EU Competition Policy: Rules, Tools, and Exemptions for Proper Market Functioning | Apuntes de Derecho

Competition policy

The main objective of the EU competition rules is to enable the proper functioning of the

Union’s internal market as a key driver for the well-being of EU citizens, businesses and society

as a whole. To this end, the Treaty on the Functioning of the European Union (TFEU) contains

rules that aim to prevent restrictions on and distortions of competition in the internal market.

More specifically, it does so by prohibiting anti-competitive agreements between undertakings

and abuse of market position by dominant undertakings, which could adversely affect trade

between Member States. Moreover, mergers and takeovers with an EU dimension are

monitored by the European Commission (‘the Commission’) and may be prevented, if they

would result in a significant reduction of competition. Furthermore, State aid to given

undertakings or products is prohibited when it leads to distortions of competition but can be

authorised in specific cases. Subject to certain exceptions, competition rules also apply to

public undertakings, public services and services of general interest.

Legal basis

Articles 101 to 109 TFEU and Protocol No 27 on the internal market and competition, which

make clear that a system of fair competition forms an integral part of the internal market, as

set out in Article 3(3) TEU;

The Merger Regulation (Council Regulation (EC) No 139/2004) and its implementing rules

(Commission Regulation (EC) No 802/2004)

Articles 37, 106 and 345 TFEU for public undertakings and Articles 14, 59, 93, 106, 107, 108

and 114 TFEU for public services, services of general interest and services of general economic

interest; Protocol No 26 on services of general interest; Article 36 of the Charter of

Fundamental Rights.

Objectives

The fundamental objective of EU competition rules is to ensure the proper functioning of the

internal market. Effective competition enables businesses to compete on equal terms across

Member States, while putting them under pressure to strive continuously to offer the best

possible products at the best possible prices for consumers. This, in turn, drives innovation and

long-term economic growth. Competition policy is, thus, a key instrument for achieving a free

and dynamic internal market and promoting general economic welfare. EU competition policy

also applies to non-EU businesses that operate in the internal market.

Societal, economic, geopolitical and technological changes constantly pose new challenges to

EU competition policy. Such new developments compel policymakers to assess whether the

current competition policy toolbox still provides the effective tools to achieve its overarching

objective or whether it needs to be adjusted. This process will form an important part of the

work of the new European Commission, which took up its duties in December 2019. In

particular, it has taken up the ambitious task of designing a new European industrial strategy

and of advancing the review of the antitrust, mergers and State aid rules.

Competition Policy Tools

Broadly speaking, the EU competition policy toolbox includes rules on antitrust, merger

control, State aid, and public undertakings and services. The antitrust branch aims at restoring

competitive conditions, should improper behaviour by companies (e.g. cartels or abuse of

dominance) cause distortions of competition. The preventive branch of the competition policy

tools encompasses merger control and State aid rules. The purpose of merger control is to pre-

empt potential distortions of competition by assessing in advance whether a potential merger

or acquisition could have an anti-competitive impact. The State aid rules aim to prevent undue

state intervention wherever preferential treatment of given undertakings or sectors distorts,

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Competition policy The main objective of the EU competition rules is to enable the proper functioning of the Union’s internal market as a key driver for the well-being of EU citizens, businesses and society as a whole. To this end, the Treaty on the Functioning of the European Union (TFEU) contains rules that aim to prevent restrictions on and distortions of competition in the internal market. More specifically, it does so by prohibiting anti-competitive agreements between undertakings and abuse of market position by dominant undertakings, which could adversely affect trade between Member States. Moreover, mergers and takeovers with an EU dimension are monitored by the European Commission (‘the Commission’) and may be prevented, if they would result in a significant reduction of competition. Furthermore, State aid to given undertakings or products is prohibited when it leads to distortions of competition but can be authorised in specific cases. Subject to certain exceptions, competition rules also apply to public undertakings, public services and services of general interest. Legal basis Articles 101 to 109 TFEU and Protocol No 27 on the internal market and competition, which make clear that a system of fair competition forms an integral part of the internal market, as set out in Article 3(3) TEU; The Merger Regulation (Council Regulation (EC) No 139/2004) and its implementing rules (Commission Regulation (EC) No 802/2004) Articles 37, 106 and 345 TFEU for public undertakings and Articles 14, 59, 93, 106, 107, 108 and 114 TFEU for public services, services of general interest and services of general economic interest; Protocol No 26 on services of general interest; Article 36 of the Charter of Fundamental Rights. Objectives The fundamental objective of EU competition rules is to ensure the proper functioning of the internal market. Effective competition enables businesses to compete on equal terms across Member States, while putting them under pressure to strive continuously to offer the best possible products at the best possible prices for consumers. This, in turn, drives innovation and long-term economic growth. Competition policy is, thus, a key instrument for achieving a free and dynamic internal market and promoting general economic welfare. EU competition policy also applies to non-EU businesses that operate in the internal market. Societal, economic, geopolitical and technological changes constantly pose new challenges to EU competition policy. Such new developments compel policymakers to assess whether the current competition policy toolbox still provides the effective tools to achieve its overarching objective or whether it needs to be adjusted. This process will form an important part of the work of the new European Commission, which took up its duties in December 2019. In particular, it has taken up the ambitious task of designing a new European industrial strategy and of advancing the review of the antitrust, mergers and State aid rules. Competition Policy Tools Broadly speaking, the EU competition policy toolbox includes rules on antitrust, merger control, State aid, and public undertakings and services. The antitrust branch aims at restoring competitive conditions, should improper behaviour by companies (e.g. cartels or abuse of dominance) cause distortions of competition. The preventive branch of the competition policy tools encompasses merger control and State aid rules. The purpose of merger control is to pre- empt potential distortions of competition by assessing in advance whether a potential merger or acquisition could have an anti-competitive impact. The State aid rules aim to prevent undue state intervention wherever preferential treatment of given undertakings or sectors distorts,

