Important legal notice
Opinion of Mr Advocate General Mischo delivered on 4 October 1989. - Commission of the European Communities v Italian Republic. - Failure of a Member State to fulfil its obligations - Public supply contracts in the data-processing sector - Undertakings partly or wholly in public ownership - National legislatrion not in compliance with obligations under Community law. - Case C-3/88.
European Court reports 1989 Page 04035
Swedish special edition Page 00269
Finnish special edition Page 00285
Opinion of the Advocate-General
++++
Mr President,
Members of the Court,
1 . In the Article 169 action in Case C-3/88, the Commission seeks a declaration from the Court that by adopting or maintaining in force legislation under which only companies in which all or a majority of the shares are directly or indirectly in public or State ownership may conclude agreements with the Italian State for the development of data-processing systems on behalf of the public authorities, the Italian Republic has failed to fulfil its obligations under Articles 52 and 59 of the EEC Treaty and Council Directive 77/62/EEC of 21 December 1976 coordinating procedures for the award of public supply contracts ( Official Journal L 13, 15.1.1977, p . 1 ).
2 . For a description of the Italian laws and decree-laws in issue, reference may be made to Part II of the Report for the Hearing . Those enactments all concern the establishment of complete data-processing systems, from the design of the system and the definition of the software ( programs ) to their technical operation, including the purchase of the equipment required for their operation .
3 . The allegation of infringement of Articles 52 and 59 of the EEC Treaty is directed at that aspect of the Italian legislation which relates to the design, programming and operation of the data-processing systems ( hereinafter referred to collectively as "software "), while that of infringement of Directive 77/62/EEC is directed at the legislation in so far as it relates to the supply of equipment ( hereinafter referred to as "hardware ").
I - Articles 52 and 59 of the EEC Treaty
4 . In its judgment of 14 January 1988 in Case 63/86 Commission v Italy (( 1988 )) ECR 29, the Court pointed out that
"Articles 52 and 59 of the Treaty are essentially intended to give effect, in the field of activities as self-employed persons, to the principle of equal treatment enshrined in Article 7 according to which 'within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited' .
Those two articles are thus intended to secure the benefit of national treatment for a national of a Member State who wishes to pursue an activity as a self-employed person in another Member State and they prohibit all discrimination on grounds of nationality resulting from national or regional legislation and preventing the taking up or pursuit of such an activity" ( paragraphs 12 and 13 ).
5 . In the present case, the Italian Government claims primarily that the laws and decree-laws in issue do not make any reference to the nationality of companies entitled to conclude the contracts and agreements in question with the Italian State .
6 . At a formal level, the Italian Government is undoubtedly right - the Italian legislation in issue applies without distinction to both Italian and non-Italian companies . The criterion of distinction is not the "nationality" of the companies, but rather whether all or a majority of the shares are in public ownership . It is not disputed that "public ownership" here means Italian public ownership .
7 . The Commission, in its reply ( point 3.2.2 ), counters by asserting that
"provisions which, while making no explicit reference to nationality, in fact affect solely or overwhelmingly nationals ( or corporations ) of the other Member States ... are also covered by the prohibition of discrimination ".
8 . That claim of indirect ( or disguised ) discrimination on the basis of nationality had already been raised by the Commission in Case 221/85 Commission v Belgium (( 1987 )) ECR 719, to which it refers . In its judgment of 12 February 1987 in that case, the Court found that the Belgian law in issue did not prevent nationals of other Member States from establishing themselves in Belgium and carrying out the activities in question and that it thus applied without distinction to Belgian nationals and those of other Member States, and added that
"its provisions and objectives do not permit the conclusion that it was adopted for discriminatory purposes or that it produces discriminatory effects" ( paragraph 11 ).
9 . In other, more recent, cases, the Court has also indicated that the criterion of indirect discrimination on the basis of nationality may indeed be applied to rules applicable without distinction .
