Report from the Commission to the Council and the European Parliament on transport security and its financing
Date: 2006-08-01
Institutions: European Commission
Subjects: EU law - national law, air transport, competition law, financing method, maritime transport, terrorism, transport safety

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 1.8.2006 
COM(2006) 431 final 

REPORT FROM THE COMMISSION TO THE COUNCIL  
AND THE EUROPEAN PARLIAMENT 

on transport security and its financing 

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1. 

INTRODUCTION AND AIM 

Enhancing  security  has  been  a  priority  of  the  Commission  directly  in  the  aftermath  of  the 
attacks  of  11  September  2001.  The  Commission’s  general  views  were  set  out  in  its 
Communication to the European Parliament and to the Council on “The repercussions of the 
terrorist attacks in the United States on the air transport industry”1. The Commission followed 
this  up  with  Regulations  establishing  common  rules  on  aviation  and  maritime  security.  In 
addition,  the  Commission  launched  a  European  programme  for  the  protection  of  critical 
infrastructure2. 

In view of the importance of financing security measures and the necessity to avoid internal 
and external distortions of competition, both Regulations were accompanied by requests from 
the  European  Parliament  and  the  Council  to  undertake  studies3.  Those  studies  should  in 
particular  address  the  way  the  financing  of  security  measures  is  shared  between  the  public 
authorities  in  the  Member  States  and  the  operators,  without  prejudice  to  the  distribution  of 
competencies  between  the  Member  States  and  the  European  Community.  The  Commission 
was  requested  to  submit  to  the  European  Parliament  and  to  the  Council  the  results  of  its 
studies and make proposals if appropriate. 

When  preparing  this  report,  the  Commission  asked  the  European  Economic  and  Social 
Committee  and  the  Committee  of  the  Regions  for  an  opinion  on  the  question  of  transport 
security and financing4. 

2. 

RESULTS OF STUDIES 

2.1. 

Aviation Security 

Following  the  Interinstitutional  Declaration  attached  to  Regulation  (EC)  N°  2320/2002,  the 
Commission launched a study on European Civil Aviation Security Financing5.  

The study, which covered 15 Member States plus Norway, Iceland and Switzerland, analysed 
aviation  security  expenditure,  funding  mechanisms  and  associated  competition  issues.  As 
regards security expenditure the study revealed that in 2002, prior to the entry into force of the 
European regulations, total security related expenditure for the 18 states was between 2.5 and 
3.6  billon  euros.  This  is  made  up  of  0,65  billion  euros  by  the  states,  1,32  billion  euros  by 
airports and between 0,52 and 1,66 billion euros by air carriers. Although one may argue that 
these  costs  are  significant,  the  study  showed  that  for  example  for  intra-European  travel,  the 
combination  of  security  taxes  and  airport  charges  represents  between  1%  and  2%  of  the 
average fare. 

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COM(2001)574 final of 10.10.2001 
Programme “Prevention, Preparedness and Consequence Management of Terrorism and other Security 
and Safety Related Risks” for the period 2007-2013, adopted by Council on 2.6.2006 
Interinstitutional Declaration accompanying Regulation (EC) N° 2320/2002 of the European Parliament 
and  of  the  Council  of  16  December  2002  establishing  common  rules  in  the  field  of  civil  aviation 
security  (OJ  L  355  of  30.12.2002,  p.  12)  and  Recital  15  of  Regulation  (EC)  N°  725/2004  of  the 
European Parliament and of the Council of 31 March 2004 on enhancing ship and port facility security 
(OJ L 129 of 29.04.2004, p. 6) 
TEN/217 - CESE 1488/2005 of 14.12.2005 and COTER-040 - CdR 209/2005 fin of 17.11.2005 
http://europa.eu.int/comm/transport/air/safety/studies_fr.htm 

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As regards funding mechanisms, the study came to the conclusion that two basic models of 
financing exist within Europe: 

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a centralised model, where the provision of the main security activities are primarily 
the  responsibility  of  the  State  via  a  government  body  (Civil  Aviation  Authority, 
Ministry of Transport, police force, etc.)6 

a  decentralised  model,  where  the  provision  of  the  main  security  activities  are 
provided  by  the  airport  authorities  under  the  supervision  of  the  relevant  authority 
(Civil  Aviation  Authority,  relevant  Ministry,  etc.).  These  activities  could  either  be 
provided by the airport directly or outsourced to a third party7. 

