Competition Policy and the Single Market

8/14/2019 Competition Policy and the Single Market

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Competition Policy and the Single MarketUchenna Iloka (10/04/2009)

1.0 Introduction

Economics and Law, are two vital genres of discipline embedded in

long-windedness, which makes the understanding of the terminologies

involved cumbersome and that is to say the least; for when a trio is

made of the two by adding Politics to it, the sum of one and one can

never just be two. This is the exact fabric with which competition

policy is made. Ordinarily, one should not bother with it, but

unfortunately, can we afford not to?

What makes it interestingly germane is the pivotal role competition

policy plays in the economies of the world, and particularly in the

European Union (EU) and in the accomplishment of the major goal of

the EU; which is perfecting the integration of the Single market.

The whole idea of competition is the centre and the heart of

Community law and economy.1

Competition is supposed 2 to result in efficiency by giving the greatest

awards to the keenest in the market place and at the same time

providing a benefit to all in that it improves living standards; creating

employment and allowing a consumer to benefit from a competitive

market.3 These benefits are some of the social goals of the EU. Herr

von der Groben4 believed that Competition should encourage the

expansion of efficient firms and sectors of the economy at the expense

of those less efficient at supplying what people want to pay for.5

1 N.Foster, ‘ Foster on EU Law’ (Oxford University Press 2006) p. 2982 This is ideal result of perfect competition, where the consumer benefits immensely and sometimes the

most efficient seller/producer is crowned by the consumer with a monopolistic status.3 N.Foster Foster on EU Law (Oxford University Press 2006) p. 2984 The first member of the Commission responsible for Competition policy5 V. Korah, ‘ An introductory guide to EC Competition Law and Practice’ (9th Edition, Hart Publishing

2007) p.53

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There have been concerns however about the absoluteness of this

view, whether competition policy merely serves to protect the weaker

firms at the expense of stronger firms irrespective of efficiency6. When

competition policy is focused on hampering the strong to protect the

weak for the pursuit of other goals such as the integration of the

market-as is sometimes the case of the EU, one cannot be sure its

exact objective.

The question that comes to mind is whether it can be balanced,

attaining both the goals of economic efficiency and the integration of

the Single market. Agreed, when Competition is unbridled it then

becomes counter productive as the most efficient undertakings will

thin out the weaker and less efficient undertakings, thereby creating a

monopoly which can exploit the market to the detriment of the

consumers and the economy generally.7 So there should be some

regulation of competition and its enforcement for a balanced

achievement of the various social goals of the EU in order to prevent a

state of survival of the fittest in the market place, wherein the

strongest survives and gathers the entire spoil of the market whilst theweakest is stripped and made extinct.

Hence for a clear understanding and appreciation of the complexities

(yet simplicities) of the competition policy as well as its inherent

objectives and its achievements in the European Community(EC), this

work will delve into at its development overtime, the discharge of its

objectives by the institutions of the EC, analytically focus on the

pivotal role of the Commission and the European Judiciary(EuropeanCourt of Justice-the ECJ and the Court of First Instance- the CFI) in the

pursuit of its objectives .

6 Ibid , p.537 N.Foster, ‘ Foster on EU Law’ (Oxford University Press 2006), p.299

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2.0 Development of Competition Policy in the EC

2.1 Rationale

The invention of policy or law becomes requisite either by reason of

prior ills or mischief in the society which the existence of the proposed

policy or law seeks to remedy or an idea of a better status quo which

the proposed policy or law seeks to concoct. This is on all fours with

competition policy and its objectives.

Competition policy was introduced to provide and sustain the aims of

the EU i.e. the idea of the perfectly integrated EU and its single market

as well as ensure the advent of the EU socio-economic giant and

political stalwart, it is necessary for the building of the Community and

the Union.8

The foreword by Neelie Kroes9 to the Report on Competition Policy

2006, particularly in the second paragraph stated that;

“‘Free competition’ is not an end in itself- it is a means to an end. When we

strive to get markets working better, it is because competitive markets

provide citizens with better goods and better services, at better prices.

Competitive markets provide the right conditions for undertakings to

innovate and prosper, and so to increase overall European wealth. More

wealth means more money for government to use to sustain the fabric of our

societies and to guarantee social justice10 and a high-quality environment for

generations to come.” 11

This encapsulates the underlining socio-economic and political

objective of the competition policy.