or is likely to distort, competition and adversely affects trade between Member States. Services of general economic interest (SGEI) have a particular importance to citizens and are subject to specific rules in the context of State aid, with a view to promoting social and territorial cohesion, a high level of quality, safety and affordability, and equal treatment. A. Comprehensive ban on anti-competitive agreements (Article 101 TFEU) If, instead of competing with each other, companies agreed to reduce competition, this would distort the level playing field, and in turn, cause harm to consumers and other businesses. This is why all agreements between undertakings which have as their object or effect a distortion of competition and which may affect trade between Member States are prohibited (paragraph 1) and automatically void (paragraph 2). This includes, for example, explicit agreements (such as cartels) and concerted practices for fixing prices or limiting production output, or dividing the market among companies (also called territorial protection clauses). Those types of agreement are always considered harmful to competition and are thus prohibited without exception. On the other hand, other types of agreements may be exempted, provided that they contribute to improving the production or distribution of goods or to promoting technical or economic progress. For example, agreements on cost or risk sharing between companies, or on accelerating innovation through cooperation in research and development (R&D) could bring significant economic benefits. The conditions for granting such an exemption are that consumers are allowed a fair share of the resulting benefit and that the agreement does not impose unnecessary restrictions or aim to eliminate competition for a substantial part of the products concerned (paragraph 3). Rather than such exemptions being granted on a case-by- case basis, they are most commonly governed by the Block Exemptions Regulations. These regulations cover groups of similar specific agreements, which usually have a comparable impact on competition. If one of these groups can be expected regularly to fulfil the conditions for exemption set out in Article 101(3) TFEU, it may be granted a block exemption from the prohibition under Article 101(1) TFEU. The Commission reviews such block exemptions regularly. For example, the Commission is currently reviewing the Vertical Block Exemption Regulation[1] and the relevant guidelines. The aim of the review is to determine whether the regulation still takes proper account of market developments, in particular the increased importance of online sales and the emergence of new market players such as online platforms. Moreover, certain agreements are not regarded as infringements if they are of minor importance and have little impact on the market (the de minimis principle), even if they do not fulfil the conditions for exemption under Article 101(3) TFEU (so-called ‘agreements of minor importance’). Such agreements are often seen as useful for cooperation between small and medium-sized enterprises. However, agreements which have the restriction of competition as their ‘object’ cannot be regarded as being of minor importance[2]. Building a cartel case and successfully bringing it to completion is not an easy task for the enforcement authorities. EU competition law therefore provides for certain incentivising mechanisms to increase the efficiency of the enforcement process: The ‘leniency programme‘[3] sets out a framework for rewarding companies which voluntarily disclose to the Commission the existence of a cartel and provide evidence to prove the infringement. Such cooperation may justify the reduction of fines by the Commission, depending on the timing and the added value of the information provided.