The  study  concluded  that  in  both  models  the  passenger  was,  ultimately,  the  main  funder  of 
security through State security taxes, airline security charges on tickets and/or airport charges. 
However,  it  also  concluded  that  in  the  majority  of  countries  and,  irrespective  of  the  model 
applied, funding from passengers during the year 2002 was insufficient to cover all security 
costs. This has to be seen in perspective, as actual passenger charges related to security may 
also  be  contained  in  general  aeronautical  charges  at  a  number  of  airports  and  this  lack  of 
transparency distorts the overall understanding of revenue actually generated to fund security 
at airports across Europe. Differences appeared in relation to the funding of existing operating 
deficits,  with  6  of  the  18  States  covering  such  deficits  partly  from  general  taxes  and  the 
remaining States leaving the burden of financing such deficits on the airports.  

As  regards  the  risk  of  external  distortion  of  competition,  the  study  showed  significant 
differences in the approach to financing security measures between the EU and the US. In the 
aftermath of 11 September 2001, the US authorities granted significant financial assistance to 
its  hard-hit  aviation  industry  and  ensured  nationwide  application  of  several  major  security 
measures. As an example, the US aviation industry from 2002 to 2004 benefited from public 
assistance amounting to almost 32000 million euro under the header of transport security. It is 
clear that such heavy public funding can create distortions of competition between European 
and American carriers.  

2.2.  Maritime Security 

Recital  15  of  Regulation  (EC)  725/2004  stipulates  that  the  Commission  should  undertake  a 
study  to  address  in  particular  the  way  financing  is  shared  between  public  authorities  and 
operators.  Under  recital  13  of  Directive  2005/65/EC  this  study  should  also  consider  the 
funding of extra security measures for port security. 

This study is currently being finalised. Preliminary results indicate that, similar to the case of 
aviation,  security  costs  in  maritime  transport  constitute  a  relatively  low  proportion  of  the 
overall investment and operating costs.  

The European Union has more than 1200 seaports and about 4000 port facilities. The average 
cost  of  security  is  464.000  Euro  for  investment  costs  and  234.000  Euros  for  yearly  running 
costs.  The  fleet  under  flags  of  the  EU  Member  States  account  for  about  9000  vessels,  and 

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The  approach  in  Austria,  Finland,  Germany,  Iceland,  Italy,  Luxembourg,  Norway,  Portugal,  Spain, 
Sweden, Switzerland is closest to this model. 
The  approach  in  Belgium,  Denmark,  France,  Greece,  Ireland,  The  Netherlands,  United  Kingdom  is 
closest to this model. 

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operators  have  to  bear  an  average  investment  cost  of  around  100.000  Euro  per  vessel  and 
25.000  Euros  running  costs  per  year.  Investments  are  mainly  in  equipment  and  compliance 
certification,  whereas  more  than  50%  of  the  running  costs  represent  the  cost  of  specialised 
personnel. 

Those  average  figures  have  to  be  seen  in  comparison  to  the  global  costs  that  shipping 
activities have to face. Whilst an investment of an average of 100.000 Euro is necessary per 
vessel in terms of security, this represents only 0.0015% of the total price of a new-build 8000 
TEU  Container  ship  and  0.0006%  for  a  110,000  GT  LNG  tanker.  Although  the  study  was 
unable  to  determine  equivalent  percentages  in  respect  of  port  facilities,  it  shows  huge 
differences  between  types  of  port  facilities  ranging  from  798.000  Euro  for  Multi-Purpose 
facilities to 79.000 Euro for container facilities. This can primarily be explained by the fact 
that depending on their specific activities, some types of facilities already had equipment and 
measures in place because of safety requirements or to counter theft, which can be used for 
security purposes as well. 