8 Ibid , p.299; this was the view confirmed by the Court of justice in Case C-127/ 97 Eco Swiss China time

ltd. Also Foster in Foster and EU had stated in p.299 that the establishment of the EU is premised on the

desire to promote integration and create a single unified market; to establish and maintain European-wide

competition to stimulate the entire economy of the Community for both the domestic and the world markets9 EU Competition Commissioner 10 Emphasis are mine11 Available at http://ec.europa.eu/comm/competition/annual_reports/2006/en.pdf

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2.2 The Legislative Framework

The instrument largely related to competition policy was the Treaty of

Rome 195712; which established the European Economic Community

(EEC) now called the European Community (EC) treaty13. One of the

main reasons for the establishment of the EEC was to prevent the re-

occurrence of war in Europe, therefore it was established to unite

Europe economically at least.14 Although the treaty may have been

politically motivated, the focus was specifically economic.

The Preamble of the EC Treaty refers to the removal of existing

obstacles calls for concerted action in order to guarantee steady

expansion, balanced trade and fair competition.

It then made provisions for the central tasks of the Community,

providing in Article 215 which is establishing the common market

amongst other things.

The common market16 was intended to create interdependence

between the states of Europe, an accelerated rise in standard of living

and a continuous expansion of economic activity in the entireCommunity. It is logical to think that the Common Market is the

vehicle by which the expansion, stability and so forth can be reached,

but the Common market is an aim in itself which can only be reached

12 The earliest European Community competition controls were introduced in the Treaty of Paris 1951; it

established the European Coal and Steel Community which were specialized rules that pertained only to

limited markets13 The European Economic Community (EEC) is now known as the European Community (EC) following

the adoption of the Treaty of European Union in 1992, which established the European Community bysimply changing the name European Economic Community to the European Community14 Ibid . p. 2315

“The Community shall have as its task, by establishing a Common Market and an economic and

monetary union and by implementing the common policies or activities referred to in Article 3 and 4, to

promote through out the Community a harmonious development of economic activities, sustainable and

non-inflationary growth respecting the environment, a high degree of convergence of economic

performance, a high level of employment and of social protection, the raising of standard of living and

quality of life and economic and social cohesion and solidarity among Member States.”16 This is known as the internal market since 1992

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if an equivalent competitive environment existed through out the

community.

Article 3 of the EC treaty provides for how the central aims of the

Community shall be achieved. One of which is as provided in

Paragraph (1) (g):

“…the institution of a system ensuring that competition in the internal market

is not distorted.”

The treaty also included in it, competition rules to assist the pursuit of

the goal of the Common market. The Competition rules and the

regulations that implement them must be read in the light of the

objectives of the treaty.

The principal substantive rules dealing with undertakings and anti-

competitive agreements and the activities of the powerful subject to

remote competitive pressures are provided for in Articles 81 and 82 of

the EC Treaty17 respectively18. Article 83 then enables implementing

regulations such as Regulation 17/62 and later the introduction of

Regulation 1/2003.19 Article 86 contains specialized provisions relating

to undertakings where there is some form of State regulation or

involvement. State aids are provided for in Articles 87-89.20 However

there was a modernization of the enforcement of the rules by including

private enforcement of the competition law in national courts. This was

introduced by Regulation 1/2003 on the implementation of the rules on

competition laid down in Articles 81 and 82.21 It revised the powers

available to the European Commission (the Commission) and provided

17 they were renumbered from Articles 85 and 86 by the treaty of Amsterdam, but not amended18 B. J Rodger and A.Macculloch Competition law and policy in the EC and UK (Fouth edition

Routledge.Cavendish 2009) p.2319 Ibid , p.2320 Ibid p. 2421 Ibid p.24

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for a decentralized network involving National Competition Authorities

(NCA’s) and the National Courts to assist the Commission in its

regulatory tasks.22

3.0 Implementing Competition Rules and the EU Institutions

The Commission and the European Court of Justice (ECJ) are intrinsic

to the discharge of competition law in the European Community (the

Community).

Recently, the Commission has been largely assisted by a network of

National Competition Authorities (NCA’s) at the National levels across

the community. The combination of the Commission and the network

of NCAs at the National level make up the European Competition

Network (ECN)23.

