Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the interpretation of Council Regulation (EEC) No 3577/92 applying the principle of freedom to provide services to maritime transport within Member States (maritime cabotage)
Date: 2003-12-22
Institutions: European Commission
Subjects: domestic market, freedom to provide services, maritime cabotage, maritime transport

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 22.12.2003
COM(2003) 595 final

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL
COMMITTEE AND THE COMMITTEE OF THE REGIONS

on the interpretation of Council Regulation (EEC) No 3577/92 applying the principle of
freedom to provide services to maritime transport within Member States
(maritime cabotage)

EN

  EN

TABLE OF CONTENTS

1.

2.

2.1.

2.2.

Introduction .................................................................................................................. 4

The opening of the maritime cabotage market............................................................. 5

Freedom to provide maritime cabotage services.......................................................... 5

The beneficiaries of the freedom to provide services .................................................. 5

2.2.1.

The concept of Community shipowner ........................................................................ 5

2.2.2.

The conditions of registration in a Member State and access to national cabotage..... 6

2.3.

Opening up the market to ships which are not among the Regulation's beneficiaries. 7

3.

3.1.

3.2.

3.3.

3.4.

4.

4.1.

4.2.

4.3.

5.

5.1.

5.2.

5.3.

The scope of Regulation (EEC) No 3577/92 ............................................................... 7

Pleasure craft................................................................................................................ 7

Cruise services ............................................................................................................. 7

Maritime versus port services ...................................................................................... 8

Feeder services ............................................................................................................. 9

Manning rules............................................................................................................... 9

The content of the manning rules which may be imposed by a host State ................ 10

Consecutive cabotage................................................................................................. 10

Revision of the manning rules.................................................................................... 11

Public service ............................................................................................................. 11

Geographical scope of public service links................................................................ 12

Island cabotage routes on which public service obligations may be imposed........... 12

The obligations that may be imposed......................................................................... 12

5.3.1.

The distinction between public service obligations and public service contracts...... 12

5.3.2.

The principle of non-discrimination........................................................................... 13

5.4.

5.5.

The procedure for imposing public service obligations............................................. 14

Market access and competition on public service routes ........................................... 15

5.5.1.

Exclusivity.................................................................................................................. 15

5.5.2. Duration of public service contracts .......................................................................... 16

5.5.3. Bundled routes ........................................................................................................... 16

5.6.

5.7.

6.

The case of "small islands" ........................................................................................ 17

Public subsidies granted to compensate for public service obligations ..................... 17

Safeguard measures.................................................................................................... 17

2

 
Summary

Drawing on the experience gained during ten years' practical application of Regulation (EEC)
No  3577/92,  the  Commission  has  decided  in  the  interests  of  transparency  to  publish  its
interpretation of the provisions of that Regulation.

This  Communication  is  being  presented  for  information  purposes  only,  to  help  explain  the
Regulation to all parties who wish to make use of it. It indicates how the Commission intends
to apply the Regulation. It does not set out either to revise the Regulation or to encroach on
the Court of Justice's jurisdiction in matters of interpretation.

The Communication's layout mirrors that of the Regulation.

It starts by specifying the scope of the freedom to provide services in the maritime cabotage
sector. It indicates who enjoys that freedom and recalls which services the Regulation covers.

It  goes  on  to  specify  the  extent  of  the  derogations  to  the  freedom  to  provide  services,  as
provided for in the Regulation. There are three such derogations. Firstly, Member States have
the  power  to  impose  manning  rules  on  board  vessels  performing  island  cabotage  services
between  two  ports  on  their  territory.  Secondly,  Member  States  may  impose  public  service
obligations on shipowners in order to ensure an adequate scheduled transport service to, from
and  between  islands.  Lastly,  Member  States  may  ask  the  Commission  to  adopt  safeguard
measures to remedy a serious disturbance of the internal market.

3

 
1.

INTRODUCTION

Council Regulation (EEC) No 3577/92 applying the principle of freedom to provide
services  to  maritime  transport  within  Member  States  (maritime  cabotage)1,  which
was  adopted  when  the  internal  market  was  created,  is  now  ten  years  old.  Since  its
entry  into  force  on  1 January  1993,  maritime  cabotage  has  undergone  gradual
liberalisation. Certain services were exempted from the application of the Regulation
for a number of years. Since 1 January 1999 virtually all maritime cabotage services
have  been  liberalised.  Only  two  types  of  island  cabotage  service  still  qualify  for
derogations  in  Greece:  scheduled  passenger  and  ferry  services,  and  services
performed by vessels of less than 650 gt.

Since  1993,  the  Commission  has  reported  several  times  on  the  economic  and  legal
progress of liberalisation2, but has not addressed the problems of interpretation raised
by the Regulation. Many such problems have been  raised. This is witnessed by  the
dozens  of  enquiries  the  Commission  has  received  from  Member  States,  and  from
natural and legal persons.  It is also apparent from the infringement proceedings the
Commission has had to institute against Member States whose legislation it believed
ran counter to the Regulation. Several of these issues have been referred to the Court
of Justice of the European Communities.

With  the  experience  afforded  by  several  years  of  implementation,  the  Commission
believes it would be useful to indicate how it intends to interpret the provisions of the
Regulation.

The  Commission's first concern is transparency.  It has assumed  positions  on  issues
relating to the implementation of the Regulation on many occasions, but always on a
bilateral basis. Yet the questions certain  persons  raise  are  often of direct interest to
others.

