The outer limits of article 18 TFEU? Case C-628/11 International Jet Management

By Laurens Ankersmit

On the face of it, one might consider the outcome of this Grand Chamber ruling unsurprising. The Court held that EU law precludes German legislation which establishes an authorization requirement for undertakings established in another Member State to provide services in Germany. That authorization requirement was not required for German undertakings, was established for reasons of protecting the national economy (!) and did not factually recognize an operating license granted on the basis of EU legislation by another Member State.

Yet, this ruling concerned the regulation of air transport services, which is not only subject to a particular regime under free movement law, but is also politically highly sensitive (national airlines are still seen as a source of pride by many) and still operates much in an international regulatory context which is not always in line with EU law and policy. The Court was therefore still required to answer some tough legal questions, in particular how to reconcile article 58 (1) TFEU (the prohibition on restrictions to provide services of article 56 TFEU does not apply to transport services which has its own regime) with article 18 TFEU (the prohibition of discrimination on the basis of nationality). The issue was further complicated by the fact that the authorization requirements were only required with respect to flights from and to third countries.

Facts

International Jet Management, an undertaking established in Austria and licensed there, was fined for operating various charter flights from Moscow and Ankara to Germany without having the authorization required by German legislation to enter German airspace. It was refused authorization because it did not produce a ‘non-availability declaration’ which was a declaration that no German airline was willing or able to operate the flight concerned under similar conditions. International Jet Management held an operating licence to operate flights within the EU as well as to and from third countries on the basis of Regulation 1008/2008 on common rules for the operation of air services granted to it by Austrian authorities. That licence, inter alia, was granted if the undertaking in question complied with various safety and security requirements set out in the Regulation.

 Article 18 TFEU applies

The most important question was to determine whether the issue fell within the scope of EU law at all. While International Jet Management was an undertaking established in another Member State and provided services in Germany, the nature of those services make recourse to article 56 TFEU (freedom to provide services) impossible. Article 58 (1) TFEU states that ‘freedom to provide services in the field of transport shall be governed by the provisions of the Title relating to transport’. That title does not lay down a general prohibition on restrictions to provide and receive air transport services within the EU. Rather, obstacles to trade are to be abolished through positive harmonization on the basis of article 100 (2) TFEU. This is why International Jet Management relied on article 18 TFEU which prohibits discrimination on grounds of nationality, rather than article 56 TFEU. However, for article 18 TFEU to be applicable, the situation had to fall within the scope of application of the Treaties.

The Court found this to be the case, because Regulation 1008/2008 on common rules for the operation of air services regulated air transport services provided between a third country and a Member State by an undertaking holding an operating license granted by another Member State on the basis of that Regulation (paras 39 and 53). The Court found that Regulation 1008/2008 ‘not only regulate[d] the right of ‘Community air carriers’ to operate ‘intra-Community air services’, but also the licensing of those air carriers, which [was] the subject of Chapter II of that regulation’ (para 41). The granting of such a license is independent of whether flights are operated within the EU or also to and from third countries and as such does not limit the scope of application of the Regulation to intra-EU flights. This makes sense of course, because the primary objective of such licensing requirements is to guarantee compliance of safety and security requirements.

The Court also considered that ‘while the objective of that regulation is to complete the internal aviation market, the EU legislature considered that the achievement of that objective could also be thwarted by restrictions applied to air routes with third countries’ (para 50) and that various references in the Regulation itself and in other secondary rules concerned the application of EU rules to air transport services from and to third countries (paras 50-52). In light of these considerations, the Court held that the situation in the case at hand fell within the scope of the application of the Treaties within the meaning of Article 18 TFEU (para 53).

The useful effect of article 58 (1) TFEU

Before the Court could find that the German rules in question were contrary to article 18 TFEU (which would be easy), it had to deal with the objection put forward by the German and French governments that the application of article 18 TFEU would deprive article 58 (1) of its useful effect. The French government argued that applying article 18 TFEU ‘would result in extending the freedom to provide services laid down in Article 56 TFEU to those air transport services’ (para 55).

The Court dismissed this argument by following the Advocate General, holding that the freedom to provide services (article 56 TFEU) also prohibits obstacles to trade and not merely discriminatory rules. According to the Court (paras 57-58)

Article 56 TFEU requires not only the elimination of all discrimination against providers of services on grounds of nationality or the fact that they are established in a Member State other than that where the services are to be provided, but also the abolition of any restriction, even if it applies without distinction to national providers of services and to those of other Member States, which is liable to prohibit, impede or render less advantageous the activities of a provider of services established in another Member State where he lawfully provides similar services (Case C‑475/11 Konstantinides [2013] ECR, paragraph 44 and the case-law cited).

That provision of the FEU Treaty therefore has a scope which exceeds the prohibition of discrimination provided for in Article 18 TFEU.

Thus, Member States remain free to impose restrictions on air transport services between the EU Member States and third countries insofar as the EU legislature has not exercised its competences to liberalize those services. Nonetheless, Member States ‘remain subject to the general principle of non-discrimination on grounds of nationality enshrined in Article 18 TFEU’ (para 59).

In the last part of the judgment the Court had no difficulty in finding that the German rules were unjustifiably discriminatory. The authorization rules only applied to operators established outside Germany, and this de facto discriminatory rule could not be saved by the justifications put forward by the German government: the protection of the national economy (the judges must have had a good laugh on that one) and safety (paras 69 -76). As regards safety, the Court applied a mutual recognition style of reasoning. The safety considerations were in fact already met by holding the operating license granted by Austrian authorities on the basis of the Regulation (paras 71-75).

 Comment

In the past the Court has had recourse to some pretty artificial links with free movement in order to find blatantly discriminatory measures incompatible with EU law. This was not necessary here, as an Austrian company was discriminated against in providing services in Germany. Rather, the complexity of the case lies within the exception carved within the TFEU for the politically sensitive issue of freedom to provide air transport services. The Court, however, found a rather neat solution to giving both effect to article 18 TFEU and article 58 TFEU. While air transport services remain special in the eyes of the Court, and thus are not subjected to the full regime of article 56 TFEU, Member States must refrain from discriminating air transport service providers (and receivers too probably) whose situation falls within the scope of application of the Treaties.  This is not to say that the demarcation between a discrimination test and an obstacles approach is always that clear, nor is the Court’s approach on when a situation falls within the scope of application of the Treaties, but it is a decent compromise between two, on the face of it, incompatible articles.

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