It has often been regarded as the Guardian of the Treaty, with its main

task being to ensure the proper functioning and development of the

common market, as provided for in Article 211 of the Treaty.24 So it

has the responsibility to see to it that Community Law is applied. It isendowed with general supervisory powers under the treaty for dealing

with competition law enforcement, and more specific powers, under

Regulation 1/2003, in relation to the enforcement of Article 81 and

82.25

22 Ibid p.2423 Ibid. p.3924

B. J Rodger and A.Macculloch, ‘Competition law and policy in the EC and UK’ (Fourth EditionRoutledge.Cavendish 2009) p.4625

Ibid p. 46; Also, Community competition rules can now be enforced on both the community and national

level, but on what ever level, the day-to-day enforcement takes place; the Commission is still required to

supervise and enforce Community competition law under its general duty provided in Article 211 of the

treaty. The Commission therefore, handles cases which, because of their nature, are better suited to direct

enforcement by the Commission, as after the Commission has been released from the responsibility for

Article 81(3) notifications that it bore under Regulation 17/62, it now has more resources available to

investigate serious competition problems which may span different member states, such as secret pan-

European cartels.

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After gathering information through various means that could hold an

undertaking liable for a breach of competition rules, it may institute

infringement proceedings26, the parties will be given a fair hearing, and

then the Commission will adopt a Decision, which is mostly a fine27 or

a restraint from the continuation of the breach. The largest fines

imposed have tended to be for price-fixing agreements and

agreements which divide up the single market in the Community. One

of the highest total fine imposed for an infringement, on a group of

undertaking was €855.2m28 and the highest fine imposed on a single

undertaking for an infringement remains €497m29.

This reflects the colossal powers of the commission and its influence in

Competition policy.30

The legality of a Commission’s Decision can be reviewed by the Courts

pursuant to Article 230 of the EC Treaty and a Commission’s decision

may be annulled with appropriate reasons. Article 229 of the Treaty

empowers the Courts with unlimited powers to annul, vary or increase

the fine imposed by the Commission. The Court of First Instance (CFI)and the European Court of Justice (ECJ) make up the Judiciary of the

Community.

The task of the court is to ‘ensure that in the interpretation and

application of the treaty the law is observed’ 31. The Court is the

ultimate authority on Community law issues, including competition

law. The court is renowned for its creative techniques of interpretation,

26

See Article 7 of Regulation 1/200327 See Article 23 of Regulation 1/2003

28 See Commission Press Release, IP/01/1625 and the Commission’s Decision 2003/2/EC Vitamins OJ

2003, L6/129 Commission decision 2007/53/EC, Microsoft , OJ 2007, L32/23, on appeal Case T-201/04 Microsoft v

Commission, Judgments of 17 September, 200730 Practical examples in the carrying on of these powers in discharge of competition rules will be discussed

subsequently.31 Under Article 220 of the EC Treaty

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this is because the treaty may be worded insufficiently and thus

cannot buttress the clear intent of its drafters, so the court often finds

the need to ‘fill in the gaps’ in the Treaty.

It has often been criticized for its judicial activism, which has been

obvious in the development of competition law principles from the

limited text of the Treaty. Matters for preliminary rulings32 from the

domestic courts and tribunals seeking authoritative rulings may also

be referred to the ECJ.

In 1989, the CFI was established33 in order to reduce the increasing

workload of the ECJ. The work load of the CFI is significant because it

have powers to first review the Commissions decision on points of law

and fact34. After its judgment, an appeal may be made to the ECJ on

points of law.

3.1 The Regulation 1/2003

The Commission35 was solely responsible for the enforcement of the

community competition rule under the previous regime.36 This central

role of the Commission was useful in the embryonic Europeancommunity of the 1960s which had only 6 Member states.37 In the late

1990s, it became more apparent that the administrative arrangements

of the community were increasingly unable to deal with the pressures

32 In order to ensure the uniform application of community law through out the legal system of the various

Member States, the Treaty makes provision in Article 234 which empowers the Courts with the finalinterpretative jurisdiction over references from national courts concerning the application and meaning of

community law; this is known as preliminary rulings.33 As provided for by the Single European Act 198634 Article230 of the EC Treaty35

This was the direct responsibility of Directorate General for Competition (DG Comp formerly Directorate

General IV ‘DGIV’)36 Regulation 17/6237 B. J Rodger and A.Macculloch, ‘Competition law and policy in the EC and UK’ (Fourth Edition

Routledge. & Cavendish 2009) p. 37

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4.1 Article 81

Article 81(1) prohibits as incompatible with the Common Market

collusion of Undertakings that may affect trade between Member

States and that has the object or effect of restricting competition.51

The form of an agreement is not so much of importance to the

Commission and the Court, but the effect of the agreement on

Competition; it includes anti-competitive gentleman agreements52

which are oral or tacit agreements53 with nothing committed to

writing54. This applies to both horizontal55 and vertical56 agreements.

