Globalization and EU Competition Policy

Umut Aydin, Kenneth Thomas

• Publisher: Routledge
• Year: 2020
• Print ISBN: 9780415711173
• eBook ISBN: 9781000155624
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

Competition policy—encompassing cartels, monopolies, mergers and state aid—is a hallmark of the European Union (EU). In recent decades, the EU's competition policy has evolved under pressures from globalization. The EU in turn has been a key actor driving the globalization of the world economy through its increasingly active competition policy. This volume identifies and explores the major transformations that EU competition policy has undergone in the last decade in response to various pressures related to globalization, in particular, economic interdependence, the proliferation of national and regional competition regimes, and the financial and economic crisis. The individual chapters, written by specialists of EU competition policy from both sides of the Atlantic and from the perspectives of political science, management and public policy, investigate how the EU has responded to these challenges in each area of competition policy, and demonstrate that it has, on balance, been quite successful in responding to them, with some exceptions in the areas of state aid and mergers.

This book was published as a special issue of the Journal of European Integration.

INTRODUCTION
The Challenges and Trajectories of EU Competition Policy in the Twenty-first Century

UMUT AYDIN* & KENNETH P. THOMAS**

*Instituto de Ciencia Polı´tica, Pontificia Universidad Cato´lica de Chile, Santiago, Chile;
**Department of Political Science, University of Missouri – St Louis, St Louis, MO, USA

ABSTRACT Sixty years have now passed since the signing of the Treaty of Paris establishing the European Coal and Steel Community in 1951, and during that period competition policy has become firmly anchored as one of the key pillars of European integration. A regime of European competition governance has emerged that centers on the European Commission, specifically its Directorate-General for Competition (DG COMP), and has matured to tackle the four constituent parts of the EU competition policy brief, cartels, monopolies, mergers and state aid. The focus and enforcement of EU competition policy is constantly being reviewed in response to new challenges and opportunities as DG COMP seeks greater consistency in competition norms and greater policy convergence both within the EU and the wider global environment. The opening article of this volume introduces the context in which substantive changes to the EU competition regime has occurred in the twenty-first century. It identifies the major drivers for such change including economic interdependence, the proliferation of national competition laws, and the current financial and economic crisis, and describes how EU competition policy has evolved in response to these challenges.

The study of European Union competition policy has long provided one of the best examples of European regulation and supranational governance.¹ Students of European integration, however, often perceive this area as one of the most challenging to traverse given that it is a vast policy area that encompasses and has been shaped by numerous regulations and notifications, a voluminous case law and an abundant economic literature. European Union (EU) citizens for their part rarely encounter or appreciate the aims and functioning of this particular policy area. Yet, fewer policy areas are as central to the operations of the European integration project and the success of the single market as competition policy. Fewer have had as much positive impact on European consumers than the operation and objectives of competition policy.

Competition policy was given a central position in the Treaty of Rome, and it has played a crucial role since then in the creation and functioning of the single market (von der Groeben 1987; Ehlermann 1992). Its significance as an EU policy area finds reflection in its identification as one of only five exclusive Union competences under the Lisbon Treaty. At its core, competition policy is designed to encourage firms to produce high quality goods and to invest in technological developments, but it is also about enhancing consumer welfare by providing lower prices and greater choice. Today’s EU competition policy is also very much tied into wider EU objectives of promoting strong sustainable growth, competitiveness and job creation. It is regarded as a key component of the Europe 2020 Strategy for smart, sustainable and inclusive growth. In short, the creation and enforcement of a competition policy regime is not an end in itself; in the EU competition policy has also become an integral part of the single European market.

The significance of this policy to readers outside the disciplines of economics and law has slowly been realized. The last 20 years have seen the emergence of a political science community that is increasingly concerned with issues of institutional design, accountability and discretion in EU competition policy, as well as issues of ideational change, power and policy diffusion across the globe (Buch-Hansen and Wigger 2011; Bu¨the 2007; Cini and McGowan 2009; Damro 2006, Doleys 2009; Kassim and Wright 2009; McGowan 2010; Wilks 2007).² A recent survey of EU studies journals finds that both the quantity and the quality of the articles focusing on European competition policy have risen in the period 1999–2009 compared to a decade earlier (Franchino2005; Karagiannis 2010). Positively, this interest now coincides with a growing interest among historians about the early years of European integration and especially the workings of the Commission (Leucht 2009; Seidel 2009, Warlouzet 2010). Methodologically, too, the literature on European competition policy ‘is converging towards mainstream social sciences to a very appreciableextent’ (Karagiannis 2010, 607).