The  Commission's  second  concern  is  clarification.  Some  of  the  Regulation's
provisions  are  not  altogether  clear  to  anyone  who  does  not  apply  them  on  a  daily
basis. This Communication is intended to help explain the text of the Regulation to
both those who apply it and those who hope to rely on it.

This  Communication  merely  presents  the  Commission's  interpretation  of  the
Regulation for information purposes. It does not set out to revise the Regulation or to
encroach on the Court of Justice's jurisdiction in matters of interpretation. If a future
judgement  of  the  Court  of  Justice  contradicts  the  Commission's  analysis,  the
Commission will of course comply with it without delay.

For ease of  reading, this Communication follows  the  order  of  the  provisions  in  the
Regulation.  Only  some  of  the  provisions  are  reproduced,  so  readers  are  advised  to
refer to the text of the Regulation.

1

2

OJ L 364, 12.12.1992, p. 7.
COM(95) 383, COM(97) 296, COM(2000) 99, COM(2002) 203.

4

 
                                                
2.

THE OPENING OF THE MARITIME CABOTAGE MARKET

2.1.

Freedom to provide maritime cabotage services

Article 1  of  Regulation  (EEC)  No  3577/92  liberalised  maritime  cabotage  in  the
countries where that economic sector was reserved for nationals. Freedom to operate
between  two  ports  in  the  same  Member  State  is  offered  to  all  Community
shipowners.3

The Commission considers that this freedom may in no circumstances be subjected
to  schemes  of  prior  authorisation,  in  particular  schemes  coupled  with  restrictive
conditions4. At the very most, Member States may ask shipowners to supply advance
information on the services they intend to provide. Similarly, the Commission does
not believe Member  States  can require  companies  to  have  a  representative  on  their
territory.

The standstill clause in Article 7 of the Regulation, which remains valid even though
the  Article  of  the  Treaty  to  which  it  refers  has  been  deleted,  in  principle  prohibits
Member  States  from  introducing  restrictions  on  the  freedom  to  provide  services
which did not exist before the Regulation entered into force.

2.2.

The beneficiaries of the freedom to provide services

Article 1  of  the  Regulation  stipulates  who  the  beneficiaries  are  of  the  freedom  to
provide maritime cabotage services. They are Community shipowners (1) who have
their  ships  registered  in  a  Member  State  (2)  and  flying  the  flag  of  that  Member
State (3), provided that they comply with the conditions for carrying out cabotage in
that Member State (4).

Conditions  (1),  (2)  and  (4)  imposed  by  the  Regulation  merit  closer  attention.  The
question also arises of the opening of the market to vessels which do not comply with
the conditions listed above.

2.2.1.

The concept of Community shipowner

Article 2(2) of the Regulation distinguishes three types of Community shipowner.

"(a) nationals of a Member State established in a Member State in accordance with

the legislation of that Member State and pursuing shipping activities;

(b)

(c)

shipping  companies  established  in  accordance  with  the  legislation  of  a
Member State and whose principal place of business is situated, and effective
control exercised, in a Member State; or

nationals  of  a  Member  State  established  outside  the  Community  or  shipping
companies established outside the Community and controlled by nationals of a
Member State, if their ships are registered in and fly the flag of a Member State
in accordance with its legislation."

3

4

For the beneficiaries of the freedom to provide services, see point 2.2.
See, however, the rules set out in Sections 4 and 5.

5

 
                                                
The  matter  which  has  raised  the  most  queries  is  the  definition  of  the  concept  of
"control" to which the Regulation refers in two of the three categories of Community
shipowner.

The  Regulation  states  that  Community  shipowners  include  "shipping  companies
established in accordance with the legislation of a Member State and whose principal
place  of  business  is  situated,  and  effective  control  exercised,  in  a  Member  State"
(Article 2(2)(b)). The Commission considers that the concept of "effective control in
a  Member  State"  means  in  this  context  that  the  major  decisions  are  taken  and  the
day-to-day management performed from Community territory and that management
board meetings are held in the territory of the Community.

Also  included  among  Community  shipowners  are  "nationals  of  a  Member  State
established  outside  the  Community  or  shipping  companies  established  outside  the
Community  and  controlled  by  nationals  of  a  Member  State,  if  their  ships  are
registered in  and  fly the flag of a  Member  State  in  accordance  with  its  legislation"
(Article 2(2)(c)). The Commission considers that the concept of "control by nationals
of  a  Member  State"  referred  to  in  that  Article  means  that  the  majority  of  the
company's capital is held by Community nationals.

The  condition  that  the  ship  should  be  registered  in  a  Member  State  also  warrants
clarification.

2.2.2.

The conditions of registration in a Member State and access to national cabotage

The Regulation does not list the Member State registers for which the conditions of
registration and of access to national cabotage are met. Such a list would in any event
be liable to change over time.

The condition of registration in a Member State assumes that the register in question
is  located  in  a  territory  in  which  the  Treaty  and  the  laws  deriving  from  it  apply.
Accordingly,  ships  entered  in  the  Kerguelen  (French  Austral  and  Antarctic
Territories) register or the registers of the Dutch Antilles, the Isle of Man, Bermuda
or the Cayman Islands are not among the beneficiaries of the Regulation5.

By contrast, ships registered in Gibraltar are among the Regulation's beneficiaries as
the Treaty applies to that territory6. Nonetheless, ships entered in this register could
be  refused  access  to  Community  cabotage  if  it  were  established  that  they  were  not
effectively subject to the Treaty and to the Community law derived from it.