The Court’s have held that ‘the concept of agreement’ within the

meaning of Article 81 (1) of the EC Treaty centers around the

existence of the concurrence of wills between at least two parties, the

form in which it is manifested being unimportant so long as it

constitutes the faithful expression of the parties intention.57 If concept

of agreement anticipated in Article 81(1) was restricted to just legally

binding agreement, then undertakings would easily evade the

prohibition, as the anti-competitive agreements that are prohibited inthe Article are by their very nature clandestine58. So the Court and the

Commission have not given the opportunity for Undertakings to slip

51 V. Korah, ,‘ An introductory guide to EC Competition Law and Practice’ (Ninth Edition, Hart Publishing

2007) p.4452 ACF Chemifarma v Commission Case 41,44 and 45/69 ECR 661; [1970] CMLR 8083, Where the Court

held that and unsigned ‘gentleman’s agreement’ fell within the prohibition.53

In BAI and Commission V Bayer Case C-2 and 3/01 [2004] ECR 4 CMLR 13, where the Court held that

for an agreement to be concluded by ‘tacit acceptance’ it is necessary that the ‘manifestation of the wish of

one of the contacting parties to achieve an anti-competitive goal constitute an invitation to the other party,

to fulfill that goal jointly’54 N.Foster, ‘ Foster on EU Law’ (Oxford University Press 2006), p. 30455 Agreement between parties on the same level of the economic process56 Agreement between parties at different levels of economic process57

Volkswagen AG v Commission Case T-209/1 CFI [2003] ECR 11-5141, [2004] 4 CMLR; See also A.

Ezrachi , ‘ EC Competition Law- An analytical guide to leading case’s (Hart Publishing 2008) p. 45; See

also BP Kemi (41/69) [1970] ecr, 661, paras 110-114 & 163-169 Where the Commission held that an

unsigned agreement fell within the prohibition of Article 81(1) since it had been acted upon by the parties.58 B. J Rodger and A.Macculloch, ‘ Competition law and policy in the EC and UK’ (Fourth Edition

Routledge & Cavendish 2009) p. 173

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through the provisions of Article 81 scot-free with arguments of dark-

witted agreements.

Article 81(1) also includes as prohibited decisions by Association of

Undertakings that are not compatible with the Common Market.

The ECJ has held that the words ‘decisions by association of

undertakings’ include recommendations by a trade association to its

members, even if they are not binding.59 So associations cannot

escape liability for their recommendations. This was further affirmed in

Daimler Chrysler AG v Commission60, the association’s argument that

it did not have the authority to take decisions binding its member, but

only to formulate recommendations was not upheld. The Court held

that it is settled case law that a measure may be categorized a

decision of an association of undertakings for the purpose of Article 81

(1) of the EC Treaty, even if it is not binding on the members

concerned, at least to the extent that the members to whom the

decision applies comply with its terms.

Because of the nocturnal nature of these agreements anticipated in

Article 81, the term concerted practices makes up for extremelyinformal forms of co-operation61. In Dyestuffs62, the ECJ defined

concerted practices as a form of co-ordination between undertakings

which, without having reached the stage where an agreement properly

so-called has been concluded, knowingly substitute practical co-

operation between them for the risks of competition63. In the case, the

Commission had found that the price increases on three occasions

were ‘concerted’ partly because the producers had met and discussedprice. The ECJ pointed out that the three increases showed

59 Vereeniging van Cementhandelaren v Commission Case 8/71, [1972] ECR 977; [1973] CMLR 7

60 Case T-325/01 CFI (2005), ECR 11-3319, [2007] 4 CMLR 61 K. Middleton, B.J Rodger & A. MacCulloch , ‘ Cases and Material on Uk & EC Competition Law’ (Oxford University Press 2007) p. 17362 ICI v Commission (Case 48/69) [1972] CMLR 55763 Ibid p. 173

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progressive co-ordination, which consisted mainly of the leader

announcing its intended price rise for a particular country further in

advance.

There is also the requirement that the practice complained about must

be such that has the capacity to affecting community trade64.

For an agreement to be at risk of infringing Article 81, it must bear

within it the purpose to distort competition, and whether the

agreement has the potential to distort competition65. This could also be

referred to as the object and effect of the agreement.