10 . In its judgments of 7 July 1988 in Case 143/87 Stanton v Inasti and in Joined Cases 154 and 155/87 Inasti v Wolf and Others and Inasti v RSVZ ( 1 ) the Court found as follows :
"the national legislation which gave rise to the main proceedings is applicable without distinction to all self-employed persons working in Belgium and does not discriminate according to the nationality of those persons . Although it is true that self-employed persons whose principal occupation is employment in a Member State other than Belgium are thereby placed at a disadvantage, nothing has been submitted to the Court to show that the persons disadvantaged are exclusively or mainly foreign nationals ".
The Court concluded that
"nor, therefore, can the national legislation at issue be considered to result in indirect discrimination on grounds of nationality"
and that
"consequently, Article 7 of the Treaty may be dismissed from consideration" ( paragraph 9 ).
11 . In its judgment of 20 September 1988 in Case 31/87 Gebroeders Beentjes v Netherlands, ( 2 ) the Court declared that
"the obligation to employ long-term unemployed persons could inter alia infringe the prohibition of discrimination on grounds of nationality laid down in the second paragraph of Article 7 of the Treaty if it became apparent that such a condition could be satisfied only by tenderers from the State concerned or indeed that tenderers from other Member States would have difficulty in complying with it ".
As the case was a reference for a preliminary ruling, it added that
"it is for the national court to determine, in the light of all the circumstances of the case, whether the imposition of such a condition is directly or indirectly discriminatory" ( paragraph 30 ).
12 . Furthermore, in its judgment of 7 June 1988 in Case 20/85 Roviello v Landesversicherungsanstalt Schwaben, ( 3 ) the Court applied the same reasoning, this time not to national legislation but to a provision of Community law in the field of social security, and confirmed that
"the principle of equal treatment prohibits not merely overt discrimination based on nationality but all covert forms of discrimination which, by applying other distinguishing criteria, in fact achieve the same result" ( paragraph 14 ). ( 4 )
13 . Those various recent judgments confirm the validity of the Commission' s claim that provisions of national law which, while applicable without distinction to nationals of all the Member States, in fact hinder or disadvantage primarily nationals of other Member States may also be covered by the prohibition in Articles 52 and 59 of the Treaty . It is, moreover, significant that the General Programmes for the abolition of restrictions on freedom to provide services and on freedom of establishment laid down by the Council on 18 December 1961 ( Official Journal, English Special Edition, Second Series IX, pp . 3 and 7 ), which, as the Court has noted on several occasions, ( 5 ) provide useful guidance with a view to the implementation of the relevant provisions of the Treaty, both consider that the restrictions prohibited include
"any requirements imposed, pursuant to any provision laid down by law, regulation or administrative action or in consequence of any administrative practice, in respect of the provision of services (( or the taking up or pursuit of an activity as a self-employed person )) ... where, although applicable irrespective of nationality, their effect is exclusively or principally to hinder the provision of services (( or the taking up or pursuit of such activity )) by foreign nationals ".
14 . Moreover, in its judgments of 7 July 1988 in the Inasti cases, cited above, the Court declared very generally that
"the provisions of the Treaty relating to the free movement of persons are thus intended to facilitate the pursuit by Community citizens of occupational activities of all kinds throughout the Community, and preclude national legislation which might place Community citizens at a disadvantage when they wish to extend their activities beyond the territory of a single Member State" ( paragraph 13 ).
15 . Applied to the present case, that approach implies that the Italian legislation in issue, while not preventing companies from other Member States from establishing themselves in Italy or engaging in the activities in question, is incompatible with Articles 52 and 59 of the Treaty in so far as its effect is to prevent non-Italian companies from concluding the contracts in question .
16 . In its rejoinder ( p . 5 ), however, the Italian Government objects that the disputed rules treat Italian private undertakings and foreign private undertakings in exactly the same way, both in fact and in law, and that they merely draw a distinction between private undertakings and public undertakings, with no reference to nationality .
17 . In the present case, however, it is not appropriate to make any differentiation in reasoning between private undertakings and public undertakings . First, the Commission is not alleging any discrimination by Italy against foreign private undertakings in relation to Italian private undertakings . Secondly, the discriminatory criterion is not that of public ownership, but that of Italian public ownership, the effect of which is that only undertakings controlled by the Italian public sector can be considered for the work in question . Those companies are, in fact, all companies which are incorporated or have their registered offices in Italy, that is to say they are Italian companies .