The Regulation also provides that for a ship from a Member State to be able to carry
out cabotage in another Member State it must first comply with all the conditions for
carrying out cabotage in the Member State in which it is registered.

Accordingly, ships which do not enjoy access to national cabotage are not entitled to
access to the markets of the other Member States either. Similarly, ships which enjoy
conditional  access  to  the  national  market  may  have  similar  conditions  placed  upon

5

6

By and  large,  these  territories  form  part  of  the  overseas  countries  and  territories  subject,  by  virtue  of
Article 299(3) of the Treaty, to special arrangements for association with the Member States.
Article 299(4)  of  the  Treaty  stipulates  that  "the  provisions  of  this  Treaty  shall  apply  to  the  European
territories for whose external relations a Member State is responsible".

6

 
                                                
them if they wish to operate in another Member State. For example, if registration in
the  second  register  X  of  a  Member  State  is  subject  to  the  condition  that  the  ship
operate  at  least  half  the  year  on  international  routes,  the  ship  entered  in  that
register X will not be able to demand broader access to cabotage in the other Member
States (it will not be entitled to provide scheduled services there all year round)7.

2.3.

Opening  up  the  market  to  ships  which  are  not  among  the  Regulation's
beneficiaries

Several Member States have opened up their markets more fully than the Regulation
requires,  whether  erga  omnes,  by  means  of  bilateral  agreements  or  by  means  of
individual authorisations. Such practices do not infringe Community law.

3.

THE SCOPE OF REGULATION (EEC) NO 3577/92

Article 2(1) of Regulation (EEC) No 3577/92 indicates that the Regulation applies to
maritime  transport  services  (the  carriage  of  passengers  or  goods  by  sea)  within  a
Member State. It goes on to provide an indicative list of the types of cabotage service
covered by the Regulation.

Since  the  Regulation  entered  into  force,  four  main  questions  have  been  raised
regarding its scope. Do pleasure craft fall within the scope of the Regulation? Does
the  cabotage  leg  of  an  international  cruise  service  fall  within  the  scope  of  the
Regulation? Do services provided by vessels such as tugs fall within the scope of the
Regulation?  Should  feeder  services  be  considered  as  cabotage  or  as  international
services? These questions are addressed individually below.

3.1.

Pleasure craft

Regulation  (EEC)  No  3577/92  only  covers  maritime  services  "normally  provided  for
remuneration". Accordingly, most pleasure craft activities fall outside its scope.

3.2.

Cruise services

Cruise services do fall within the scope of Regulation (EEC) No 3577/92 when they
are provided  within  a  Member State  (see  Articles 3(1)  and  6(1)  of  the  Regulation).
The question is whether the cabotage leg of an international cruise service also falls
within the scope of the Regulation.

The  Commission  takes  the  view  that  the  Regulation  only  applies  when  passengers
are embarked/disembarked in the Member State where the cabotage leg takes place.

A cruise service starting in Member State X or a third country and ending in a third
country or Member State X and calling at ports in a Member State Y does not come
under  Regulation  (EEC)  No  3577/92  if  no  passengers  join  or  leave  the  cruise  in
Member  State  Y.  In  that  case,  it  is  Council  Regulation  (EEC)  No  4055/86  of
22 December 1986 applying the principle of freedom to provide services to maritime

7

On this point, see the Fourth Commission report on the implementation of Council Regulation 3577/92
applying 
to  maritime  cabotage  (1999-2000)
to  provide  services 
COM(2002) 203 pp. 5 and 6.

the  principle  of  freedom 

7

 
                                                
transport  between  Member  States  and  between  Member  States  and  third  countries
which applies8.

3.3.

Maritime versus port services

Do  services  provided  by  vessels  such  as  tugs  fall  within  the  scope  of  Regulation
(EEC) No 3577/92? The text of the Regulation itself does not answer this question.
To  clarify  the  status  of  a  number  of  services  normally  provided  near  the  coast
(e.g. towing,  pilotage,  dredging),  it  is  useful  to  recall  the  general  legal  framework
applying to the provision of services.

In  the  Services  Chapter  of  the  Treaty,  Article 49  provides  that  "restrictions  on
freedom to provide services within the Community shall be prohibited in respect of
nationals of Member States  who  are  established in a State of the  Community other
than  that  of  the  person  for  whom  the  services  are  intended".  However,  that  Article
does  not  apply  to  "services  in  the  field  of  transport".  Article 51(1)  of  the  Treaty
provides that "freedom to provide services in the field of transport shall be governed
by the provisions of the Title relating to transport". The Transport Title of the Treaty
indicates  that,  in  respect  of  sea  transport,  it  is  for  the  Council  to  decide  on  any
appropriate provisions that may be laid down (see Article 80(2) of the Treaty).

Thus far, the Council has adopted two Regulations applying the principle of freedom
to  provide  services  to  the  maritime  transport  sector:  Regulation  (EEC)  No 4055/86
concerning  trade  between  Member  States  and  between  Member  States  and  third
countries  and  Regulation  (EEC)  No 3577/92,  which  concerns  trade  within  Member
States. Both Regulations apply to the carriage of passengers and goods by sea.

A proposal for  a Directive applying the  principle of freedom to provide services to
port services is also under discussion in the Council and the European Parliament9. It
applies  to the technical-nautical services of  pilotage, towage  and  mooring  provided
for port users, either within the port area or on the waterway access to and from the
port or port system10.