The court have established that one should first see whether an

agreement has the object of restricting competition, only when it does

not, is it necessary to consider, in detail the effects or the potential of

the agreement.66

Well known cartel activities such as price-fixing, market sharing has

been considered to always have the object of restricting competition.

Finally, Article 81(2) provides for that consequence of breaching the

provisions of Article 81(1) will be the agreement becomingautomatically void67. But this sanction of nullity becomes of non effect

when it involves market sharing or price-fixing, as it is not expected

that parties to such agreements will seek its enforcement by the rule

64N.Foster Foster on EU Law (Oxford University Press 2006), p. 309-310; In Consten and Grundig, (56

and 58/64) [1966] ECR 299, The test question derived was whether it is probable in law or in fact that the

agreement in question may have an influence, direct or indirect, actual or potential, on the pattern of trade

between member states as to hinder the attainment of a single market.65 B. J Rodger and A.Macculloch, ‘ Competition law and policy in the EC and UK’ (Fourth Edition

Routledge & Cavendish 2009) p.18066

Ibid p. 181; Also in Polypropylene Commission decision 86/398/EEC, OJ 1986, L230/1; [1988] 4 CMLR

347, There was considerable evidence of the cartel members’ intention of co-operating across the market

(i.e. the agreement had the object or aim of distorting competition) but there was little evidence of any anti-

competitive effects or potential. Nonetheless the Commission imposed a large fine that was upheld on

appeal.67 B. J Rodger and A.Macculloch, ‘ Competition law and policy in the EC and UK’ (Fourth Edition

Routledge & Cavendish 2009) p. 190

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of law68. In contrast, parties would rather deny the existence of such

agreements.

4.2 Article 82

Article 82 of the Treaty was designed to deal with the activities of

undertakings, which have powerful market positions similar to the

economists’ concept of monopoly; it is directed at the activities of a

powerful single business which is not pressured by effective

competition.69 An undertaking that have attained dominance in the

market may abuse such a dominant position.70

Dominance was defined by the Court as:

‘the dominant position referred to [by Art82] is a position of economic

strength enjoyed by an Undertaking which enables it to prevent effective

competition being maintained in the relevant market by affording it the

power to behave to an appreciable extent independently of its competitors,

customers and ultimately its consumers’ 71

Before dominance can be established, the relevant market72 must be

identified as it will be impossible to gauge how much power an

undertaking has over its competitors and consumers, without

delineating the products or services that are in competition.73 The

importance of market definition was emphasized in Continental Can,74

68 Ibid o. 19069 Ibid p.10170

Ibid p.102; Also abuse of dominant position may be in several ways: to exploit consumers by restrictingoutput and increasing prices, to perpetuate its own position, perhaps through unfair discounting; or, to

extend its position in another market, perhaps by tying the sale of one product to another.71 United Brands Continental BV v the Commission (Case 27/76) [1978] ECR 207; [1978] 1 CMLR 42972 See the Commission Notice on the definition of the relevant market for the purposes of Community

competition law, OJ 1997, C372/3; See also Baker, S and Wu, L, Applying the Market definition guidelines

of the European Commission [1998] 5 ECLR 27373 B. J Rodger and A.Macculloch, ‘ Competition law and policy in the EC and UK’ (Fourth Edition

Routledge & Cavendish 2009) p. 10474 Case 6/72 Continental Can v Commission [1973] ECR 215; [1978] 1 CMLR 199

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where the Commission’s decision was annulled by the Court because of

the Commission’s failure to properly demarcate the relevant market.

There are no penalties for simply being dominant as long as the

dominant undertaking does not abuse its position.

The ECJ said in Hoffmann-la Roche held that:

“….the concept of abuse is an objective concept relating to the behavior of an

undertaking in a dominant position which is such as to influence the

structure of a market where, as a result of the very presence of the

undertaking in question, the degree of competition is weakened and which,

through recourse to methods different from those which condition normal

competition in products or services based on the basis of commercial

operators has the effect of hindering the maintenance of the degree of

competition still existing on the market or the growth of that competition.”