18 . Not all Italian companies are treated more favourably than foreign companies, but all the companies receiving favourable treatment under the legislation are Italian .
19 . The defendant claims, however, that the Italian State or public sector has acquired majority holdings in a number of foreign companies, including an American company specialized in data processing .
20 . In that connection, it must be acknowledged that a company having the nationality of another Member State, provided that all or a majority of its shares were in Italian public ownership, would meet the conditions laid down by the laws in question . But even if some such company were to exist, the Italian legislation, while not affording favourable treatment exclusively to Italian companies, would still afford such treatment mainly to those companies, and would still be incompatible with the Treaty .
21 . The Commission has nevertheless pointed out, without being contradicted, that there are at present no data-processing companies having the nationality of another Member State all or a majority of whose shares are in Italian public ownership, and that the agreements concluded under the contested rules have in fact been concluded with Italian companies .
22 . In its rejoinder ( pp . 5 and 6 ), the Italian Government also maintains that the criterion of Italian public ownership is justified by the type of services which the companies in question are called upon to provide, and in particular by the fact that their task may involve the operation of data-processing systems in strategic sectors such as taxation, organized crime, public health, etc .
23 . In that connection, it must be noted that a number of the laws in question provide only that the task of operating the data-processing systems may, if appropriate, be temporarily entrusted to the companies which developed those systems . Those provisions refer, moreover, to the technical operation of the systems, and that operation is to remain under the direction and supervision of the administrative authorities, so that it does not necessarily involve access to "strategic" data by the operators .
24 . Finally, the State can undoubtedly guard against any unwelcome use of the data in question by having recourse to other measures which are less restrictive of freedom of establishment and freedom to provide services, such as a duty of official secrecy laid on the staff of the companies concerned . Furthermore, Decree-Law No 688 of 30 September 1982, providing for emergency measures to counteract tax evasion, extends the general duty of official secrecy, which applies under the Italian Penal Code to public officials and those responsible for public services, to "employees and staff of companies awarded contracts who are involved in any manner in the operations provided for in the contracts ". There is no reason to suppose that compliance with that duty would necessarily be less strict or less complete in the case of staff of companies none of whose shares were in Italian State ownership than in the case of staff of those some of whose shares were in Italian State ownership .
25 . Similar considerations may be advanced in relation to the Italian Government' s alternative argument that Articles 52 and 59 cannot be applied in any event because of the exceptions provided for in Articles 55, 56(1 ) and 66 of the Treaty .
26 . With regard to the exception for activities involving the exercise of official authority provided for in Article 55, it must first be emphasized, as the Court reiterated in its judgment of 15 March 1988 in Case 147/86 Commission v Greece ( 6 ) that
"since it derogates from the fundamental rule of freedom of establishment (( and, through Article 66, from that of freedom to provide services )) Article 55 of the Treaty must be interpreted in a manner which limits its scope to what is strictly necessary in order to safeguard the interests which it allows the Member States to protect" ( paragraph 7 ).
The Court added, moreover, that
"the possible application of restrictions on freedom of establishment provided for by Article 55(1 ) must be appraised separately in respect of each Member State . However, that appraisal must take account of the Community character of the limits set by Article 55 to the exceptions which are permitted to the principle of freedom of establishment, in order to prevent the effectiveness of the Treaty in this area from being undermined by unilateral provisions adopted by the Member States" ( paragraph 8 ).
27 . However, the Court has never, in its decisions, given a definition in general and abstract terms of what is meant by "activities which ... are connected, even occasionally, with the exercise of official authority ".
28 . In its judgment of 21 June 1974 in Case 2/74 Reyners v Belgium (( 1974 )) ECR 631, it did, however, declare that the most typical activities of the profession of avocat cannot be considered to be connected with the exercise of that authority, and ruled that
"the exception to freedom of establishment provided for by the first paragraph of Article 55 must be restricted to those of the activities referred to in Article 52 which in themselves involve a direct and specific connection with the exercise of official authority ".
