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The European Commission consults on two new potential competition tools

Locations

Belgium

 The tools address structural competition problems and distortive foreign subsidies.

The European Commission (Commission) has embarked in June on a comprehensive and far-reaching reform of the existing competition law framework. This has been triggered by an ongoing policy debate in the past years about the failings and gaps of the current framework and the growing perception that the current toolbox is not fit to tackle effectively and efficiently competition problems in an increasingly digital, globalised and fast-moving environment.

Part of that reform, which also includes a public consultation on the Digital Services Act package (including an inception impact assessment (IIA) on potential ex-ante regulation of large online platforms), are two public consultations exploring the need for possible new competition tools.

The idea is that such tools would allow the Commission to address

  1. structural competition problems without the finding of an individual infringement by a company/companies of the relevant competition prohibitions laid down in Articles 101 TFEU (anti-competitive agreements) and/or Article 102 TFEU (abuse of dominance), and
  2. foreign subsidies which distort competition on the EU market (but which are not addressed by existing international trade tools).

Tool addressing a structural competition problem

The Commission's enforcement experience across a wide range of industries in the area of antitrust and merger control has pointed to the existence of structural competition issues that cannot be tackled effectively with the currently available competition law rules. This is true for digital as well as other markets. The Commission notes as examples monopolisation strategies by companies with market / economic power below the level of dominance or markets in which incentives exist to engage in tacit collusion.

The Commission has identified two categories of structural competition problems, according to whether harm is about to affect or has already affected the EU market:

  1. Structural risks for competition – Market characteristics  (e.g. network and scale effects, lack of multi-homing and lock-in effects) are such that  companies operating in these markets can occupy a powerful/entrenched market position and/or become so-called "gatekeepers" thereby creating a serious threat for the proper functioning of competition (these markets are also referred to as "tipping markets").
  2. Structural lack of competition – A market is not working well and not delivering competitive outcomes due to its structure (i.e. a structural market failure). Competition in such a market may be impaired because of the market’s specific structure, e.g. high concentration and entry barriers, consumer lock-in, lack of access to data or data accumulation, or where the market is oligopolistic and exhibits greater risk of tacit collusion.

In its recent Inception Impact Assessment (IIA), the Commission discusses and seeks views on essentially four policy options for the format of the new tool, and distinguishes between a dominance-based and a market-structure-based approach.

  1. The first option would address competition concerns arising from unilateral conduct by a dominant undertaking and would apply across all sectors. It would allow the Commission to intervene before a dominant company successfully forecloses competitors and thus prior to any finding of infringement under Article 102 TFEU.   
  2. The second option would be similar to the first option except that it would apply only to specific sectors or specific markets with particularly severe structural competition problems.
  3. The third option would permit the Commission to apply the tool described in the two first options to companies that do not hold yet a dominant position and apply it across all sectors. The Commission would be able to intervene when a structural risk for competition or a structural lack of competition has been identified that prevents the internal market from functioning properly (similar to a finding resulting from the already existing sector inquiry tool).  
  4. The fourth option would be similar to the third option except that it again would only apply to specific sectors or specific markets having been previously been identified as posing particularly severe structural competition problems.

Whichever type of tool the Commission would finally choose, it would have the power, despite the absence of an infringement decision, to impose behavioural and, in certain circumstances structural, remedies. These would, however, not involve findings of abuse of dominance, fines, nor rights to launch damages claims. 

The key innovation, and indeed a paradigm shift in EU competition law enforcement, would be that sanctions could be imposed detached from positively identified individual wrongdoing. It could result in quite severe consequences of the type seen in the UK, where such a tool already exists. The Commission could thus require companies to divest assets/businesses as part of structural remedies in order solve structural problems in a particular market. 

Finally, the Commission makes clear that the new tool would be a supplement and not a substitute to the existing competition framework and enforcement practice under Articles 101 and 102 TFEU.

Tool addressing distortions caused by foreign subsidies

While EU competition rules, trade defence instruments and public procurement rules all address to some extent the distortive impact of subsidies on the EU market, the Commission has observed in its recent White Paper that there appears to be a "regulatory gap" where foreign subsidies take the form of financial flows that facilitate acquisitions of EU companies; where they directly support the operation of a company in the EU; or, where they distort bidding in a public procurement procedure or in applications for EU financial support.