According  to  the  study  the  costs  are  essentially  financed  directly  or  indirectly  by  the  port 
authorities  and  the  operators  themselves.  As  far  as  port  facilities  are  concerned,  the  sources 
for  cost  recovery  of  the  security  measures  appear  on  average  as  follows:  increase  of  tariffs 
19%,  separate  security  charge  55%  and  subsidies  23%.  Competent  authorities  in  Member 
States were rather discreet on the resources they devote to maritime security.  

However,  the  EU  maritime  security  regime  has  not  yet  come  wholly  into  effect  -  full 
implementation in accordance with the relevant provisions of both Regulation 725/2004 and 
Directive 2005/65 is required by 1st July 2007. This may mean that in order to achieve a high 
level  of  compliance,  additional  resources  could  be  needed.  Distortion  of  competition  may 
exist as long as a uniformly high level of compliance is not reached. 

As  in  the  case  of  aviation  security,  there  is  also  the  question  of  external  distortion  by 
competitors from third countries which may benefit from subsidies by their governments for 
covering  maritime  security  costs.  This  could  be  valid  for  port  facilities  in  competition  with 
neighbouring non-EU ports, and to a lesser extent for ships. 

3. 

ISSUES TO BE CONSIDERED 

3.1. 

Structure of costs 

Several types of costs relating to transport security can be identified: 

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Costs of administrating security rules, including compliance monitoring 

Costs resulting from applying legislation 

•  Fixed  costs,  such  as  capital  investment  in  security  equipment,  and  selection  and 

initial training of security staff;  

•  Operating costs, such as maintenance of security equipment (including technology 

upgrades), the wages of security staff, recurrent training costs; 

•  Exceptional costs, such as those of additional temporary measures to raise security 

levels during periods of higher risk.  

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– 

Costs resulting from terrorist attacks  

These costs are only partially related to transport and can include the cost of repairing damage 
to  the  target  itself,  ancillary  costs  resulting  from  the  disruption  caused  by  the  attack  and 
damage claims of victims, both direct and indirect. Indeed, even in the case that the transport 
medium  (e.g.  aircraft,  ship,  train)  is  the  object  of  a  terrorist  attacks  and  is  not  used  as  a 
weapon, the damage may go by far beyond the transport sector. It is difficult to estimate the 
scale of such costs, but it is quite possible that they may be of such an extent that no single 
transport  operator  could  be  in  a  position  to  finance  them.  Also,  the  cost  of  damage  may  go 
significantly beyond what insurance may be able to cover at a reasonable price. In addition, 
depending on its nature, the consequences of a terrorist attack may extend beyond the territory 
of a single Member State and may be of such a scale that even the Member State where the 
terrorist attack has taken place cannot bear the costs. 

3.2. 

Financing 

3.2.1.  Financing of administrating security rules, including compliance monitoring 

The  transposition  of  Community  legislation  into  national  law  and  its  application  to  national 
monitoring activities are tasks that are typically those of a public authority.  

This holds also true for inspections to verify the  correct application of security  measures in 
the aviation, maritime and land transport sector. Although the Commission may also carry out 
such  inspections,  this  in  no  way  replaces  the  Member  States’  obligations  to  implement 
efficient quality control programmes on the national level. 

Such activities fall within the public policy remit and as such are in principle financed in full 
by  the  Member  States.  They  do  not  give  raise  to  State  aid,  even  if  the  Member  States  rely 
upon private undertakings for assisting them, provided (in the latter case) that the financing is 
limited to a compensation of the costs incurred and a reasonable profit, and does not give raise 
to any overcompensation. . 

On the basis of its inspection results, the Commission calls upon the Member States to make 
available  sufficient  resources  to  ensure  the  full  application  of  security  rules  and  control  of 
implementation of security legislation.  

3.2.2.  Financing of the implementation of security measures 

The  financing  by  Member  States  of  the  implementation  of  transport  security  measures  by 
Member States raises the question whether it constitutes State aid in the sense of Art. 87 (1) 
EC Treaty and if so, under which conditions it can be declared compatible with the common 
market.  

The European Court of Justice and the Court of First Instance have at several occasions held 
that there are three distinct categories of activities which are financed by the State: activities 
of  public  authority,  economic  activities,  and  non-economic  activities.  Only  economic 
activities are subject to European competition law, whereas activities of public authority and 
non-economic activities are excluded from its scope. 

