European Union competition policy versus industrial competitiveness: Stringent regulation and its external implications

Yoshizawa, Hikaru Book — Published Version European Union competition policy versus industrial competitiveness: Stringent regulation and its external implications Globalisation, Europe, Multilateralism Series Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Yoshizawa, Hikaru (2022) : European Union competition policy versus industrial competitiveness: Stringent regulation and its external implications, Globalisation, Europe, Multilateralism Series, ISBN 978-1-003-16390-9, Routledge, London, https://doi.org/10.4324/9781003163909 This Version is available at: https://hdl.handle.net/10419/270818 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/ “Yoshizawa provides a much needed and thorough analysis of the European Union’s use of competition policy in the global political economy. His timely insights reveal the crucial internal and external dimensions of this policy and how they contribute to the EU’s increasingly important approach to the competition-competitiveness dilemma.” Chad Damro, University of Edinburgh, UK “EU competition policy experts as well as academics will be keen to read this book. It shall interest experts and academics from all over the world.” Janine Goetschy, French National Centre for Scientific Research (CNRS), France EUROPEAN UNION COMPETITION POLICY VERSUS INDUSTRIAL COMPETITIVENESS The book examines whether EU competition policy is applied fairly and consistently to EU and non-EU firms despite persistent political pressure from member states for a relaxation of the rules and deals with the dilemma of regional organisations in the global political economy. Focussing on the EU’s desire to achieve balance between the promotion of market competition and the enhancement of international competitiveness, the book explores the validity of its attempts successfully to ensure a ‘stringent competition policy’ which is nationality-blind and comparatively strict. Finally, it shows that the competition-competitiveness dilemma remains unresolved because the EU’s capability to set global regulatory standards is constrained by competition and the need to engage in multilateral forums, such as the WTO and the International Competition Network. This book will be of key interest to scholars and students of European Union studies, EU competition law and policy, EU external action and more broadly to global governance, international political economy and international relations. Hikaru Yoshizawa is Associate Professor in the Faculty of Law at Kansai University, Japan. The series offers an interdisciplinary platform for original peer-reviewed publications on the institutions, norms and practices associated with Globalisation, Multilateralism and the European Union. Each published volume delves into a given dynamic shaping either the global-regional nexus or the role of the EU therein. It offers original insights into: globalisation and its associated governance challenges; the changing forms of multilateral cooperation and the role of transnational networks; the impact of new global powers and the corollary multipolar order; the lessons born from comparative regionalism and interregional partnerships; as well as the distinctive instruments the EU mobilises in its foreign policies and external relations. Series Editors: Mario TELÒ, Université Libre de Bruxelles, Belgium, and LUISS-Guido Carli, Rome, Italy. Ramona COMAN, Université libre de Bruxelles, Belgium. 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Edited by Thomas Meyer, José Luís de Sales Marques, and Mario Telò Global Networks and European Actors Navigating and Managing Complexity Edited by George Christou and Jacob Hasselbalch European Union Competition Policy versus Industrial Competitiveness Stringent Regulation and its External Implications Hikaru Yoshizawa For more information about this series please visit: https://www.routledge.com/GlobalisationEurope-Multilateralism-series/book-series/ASHSER1392 Globalisation, Europe, Multilateralism Series With the institutional support of the Institut d’études européennes-Université libre de Bruxelles Hikaru Yoshizawa EUROPEAN UNION COMPETITION POLICY VERSUS INDUSTRIAL COMPETITIVENESS Stringent Regulation and its External Implications First published 2022 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2022 Hikaru Yoshizawa The right of Hikaru Yoshizawa to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. The Open Access version of this book, available at www.taylorfrancis.com, has been made available under a Creative Commons Attribution-Non Commercial-No Derivatives 4.0 license. