Eu Competition Policy

EU Competition Policy

European competition law and policy have changed significantly in recent years. With an enlarged EU of 27 member states, new rules, policies and administrative procedures have become increasingly important to ensure that this fundamental legal regime continues to promote competition and protect consumer welfare. In an attempt to define Competition policy, Massimo Motta described it as follows: “the set of policies and laws which ensure that competition in the market place is not restricted in such a way as to reduce economic welfare.”

European Competition policy is concerned with setting common standards of conduct among member states and its main goal is to ensure free and fair competition within the EU. It regulates the exercise of market power by large companies, governments and other economic entities. It has steadily increased its effectiveness in controlling restrictive practices, abuse of dominant positions, mergers, state aid and the liberalisation of utilities. In order to ensure that all economic entities understand, adhere and treat the competition policy with esteem, discipline is used not only with noncompliant companies but governments as well. Competition officials can invade factories, firms, and private residences to confiscate papers and computers on a suspicion of infringement of competition rules and regulations as set down by the EU.

EU competition policy is an important part of ensuring the completion of the internal market, meaning the free flow of working people, goods, services and capital in a borderless Europe. It is about protecting and expanding competition as a process of rivalry between firms in order to win customers. It also acts as a process of creating and protecting markets. Competition policy affects how we do our jobs, how benefits are distributed, and how and what we consume, from the price of cars to the location of supermarkets in our towns. Rationale comes in both economic and political forms for the policy.

The main provisions of European competition law are contained in Articles 81 and 82 of the Treaty of the European Communities and in the Merger Regulation. Articles 83-89 also deal with competition issues such as public enterprises and state aids. Articles 81 and 82 of the Treaty are characterised by “direct applicability”; this means that they are part of the law of each member state and are directly enforceable by national courts. The development and implementation of competition policy is under the Commission by the Directorate-General for Competition (DG COMP), a small organisation which employs nearly 700 in staff, almost half of whom are senior officials and are primarily either lawyers or economists, who make decisions and contribute to policy.

The five main components of EU competition policy include: cartels, or control of collusion and other anti-competitive practices which has an effect on the EU; monopolies, or preventing the abuse of firms’ dominant market positions; mergers, or control of proposed mergers, acquisitions and joint ventures involving companies which have a certain, defined amount of turnover in the EU; the liberalisation of measures by a Member State to favour domestic utilities and infrastructures; and State aid, or control of direct and indirect aid given by Member States to companies.

This last point is a unique characteristic of the EU competition law regime. As the EU is made up of independent Member States, both competition policy and the creation of the European single market could be rendered ineffective were Member States free to support national companies as they saw fit. Primary competence for applying EU competition law rests with European Commission and its DG COMP, although State aids in some sectors, such as transport, are handled by other Directorates General. Today �competition rules’ are a dominant regulatory constraint when companies formulate their corporate strategy or consider their competitive behaviour.

EC treaty articles 81 and 82 establish the EU’s competition law regime. Article 81(1) prohibits anti-competitive agreements that have considerable effect on intra-community trade, while Article 82 prohibits the use of a dominant position.

Article 81 is an anti-cartel instrument and is made up of three parts: part one contains the basic prohibitions on agreements and concerted practices between firms that prevent, restrict or distort competition within the Single Market; part two declares the prohibited agreements void; and part three describes the specific exemptions.

Fines of up to 10% of their worldwide turnover may be imposed on the guilty parties. The restrictive practices referred to in Article 81 are collusive arrangements between firms that ultimately aim at price fixing for market exploitation. These agreements are mostly horizontal, that is between firms at the same level of production, or at times there is a vertical element between producers and dealers. The proceeds of the fines are paid into the Community budget, helping to finance the EU and hence reduce the tax burden on citizens.

Between 1995 and 2002, the four leading tobacco processors in Italy colluded on their overall purchasing strategy, agreeing between themselves purchase prices and allocating their suppliers on a preferential or exclusive basis. They also rigged their bids in respect of public auctions organised by public authorities for the sale of tobacco in 1995 and 1998. In 2005 the European Commission fined the four a total of €56 million, for colluding over a period of more than six years on the prices paid to growers and other intermediaries and on the allocation of suppliers, constituting a very serious breach of Article 81 of the EC Treaty. The Commission also imposed small fines of €1,000 on both APTI and UNITAB (respectively the Italian trade associations of processors and tobacco growers) for engaging in collective price negotiations.

Article 82 of the Treaty prohibits the abuse of a dominant position and governs monopoly powers. Like Article 81, it attempts to achieve perfect competition. It outlaws “any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it …insofar as it may affect trade between member states”. This applies to any firm, not only of EU countries, whose dominant share of the market is within the EU. Dominant position refers to monopoly power that enables the firm or firms to influence, by independent action as a buyer or seller, the outcome of the market.

Certain forms of cooperation agreements between enterprises are deemed