Business environment in the EU Prepared by Dr. Endre Domonkos (PhD) 1st Academic Year 2016/2017

I. The reasons for establishing a competition policy at EU level I. When establishing the European Communities, the founding Member States highlighted the importance of ensuring competition within the common market. Competition is essential for the effective operation of any healthy economy, including the common market. Effective competition is in the fundamental interests of consumers. Accordingly, the Member States agreed to establish competition policy at Community level.

I. The reasons for establishing a competition policy at EU level II. Competition policy was essentially established as a classic common policy. Article 3 of the TEU: a system ensuring that competition is not distorted. The operation of competition policy is regulated by Articles 101- 109 of the Treaty on the Functioning of the European Union (Part Three, Title VII, Chapter 1 of the TFEU). The weight of the EU in the field of competition policy is reinforced by the central role played by the Commission.

I. The reasons for establishing a competition policy at EU level III. The national competition authorities and the Commission cooperate within a network in order to monitor business agreements and punish infringements of the EU competition rules. The competition policy is not based on the principle of traditional free competition. The competition policy of the EU allows for the restriction of competition is certain cases. To ensure effective competition, the policy of the EU has two fundamental objectives.

II. European competition network I. Council Regulation No 17 of 1962 laid down a system of supervision requiring restrictive practices affecting trade between Member States to be notified to the Commission in order for them to qualify an exemption. Regulation 1/2003 replaced its absolute powers in the field of competition by a network of competition authorities, called the European Competition Network (ECN), which is a key element of the new enforcement system. The Commission consults the Advisory Committee on Restrictive Practices and Dominant Positions, composed of representatives of the competition authorities of the Member States.

II. European competition network II. National competition authorities and courts are empowered to apply EU law. National competition authorities are empowered to withdraw the benefit of Community block exemption regulation. National competition authorities may take the following decisions: National courts may apply EU competition rules in lawsuits between private parties, acting as public enforcers or as review courts.

II. European competition network III. Commission action in the area of competition is controlled, from the legal standpoint, by the Court of Justice. The Commission’s competition policy is controlled, from the political standpoint, by the European Parliament. The competition authorities of each Member States are required to work closely with the Commission and the competition authorities of the Member States. The competition authorities of the Member States must, when acting under Article 101 or Article 102 of the TFEU, inform the Commission in writing before or without delay after starting the first formal investigative measure.

II. European competition network IV. The Commission is empowered throughout the EU to require such information to be supplied as is necessary to detect any agreement, decision or concerted practice prohibited by Article 101 of the TFEU or any abuse of a dominant position prohibited by Article 102 of the TFEU. The Commission is also empowered to undertake such inspections as are necessary to detect any agreement, decision or concerted practice prohibited by Article 101 of the TFEU or any abuse of a dominant position prohibited by Article 102 of the TFEU.

III. European law and national competition law In the field of competition, national competence and EU competence are autonomous and parallel, the latter being defined by the criterion of the effect of trade among Member States. In any case, European law takes precedence over national law. The decision resulting from a national procedure may not run counter to the Commission’s decision. The Member States cannot oppose Commission decisions.

IV. EU competition rules applying to undertakings Monopolisation of a market can be achieved in two ways: by agreement or by concertation. Where the concentrations exceed certain limits, they begin to present dangers, as the very large company can exploit its dominant position to remove all competition. EU competition policy must avoid monopolisation which restricts competition within the internal market. It must also prevent companies in a dominant position from restricting or preventing market competition and prohibit company mergers that may monopolise the market.

V. Prohibition of agreements and other concerted practices distorting competition I. Article 101 of the TFEU „all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market”. The EU’s legislation on competition also prohibits any similar non- binding agreements concluded between corporate decision-makers, so- called gentlemen’s agreements. The ban supplies both to horizontal agreements and to vertical agreements which distort competition, as well as to any concerted practices.

V. Prohibition of agreements and other concerted practices distorting competition II. The agreements of minor importance (de minimis). In these cases the Commission will not institute proceedings either upon application or on its own initiative. There are however, certain exemptions to the provisions on restrictive agreements and concerted practices. The Commission has the right to grant exemption from the prohibitions in cases where it deems that an agreement or practice has a beneficial effect and only imposes restrictions which are indispensable.

VI. Prohibition of abuses of dominant positions I. If the concentration exceeds certain limits, which vary from sector to sector, in may result in the formation of monopolies or, more often, oligopolies and the consequent restrictions of competition and intra-EU trade. Article 102 of TFEU prohibits any abuse by undertaking of its dominant position within the common market which may hinder effective competition and trade between the Member States. The Treaty does not prohibit the dominant position of itself, but its abuse, insofar as it affects trade between the Member States. Unlike Article 101, which prohibits restrictive agreements and concerted practices, Article 102 of the Treaty has no exemptions.