It follows from that judgment that even if certain activities are performed by virtue of a legal duty or monopoly, they are not necessarily connected with the exercise of official authority .
29 . Furthermore, in its judgment of 15 March 1988 in Commission v Greece, cited above, concerning activities which although engaged in by private individuals fell within the field of education, where it is for each Member State to determine the role and responsibilities of the official authorities, the Court held that the exception in Article 55 was not applicable because those activities remained subject to supervision by the official authorities, which had at their disposal appropriate means for ensuring in all circumstances the protection of the interests entrusted to them, and there was no need to restrict freedom of establishment for that purpose .
30 . In my view, the Court has thus given the concept of "connection with the exercise of official authority" a narrower interpretation than that which it has given to the concept of "employment in the public service" contained in Article 48(4 ) of the Treaty, which, according to the Court' s decisions, includes not only those posts which involve direct participation but also those which involve indirect participation in the exercise of powers conferred by public law and even in the discharge of functions whose purpose is to safeguard merely the general interests of the State or of other public authorities . ( 7 )
31 . In view of the foregoing, I do not feel that it is possible to consider that companies awarded contracts for the development and technical operation of data-processing systems on behalf of the public authorities are "directly and specifically" involved in the exercise of official authority . As we have seen, moreover, the services to be provided by those companies are to remain under the direction and supervision of the public authorities, which thereby retain control .
32 . Finally, in so far as the development and technical operation of data-processing systems may unavoidably involve access to data of a confidential nature and of public importance, Member States have, in the duty of official secrecy, a sufficiently effective means of guarding against disclosure without there being any need to restrict freedom of establishment or freedom to provide services for that purpose .
33 . With regard to the exception contained in Article 56(1 ), to which Article 66 also refers, and which makes it permissible to maintain national rules providing for special treatment for foreign nationals on grounds of public policy, public security or public health, it should first be pointed out that the grounds on which the exercise of certain activities may be exempted from the prohibitions contained in Articles 52 and 59 are to be found not in the aims specific to the relevant rules themselves but in the reasons for which they impose restrictions on foreign nationals . The Italian Government' s argument that it is, in establishing these data-processing systems, pursuing aims which are not solely economic but also involve the public interest, including counteracting tax evasion, fighting organized crime, providing therapeutic measures for drug-addiction and counteracting fraud in the pharmaceutical and agricultural sectors, is therefore not relevant for the purpose of justifying the restrictions imposed on foreign companies . To give an example, the mere fact that one of the data-processing systems in question is intended to meet the requirements of national health planning and supervision of the national health fund does not mean that any participation of foreign companies in its establishment and operation would endanger public health in Italy . ( 8 )
34 . The only reasons of public policy or public security which might justify the exclusion of foreign companies therefore lie in the protection of the data processed by the systems in question . According to the Italian Government,
"that information has undeniable public implication; it cannot be allowed to fall into unauthorized hands and must not be used in any manner which is improper or actually contrary to the interests of the State" ( end of point II, 2.(b ) of the rejoinder ).
35 . What is true for measures adopted under Article 56 is also true for any measure providing for special treatment for foreign nationals, whether based on objective criteria of general interest or on Article 55; that is to say, they must not be disproportionate to the aim they seek to achieve . As the Court pointed out in its judgment of 26 April 1988 in Case 352/85 Bond van Averteeders and Others v Netherlands (( 1988 )) ECR 2085,
"as an exception to a fundamental principle of the Treaty, Article 56 of the Treaty must be interpreted in such a way that its effects are limited to that which is necessary in order to protect the interests which it seeks to safeguard" ( paragraph 36 ).
36 . It is also impossible, for the reasons outlined in those contexts, to justify the exclusion of companies other than those in which all or a majority of the shares are in Italian public ownership on grounds of public policy or public security within the meaning of Article 56 of the Treaty .