The Court has confirmed that it is an abuse of dominant position to

charge excessive prices.75

Also another form of abuse can be found where an Undertaking

because of its dominant position, is not subject to competitive

pressure to innovate.76 In Port di Genova SpA,77 the Court held that a

port operator’s refusal to utilize modern technology in its unloading

operations constituted an abuse, as the user of older methods meant

75 General Motors V Commission Case 26/75 [1975] ECR 1367; [1976] 1 CMLR 248; A price will be

excessive where they do not reflect the ‘economic value’ of the goods or services and when taken in the

context of the larger market, the price is prima facie excessive. This can be referred to as an Exploitative

abuse; when an Undertaking which is unconstrained by competitive pressures no longer takes a price from

the market but can maximize profits by reducing output and charging an excessive price. However,

different markets have different cost structure as there are variations in taxation, marketing strategy, andconsumer behavior may result in different price levels. In United Brands Continental BV v Commission

(Case 27/76) [1978] ECR 207; [1978] 1 CMLR 429 , the Commission used various factors to support itsfindings of excessive pricing in branded banana; it compared prices between Member states of branded and

unbranded bananas, and between different brands of banana, and concluded that the prices charged on the

relevant market was unjustifiably high. The Court quashed the Commission’s findings as it had failed to

examine UBC’s cost before coming to its Decision76 This is also an Exploitative abuse, but it is sometimes referred to as x-inefficiency.77 Case C-179/90 Merci Convenzionali Porto di Genova SpA v Sideerurgica Gabrielli [1991] ECR; [1994]

4 CMLR 422

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that the unloading of vessels took much longer and was consequently

more expensive.

These are situations where the dominant Undertakings protect their

market power, usually by discouraging or making it more difficult for

new entrants to challenge them on the market78. Easy entry and

voluntary exit from markets are very germane to the achievement of

the goal of the single market.

In Microsoft 79 it was Cleary shown that Article 82 focuses on the

structure of the Market, the CFI confirmed the Commissions Decision,

which required Microsoft to provide interoperability information, which

allows network clients and servers to communicate with each other, to

allow competitors to develop products that would compete with its own

work group server operating system. The absence of proper

interoperability reinforced Microsoft’s position and risked the

elimination of competition in the market.

Some other form of abuse will be the in abusive pricing strategies.80

Sometimes, a dominant Undertaking may reduce prices to the level of

cost or even below cost and because of its economic strength, it will beable to sustain its losses for a limited time but its weaker competitor,

being less prosperous will be driven from the market.81

78 B. J Rodger and A.Macculloch , ‘Competition law and policy in the EC and UK’ (Fourth Edition

Routledge.Cavendish 2009) p 121; This is know as Exclusionary abuse79 Case T-201/04 Microsoft V Commission[2007] 5 CMLR 1180

They may be discounts, rebates or predatory pricing, they are abusive because tend to foreclose the

Markets from new entrants. For instance For instance, an undertaking may lower prices of its goods, and

the customer may benefit in the short term, but in the in long term the undertaking would have benefited by

reducing the level of competition they would have faced in the market if they had not employed the pricingstrategy in In Michelin, the Court found that annual discounts awarded by Michelin, on the basis of sales

target for dealers, amounted to an abuse, as dealers could not deal with another supplier without fear of

heavy economic loss.81

B. J Rodger & A.Macculloch, ‘ Competition law and policy in the EC and UK’ (Fourth Edition

Routledge & Cavendish 2009) p 126; This is know as predatory pricing. In Case T- 340/03 France

Telecom V Commission [2007] 4 CMLR 21 The CFI have made it clear that dominant undertakings had no

‘absolute right’ to align their prices with those of a competitor, especially where they are potentially

abusive, being below cost.

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4.3 Article 87-89

States can potentially distort competition in the market by the grant of

state aids. Valentine Korah clearly explained the temptation to grant

state aid stating:

“Politicians are subject to strong temptation to be seen to decrease

unemployment in marginal constituency by subsidizing failing firms, even if

the inefficiency leads in the longer run to greater unemployment through the

need to raise taxes to pay for the aid and the loss of work to international

competitors once the aid is reduced’ 82

One of the shortcoming of state aids is that firms in the same industry

who are not benefiting from the aid have to meet subsidized

competition, also profitable firms in the same industry have to pay

higher taxes than they might have in order to provide the state

resources, it is like paying taxes to empower you rival competitors in

the industry.83

Article 87 does not have direct effect, so the National Competition

Authorities cannot arbitrary authorize State aids; that power lies

exclusively with the Commission84.

82 V. Korah,, ‘ An introductory guide to EC Competition Law and Practice’ (Ninth Edition, Hart

Publishing 2007) p 236; see the resent French state aid to Renault83 Ibid p 23684 Ibid p 237

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4.4 Protection of the weak and pursuit of social goals:

Protecting the aims of the competition and not the competitors;

a comparison of the EU Competition Law and the Us Anti-Trust

Law.

