Four Member States urge competition reform to clear path for 'European champions'

By Francine Cunningham, Pauline Van Sande

02-2020

President Ursula Von der Leyen's pledge to preside over a "geo-political" Commission is being put to the test by intense pressure from four large countries which are insisting on rapid competition law reform. In a strongly worded letter sent to Executive Vice President Margrethe Vestager on 4 February, France, Germany, Italy and Poland pushed for an action plan in the next weeks in order to clear the path for "European champions" who can compete against rival companies from China and the United States.

In their joint letter, the four countries stated that the ever-changing market in which competition policy is enforced may require some adaptations over time to ensure that competition rules remain relevant and effective. They noted that European companies now have to compete with foreign companies that sometimes benefit from substantial state support or from highly protected domestic markets.

France, Germany, Italy and Poland together called for a timely evaluation and modernisation of the current Commission guidelines on the assessment of horizontal mergers and on the definition of the relevant market. They also urged the introduction of "more justified and reasonable flexibility" to take better account of third countries' state intervention as well as potential competition. In addition, the four countries said that the viability of behavioural remedies should be considered on a case by case basis, particularly where competition conditions may change in the short term.

This intervention from four political heavyweights will likely demand a timely action from Vice President Vestager, who has overall responsibility to lead both digital policy making and competition enforcement in the new Commission. The Member State insistence on a "very pragmatic approach" to EU competition rules also comes after Paris and Berlin have spent a year pressing for a policy rethink in the wake of Vestager's decision (during her previous mandate as Competition Commissioner) to block the planned Franco-German mega merger between two leading firms in the rail sector, Alstom and Siemens.

A number of other high profile mergers are currently under consideration by the Commission. However, Vice President Vestager has not yet offered a specific timetable for any reform proposals and recently indicated that the evaluation process would take some time.

Meanwhile, the Commission's recently published 2020 Work Programme and its Industrial Strategy for Europe, which is due to be adopted on 10 March 2020, provide some indication of future policy directions. The Industrial Strategy is expected to underline the crucial importance of competition rules staying up to date with market structures and following technological developments, in order to ensure that companies innovate and remain competitive on a global scale to the ultimate benefit of European consumers. According to early reports, the Strategy is expected to state that fair competition will have to be fostered internally, on the basis of competition law, and externally, on the basis of trade defence law. In this Strategy, the Commission is also expected to undertake a pledge to evaluate and review its competition rules to ensure that they respond to the current challenges posed by the digital transition.

Nevertheless, it is still unclear how far the Commission is willing to go in its reform. Last year, the Commission organised a conference on "Shaping competition policy in the era of digitisation" after it appointed a panel of three advisers to draft a report on how competition policy should evolve to continue to promote pro-consumer innovation in the digital age. This coincided with the publication of several reports with proposals on how to reform competition law, emanating from national competition authorities.

In its current work programme, the Commission is in the process of evaluating and reviewing the Vertical Block Exemption Regulation ("VBER"), the Horizontal Block Exemption Regulations ("HBER"), the Consortia Block Exemption Regulation, the ETS State Aid Guidelines and the extension of the State Aid Modernisation ("SAM") package. It has also been announced that the Market Definition Notice of 1997 will be added to the review list in order to refine the methodology for digital markets.

Looking to the future, Vice-President Vestager will now have to decide whether root and branch reform of EU competition policy and enforcement is necessary. In view of Member State pressure, a rapid re-evaluation of the current competition toolbox now looks inevitable.