37 . In conclusion, the Commission' s application should be upheld in so far as it is based on an infringement of Articles 52 and 59 of the EEC Treaty .
II - Council Directive 77/62/EEC
38 . In its second head of claim, the Commission seeks a declaration that the Italian legislation in issue authorizes, with regard to the purchase of the hardware required for the establishment of the data-processing systems in question, procedures for the award of public supply contracts which are incompatible with the principles of Council Directive 77/62/EEC, and in particular that the advertising rules contained in Article 9 of that directive, which require appropriate notices to be published in the Official Journal of the European Communities, have never been observed .
39 . The Italian Government argues primarily that the directive does not apply to the contracts and agreements in issue . A data-processing system forms a whole from which the hardware cannot be separated and of which it is merely a secondary, ancillary constituent . As complex assemblages comprising, in addition to the hardware, software-related operations and services ( design, maintenance, commissioning and sometimes operation ), data-processing systems such as those defined in the legislation in question cannot be regarded as constituting "products" within the meaning of Article 1(a ) of the directive .
40 . That argument advanced by the Italian government cannot, in my opinion, be accepted .
41 . It is true that there can be no doubt, and the Commission is in full agreement with the Italian Government on this point, that
"following the necessary design state, hardware and software are the indispensable and inseparable elements acquired for the establishment of a data-processing system" ( reply, p . 2 ).
42 . But that does not mean that they cannot be purchased separately .
43 . The Italian Government could first have approached a company specializing in software for the design of the system . Such a company could have produced a very detailed description of the technical requirements for the most appropriate machines . The government could then have purchased those machines by following a procedure complying with the rules laid down in Directive 77/62/EEC . It was in fact confirmed at the hearing that the Italian Government has finally become the owner of the equipment chosen and purchased on its behalf by the companies with which the contracts were concluded .
44 . The question whether the hardware and software, taken together, constitute a "product" within the meaning of Article 1 of the directive does not, therefore, arise .
45 . In any event, the directive does not contain any provision which would allow certain deliveries of products to be excluded from its scope of application on the ground that they were merely ancillary to more extensive operations or services . It does, however, to a limited extent, provide the opposite : Article 1(a ) provides that the delivery of products covered by public supply contracts within the meaning of the directive "may in addition include siting and installation operations ". It is obviously out of the question to conclude that in the field of data-processing software is secondary to hardware and must be treated in the same way . I feel, however, that it may justifiably be considered that if the Council had intended to allow hardware not to be made subject to the directive on the ground that it is ancillary to software, then it would have said so explicitly .
46 . It is, moreover, significant to note that although the Council, in Article 6(1)(h ), authorized Member States not to apply the prescribed procedures "for equipment supply contracts in the field of data-processing", that exception was available only until 1 January 1981, in the absence of any decision to modify that date, and was subject to the Council' s right to exclude certain categories of material from its scope . That explicit exception shows, by contrary inference, that data-processing hardware is, in principle, a product within the meaning of the directive . It cannot be deduced from the scope or wording of either Council Decision 79/783/EEC of 11 September 1979 adopting a multiannual programme ( 1979-83 ) in the field of data processing ( Official Journal L 231, 13.9.1979, p . 23 ) or Council Decision 84/559/EEC of 22 November 1984 amending that decision in respect of general measures in the field of data processing ( Official Journal L 308, 27.11.1984, p . 49 ) that those decisions may have extended, even implicitly, the period of validity of that exception . The directive has therefore been applicable to equipment supply contracts in the field of data processing since 1 January 1981 . ( It may be pointed out, in passing, that the current text of the directive, as amended by Council Directive 88/295/EEC of 22 March 1988, ( 9 ) no longer contains the exception in question .)
47 . That conclusion cannot be impugned by the observation that the value of the software is generally greater than that of the hardware in the establishment of data-processing systems . The directive merely fixes a lower limit below which the prescribed procedures need not be applied to public supply contracts, and that limit is expressed in absolute terms : Article 5(1)(a ) sets it at 200 000 European units of account, now ECU 200 000 . The Italian Government' s answer to the question put by the Court shows that in the present case that limit was exceeded with respect to the hardware - indeed, the Italian Government has never claimed otherwise .