All contracts concerning trade involve restraint in one way or the other

‘… [T]o bind, to restrain is of their very essence…’

Yet it will be absurd if every contract were caught by Competition

law85.

Some agreements do have the features that restrict competition, but

at times the mischief caused by such agreements may be

overwhelmed by the resultant good to the society.

Even though Section 1 of the Sherman Act86 provides that every

contract, combination or conspiracy in restraint of trade is illegal the

courts started that only undue or unreasonable restraint should be

condemned.87 This was the development of the US doctrine of rule of

reason.88

In the EC Competition law, there are some anti-competitive

agreements which allow the consumers a fair share of the resulting

benefits; hence they are exempted from prohibition Under Article 81

(3).89

85 P.Craig & G.D. Burca , ‘ EU Law, Text, Cases and Materials’ (Fourth Edition Oxford University Press

2008) p. 96386 It is identical to the Section 81 (1) of the EC Treaty87 Standard oil v US White CJ 221 US1 (1911) cited in P.Craig & G.D. Burca EU Law, Text, Cases and

Materials (Fourth Edition Oxford University Press 2008) p 96488

This entails an inquiry into the pro- and anti- competitive effects of an agreement, to determine whether itsuppresses or promotes competition. Although, there are certain types of agreement that are blatantly

without redeeming virtue and which have a pernicious effect on competition, which the court havecondemned without the need for an elaborate inquiry into whether they have a positive or negative impact

on the market. Agreements such as horizontal pricing and market division, they are also referred to as per

se offences.89 The standard for the prohibition, unlike in the US is codified so discretion of the court will be within the

confines of the provision of law. Under Article 81(3), agreements that contribute to the improvement of the

production and distribution of goods, or promote technical or economic progress are absolved from the

prohibitions of Article 81(1).

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The scope of US anti-trust law derives historically from anxieties and

ideals quite different from those that have shaped the European

Union.90 It was not conceived as an instrument to create and maintain

a single market unlike in the EC which needed to abolish a wide variety

of regulatory and technical obstacles and custom barriers; rather it

was framed to protect the already existing single market from

unnatural distortions.91

The primary concern of the Commission during the early years of EU

antitrust enforcement was not the promotion of legal certainty or

economic efficiency, but rather the creation of the single market, an

establishing of the social model as shown in the preamble, Article 2

and 3 of the EC Treaty; the arch-goals of European integration.92

The difference between U.S. law and original EU antitrust model is akin

to a difference between ‘efficiency law’ which promotes efficiency as

measured by aggregate consumer welfare and ‘fairness law’ which

uses law to advance goals such as preserving a society of small

business, protecting small firms from abuse of dominance by larger

firms, providing fair access to markets, and setting fair rules of thegame.93 Following the reform of EU Competition law of 2004, the fluid

and efficiency-focused “rule of reason” approach of the US seemed

more enticing in contrast to the too formulaic excessive compliance

90 The US was the first jurisdiction to imbibe a coherent competition system, known as ‘anti-trust’. And

most of the origins of the EC Treaty competition rules have been traced by some to equivalent provisions in

U.S. antitrust law91

G. Caciato, Subsidies, Competition Laws and Politics: ‘ A Comparison of the EU and The USA’ (1996)92G. S Georgiev Contagious Efficiency: The growing reliance on US style antitrust settlemet in EU law

utah law review [no. 4.] Page 979; Also In early 1990s, the then Commissioner for competition noted thatthe ‘Chicago school’ approach currently in favour in the USA is not directly relevant to the EC

Competition policy. It stated that Chicago does not need to worry about creating a single market. Rather, it

presupposes the existence of an integrated market93 Eleanor M. Fox, ‘ Antitrust and Regulatory Federalism’ : Races Up, Down and Sideways, 75 N.Y.U.L

REV, 1782,1782 (2000) see also Eleanor M. Fox, the end of Antitrsut Isolationism: The Vision of One

World, 1992 U. Chi. Legal F. 221,225-28(1992) cited in Contagious Efficiency: The Growing Reliance on

US Style Antitrust Settlemet In Eu Law George Stephanov Georgiev Utah Law Review [No. 4. page 977)

19



approach of the Commission in the application of Article 8194 and the

goal of Efficiency, both in the process of competition enforcement and

as a goal of EU economic policy, became more apparent as a goal of

the community.95

5.0 Conclusion

Firstly I align my argument with Korah and suggest that careful

consideration is given to Competition rules when embarking on any

form of business venture, as infringements, whether intentionally or

negligently do have consequences; which may be fines of up to 10% of

the turn over of the Undertaking’s previous year96.