Accordingly, of the various services provided near the coast, those such as dredging
which are not services "in the field of transport" come under Article 49 of the Treaty,
while  services  "in  the  field  of  transport",  such  as  towing,  come  under  the
above-mentioned legislation based on Article 80(2) of the Treaty.

To sum up, as regards "services in the field of transport", technical-nautical services
provided within  the  port area as defined by the draft Directive would  be  subject  to
that Directive. Technical-nautical services involving the deep-sea carriage of  goods
or passengers, outside the port area, are subject to Regulation (EEC) No 4055/86 and
Regulation (EEC) No 3577/92. In practice, this mainly concerns the towage of ships
following a breakdown or the towage of rigs into position.

The Commission would point out that the carriage of passengers by boat is subject to
Regulation  (EEC)  No  3577/92  even  when  the  service  takes  place  within  a  single
"port system" as defined by the legislation of the Member State concerned (e.g. the

8

9

10

OJ L 378, 31.12.1986, p. 1.
COM(2002) 101 final.
The scope of the draft Directive also includes cargo handling and passenger services.

8

 
                                                
crossing  of  an  estuary  by  sea).  Similarly,  the  Commission  takes  the  view  that  the
carriage of passengers by boat for touristic purposes starting and ending in the same
port is covered by the Regulation.

3.4.

Feeder services

Feeder services are services by which a carrier unloads goods from a vessel that has
sailed  from  a  point  of  departure  in  order  to  transfer  the  same  goods  on  to  another
vessel which continues the journey to a port of destination. The service is normally
carried out under a through bill of lading. The question has been raised whether such
services  should  be  considered  as  international  services  falling  within  the  scope  of
Regulation  (EEC)  No 4055/86  (which  does  not  impose  any  flag  requirement)  or  as
cabotage services  falling within the  scope of Regulation  (EEC)  No 3577/92  (where
there is a flag requirement).

In  February  1996,  the  Commission consulted the  Member  States  on  this  issue. The
consultation  revealed  that  in  all  the  Member  States  where  cabotage  services  are
reserved  for  Community  flagged  vessels  in  accordance  with  Regulation  (EEC)
No 3577/92,  feeder  services  are  considered  to  be  cabotage  services  (the  sole
exception  is  Portugal),  whereas  in  the  rest  of  the  Member  States,  feedering  is  free.
The  Commission  therefore  considered  that  Member  States  could  reserve  feeder
services for Community-flagged vessels.

It should be noted, however, that allowing a company to perform feeder services for
the carriage of international cargo following or preceding an international voyage by
the same company may lead to substantial savings in the cost of transport.

The  Commission  therefore  takes  the  view  that  this  issue  will  require  further
examination.

***

Having clarified the scope of the freedom to provide maritime transport services as
established by the Regulation (EEC) No 3577/92, the Commission will now examine
the derogations to this freedom introduced by the Regulation.

The  Regulation  provides  for  three  types  of  derogation.  Freedom  to  provide  island
cabotage services may be limited by the imposition of manning rules (see Section 4
below)  and  public  service  obligations  (see  Section 5)  by  the  Member  States
concerned.  Freedom  to  provide  services  may  also  be  temporarily  suspended  in  the
event of a serious disturbance of the internal transport market (see Section 6).

4.

MANNING RULES

Questions  of  manning  have  traditionally  been  the  responsibility  of  the  flag  States.
The  rules  vary  greatly  from  one  register  to  another.  For  instance,  some  Member
States  impose  strict  nationality  conditions  requiring  all  crew  members  to  be
Community nationals. Others merely reserve the posts of master and chief officer for
Community  nationals.  These  different  nationality  requirements  translate  into  major
differences in cost from one register to another.

9

 
To limit intra-Community competition on the most sensitive routes, Article 3 of the
Regulation provides that "host" Member States may impose their own manning rules
on  ships  carrying  out  island  cabotage.  "Host"  Member  States  may  also  decide  the
manning rules applicable to small ships (ships smaller than 650 gt). In practice, five
Member  States  have  chosen  to  avail  themselves  of  these  provisions  of  the
Regulation.

However, so as not to void the principle of freedom to provide services of its content,
the  Regulation  stipulates  that  the  rules  of  the  flag  State  will  continue  to  apply  to
cargo  ships  over  650 gt  carrying  out  island  cabotage  where  the  voyage  concerned
follows or precedes a voyage to or from another State ("consecutive cabotage").

These provisions raise two sets of questions regarding the extent of the host State's
competence.

The  first  relates  to  the  content  of  those  manning  rules  for  which  the  host  State  is
responsible,  while  the  other  concerns  the  boundary  between  the  competence  of  the
host State and that of the flag State in the case of consecutive cabotage.

The question has also been raised whether it is the host State's rules or the flag State's
rules  which  apply  to  cruise  liners  carrying  out  island  cabotage.  The  Commission
considers the Regulation to be very clear on this point: for cruise liners, the manning
rules are the responsibility of the flag State (see Article 3(1) of the Regulation). This
matter has been referred to the Court of Justice.

4.1.

The content of the manning rules which may be imposed by a host State

The  Regulation  does  not  specify  which  "matters  relating  to  manning"  are  the
responsibility  of  the  host  State.  Some  people  claim  the  host  State's  competence  is
unlimited  (the  Regulation  refers  to  "all"  manning  rules).  The  Commission  takes  a
more restrictive approach. It believes the host State's competence needs to be limited
in order to safeguard the principle of freedom to provide services, in respect of which
that competence is a derogation.

