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Redesigning an Obsolete European Competition Policy

BLOG - 19 February 2019

Is European competition policy obsolete, as Bruno Le Maire says? Among its three components: merger control, the prohibition of state subsidies, and the repression of cartels and abuses of a dominant position, the first two are the most fiercely criticized, especially after the Alstom/Siemens merger was rejected.
 
The existence of a European competition policy significantly contributed to European economic integration and remains necessary. But many of the criticisms made are relevant and should lead the European Union to seriously examine what changes need to be made.
 
The control of concentrations between undertakings has already given rise to several controversies. The prohibition of the merger between Aerospatiale, Alenia and De Havilland, on the grounds that there was a risk of market dominance for aircraft with 20 to 70 seats, led to the disappearance of all production in Europe of airplanes belonging to this market segment, to the great benefit of Canadians and Brazilians. The rejection of the agreement between Pechiney, Alcan and Algroup led to the subordination of the former to the latter and its virtual disappearance. The blocking of the Schneider/Legrand merger, subsequently annulled by the judge, put an end to significant synergies.
 
The debate today remains intense between supporters of a strict application of competition law and those calling for a European industrial strategy: if European industrial giants are so easily brought under Chinese or American control (Pirelli, PSA, Alstom Energy, etc.), it is partly because the potentially interested European players (Michelin, Renault, Siemens or others) fear facing several months of negotiations with the European Commission to eventually be forced to sell or disinvest, thereby depriving the project of a large part of its interest. The same observation can be made for telecommunications, food-processing, energy, etc., all sectors where consolidation appears to be blocked by the practice of competition authorities, which results in the relocation of decision-making centres, then R & D, after the relocation of production sites.

The debate today remains intense between supporters of a strict application of competition law and those calling for a European industrial strategy.

Commission advocates argue that less than 0.5% of projects are blocked, but the reality is that many companies give up or, to avoid a ban, enter into disinvestment commitments that destroy a significant part of the value associated with the merger. All this legitimately leads to question the "ideological software" of the European Commission's services.

What is most damaging is the reluctance to take into account the European market as a whole and its confrontations with global competitors (in almost 40% of cases, the Commission limits itself to assessing one or more national markets). Not to mention the absence of a real prospective analysis, not limited to the two or three next years, but well beyond, by trying to assess the respective strengths of the actors in the medium term.
 
The prohibition of state subsidies to companies is a genuine European specificity, without equivalent among its major global competitors. In other words, Europe has decided, on its own, to create a starting handicap by prohibiting any public intervention supporting companies when it is likely to create a distortion in intra-European trade. Such a restriction was perfectly justified when the common market was created: allowing national authorities, through their interventions, to give an advantage to their own companies would have resulted in the re-segmentation of markets. Today, while the single market is no longer contested, and the European economy is suffering from sluggishness, which particularly harms our industry in the face of global competition, one can really wonder if it is not time to review the application of these rules from top to bottom.
 
The first priority would be to strictly limit the European Commission's intervention to situations where trade between Member States is significantly affected. The Commission must cease to control aid granted to hollow oyster producers, professional freshwater eel fishermen, or the provision of land or buildings to SMEs. Instead of acting as a magistrate for the allocation of public funds, the Commission should conform to its role, limited to cases where the unity of the European market is in real danger of being put at risk, namely where aid mechanisms can effectively influence the location of important companies. The determining criterion must not be "is there distortion?" (there will always be a competitor to complain about it), but "is the single market really in danger?". Even in situations where the European market is likely to be significantly affected, an objective balancing of interests should be carried out: giving a temporary advantage to a company in difficulty may be preferable to its disappearance, if its prospects of recovery are serious; providing support to a sector facing global competition may be in the common European interest, as may supporting innovation and technological development efforts even if not all our States are willing to devote the same resources to it. It is time to reintroduce a little economic policy into the system.

Addressing these issues also implies addressing the issue of the application of the principle of reciprocity in international trade. The European Union's inability to enforce a minimum of reciprocity in international trade has often been denounced. It is real. Some might say it is another subject. No, it is exactly the same issue, when one sees that the European market, the most important solvent market in the world, is largely open to Japanese, Chinese or American competitors, when in turn these three countries reserve most of their public contracts, in rail, energy, telecommunications and many other sectors, for their own companies.

The first priority would be to strictly limit the European Commission's intervention to situations where trade between Member States is significantly affected.

Yes, in all these respects, European policy is obsolete and requires serious aggiornamento.

Such a comprehensive review requires an objective assessment of the drawbacks of the current regime and the immediate implementation of three emergency measures. Firstly, regarding merger control, we must apply the principle that doubt benefits companies, i.e. that an authorisation must be granted if the Commission fails to demonstrate that the risk of market dominance is obvious. Similarly, for mergers, we must create a political appeal body that can impose its will in the face of competition technicians; it exists in Germany, France and many other European countries, but not in Brussels. With respect to public subsidies, we must replace the current a priori control and its prohibition in principle by an a posteriori control reserved to cases where trade between EU countries is significantly affected. Likewise, we must create a presumption of legality for business support measures that are implemented in a coordinated manner between at least three Member States, which account for at least 20% of the Union's GDP.

With the permission of Les Echos (published 12/02/19).

 

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