For example, EU State aid rules have always covered EU Member State subsidies but subsidies granted by non-EU governments to companies in the EU fall outside EU State aid control.  Also, EU trade defence rules relate to subsidised imports of goods, but do not cover other distortive effects of non-EU government subsidies on the EU market (e.g. with relation to the provision of services or acquisitions of EU companies or assets).

The Commission's White Paper first puts forward three approaches (or "modules") which may be considered complementary:

  1. The first "module" is a general market scrutiny instrument intended to cover all possible market situations in which foreign subsidies may cause distortions in the EU market.  Upon information that a beneficiary active in the EU is entitled to a significant foreign subsidy, the Commission would conduct a preliminary review to examine whether there is a subsidy and whether it distorts the EU market. 

    Once those factors are established, an in-depth examination would seek to confirm the preliminary findings and, if the distortion is not mitigated by its positive impact, impose measures to redress the situation, as well as reporting and transparency obligations for the future.  Redressive measures could range from structural remedies (e.g. divestments of assets or reductions of capacity) and behavioural measures (e.g. prohibition of specific market conduct linked to foreign subsidies or access or disclosure obligations) to redressive payments (to the EU or EU Member States).

    While the White Paper suggests shared competences between the Commission and the Member States, the Commission would have sole competence as soon as it would start an in-depth investigation of a foreign subsidy, and in any event, the Commission would have sole competence to apply the "EU interest" test (to see if a distortion is mitigated by its positive impact).
     
  2. The second "module" is intended to address specifically distortions caused by foreign subsidies facilitating the acquisition of EU targets, and would be the exclusive competence of the Commission.  The Commission proposes to establish a "one-Stop-Shop2" review system, similar to the current merger control process that would make notifications of share or asset acquisitions mandatory subject to certain qualitative and quantitative thresholds being met.

    If, after an in-depth investigation following a preliminary review, it is found that an acquisition is facilitated by foreign subsidies and distorts the EU market (with insufficient mitigating positive effects), the Commission could either require structural commitments which effectively remedy the distortion, or as a last resort, prohibit the acquisition (or require its unwinding if the acquisition had already been completed).
  3. The third "module" would require EU public buyers to exclude from public procurement procedures those economic operators that have received distortive foreign subsidies.  Foreign subsidies in procurement could give rise to a distortion either directly by an explicit link with a given procurement project or indirectly by de facto increasing the strength of the recipient.  While economic operators would be required to notify the contracting authority of foreign subsidies received, third parties and competitors could also inform the contracting authority when they can provide prima facie evidence that a notification should have been made.

     A preliminary review and if justified an in-depth procedure would normally be carried out by a national supervisory authority within strict deadlines in order to ensure that public procurement procedures are delayed as little as possible.  However, the Commission would be able to extend the deadline for the in-depth review if it disagrees with the assessment of the national authority.

    Also, for tender procedures under intergovernmental agreements, the same rules would apply but the competent supervisory authority would be the Commission.  The same rules would also be applied for access to procurement by the EU institutions.
The White Paper also proposes that competition for EU financial support also be placed on an equal footing through notifications and procedures like those proposed in the context of public procurement.

What's next?

The possibility for stakeholders to respond to the public consultations concerning the Commission documents discussing the new tools is open until

  1. 8 September 2020 with regard to the consultation on the tool addressing structural competition problems in the EU, and
  2. 23 September 2020 with regard to the tool countering foreign subsidies distorting the EU market.

Legislative proposals are expected to be put forward by the Commission towards the end of 2020 or in the first part of 2021. 

Fieldfisher is prepared to assist parties in making their views known and followed up

Fieldfisher lawyers have well-known expertise and experience in the application of EU competition and international trade rules, and in assisting clients in making their views known to the EU institutions and key Member States on the various issues being addressed in the Commission consultations.

We are, therefore, very well-placed to assist parties in

  1. analysing the potential impact for a given client of the tools discussed by the Commission, and the features of those tools which would be most beneficial if not essential for effectively addressing the problems which have been identified;
  2. following up with the EU institutions and key Member States to help ensure that the Commission proposals are issued in a timely manner with the necessary provisions, and that the view of clients are heard during the ensuing legislative process. 

Feel free to contact us at tom.pick@fieldfisher.com, jochen.beck@fieldfisher.com or laurent.ruessmann@fieldfisher.com

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