The  Commission  considers  that  host  States  are  competent  to  specify  the  required
proportion of Community nationals on board ships carrying out island cabotage (and
ships smaller than 650 gt). A Member State may therefore require the crews of such
ships  to  be  composed  entirely  of  Community  nationals.  Member  States  may  also
require the seafarers on board to have social insurance cover in the European Union.
In terms of working conditions, they may impose the minimum wage rules in force in
the  country.  However,  as  regards  the  rules  on  safety  and  training  (including  the
languages spoken on board), the Commission considers that Member States may do
no more than require compliance with the Community or international rules in force
(STCW  and  SOLAS  Conventions),  without  disproportionately  restricting  the
freedom to provide services.

4.2.

Consecutive cabotage

Article 3(3) of the Regulation stipulates that "from 1 January 1999, for cargo vessels
over  650 gt  carrying  out  island  cabotage,  when  the  voyage  concerned  follows  or
precedes a voyage to or from another State, all matters relating to manning shall be
the responsibility of the State in which the vessel is registered (flag State)".

10

 
The Commission takes the view that flag rules must apply only where goods actually
are carried during the international leg of the voyage which follows or precedes the
national leg of the voyage.

Were this not  the  case,  shipowners  could  circumvent  the  rules  of  the  host  State  by
adding a fictitious international voyage to their island cabotage journey. That is why
the  Commission  has  accepted  that  Member  States  may  continue  to  apply  the  host
State's  rules  where  the  international  voyage  which  follows  or  precedes  the  island
cabotage  is  made  in  ballast.  The  Commission  nonetheless  considers  that  the  flag
State's  rules  may  apply  to  Community  ships  which  carry  out  an  island  cabotage
voyage  after  having  performed  an  operationally  and  commercially  independent
voyage  to  or  from  another  State  and  which,  in  making  their  way  to  the  port  of
loading  for  the  island  cabotage  voyage,  perform  a  journey  in  ballast  which  is
sufficiently  short  and  inconsequential  for  the  island  cabotage  voyage  in  practice  to
indeed follow or precede an international voyage.

The  manning  rules  applicable  where  the  ship  concerned  is  fulfilling  public  service
obligations are specified in point 5.3.2.2.

4.3.

Revision of the manning rules

According  to  the  Regulation,  definitive  manning  arrangements  were  to  have  been
adopted by the Council before 1 January 1999 on the basis of a Commission proposal
following  a  detailed  examination  of  the  economic  and  social  consequences  of  the
liberalisation of island cabotage.

The  Commission  presented  a  report  on  the  matter  to  the  Council  on  17 June  1997,
and  a  proposal  for  a  regulation  on  29 April  199811.  The  proposal  was  for  a
generalisation  of  the  flag  State's  responsibility  for  manning  issues.  The  host  State
retained responsibility for ships smaller than 650 gt and for determining the required
proportion  of  Community  nationals  in  the  crews  of  ships  carrying  out  scheduled
passenger  and  ferry  services  (including  mixed  services  and  scheduled  cruise
services).  Seafarers  from  third  countries  on  board  such  ships  were  to  have  been
subject to the same working conditions as residents of Member States.

The  Commission  proposal  failed  to  win  the  approval  of  the  Member  States.  The
Commission  therefore  proposed  that  it  be  withdrawn  on  11 December  2001.  The
Commission currently has no plans to present a new proposal. Accordingly, the rules
laid down in Article 3 of the Regulation will not be amended in the short term.

5.

PUBLIC SERVICE

The  maritime  transport  of  passengers  and  goods  is  vital  for  the  inhabitants  of
Europe's islands. That is why a special set of rules was drawn up to protect some of
these maritime links not adequately served by the market.

The Regulation offers Member States a framework to organise in a compatible way
market  intervention  through  restrictions  on  market  access  or  funding  relating  to
public  service  obligations  on  maritime  services.  The  purpose  of  this  Section  is  to

11

COM(1998) 251 final.

11

 
                                                
further clarify, where necessary, the conditions laid down by the Regulation with the
objective of rendering public intervention compatible with general Treaty rules.

5.1.

Geographical scope of public service links

According to the wording of Article 4(1) of the Regulation, public service links have
to serve routes to, from and between islands. Long estuaries or fjords which lead to a
detour of about 100 km by road12 may be treated as islands for the purposes of this
section  as  they  may  cause  a  similar  problem  by  isolating  conurbations  from  each
other.

5.2.

Island cabotage routes on which public service obligations may be imposed

It  is  for  the  Member  States  (including  regional  and  local  authorities  where
appropriate)  to  determine  which  routes  require  public  service  obligations13.  In
particular, public service obligations may be envisaged for regular (scheduled) island
cabotage services in the event of market failure to provide adequate services.

According  to  the  conditions  laid  down  by  the  Regulation,  Member  States  may
impose  public  service  obligations  in  order  to  "ensure  the  adequacy"  of  regular
maritime  transport  services  to  a  given  island  (or  in  relation  to  an  estuary),  where
Community  shipowners,  if  they  were  considering  their  own  commercial  interest,
would  not  provide  services  of  an  adequate  level  or  under  the  same  conditions14.
Trade should otherwise remain free.

to 

referred 

When  imposing  public  service  obligations  for  services  described  in  Article  4(1)  of
the  Regulation,  Member  States  must  limit  their  intervention  to  the  essential
requirement  of
in  Article  4(2)  and 
requirements 
non-discrimination  as  laid  down  by  Article 4(1)  of  the  Regulation  in  respect  of  all
Community  shipowners  interested  in  serving  the  route.  This  requirement  must  be
strictly observed when deciding on the content of the obligations to be fulfilled and
during  the  administrative  procedure  resulting  in  the  selection  of  an  operator  of  a
given service or establishing the amount of compensation.

fulfil 

the 

5.3.