The existing literature has pointed out how a combination of the discretion left to the Commission by the Treaty provisions, entrepreneurial commissioners of competition, the broad interpretation of the treaties by the European Court of Justice, as well as the deepening of European integration itself has shaped the evolution of the EU competition regime internally (Cini and McGowan 2009; Wilks and McGowan 1996; Smith 1996, 1998). In the last decades, an increasingly integrated world economy has added to these intra-EU dynamics distinct pressures for change and reform, and in fact, it has become a major factor shaping the evolution of the EU competition regime. But the EU has not passively received influences from the world economy. Instead, it has actively responded by reforming its competition regime and seeking to influence global trends in competition policy.

The current volume is aimed at explaining the changing face of EU’s competition policy in the twenty-first century. Focusing on substantive areas of the EU competition regime including state aid, cartels, merger control, and international cooperation, the contributors to this collection describe how EU competition policy has evolved in the last decade. We argue that three developments in the global economy have strongly influenced the evolution of the EU competition regime in the twenty-first century: increased economic interdependence, the proliferation of national competition regimes, and the financial and economic crisis.

First, national economies have become increasingly interdependent with the international integration of markets in goods, services and capital (Keohane and Nye 1989; Garrett 2000). Economic interdependence has intensified the competition to attract investment among governments within the EU and with third countries, and has raised concerns about competition in subsidies and corporate tax rates. Interdependence has also increased the possibilities for cross-border anticompetitive activities such as international cartels and cross-border mergers, which has left competition authorities including DG COMP ill-equipped to investigate and tackle them, and has propelled them to cooperate on a global scale. Second, the proliferation of national competition regimes has created a complex global web of competition laws, and has necessitated DG COMP to intensify its efforts to cooperate and coordinate with other competition authorities and to attempt to harmonize competition laws at the international level. Finally, the financial and economic crisis that started in 2008 has generated pressures on the governments in the EU and around the world to adopt protectionist measures, which has kept DG COMP officials busy.

These developments in the global economy have challenged the European Commission to become more effective, more responsive and more far-reaching in its efforts. They have also given the EU a unique and historic chance to influence international developments in competition policy, and more broadly to manage globalization of the world economy (Jacoby and Meunier 2010). The contributors to this volume collectively describe and assess how the European Commission has responded to these challenges, how the EU competition regime evolved in the process, and where the policy is headed.

This introduction is organized as follows. In the next two sections, we discuss the fundamentals of the EU competition regime, its evolution since the Treaty of Rome and its objectives. The fourth section identifies the developments in the global economy in the last decade that have influenced the EU’s competition regime. In the fifth section, we discuss the EU’s responses to these challenges by summarizing the findings of the individual contributions. The conclusion identifies potential new avenues for research in EU competition policy.

The Evolution of EU Competition Policy

In Europe, the development of competition policy at the national level has been a gradual process that commenced after 1945. The first steps towards coherent national competition regimes occurred first in the United Kingdom (1948) and then West Germany (1957). The adoption of these national competition policies reflected new thoughts on industrial structures and competitiveness, and was influenced directly and indirectly by the well-established US competition model (Cini and McGowan 2009, 12–5), which was initiated under the Sherman and Clayton Acts in 1890 and 1914 respectively, and which sought to ensure that economic power was not concentrated in the hands of a few powerful trusts (Amato 1997; Stigler 1985).

Competition arose as one of the first policy themes in the European integration process. The competition provisions of the European Coal and Steel Community in 1952 were part of an effort to break up the West German coal and iron cartels (Warlouzet 2010, 7). Competition policy also became an integral aspect, and one of the very few common policy areas identified under the 1957 European Economic Community (EEC) Treaty. The immediate drive for a customs union and common market among West European governments was to maintain peace, but the initiative owed arguably equally to the desire to facilitate economic prosperity through the pursuit of greater competitiveness. The removal of tariff barriers and other quantitative restrictions were a step in the right direction, but such moves were limited without a competition policy.

Neo-classical economic theory postulates that competition between firms unleashes a range of dynamic and positive benefits for the economy and for consumers, as it forces firms to innovate and to constantly develop new and better products as well as lowering prices. Such benefits, however, could not readily be guaranteed without some form of regulatory control. With a long European tradition of companies engaging in anti-competitive strategies such as price fixing and artificially dividing markets, it became evident that if the objectives of the European Economic Community were going to be realized, it would be necessary to establish a regulatory system to police the common market (von der Groeben 1987, 59–60). Put another way, within the context and ambitions of a customs union it would have been simply counter-productive to dismantle trade barriers between the member states if private industry had been allowed to remain free to engage in cartel-like restrictions on competition and to undermine the advantages of opening up the markets in the first place.

