European industrial policy vs. European competition law: what’s the direction of travel?
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The European Commission's decision to block the Siemens-Alstom mega-merger in February 2019 was heavily criticised by the French and German governments which claimed that it prevented the emergence of a European champion capable of competing with other global operators, in particular state-subsidized rivals, in the market for high speed train and signalling.
This decision sparked a wider debate on whether European competition law should be revised in order to take into account economic sovereignty considerations. While the Commission has given assurances that it has heard the call for change, it seems that it is only prepared to consider adjustments to the current competition law framework rather than a radical change, pointing to other legal instruments than competition law to ensure a level playing field in the global economy.
Consideration of foreign threats
Detractors of the Commission’s decision claim that EU Competition law should be adapted to better take into account the globalisation of the economy and the threats represented by foreign competitors outside the EU. They claim that EU merger control should in particular be amended by:
- Extending the time frame taken into account when assessing potential market entry by competitors (from the typical 2 year time frame to a 5 to 10 year time frame);
- Broadening the geographical dimension of market definition to take into account increasing globalisation;
- Giving greater weight to economic efficiencies that may result from mergers and that could offset possible restrictions of competition;
- Adopting a more flexible approach to behavioural remedies, as the Commission is known to favour structural remedies which is seen as a dogmatic position.
French and German suggestions
The French and German governments also suggested that the European Council should be given the possibility to override the decision taken by the Commission. Such proposal seems however to have been abandoned since such reform would have required the unanimous support of all Member States and a number of Member States expressed their disagreement.
Although the Commission initially took a rather defensive stance in the face of criticism from the French and German governments, it took some actions to address them.
As a first step, in June 2020, the Commission launched a consultation on its Notice on the definition of the relevant market, which will address in particular the issue of the geographic dimension and international competition.
However, with increasing pressure from the French and German governments, the rise of protectionism, the Covid-19 crisis showing the dependence of European economies on Chinese supplies and the overall perception that the Commission is naïve towards less scrupulous trading partners, the Commission had to go further.
"The Commission has so far resisted calls for the reform merger control to establish national champions, but we await greater clarity in 2021"
The Commission’s plan
It is in this context that the Commission unveiled in March 2020 a more ambitious plan, in the form of plan for European industrial policy going beyond competition law.
Putting things into perspective, this policy document shows that competition law is not the most effective tool to deal with the issue of economic sovereignty and that the Commission intends instead to rely on its toolbox of trade defence mechanisms. The Commission indicates in this document that it will soon propose a legal instrument on foreign subsidies, an instrument on public procurement addressing the issue of reciprocal market access and a framework for the screening of foreign direct investment. In this document, the Commission also states that it will look to reinforce customs control for products that do not comply with EU standards and contribute to improving the world trading system.
The Commission acknowledges the need to strengthen Europe’s political sovereignty but made clear that it must not be to the detriment of consumers. In a speech in July this year, Olivier Guersant, one of EU's top competition officials made clear that in his view relaxing EU merger rules is not the way to create more European champions, warning that monopoly rents earned in protected domestic markets would benefit shareholders and international investors, but not consumers.
It remains to be seen what the outcome of the current evaluation of the competition law rules will be, but enough signals have been given to show that the Commission has no intention to make radical changes to the EU merger control regime.
For more information please contact Thomas Oster.