The obligations that may be imposed

5.3.1.

The distinction between public service obligations and public service contracts

A  distinction  is  made  in  Regulation  (EEC)  No  3577/92  between  "public  service
obligations" (see Article 2(4) and Article 4(2) of the Regulation) and "public service
contracts"  (see  Article 2(3)).  Public  service  contracts  are  the  instrument  normally
used to enshrine public service obligations where a horizontal approach applying to
all  shipowners  intending  to  serve  a  given  route  may  not  be  sufficient  to  meet  the

12

13

14

The  ratio  between  the  distance  around  the  estuary  and  the  distance  across  should  be  around  10  or
greater.
It is not for shipowners to set public service obligations.
See Recital 9 and Article 2(4) of the Regulation. See also the judgement in Case C-205/99 (reference to
the Court under Article 234 of the Treaty by the Tribunal Supremo, Spain, for a preliminary ruling in
the  proceedings  pending  before  that  Court  between  Asociación  Profesional  de  Empresas  Navieras  de
Líneas  Regulares  (Analir)  and  others  and  Administración  General  del  Estado),  paragraphs  31  et  seq.,
[2001] ECR I-1271.

12

 
                                                
essential transport needs, in particular general conditions concerning the quality of a
given service.

Article 4(2) of the Regulation sets out an exhaustive list of requirements that may be
introduced  when  "public  service  obligations"  are  imposed.  Article 2(3)  of  the
Regulation  provides  only  an  indication  of  the  scope  of  public  service  contracts;
Member  States  may  go  further.  In  practice,  quality  requirements  are  often  part  of
"public  service  contracts",  but  cannot  be  introduced  as  part  of  "public  service
obligations". With regard to "public service obligations", the requirement relating to
the shipowners' "capacity to provide the service" may include an obligation related to
their solvency as well as the requirement that they have no outstanding tax and social
security debts15. The Commission takes the view that the obligation to use a fast ferry
may also fall within this category.

When  public  service  obligations  are  imposed,  the  requirements  relating  to  the
regularity  and  frequency  of  the  service  may  be  met  collectively  –  and  not
individually – by all the shipowners serving the same route16.

5.3.2.

The principle of non-discrimination.

Pursuant to the principle of non-discrimination laid down by the Regulation, Member
States must not set obligations that are tailor-made for a given shipping company and
that would prevent other Community shipowners from entering the market or apply
obligations with that effect.

In particular, the Commission would draw the attention of the Member States to the
problems raised by the following two types of provision.

5.3.2.1. The taking-over of vessels

Firstly, the question has been raised whether a Member State, when putting a public
service contract out to tender, could require the successful bidder to take over vessels
and crews from the previous operator. The Commission takes the view that, in most
cases, such an obligation would infringe Regulation (EEC) No 3577/92 as it would
be discriminatory. It would prevent Community shipowners from bidding with their
own vessels and would give an advantage to the incumbent operator should the latter
be a candidate for its own succession.

However, the Commission can agree that where serving an island requires the use of
a vessel with a design so special that it cannot be found or sold on the market or used
for another purpose, it will be less restrictive of the freedom to provide services for
there  to  be  a  requirement  that  that  vessel  be  taken  over  than  for  the  service  to  be
awarded to a single shipowner with a contract that would be long enough to allow the
full amortisation of a purpose-built vessel. In such cases, the vessel could be leased –
under very clear conditions set out in detail in the tender documents – by successive
operators from a vessel-owning company set up for that purpose. An obligation for
the  new  service  provider  to  take  the  ship  over  directly  from  its  predecessor  would

15

16

Case C-205/99, cited above, paragraphs 45 to 51.
If an island needs to be served 4 times a week and two shipowners are willing to participate in the trade,
each of them should only commit itself to operating twice a week or, respectively, once and three times
a week.

13

 
                                                
also be conceivable.  It has to be stressed  that  this  obligation  cannot be  extended to
the crew (taking over the on-board personnel should of course remain an option for
the bidder).

Where Member States' authorities themselves own vessels or have them otherwise at
their disposal, these may be placed at the disposal of  all potential  service operators
under the same non-discriminatory terms.

5.3.2.2. Manning conditions

Secondly, questions have also been raised in relation to the manning conditions that
may be imposed under public service obligations and contracts.

The Commission takes the view that the type of manning rules that may be imposed
by  host  Member  States  on  any  vessel  participating  in  an  island  cabotage  service
(Article 3(2)  of  the  Regulation)  and  the  type  of  rules  that  may  be  imposed  under
public  service  obligations  and  contracts  (Article 4  of  the  Regulation)  should  in
principle be the same. These rules are specified in Section 4 of this Communication.

Indeed,  Member  States  would  be  likely  to  infringe  the  principle  of  non-
discrimination  laid  down  by  Regulation  (EEC)  No  3577/92  should  they  go  beyond
what  is  acceptable  under  Article 3  of  that  Regulation  when  they  impose  public
service obligations17.