V. The control of concentrations of undertakings I. The founding treaties contained no provisions on the control of concentrations or mergers. Finally in 1989, the Council adopted a Regulation (Regulation 4064/89/EEC) on the control of concentrations. The Regulation, subsequently amended by another Regulation (Regulation 1310/97/EC) in 1997, prohibits „a concentration with a Community dimension” which may significantly impede competition in the common market through establishing a dominant position. Both of these Regulations were replaced by a third Regulation in 2004.

V. The control of concentrations of undertakings II. Regulation 1310/97/EC: compulsory notification in the case of mergers of undertakings: The Commission only takes action on mergers if they have a Community dimension and on restrictive practices only if they affect trade between Member States. The Commission takes a decision on whether or not to authorise the concentration/merger within an appointed time. The proposed concentration/merger cannot go ahead until the Commission’s final decision has been taken.

VI. EU competition rules applying to Member States Competition in the common market can be distorted not only by the behaviour of undertakings, but also by State intervention. As a result of state intervention, public enterprises (state-owned enterprises and enterprises in which the state has a controlling stake) may acquire a competitive advantage that may harm the position or chances of other companies. In fact, as other forms of protectionism diminish, the importance of State aid as an anti-competitive mechanism tends to grow. Indeed, the four largest Member States account for 88% of all aid granted in the Union.

VII. EU competition rules applying to state aids I. Article 107 of the TFEU stipulates that „any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the internal market”. On the other hand, Union competition law does not exclude the possibility of state aid in itself, which is a fundamental instrument for reaching certain economic and socio-political objectives set by the EU. EU competition law permits state aids provided for national enterprises and industries insofar as they serve economic and social interests.

VII. EU competition rules applying to state aids II. Article 107 of the Treaty provides for a number of exemptions from the prohibition on state aids which are considered to be compatible with the internal market. Accordingly, the following forms of state aid may be granted: Article 107 of the Treaty also lists state aids which – despite the general prohibition – the Commission may declare compatible with the common market. The Commission may permit the following:

VII. EU competition rules applying to state aids III. In relation to the last situation mentioned, the Council adopted a Regulation (Regulation 994/98/EC) in 1998 enabling the Commission to authorise state aids to support small and medium-sized enterprises, research and development, environmental protection and increased employment, as well as regional aid in certain regions approved by the Commission. Article 108 of the Treaty stipulates that the Member States must notify the Commission of their intention to provide aid. The Commission examines the form and objective of the given aid and decides whether or not to give its approval. De minimis Regulation adopted by the Commission in 2006.

VIII. EU competition rules applying to public enterprises Member States may not enact or maintain in force any measure and may not engage in any practice that discriminates in favour of a public enterprise. Member States are prohibited from using public enterprises in state ownership or under state control to restrict competition. Enterprises in the common market must be treated on an equal footing irrespective of their ownership. However Article 106 of the TFEU provides for special treatment for enterprises that are entrusted with the operation of services of general economic interest and for monopolies generating public revenue.

IX. Provisions affecting competition policy in the Treaty of Lisbon I. The Treaty of Lisbon stipulates that the Union has exclusive competence in the area of establishing the competition rules necessary for the functioning of the internal market. Provisions of the EC Treaty on competition policy were retained with some minor amendments. The Treaty of Lisbon reinforced the Commission’s role of implementation in competition policy. Similarly, the Commission can adopt supplementary implementing regulations for state aids which Council has exempted from the authorisation rule in a specific regulation.

IX. Provisions affecting competition policy in the Treaty of Lisbon II. The Treaty of Lisbon amended the list of state aids which were compatible with the internal market in relation to cases when a Member State might grant aid automatically, and when the Commission might authorise such aid. In the category on non-automatic aid, for which the Member State requires permission from the Commission, the Treaty of Lisbon adds aid to promote economic development of the overseas territories of Guadeloupe, French Guiana, Martinique, Réunion, the Azores, Madeira and the Canary Islands. A Protocol on competition in the internal market was attached to the Treaty of Lisbon.

Conclusion I. The basic objectives of the EU competition policy: Agreements, which have the effect of concentrating demand on specific producers, and exclusive distribution agreements which prevent traders and consumers for purchasing products in any Member State under the customary conditions there, are prohibited. Legal proceedings are also brought against undertakings which abuse a dominant position by refusing to supply a long-standing customer, by applying discriminatory prices, unlawful practices which cause or could cause damage to customers or consumers, or, lastly by absorbing one another thus eliminating competition in a market.

Conclusion II. The control of concentrations does not mean the prohibition of concentration. Just as concentrations are dangerous when they strengthen the dominant position of major undertakings. The EU competition policy not only provides the good functioning of the single market, but also complements the EU’s sectoral policies. Through its effect on the structure of markets, competition policy influences the competitiveness of the European economy.

Literature - Zoltán Horváth (2011): Handbook on the European Union, Hungarian National Assembly, Fourth Edition, Chapter 9, pp. 336- 345. - Nicholas Moussis (2013): Access to European Union : law, economics, policies. Intersentia, 20th edition, Chapter 15. pp. 387- 429. - The website of the European Commission (Competition policy).