Secondly I find it equally disturbing; Community regulation as well as

private power of an undertaking. Competition policy which aims at

dispersal of power as a matter of ideology may favour weaker

businesses and seek to protect them from stronger businesses could

be using the rules to protect the competitors instead of protecting the

competition.97

As I had said earlier, the single market is not really a tool for achieving

the integration of the EU but rather it is an aim in itself, not only for it

to be free from trade barriers but also for it to be vibrant and result in

a very strong economy for the Community as a whole, that why the

emphasis should also be on market efficiency.

Notwithstanding the importance of competition controls, market

94 Ibid ; For instance, the Merger regulation changed the substantive test for enjoining merger from the

creation or strengthening of a dominant position test to a standard that examines whether the transactionwould significantly impede competition, in the common market or in a substantial part of it, in particular as

a result f the creation or strengthening of a dominant position. (This test was first introduced in the US before it moved to other jurisdictions whereas the old test was based strictly upon the rigid concept of

dominance.95 ibid 96 V. Korah,, ‘ An introductory guide to EC Competition Law and Practice’ (Ninth Edition, Hart

Publishing 2007) p 37; The Commission has recently issued two sets of guidelines on its fining policy.

They have both been revised recently and yield far higher fines than before97 Ibid p. 16

20



efficiency is at risk when the competition rules are used against

Undertakings in dominant positions who got it by sheer codes of

perseverance, innovative competition and efficiency.

BIBLIOGRAPHY

21



Books

1. N.Foster Foster on EU Law (Oxford University Press 2006)

2. V. Korah, An introductory guide to EC Competition Law and

Practice (9th Edition, Hart Publishing 2007)

3. B. J Rodger and A.MacCulloch Competition law and policy in the

EC and UK (Fourth edition Routledge & Cavendish 2009)

4. K. Middleton, B.J Rodger & A. MacCulloch Cases and Material on

Uk & EC Competition Law (Oxford University Press 2007)

5. A. Ezrachi EC Competition Law- An analytical guide to leading

cases (Hart Publshing 2008)

6.P.Craig & G.D. Burca EU Law, Text, Cases and Materials (Fourth

Edition Oxford University Press 2008)

7. A. Jones & B. Sufrin, Text, Cases and Materials EC Competition

Law (2nd Edition 2004)

Reports/Articles/Journals

1. http://ec.europa.eu/comm/competition/annual_reports/2006/en.

pdf 2. Commission Press Release, IP/01/1625 and the Commission’s

Decision 2003/2/EC Vitamins OJ 2003, L6/1

3. G. Caciato, Subsidies, Competition Laws and Politics: A

Comparison of the EU and The USA (1996)

4. G. S Georgiev Contagious Efficiency: The growing reliance on US

style antitrust settlement in EU law utah law review [no. 4.]

5. Sarah A. Turnbull European Competition Law Review 1996Barriers to entry, Article 86 EC and the abuse of a dominant

position: an economic critique of European Community

competition law

Cases

22

http://ec.europa.eu/comm/competition/annual_reports/2006/en.pdf






1. Case T-201/04 Microsoft V Commission[2007] 5 CMLR 11

2. Case C-179/90 Merci Convenzionali Porto di Genova SpA v

Sideerurgica Gabrielli [1991] ECR; [1994] 4 CMLR 422

3. United Brands Continental BV v Commission (Case 27/76)

[1978] ECR 207; [1978] 1 CMLR 429

4. General Motors V Commission Case 26/75 [1975] ECR 1367;

[1976] 1 CMLR 248

5. Case 6/72 Continental Can v Commission [1973] ECR 215;

[1978] 1 CMLR 199

6. Polypropylene Commission decision 86/398/EEC, OJ 1986,

L230/1; [1988] 4 CMLR 3477. Vereeniging van Cementhandelaren v Commission Case 8/71,

[1972] ECR 977; [1973] CMLR 7

8. Daimler Chrysler AG v Commission Case T-325/01 CFI (2005),

ECR 11-3319, [2007] 4 CMLR

9. ICI v Commission (Case 48/69) [1972] CMLR 557

10. Polypropylene Cartel Community V ICA, Commission Decision

[1988] 4 CMLR 34711. Leclerc v Commission T-19/92, [1996] ECR II-995

12. Courage V Crehan C-453/99

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Competition Policy and the Single Market

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