Business environment in the EUPrepared by Dr. Endre Domonkos (PhD) 1st Semester, Academic Year 2011/2012

I. The reasons for establishing a competition policy at Community 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. Accordingly, the Member States agreed to establish competition policy at Community level. Regulation of competition at national level could no longer guarantee the necessary conditions for competition and effective market monitoring. Main target of common competiton policy: to ensure healthy market competition.

I. The reasons for establishing a competition policy at Community level II. Competition policy was essentially established as a classic common policy. Article 3 of the EC Treaty stipulated that a system guaranteeing undistorted competition on the internal market should be established. Competition policy is regulated by Articles 81 to 89 of the EC Treaty. The weight of the Community in the field of competition policy is reinforced by the central role played by the Commission, which acts as the guardian of competition in the Community. The competition rules of the Treaty are interpreted and applied through Council regulations and Commission regulations as well as through general communications and individual decisions of the Commission.

I. The reasons for establishing a competition policy at Community level III. The national competition authorities and the Commission cooperate within a network in order to monitor business agreements and punish infringements of the Community competition rules. National courts are enabled to protect the individual rights of citizens under Community law by granting damages and interest or by ruling on the performance of contracts. The competition policy of the EC allows for the restriction of competition is certain cases. To ensure effective competition, the policy of the EC has two fundamental objectives. Along the line of these two objectives, Community provisions on competition fall into two distinct categories.

II. European competition network I. The European Competition Network (ECN) 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. Where the Commission, acting on a complaint or on its own initiative, finds that there is an infringement of Article 81 or Article 82 of the EC Treaty, it may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end. For this purpose, it may impose on them any behavioural or structural remedies, which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end.

II. European competition network II. National competition authorities and courts are empowered to apply Community law. National competition authorities are empowered to withdraw the benefit of Community block exemption regulation. National courts may apply Community competition rules in lawsuits between private parties, acting as public enforcers or as review courts. Compliance with Articles 81 and 82 of the Treaty and the fulfillment of the obligations imposed on undertakings and associations of undertakings under Regulation 1/2003 is enforceable by means of fines and periodic penalty payments. The imposition or non-imposition of a fine, and the amount thereof, depend in particular on the gravity of infringement, its duration and the size of the undertakings involved.

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. National competition authorities can exchange between themselves information, including any confidential information, necessary for the assessment of a case that they are dealing with under Article 82 or Article 82 of the Treaty.

II. European competition network IV. The Commission is empowered throughout the Community to require such information to be supplied as is necessary to detect any agreement, decision or concerted practice prohibited by Article 81 of the Treaty or any abuse of a dominant position prohibited by Article 82 of the Treaty. Where the Commission, acting on a complaint or on its own initiative, finds that there is an infringement of Article 81 of Article 82 of the Treaty, it may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end. The competition authorities and courts of the Member States must apply Articles 81 and 82 of the Treaty where they apply national competition law to agreements and practices which may affect trade between Member States.

III. European law and national competition law In the field of competition, national competence and Community competence are autonomous and parallel. In any case, European law takes precedence over national law. National authorities must apply the Community competition law. However, the decision resulting from a national procedure may not run counter to the Commission’s decision. The Member States cannot oppose Commission decisions. National courts can apply the Community law or refer matters of Community law to the Court of Justice of the European Communities for a preliminary ruling.

IV. Community competition rules applying to undertakings Monopolisation of a market can be achieved in two ways: by agreement or by concentation. Concentration eliminate the autonomy of participating undertakings. 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 81 of the EC Treaty „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 ban supplies both to horizontal and to vertical agreements which distort competition, as well as to any concerted practices. Agreements between parent and subsidiary companies however are not prohibited. In accordance with Community law, the provisions on competition policy apply to any company that is present in the common market, including companies that are not registered in the Community; it is not the location of protagonists which is important.

V. Prohibition of agreements and other concerted practices distorting competition II. We have to mention the agreements of minor importance (de minimis) as well. The Commission holds the view that an agreement between undertakings, even if affects trade Member States, does not appreciably restrict competition within the meaning of Article 81(1) of the EC Treaty. 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. Article 82 of the EC Treaty 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. There is an abuse of a dominant position when the conduct of the undertaking in question is such that it influences the structure of the relevant market or its degree of competition. Such conduct is forbidden even if it is favoured by a provision of national law.

