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7.5 Competition(I) Introduction: the Treaty of Rome Competition policy is one of the areas in which the Commission is at its most powerful. The decisions that the Commission is required to take are sometimes politically highly controversial. The Treaty of Rome (1957) contained several Articles on competition policy, such was the significance given to it by the EEC's founding fathers. They saw little point in creating a customs union if free competition between firms from different member states could be thwarted by cartels and restrictive agreements, which both effectively acted as non-tariff barriers. Specifically, Articles 85 and 86 were inserted in the Treaty of Rome:
Articles 85 and 86 have been renumbered as Articles 81 and 82 of the Treaty on the EC (TEC). (II) Merger control and takeovers Until 1990 the Commission had no specific powers to prevent mergers although it intervened on several occasions, using the general authority given to it under Articles 85 and 86 of the Treaty of Rome. As long ago as 1973 the EEC proposed a regulation what would give it powers to vet cross-border mergers in advance, while leaving member states to police mergers within their own territories. The proposal was revived in 1987, agreed in 1989 and finally came into effect in 1990. It gave the Commission jurisdiction over large-scale company mergers and takeovers affecting more than one member state and exceeding certain domestic, EU and global turnover thresholds. The Commission can ban mergers if it concludes that they would create or strengthen a dominant market position that would significantly impede effective competition, within the EU or a substantial part of it. The vast majority of planned mergers are, however, passed with only a tiny minority (1%) blocked. The Commission has controversially asserted extra-territorial jurisdiction. A particularly controversial Commission action was in 1997 when it ruled that the amalgamation of two US companies, Boeing and McDonnell Douglas, could not go through unless they rescinded 20-year exclusive supply contracts with 3 US airlines to which Airbus had ambitions to sell aircraft. In 2002 the Commission's antitrust actions came under serious attack from the ECJ, which overturned three of its rulings which blocked mergers. This prompted new reforms to competition policy and law, which came into force on 1 May 2004. The reforms made the merger control mechanism more like that in the US, with more oversight, economic and consumer assessments, and stricter deadlines. The EU Takeovers Directive was adopted in 2004 and has now been implemented in the UK by means of a combination of interim statutory provisions and amendments to the Takeover Code. The main objectives of the Directive when it was first tabled before the European Parliament were to create a framework of common laws for takeovers in the EU, address the barriers to takeovers and ensure an adequate level of protection for minority shareholders. The UK government was vocal in its opposition. As a result of 14 years of either languishing in stalemate or being the subject of intense political negotiation and debate, the Directive in its final form is a product of political compromise. The Directive will not create a level playing field across the EU and this has become increasingly evident as member states have started to publish their proposals or implementation. For all the Commission's activism, cross border takeovers remain extremely difficult outside the UK and Ireland because of the prevalence of defensive shareholding structures in many member states and the ease with which managements in target companies can impede hostile bids without having to seek shareholders' consent. This can be seen as a major failing in the "completion" of the Single Market. Moreover, in 2005 the French government issued a list of 10 sectors where the French authorities could block takeovers of French companies on the grounds of public security. The sectors comprised casinos, private security, arms manufactures, biotechnologies, pharmaceutical laboratories manufacturing antidotes, nuclear activities, cryptology, computer security and defence contracts and interception of communication. This move by the French government could be breaking Article 56 of the Treaty on the EC (TEC) which says "all restrictions" on the movement of capital "shall be prohibited". However, Article 58 allows governments to take measures to block takeovers "which are justified on grounds of public policy or public security". (III) State aids Articles 92-94 of the Treaty of Rome forbade government subsidies that distorted or threatened to distort competition. Some types of aid are exempt from control, including:
Though sometimes frustrated by the Treaty of Rome's exemptions, the Commission has had its share of successes, backed by the ECJ, with several of its best-known cases involving French companies. One high-profile one was, however, British. The UK was forced to seek repayment of the secret "sweeteners that had been paid to British Aerospace as an inducement to buy the Rover car company. The Commission has also been frustrated by chauvinism, notably its failure in 1998 to block France's cash injection into Air France. (IV) Liberalisation, especially in energy markets The Commission is paying particular attention to increasing competition between older players and new entrants to the gas and electricity markets (and other utilities) in order to lower energy prices. If infrastructure constitutes a natural monopoly, like gas pipelines and some telecommunications infrastructure, then everyone must be allowed to use it on the same terms. If there is no natural monopoly, then the process of selecting a company to provide the service must be transparent. RL, February 2007 |
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