The idea of a competition policy was not without controversy among member state governments and particularly in Paris where concerns were expressed about the risks for French businesses of greater competition (von der Groeben 1987, 59). Competition policy had come to form a central tenet of the West German social market economy and Bonn was largely instrumental in pushing this competition agenda within the EEC Treaty itself (Seidel 2009, 131–2; Warlouzet 2010, 8). In a quid pro quo, the West German government accepted the French pursuit of a European policy on agriculture. Article 3(f) of the EEC Treaty explicitly declared that competition should not be distorted in the common market while Articles 85 to 94 outlined the aims and objectives of the competition rules and focused on restrictive practices (including cartels), abusive monopolies and state aids.

In retrospect, we can describe the evolution of the EU competition regime in three phases of generational renewal. The initial phase, which occurred in the late 1950s and early 1960s, is marked by the agreement of the six member state governments to delegate powers in the competition arena to the supranational level through Regulation 17 (von der Groeben 1987, 108–11). This regulation put in place a fairly centralized enforcement system with the Commission at its heart wielding wide powers in the enforcement of competition provisions (Akman and Kassim 2010, 115–6).

The second phase saw the metamorphosis of DG COMP in the mid 1980s from a sleepy backwater to being at the forefront of Commission activity (Wilks and McGowan 1996, 225). The single market program created an ‘overriding need for competition policy’ to ensure that the barriers to economic exchange that have been removed to create the single market were not replaced by private or public conduct that had similar effects (Ehlermann 1992, 259-61). The single market project resulted in the stricter application of the existing competition rules, particularly in state aid. It was in this context that the Council passed the Merger Regulation (4064/1989), giving DG COMP the power to investigate mergers. This period also heralded the gradual and voluntary policy convergence of national competition rules with the EU rules and led to the exporting of the same EU rules to third (for example, potential accession) countries as part of the acquis communautaire (Ehlermann 1992, 258). By the end of the 1990s a puissant and prestigious supranational competition regime was exerting its force and power on both business undertakings and member state governments.

The supranational competition order was not however problem free by any means. It has always had its critics who have pointed to the so-called weaknesses within this system, such as the length of time taken to settle cases, a lack of transparency, weak analyses of the facts that have settled cases, and too much room for politicization (Neven, Papandropoulos and Seabright 1998). At times, DG COMP officials were criticized for being too dogmatic in promoting the competition principle over other factors (Greenhouse 1991). While DGCOMP’s efforts may be laudable there is little doubt that its limited resources were severely stretched. Positively, DG COMP has repeatedly displayed its determination to confront the challenges and even displayed degrees of ingenuity as it has regularly reviewed its operating practices and procedures, to learn from ‘best practices’ elsewhere and to refine its core priorities. In a concerted effort to ‘modernise’ its procedures and practices, and in a new and third generational change, DG COMP initiated the first major review of the EU competition machinery in 1999. Ensuing discussions with its stakeholders (the national competition authorities, legal firms, businesses, consumer groups and academics) led to two new Council approved regulations that came into force in May 2004 (Clarke and Morgan 2006, 11–4).

The Modernization Regulation of 2004 eliminated the requirement to notify the Commission of agreements among companies, and thus reduced the workload of the Commission. It also gave the national competition agencies and national courts increased responsibilities in enforcing EU competition provisions, and therefore significantly decentralized the EU’s competition regime.³ In order to coordinate national and EU competition policies, the European Competition Network was set up. Furthermore, DG COMP was restructured in 2003–2004 along sectoral lines, integrating merger units into antitrust teams in a number of key sectors such as energy, telecoms, transport, and financial services (Lowe 2009, 34). In 2007, the state aid teams were also integrated into these sectoral directorates. In response to criticisms about the weakness in its economic analysis, DG COMP also created a chief economist position in 2003. The chief economist heads a team of 20 PhD economists, reports directly to the director general, and provides guidance on economic methodology in competition investigations an...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• Citation Information
• 1. Introduction: The Challenges and Trajectories of EU Competition Policy in the Twenty-first Century
• 2. Managing State Aid in a Time of Crisis: Commission Crisis Communications and the Financial Sector Bailout
• 3. EU Control of State Aid to Mobile Investment in Comparative Perspective
• 4. When Policy Worlds Collide: Tax Competition, State Aid, and Regional Economic Development in the EU
• 5. 'Today's Softness is Tomorrow's Nightmare': Intensifying the Fight against Cartels in Brussels and Bonn
• 6. The Political Interface of Financialisation and the Regulation of Mergers and Acquisitions in the EU
• 7. Transatlantic Merger Relations: The Pursuit of Cooperation and Convergence
• 8. Promoting Competition: European Union and the Global Competition Order
• Index