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Yoshizawa, Hikaru, author. Title: European Union competition policy versus industrial competitiveness : stringent regulation and its external implications / Hikaru Yoshizawa. Description: Abingdon, Oxon ; New York, NY : Routledge, 2022. | Series: Globalisation, europe, multilateralism series | Includes bibliographical references and index. Identifiers: LCCN 2021021898 (print) | LCCN 2021021899 (ebook) | ISBN 9780367757670 (hardback) | ISBN 9780367757595 (paperback) | ISBN 9781003163909 (ebook) Subjects: LCSH: Competition--European Economic Community countries. | European Economic Community countries--Economic policy. | Restraint of trade--European Economic Community countries. Classification: LCC HF1532.5 .Y68 2022 (print) | LCC HF1532.5 (ebook) | DDC 382/.3094--dc23 LC record available at https://lccn.loc.gov/2021021898 LC ebook record available at https://lccn.loc.gov/2021021899 ISBN: 978-0-367-75767-0 (hbk) ISBN: 978-0-367-75759-5 (pbk) ISBN: 978-1-003-16390-9 (ebk) DOI: 10.4324/9781003163909 Typeset in Bembo by KnowledgeWorks Global Ltd. CONTENTS List of illustrations viii Acknowledgements ix List of acronyms x 1 The EU competition policy dilemma 1 2 The institutional basis of strict and non-discriminatory regulation 21 3 Tension between stringent supranational regulations and national neo-mercantilism 48 4 The issue of discrimination against non-EU firms 76 5 Systemic constraints on the EU’s role as a global rule-maker 107 6 The EU: Stuck between competition and competitiveness 137 Index 146 2 EU competition policy dilemma The main purpose of this book is to examine how exactly the EU deals with this dilemma faced by regional organisations in the global political economy. Specifically, this book addresses three questions that are closely related to each other: (1) Does EU competition policy seek to create or strengthen dominant EU firms at the expense of promoting competition? (2) Does this policy discriminate against non-EU firms for industrial policy purposes? (3) How effective is the EU’s attempt to alleviate the dilemma by creating international rules congruent with its own law? The first question is mainly concerned with the internal dimension of this policy, whereas the second one draws attention to its external implications. The third question focuses on the EU’s external relations, especially at the multilateral level. The present research is based on the premise that these three aspects are interlinked and should therefore be studied together. The organisation of this book reflects this idea; each of these three aspects is studied in Chapters 3, 4, and 5, respectively. Drawing on the literature on regulatory states, the book explores a proposal that the EU’s supranational institutional setting ensures a ‘stringent competition policy’ that is nationality-blind and comparatively strict. To test this proposition, the enforcement record of the EU in the areas of cartels, abuse of dominance, mergers, and state aid will be examined based on quantitative data and high-profile cases from the 1990s to 2010s that involved both EU and non-EU firms. The book will also draw on the literature on the EU’s policy export, and assess the EU’s past and present engagement in rule-making and policy convergence in multilateral forums, such as the World Trade Organization (WTO) and International Competition Network (ICN). Empirical findings will demonstrate that the EU has been enforcing its competition law quite stringently regardless of the nationality of firms involved in individual cases. Furthermore, EU competition policy has been largely resilient to the global financial crisis of 2007–2008, although the full impact of the current coronavirus pandemic remains to be seen. This stringent approach of the European Commission, which is almost exclusively based on the competition criteria, is contested at times by member state governments that aim to foster ‘national champions’ (i.e. leading firms based in their territories). Instead of discriminating against non-EU firms, the EU attempts to address the competition– competitiveness dilemma by externally promoting competition law and policy. However, the finding will show that the dilemma remains unresolved because the EU’s capability to set global regulatory standards is rather limited because of systemic constraints such as competition with the United States, a growing trend of voluntary competition cooperation and policy convergence based on soft law, and the WTO negotiation deadlock on the creation of trade-related competition rules. Overall, the book seeks to contribute to the literature by analysing the external implications of the EU’s stringent competition policy in the wider context of the global political economy. In this book, ‘competition policy’ refers to a prohibitive public policy that regulates anticompetitive economic activities primarily based on legal measures EU competition policy dilemma 3 rather than administrative ones. This policy is in sharp contrast with ‘industrial policy’, which typically involves a relatively large amount of public expenditure and the extensive use of non-binding measures such as administrative guidance. Competition policies usually cover various areas of regulation such as cartels, abuse of a dominant position, and mergers, whereas state aid control may also be the competence of supranational competition authorities such as those of the EU. It should be noted that, reflecting the standpoint of this research, competition policies are defined here in terms of regulatory areas and policy instruments rather than policy goals. Goals of this policy cannot be defined in advance because they vary considerably across time and space. They are largely determined by a specific political process in which various governmental and non-governmental actors interact with each other and advocate their interests and values. In short, the question is ‘What is the primary goal of EU competition policy?’, and this research will empirically examine it instead of predefining it. The remainder of this chapter is organised