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In the Eurocontrol8 case, the Court found that Eurocontrol's activities, by their nature, their 
aim  and  the  rules  to  which  they  are  subject,  are  connected  with  the  exercise  of  powers 
relating  to  the  control  and  supervision  of  air  space  which  are  typically  those  of  a  public 
authority.9 Accordingly, they are not of an economic nature justifying the application of the 
Treaty rules of competition.  

In the Porto di Genova case, the Court found that “the anti-pollution surveillance for which 
SEPG  was  responsible  in  the  oil  port  of  Genoa  is  a  task  in  the  public  interest  which  forms 
part  of  the  essential  functions  of  the  State  as  regards  protection  of  the  environment  in 
maritime areas. Such surveillance is connected by its nature, its aim and the rules to which it 
is subject with the exercise of powers relating to the protection of the environment which are 
typically those of a public authority. It is not of an economic nature justifying the application 
of the Treaty rules on competition”10. 

In  the  Aeroport  de  Paris  case,  the  Court  of  First  Instance  found  that  “a  distinction  must  be 
drawn  between,  on  the  one  hand,  ADP's  purely  administrative  activities,  in  particular 
supervisory  activities,  and,  on  the  other  hand,  the  management  and  operation  of  the  Paris 
airports, which are remunerated by commercial fees which vary according to turnover.”11 

It can be seen from this jurisprudence that the financing of transport security measures which 
form  part  of  essential  functions  of  the  State  and  which  are  connected  with  the  exercise  of 
powers  which  are  typically  those  of  a  public  authority  does  not  constitute  State  aid  in  the 
sense of Art. 87 (1) EC Treaty. 

The  Commission  has  confirmed  this  in  its  decision  “N  309/2002  France,  Sûreté  aérienne  – 
compensation des coûts à la suite des attentats du 11 septembre 2001”. In this decision, the 
Commission  analyses  the  security  measures  which  the  French  government  had  put  in  place 
after the attacks of September 11. In point 22 and 23 of the decision, the Commission comes 
to the following conclusions: 

The abovementioned security tasks are functions traditionally performed by the police or the 
airport  manager  in  accordance  with  instructions  from  the  public  authorities.  They  are 
provided  for  in  laws  or  regulations.  The  bodies  performing  them  do  not  have  any 
discretionary margin.  

The  bodies  responsible  for  these  security  tasks  receive  no  revenue  of  any  kind  from 
passengers.  Indeed,  the  French  authorities  have  indicated  that  the  airport  taxes  paid  by 
passengers remain at the disposal of the airports and are used, in part, to cover the security 
costs of these airports alone. These functions can therefore in principle be considered to be 
the responsibility of the public authorities. 

As a general rule, it can be concluded that the financing of transport security measures which 
are imposed by law and which are connected with the exercise of powers which are typically 
those  of  a  public  authority  do  not  constitute  economic  activities.  This  position  has  recently 

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Eurocontrol is an international organisation in charge of establishing and collecting the charges levied 
on users of air navigation services. 
Arrêt du 19/01/1994, SAT Fluggesellschaft / Eurocontrol (Rec.1994,p.I-43), point 30. 
Arrêt du 18/03/1997, Calì & Figli / Servizi Ecologici Porto di Genova (Rec.1997,p.I-1547), point 22 
Arrêt du 12/12/2000, Aéroports de Paris / Commission (Rec.2000,p.II-3929), point 112. 

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been  re-affirmed  in  the  Community  guidelines  for  State  aid  to  regional  airports.12  The 
financing of these measures must, however, be strictly limited to compensation of the costs to 
which they give rise and may not be used to fund other economic activities.13 

The  State  can  delegate  the  exercise  of  these  powers  to  private  undertakings;  this  was  for 
example  the  case  in  Porto  di  Genova.  The  State  may  also  decide  that  the  users  of  a  certain 
facility have to bear, at least partially, the costs of these security measures, as it was the case 
in  Porto  di  Genova,  Eurocontrol  and  the  aforementioned  security  measures  in  the  French 
airports. In these situations, the Commission will however scrutinize very closely whether the 
private undertakings do not receive overcompensation for their help to the State, and whether 
the  charges  levied  are  strictly  confined  to  what  is  necessary  for  financing  the  security 
measure. If the State delegates the exercise of its powers to private undertakings, it must also 
ensure that EC public procurement and non discrimination rules are fully respected, as far as 
they are applicable, and ensure that there is no discrimination. 