However, the Commission considers that Member States may lawfully impose their
own  manning  conditions  on  board  vessels  operating  on  public  service  routes  even
when  the  island  cabotage  voyage  is  followed  or  preceded  by  a  voyage  to  or  from
another  Member  State.  Article  3(3)  of  the  Regulation  should  not  apply  to  routes
where public service obligations are imposed.

5.4.

The procedure for imposing public service obligations

Member  States  have  several  administrative  means  at  their  disposal  for  imposing
"public  service  obligations",  applied  to  all  operators  of  a  given  route,  such  as a
declaration  regime,  a  licensing  system  or  an  authorisation  system.  Member  States
may  also  impose  public  service  obligations  by  concluding  public  service  contracts
with one or a limited number of operators.

The Court of  Justice, in Case  C-205/99,  stated  that  a  procedure  as  restrictive  as  an
authorisation procedure  is acceptable  provided  that  it  is  necessary,  proportionate  to
the aim pursued and based on objective, non-discriminatory criteria which are known
in advance to the undertakings concerned. Companies should also be given the right
to appeal against any decision taken against them18.

It  must  be  stressed,  however,  that  it  would  be  difficult  for  a  Member  State  to
introduce an authorisation system after the entry into force of the Regulation without
infringing  the  standstill  provision  laid  down  by  Article 7  of  the  Regulation.  In

17

18

The  Commission  nonetheless  takes  the  view  that,  in  some  exceptional  cases,  a  condition  which  cannot  be
accepted under Article 3 of the Regulation, but which is essential for the public service, will be acceptable
under Article 4 of the Regulation if it is duly justified and proportionate to the goal pursued. This will need to
be examined on a case-by-case basis.
Case C-205/99.

14

 
                                                
principle, only Member States which had an authorisation system in force before the
entry into force of the Regulation may continue to implement it.

When  the  competent  authority  of  a  Member  State  concludes  a  public  service
contract,  it  also  has  to  respect  the  applicable  procurement  rules.  Procurement  law
entails,  at  the  minimum,  a  sufficient  degree  of  publicity,  in  order  to  ensure  an
effective  competition,  as  well  as 
transparent  and
non-discriminatory selection procedure proportionate to the aim to be achieved19. In
addition,  for  the  award  of  contracts  falling  within  the  scope  of  Council
Directive 92/50/EEC of 18 June 1992 relating to the coordination of procedures for
the  award  of  public  service  contracts20,  technical  specifications  must  comply  with
certain rules and there is an obligation to publish the relevant contract award notice
in the Official Journal of the European Union.

the  organisation  of  a 

The  Commission  takes  the  view  that,  in  general,  the  awarding  of  public  service
contracts risks to discriminate between operators, as normally only one operator of a
launching  an  open
given  route 
Community-wide  invitation  to  tender  is  in  principle  the  best  way  to  ensure
non-discrimination (on these matters, see also point 5.6 below21).

therefore  considers 

is  concerned.  It 

that 

The Commission does not require the Member States to notify every public service
contract they conclude (should the contract involve public compensation, reference is
made to point 5.7 of this communication). The notification obligation laid down by
Article 9 of the Regulation only refers to acts with a broader scope such as a general
legal framework for cabotage services.

5.5.

Market access and competition on public service routes

By imposing public service obligations, Member States intervene in the conditions of
market  access  on  certain  routes,  which  may  distort  competition  if  not  done  in  a
non-discriminatory  way.  Such  interventions  may  be  considered  both  legitimate  and
lawful  in  view  of  the  aim  pursued  (to  ensure  the  adequacy  of  regular  (scheduled)
transport  services  to,  from  and  between  islands).  Any  intervention  in  relation  to  a
public service obligation should remain proportionate to the aim pursued. Should it
go beyond what is strictly needed, it would unnecessarily restrict a freedom which is
essential for the proper functioning of the internal market. The Commission wishes
to address three topics related to this issue.

5.5.1.

Exclusivity

Granting  exclusivity  to  a  shipowner  on  a  public  service  route  normally  allows
Member  States  to  achieve  the  least  burden  to  the  community  but  it  restricts  the
traditional freedom of trade in the maritime transport sector.

19

20

21

See  the  Commission  interpretative  communication  on  concessions  under  Community  law  (OJ  C  121,
29.4.2000, p. 2), as well as the judgement in Case C-324/98 Teleaustria and Telefonadress v Telekom
Austria [2000] ECR I - 10745; see also point 5.3.2 above.
OJ L 209, 24.7.1992, p. 1.
In  principle,  an  independent  authority  should  be  responsible  for  the  whole  procedure.  However,  the
Commission recognises that, in some cases, it might be sufficient for only the final part of the procedure
(evaluation of the bids and adoption of the final decision) to be entrusted to an independent body.

15

 
                                                
A fair balance should be established between the two principles.

In duly justified cases exclusivity may be considered the only adequate instrument to
meet the essential transport needs, when granted for a limited period of time and on
the basis of an open, fair and non-discriminatory Community-wide award procedure.

Exclusivity  may  also  be  awarded  in  a  way  which  always  restricts  access  for
additional  services  under  non-discriminatory  conditions  while  safeguarding  the
performance  of  the  operator  providing  the  services  meeting  the  essential  transport
needs under exclusive rights.

The Commission stresses, however, that in many cases, less restrictive measures than
exclusivity may be  taken  in  order to  avoid  “market skimming”  and to diminish the
amount of State aid needed. An operator contractually bound to fulfil public service
obligations  all  year  round,  without  an  exclusive  right,  might  suffer  from  the
behaviour of another operator who, in the absence of any public service obligations
could enter the market only for the more profitable months of the year and seriously
reduce the first operator's earnings.