VI. Prohibition of abuses of dominant positions II. We have to note that the concept of abuse of a dominant position is similar to the concept of restriction or distortion of competition given by Article 81. Generally speaking, an undertaking in a dominant position may abuse its power on the market in one of the following ways: It is certain that the Commission and the Court regard it as an abuse where an undertaking in a dominant position strengthens that position by means of a concentration or of the elimination of competitors, with the result that competition, which continued in spite of existence of the dominant position, is virtually eliminated as regards the products concerned in substantial part of the common market. Unlike Article 82, which prohibits restrictive agreements and concerted practices, Article 82 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. 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 concertation with a Community dimension” which may significantly impede competition in the common market through establishing a dominant position. The Regulation stipulates that companies proposing a concentration/merger with a Community dimension must notify the Commission before the merger takes place, that is within one week after signing the agreement on the merger.

V. The control of concentrations of undertakings II. According to the Regulation 1310/97/EC, compulsory notification covers mergers involving undertakings whose aggregate world-wide turnover exceeds 2.5 billion euro (general threshold), and the turnover in each of at least three Member States exceeds 100 million euro. 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. In a large number of cases the authorisation of the Commission is granted subject to compliance with conditions and obligations.

VI. Community competition rules applying to Member States In addition to the practices of enterprises, certain actions of the Member States may also restrict competition in the common market. Competition in the common market can be distorted not only by the behaviour of undertakings, but also by State intervention. Various aids granted by the Member States or resulting from State resources may distort competition on the internal market, since they may discriminate in favour of the subsidised enterprise. As a result of state intervention, public enterprises may acquire a competitive advantage that may harm the position or chances of other companies. These issues needed to be addressed by Community competition law.

VII. Community competition rules applying to state aids I. Article 87 of the Treaty 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 common market”. The Commission and the Court of Justice have placed a very broad interpretation on the concept of „aid”. On the other hand, Community 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 Community. Community competition law permits state aids provided for national enterprises and industries insofar as they serve economic and social interests.

VII. Community competition rules applying to state aids II. Article 87 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 87 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. Community competition rules applying to state aids III. 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 88 (formerly Article 93) 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. Should a Member State not agree to the Commission’s decision and act in non-compliance with it, the Commission will institute legal proceedings against the State before the European Court of Justice.

VIII. Community competition rules applying to public enterprises Under Article 86 of the Treaty, public enterprises are subject to the same rules as private undertakings. 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 86 provides for special treatment for enterprises that are entrusted with the operation of services of general economic interest and for monopolies generating public revenue. For such enterprises, the Treaty allows a derogation insofar as their influence on trade is in compliance with the Community interests.

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. The Treaty of Lisbon reinforced the Commission’s role of implementation in competition policy. 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. The first group includes three cases:

IX. Provisions affecting competition policy in the Treaty of Lisbon II. According to the provisions of the Treaty of Lisbon, the Council acting on a proposal from the Commission, may adopt a decision repealing this latter category, (obviously, depending on the development of the East German Länder). 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. In this Protocol the Member States also agreed that to be attained this objective the Union might take measures as provided for by the Treaties.

Conclusion I. The basic objectives of the common competition policy: From the beginnings of the Community, an administrative practice developed gradually by the Commission and confirmed by the case-law of the Court of Justice has made it possible to interpret and improve the rules of the Treaty in order to establish a range of principles of fair behaviour. Companies which practice the prohibited restrictions of competition, thus jeopardising the unity of the common market, have to expect to have heavy fines imposed on them. Legal proceedings are also brought against undertakings which abuse a dominant position.

Conclusion II. The control of concentrations does not mean the prohibition of concentration. Even in regard to large companies, the Commission follows a double policy. In the field of State aids, the role of the Community competition policy is not only prevent national initiatives that are harmful to intra- Community trade or to the economic activity of the other Member States, but also limit state intervention to aid which fits in with the prospect of adjusting the structures of the Community’s production mechanism to changes in demand and to the international division of labour. The common competition policy not only provides the good functioning of the single market, but also complements Community sectoral policies.