3.3. 

Transparency in levying security taxes and charges 

The studies on the financing of transport security have found that there is little transparency as 
regards what money was raised for security, the levels of charges or taxes levied, and how the 
money was actually spent. 

It  is  desirable  to  achieve  greater  transparency  as  regards  security  taxes  and  charges.  This 
could  take  the  form  of  rules  on  the  hypothecation  or  ring-fencing  of  money  collected  for 
transport  security  so  as  to  ensure  that  it  is  spent  solely  and  wholly  on  security.  A  second 
option would be that security taxes and charges are explicitly explained to passengers where 
fares  are  broken  down  in  order  to  show  users  what  they  are  charged  for.  This  would  be 
particularly  relevant  for  airline  passengers  where  security  costs  are  bundled  into  a  much 
higher figure covering overall taxes and charges. 

3.4. 

Potential distortions of competition 

The Commission is of the opinion that the pursuit of a sufficiently level playing field in terms 
of access to public financing is a valid concern raised by stakeholders, both within the internal 
market and in relation to major external markets. 

As  the  different  studies  have  borne  out,  different  approaches  exist  within  the  EU  to  the 
involvement  of  Member  States  in  the  funding  of  the  implementation  of  security  measures, 
reflecting the different philosophies Member States may have on the role of the State in this 
matter. The heterogeneity of approach and the lack of transparency in generating revenue that 
is  wholly  for  the  implementation  of  security  measures  means  that  there  is  a  possibility  of 
some  distortion  of  competition.  This  is  particularly  relevant  in  cases  where  Member  States 
require additional, more stringent measures than those imposed by Community legislation. 

However, distortions may also arise on a global level due to different approaches towards the 
funding of security measures around the world. This issue needs to be addressed, so as not to 
disadvantage  the  Community's  transport  industry  in  comparison  with  its  competitors  from 
outside the European Union, with its consequential negative effect on EU economic growth. 

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Official Journal C 312 of 9.12.2005, p.1. 
Case C-343/95, Cali [1997] ECR I-1547 (“Porto di Genova”) 

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It  should  therefore  be  ensured  that  similar  principles  are  being  applied  to  the  European 
transport industry’s competitors in third countries by the Governments responsible for them, 
preferably  in  the  form  of  agreements  in  international  fora  such  as  ICAO  or  IMO  or,  failing 
that,  bilateral  agreements  between  the  European  Union  and  the  Governments  of  the  States 
where the main competitors are based. 

4. 

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CONCLUSIONS 

According  to  studies  on  aviation  and  maritime  security,  security  costs  can  be 
significant and are currently largely borne by the users. 

Increased  transparency  relating  to  security  taxes  and  charges  would  give  users  of 
transport  services  better  information  and  provide  a  clearer  insight  into  possible 
effects  on  competition.  The  current  lack  of  transparency  increases  the  difficulty  to 
identify potential distortions. 

The  heterogeneity  of  approach  to  the  funding  of  the  implementation  of  security 
measures means that there is a possibility of some distortion of competition. This is 
particularly relevant in cases where Member States require additional, more stringent 
measures than those imposed by Community legislation. 

The  Commission’s  general  views  set  out  in  its  Communication  to  the  European 
Parliament  and  to  the  Council  on  “The  repercussions  of  the  terrorist  attacks  in  the 
United  States  on  the  air  transport  industry”  remain  valid.  In  particular,  the 
Commission  considers  that,  in  view  of  the  fact  that  the  protection  of  European 
citizens against terrorist attacks is essentially a State responsibility, public funding of 
the actions to prevent such acts which are connected with the exercise of powers that 
are typically those of a public authority does not constitute State aid.  

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