obligations (Article 8). There is no systematic subsequent scrutiny or unbundling of associated companies. In 2014, the Commission carried out a consultation on possible amendments to EU merger control rules[7], aimed at improving the combined effectiveness of the rules at EU level and at national level. The outcome of this process is still pending. D. Prohibition of State aid (Article 107 TFEU) The TFEU contains a general prohibition of State aid (paragraph 1) in order to prevent distortions of competition in the internal market that could result from the granting of selective advantages to certain companies. All direct aid granted by Member States (e.g. non- repayable subsidies, loans on favourable terms, tax and duty exemptions, and loan guarantees) is banned. So are any other advantages granted as preferential treatment to given undertakings or sectors which distort, or are likely to distort, competition and adversely affect trade between Member States. The TFEU leaves room to grant certain exemptions from this general ban, if they can be justified by specific overarching policy objectives (paragraphs 2 and 3), for example addressing serious economic disturbances or for reasons of common European interest. A recent example of State aid which was allowed in order to address serious economic disturbances is the support measures in favour of banks in the context of the global financial crisis[8]. The subsidies for banks were necessary to ensure financial stability and to prevent major negative spill-over effects for the entire financial system due to the failure of an individual financial institution. Similar steps have also been taken in the context of the COVID-19 crisis. Member States are required to notify the Commission of any planned State aid, unless it is covered by a general block exemption (as set out in Regulation (EC) No 800/2008) or the de minimis principle applies. The State aid measure can be implemented only if the Commission has granted approval. The Commission also has the power to recover incompatible State aid. In a number of decisions, the Commission has deemed preferential tax treatment for certain individual companies in some Member States to constitute prohibited State aid, the repayment of which must be demanded. For example, in 2016, the Commission instructed Ireland to seek payment from Apple of EUR 13 billion in taxes. Both Apple and the Irish authorities have challenged the decision and a court case is pending. E. Public services of general economic interest (SGEIs) In some Member States, certain essential services (e.g. electricity, post, and rail transport) are still provided by public undertakings or undertakings controlled by public authorities. Such services are considered to be services of general economic interest (SGEIs) and are subjected to specific rules in the context of the EU State aid framework. SGEIs are economic activities of a particular importance for citizens and which would not be produced by market forces alone, or at least not in the form of an affordable service available indiscriminately to all. The TFEU emphasises the importance of these services, their diverse nature, the wide measure of discretion enjoyed by national, regional, and local authorities, and the principle of universal access. Article 36 of the Charter of Fundamental Rights, too, recognises the access that European citizens should have to SGEIs, with a view to promoting social and territorial cohesion within the Union. Enforcement

Rigorous and effective enforcement of the EU competition rules is essential to ensure the achievement of the competition policy objectives. The Commission is the main body responsible for ensuring the correct application of these rules and has wide-ranging inspection and enforcement powers. Moreover, since 1 May 2004, in the context of antitrust (Articles 101 and 102 TFEU), the competition authorities of the Member States have assumed some competition enforcement functions. Council Regulation (EC) No 1/2003 allowed an enhanced enforcement role of national antitrust authorities and courts, which was further enhanced by Directive (EU) 2019/1[9]. In such a decentralised enforcement context, efficient coordination between the national and European competition enforcement authorities is key. Therefore, the European Competition Network (ECN), consisting of the national competition authorities and the Commission, serves as a platform for the exchange of information aimed at improving coordination in the enforcement of competition rules. In the area of antitrust, the Actions for Damages Directive[10] was adopted in 2014 in order to heighten the deterrent effect against prohibited agreements (cartels and abuse of a dominant position) and to provide better protection for consumers. It facilitates the process for obtaining compensation for harm caused to citizens or other businesses by an infringement of competition law. A Commission report on the implementation of the directive is expected in

https://www.globallegalinsights.com/practice-areas/cartels-laws-and-regulations/spain Exceptions there too Exemption from the prohibition on cartels Anti-competitive agreements which do not fall under the category “hardcore” violations of the National Ordinance on Competition, may have a positive contribution to the economic development of Curaçao. Companies which have concluded these types of agreements may apply for an exemption from the prohibition on cartels at the Fair Trade Authority Curaçao. The FTAC will assess whether the benefits of the agreement outweigh the drawbacks. In the application, the involved companies should prove that they meet all four exemption criteria listed below: The agreement should contribute to the improvement of production or distribution, or to the promotion of technical/economic progress. The agreement should allow consumers a fair share of the resulting benefits. Competition should not be restricted further than is necessary. Adequate competition in the market should be maintained. A granted exemption is effective retroactively until the moment of the application. An exemption is effective for a certain period of time and can be extended at the request of the involved companies. Companies may apply for an exemption by answering the questions in part 2 of the application form for exemption from the prohibition on cartels. Click here for the English version of this form.

EU Competition Policy: Rules, Tools, and Exemptions for Proper Market Functioning, Apuntes de Derecho

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