, it must be possible to reserve certain services according to the need to ensure the viability of the provider, whether or not there is a close link with the costs arising from the provision of the universal service.

32. To make it possible to verify the link between the granting of reserved services and the financial balance of the universal service provider, Directive 97/67 makes the granting of reserved services conditional upon full financial transparency enabling verification to be made, at any moment, of the need to allocate special rights and to derogate from the rules of the Treaty. Furthermore, the provision of transparent accounting rules (Articles 12 to 15) confirms this by requiring the figures relating to reserved services to be kept strictly separate in the accounts from those relating to non-reserved services, and, as far as the accounts of non-reserved services are concerned, by requiring the services which are part of the universal service to be kept strictly separate from those which are not.

33. That interpretation of Article 7 of Directive 97/67, which concerns the possibility of reserving the outgoing cross-border mail, does not change with the new version of that article in Directive 2002/39 (except that it becomes stricter). Under the re-worded provision introduced by the latter directive, it is possible to continue to reserve cross-border mail ‘to the extent necessary’ and, for example, ‘when certain sectors of postal activity have already been liberalised or because of the specific characteristics particular to the postal services in a Member State’. In fact, that provision gives only examples relating to factors capable of affecting the achievement of the general interest service in a state of financial balance. They are useful indicators to guide the assessment relating to the allocation of the special rights as well as the reservation of services. Those factors must be taken into account in so far as they have an effect on the economic viability of the universal service.

34. Some light is shed by Recital (16) in the preamble to Directive 2002/39, as well as by the process for the adoption of that directive, on the reference to further factors for the purposes of assessing whether reservations are compatible with Community law.

35. The first proposal drafted by the Commission, which envisaged the complete liberalisation of the service, did not provide for the possibility of reserving outgoing cross-border mail. It was only after the intervention of the European Parliament ( ) that the wording of the proposal for the thoroughgoing amendment of Directive 97/67 started to consider the possibility of a reservation for cross-border mail services as plausible.

36. Recital (16) in the preamble to Directive 2002/39 is clear about the exceptional nature of the possibility of reserving cross-border mail: ‘opening outgoing cross-border mail fully to competition with possible exceptions to the extent necessary to ensure the provision of universal service, represent relatively simple and controlled further phases which are nevertheless significant’. Accordingly, in order to emphasise more strongly that the reservation of cross-border mail must be regarded as an exception – justified only in order to ensure the financial balance of the universal service – that provision sets out factors to be taken into account at the time of assessing the need to reserve the cross-border service.

37. It is clear, in the context of the progressive liberalisation of the postal market, that the ensuring of the financial balance of the universal service must be approached progressively, and that the various levels of liberalisation mean different contexts and different economic situations for the undertakings responsible for the universal service. The reduction of the number of reserved sectors and the opening up of this field to competition could, in theory, reinforce the relative importance of the grant of monopolies in certain sectors of activity in order to ensure the financial balance of the universal service provider. An increase in the areas subject to competition could produce, in fact, an increase in the risk of financial instability for the universal service provider. On the other hand, the reference made to the specific characteristics of postal services in a Member State is understandable because the characteristics of the cross-border service differ from one Member State to another, reflecting the varying economic impact of the outgoing cross-border mail service and of its costs. As a consequence of those differences in the structural and economic characteristics of the national postal services, the assessments of the need for a reservation in order to preserve the economic balance will perforce vary widely according to the Member States concerned.

38. In the light of the foregoing, it is possible to conclude that Article 7(2) of Directive 97/67 must be interpreted as meaning that the condition to be fulfilled for the allocation of reserved services is to be understood as being designed to ensure the financial balance of the universal service task as defined by that directive itself. Considerations regarding the general situation of the postal sector and the level of liberalisation may be taken into account in so far as they are relevant for the purposes of determining the need to reserve certain services in order to ensure the provision of a universal service in financially balanced conditions. The discretion of the State, as regards the reservation of services, is limited by the responsibility incumbent upon it to show the need for reserved services in order to safeguard a financial balance in the carrying out of the supplies of services covered by universal service.

III – Conclusion

39. In conclusion, I propose that the Court give the following answer to the national court’s question:

Article 7(2) of Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service, as originally worded and after its amendment by Article 1(1) of Directive 2002/39/EC of the European Parliament and of the Council of 10 June 2002, must be interpreted as meaning that Member States are authorised to reserve cross-border mail services to one or more universal service providers in so far as is necessary to ensure the operation of the universal service in financially balanced conditions.