The Commission considers that light public service obligations may be imposed on
all operators of the same route in parallel to a public service contract concluded with
one  operator22.  For  example,  a  condition  could  be  set  according  to  which  any
shipowner entering a route where a public service contract is in force which imposes
all year round services will have to operate all year round as well.

5.5.2. Duration of public service contracts

The  Regulation  does  not  set  any  maximum  duration  for  public  service  contracts.
However, it follows from Article 1 and Article 4 of the Regulation that public service
contracts  should  have  a  limited  duration  in  order  to  allow  regular  and  open
prospecting  of  the  market.  With  a  view  to  complying  with  the  principle  of
proportionality  in  any  market  intervention,  the  least  distortional  form  to  meet  the
essential  transport  needs  should  be  chosen.  All  Community  shipowners  should  be
regularly given the opportunity to apply for the operation of a given service (on this
matter, see also point 5.6 below).

In  the  Commission's  view,  a  contract  of  a  period  of  more  than  6  years  does  not
normally meet the proportionality requirement.

5.5.3.

Bundled routes

Member States often wish to group public service routes to and from different islands
into  a  single  bundle  in  order  to  generate  economies  of  scale  and  attract  operators.
Bundles as such are not contrary to Community law provided that bundling does not
lead to discrimination.

The most appropriate size of bundles should be decided by taking account of the best
synergy to be made in meeting essential transport needs.

22

On the possibility for a Member State to impose public service obligations in parallel to a public service
contract, see also Case C-205/99, paragraphs 60 to 71.

16

 
                                                
5.6.

The case of "small islands"

The Commission's attention has been drawn to the fact that cumbersome procedures
for concluding public  service  contracts  in  the maritime sector  are  over-complicated
when it comes to organising services for small islands, which normally only attract
local operators.

In order to reconcile this specificity with the need to  comply with  the principles of
transparency  and  non-discrimination,  which  it  considers  can  be  achieved  only
through open, fair and non-discriminatory award procedures, the Commission takes
the view that, without prejudice to Community procurement rules where applicable,
the selection of a suitable operator entrusted to serve a small island could be carried
out  following  a  simple  call  for  expressions  of  interest  without  launching  a  formal
tender,  provided  that  a  Community-wide  announcement  of  the  service  –  which  is
very easily organised – is maintained. The Commission takes the view that a longer
duration of contracts, of 12 years, might be acceptable.

For the purpose of this Communication, experience, and particularly a study carried
out on behalf of the Commission, shows that "small islands" could be understood to
mean islands where the total annual number of passengers carried by sea to and from
the island is around 100 000 or fewer. As far as outermost regions are concerned, this
threshold only applies to trade within the region (and not trade between an outermost
island and the mainland).

The  simplified  rules  may  in  principle  apply  to  the  carriage  under  public  service
contracts of both passengers and goods to and from a "small island". However, goods
trade,  which  can  normally  be  organised  under  competitive  conditions,  should  be
excluded wherever there is a risk of unjustifiable market distortion.

Where the same operator serves several small islands, the total number of passengers
carried  by  that  operator  in  the  context  of  the  public  service  is  taken  into  account
when determining whether the threshold is reached.

5.7.

Public subsidies granted to compensate for public service obligations

The  Regulation  applies  in  the  same  way  whether  subsidies  are  granted  or  not.
However,  when  State  aid  is  granted  in  order  to  compensate  for  public  service
obligations,  Member  States  have  to  grant  it  in  compliance  with  Community
legislation and in particular Regulation (EEC) No 3577/92 and the Treaty  State  aid
rules as interpreted by the Court of Justice.

6.

SAFEGUARD MEASURES

Article 5  of  the  Regulation  stipulates  that  Member  States  may  request  the
Commission  to  adopt  safeguard  measures  "in  the  event  of  a  serious  disturbance  of
the  internal  transport  market  due  to  cabotage  liberalisation".  Article  2(5)  provides
that  such  measures  may  be  applied  for  a  maximum  of  one  year  where  problems
appear  on  the  market  which  "are  likely  to  lead  to  a  serious  and  potentially  lasting
excess  of  supply  over  demand,  are  due  to,  or  aggravated  by,  maritime  cabotage
operations,  and  pose  a  serious  threat  to  the  financial  stability  and  survival  of  a
significant  number  of  Community  shipowners,  provided  that  the  short-term  and

17

 
medium-term forecasts for the market in question do not indicate any substantial and
lasting improvements".

This  provision  has  been  applied  only  once,  in  Spain,  when  the  Regulation  first
entered into force23.

It should be stressed that individual instances of shipowners on a given route going
bankrupt are not sufficient to warrant the application of this clause.

The  cabotage  reports  published  since  the  Regulation  entered  into  force  show  that
liberalisation of cabotage has not caused any other serious disturbance of the internal
transport market. It is unlikely that it would cause such a disturbance now, given that
most services have been liberalised.

23

Commission Decision 93/396/EEC of 13 July 1993 on Spain's request for adoption by the Commission
of  a  prolongation  of  safeguard  measures  pursuant  to  Article 5  of  Regulation  (EEC)  No 3577/92
applying  the  principle  of  freedom  to  provide  services  to  maritime  transport  within  Member  States
(maritime cabotage) , OJ L 173, 16.7.1993, p. 33.

18