48 . It should also be pointed out that the purpose of Directive 77/62/EEC, as stated in the first two recitals in its preamble, is merely to supplement, by the coordination of the procedures relating to public supply contracts, the prohibition of restrictions on the free movement of goods in that field already contained in Articles 30 et seq . of the EEC Treaty . None of those provisions envisages any exemption from that prohibition in cases where the goods involved are to be delivered within the wider framework of operations which also, or principally, comprise the performance of work or the provision of services .
49 . Furthermore, in its judgment of 22 September 1988 in Case 45/87 Commission v Ireland (( 1988 )) ECR 4929, the Court relied on the general character of the prohibitions laid down by Article 30 in dismissing the Irish Government' s argument that they should not apply to imports of materials ancillary to a public works contract . The Court held that the provisions of the Treaty relating to the freedom to provide services did not lay down any specific rule relating to particular barriers to the free movement of goods, and explicitly declared that
"the fact that a public works contract relates to the provision of services cannot remove a clause in an invitation to tender restricting the materials that may be used from the scope of the prohibitions set out in Article 30" ( see paragraphs 14 to 17 ).
50 . That reasoning is also applicable in the present case, inasmuch as the fact that a delivery of goods falls within the framework of activities carried out under either Article 52 or Article 59 of the Treaty does not exempt those goods from the prohibitions contained in Article 30 .
51 . It was therefore wrong not to provide, in the three Italian enactments in issue, for the application of the procedures prescribed in Directive 77/62/EEC in relation to the purchase of the hardware required for the establishment of the data-processing systems in question .
52 . With regard to the Italian Government' s alternative submission that the public supply contracts in issue are covered by one or more of the derogations provided for in the directive, I agree with the Commission in considering that none of those derogations is applicable in this case . Since I am in full agreement with the arguments advanced by the Commission in that regard, as they are set out in Part IV.2 of the Report for the Hearing, I shall merely refer to that document .
Conclusion
53 . For all the above reasons, I propose that the Commission' s application should be allowed in its entirety, and that the Italian Republic should be ordered to pay the costs .
(*) Original language : French .
( 1 ) (( 1988 )) ECR 3877 and 3897 .
( 2 ) (( 1988 )) ECR 4635 .
( 3 ) (( 1988 )) ECR 2805 .
( 4 ) See also the judgment of 15 January 1986 in Case 41/84 Pinna v Caisse d' allocations familiales de la Savoie (( 1986 )) ECR 1, paragraphs 23 and 24 .
( 5 ) See, in particular, the judgment of 14 January 1988 in Case 63/86 Commission v Italy, cited above, paragraph 14, and the judgment of 10 July 1986 in Case 79/85 Segers v Bestuur van de Bedrijfsvereniging voor Bank - en Verzekeringswezen, Groothandel en Vrije Beroepen (( 1986 )) ECR 2375, paragraph 15 .
( 6 ) (( 1988 )) ECR 1637 .
( 7 ) For a definition of "employment in the public service", see in particular the judgment of 3 July 1986 in Case 66/85 Lawrie-Blum v Land Baden-Wuerttemberg (( 1986 )) ECR 2121, paragraph 27 .
( 8 ) In that context, see the Court' s judgment of 7 May 1986 in Case 131/85 Guel v Regierungspraesident Duesseldorf (( 1986 )) ECR 1573, paragraph 17 :
"The right to restrict freedom of movement on grounds of public health is intended not to exclude the public health sector, as a sector of economic activity and from the point of view of access to employment, from the application of the principles of freedom of movement but to permit Member States to refuse access to their territory or residence there to persons whose access or residence would in itself constitute a danger for public health ."
( 9 ) Council Directive 88/295/EEC of 22 March 1988 amending Directive 77/62/EEC relating to the coordination of procedures on the award of public supply contracts and repealing certain provisions of Directive 80/767/EEC ( OJ L 127, 20.5.1988, p . 1 ).
Top