as follows. Section 1 will briefly introduce the content of EU competition policy. Subsequently, it will explain two major criticisms of this policy and the European Commission’s response to them to place this research in the context of current political debates. Section 2 will provide a literature review and explain how this book differs from previous studies. Section 3 will develop a theoretical framework, and Section 4 will present the organisation of this book. 1.1 Political debates about European competition regulation While EU competition law covers a wide range of issues, it mainly prohibits four categories of economic activities.2 The first category is restrictive practices, which include anticompetitive agreements between firms.3 Typical examples of these agreements are hardcore cartels such as price fixing. The second category is the abuse of dominant positions by firms, for example, the imposition of unfair trade conditions on other firms and the use of measures that exclude rival firms’ products from the market. The control of these abusive practices is commonly called antitrust policy. The third one is ‘concentrations’, including mergers and acquisitions, which would substantially reduce competition in a certain market. In the EU, the regulation of these activities is called merger control. The last type of potentially illegal conduct is public aid granted by member state governments to certain firms, industries, and regions. Typical examples of illegal state aid are market-distorting subsidies, unlimited public guarantees, and public loans below market rates. If there were no public regulation of these anticompetitive practices, the removal of traditional trade barriers such as tariffs and quotas would have been largely ineffective. This is because, for example, the creation of a free trade area may encourage cross-border mergers and foster international monopolies that can make excessive profits from abusing their dominant market positions. This kind of behind-the-border private distortion of market competition could be 4 EU competition policy dilemma more harmful than traditional at-the-border public barriers to international trade, especially for consumers, and small and medium-sized enterprises. Trade liberalisation among countries may also trigger wasteful subsidy races between them unless effective state aid control exists. For these reasons, articles on competition policy were included in the Treaty of Paris of 1951, which established the European Coal and Steel Community (ECSC), and the Treaty of Rome of 1957, which established the European Economic Community (EEC). Both treaties were singed by the original six countries of these communities (Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany). In addition to this market integration logic, the European Commission (2012: 9–10) has continuously emphasised the positive contributions of its competition policy to the EU’s grand economic strategies, notably the Lisbon Strategy and Europe 2020, which were announced in 2000 and 2010, respectively (European Commission 2010; European Council 2000). According to this view, EU competition policy fosters market competition, boosts innovation, and prepares EU firms for competition on the global stage. The European Commission also insists that its competition policy is compatible with modern industrial policies, such as that of the EU, that encourage innovation instead of directly subsidising selected firms in key sectors.4 This point was made, for example, by former European Competition Commissioner Neelie Kroes (2008) and former Director-General for Competition Alexander Italianer (2010) in their public speeches. However, this official position of the EU has been contested at times. Some people believe that this policy is too strict, obstructs the rise of large EU firms, and undermines their international competitiveness. According to this view, market concentration and business cooperation are generally beneficial and should not be restricted too much. Those who support this argument call for a more flexible EU competition regulation and the greater discretion of member states in developing national industrial policies. Former French President Nicolas Sarkozy was one of the main advocates of this opinion. At the European Council meeting in Brussels in June 2007, he proposed limiting the EU’s competition policy competence, arguing that the policy was ideological and dogmatic, and over-constrained national industrial policies (Gow 2007; Lianos 2012: 255–258). Specifically, he suggested removing the goal of free and undistorted competition in the single market, which was originally codified in Article 3(f) of the Treaty of Rome and repeated in subsequent treaties including the Constitutional Treaty of 2004. Consequently, the goal of market competition was deleted from the main text of the Lisbon Treaty of 2007 and moved to Protocol No. 27. So far, this treaty revision has had little practical effect on the EU’s competition law enforcement, but this episode illustrated fundamental disagreements among the member states about the balance between competition policies and industrial competitiveness. Political pressure to downgrade EU competition policy increased again during the 2007–2008 global financial crisis and the subsequent Eurozone crisis. A notable example of such attempts is the harsh criticism of the EU by Arnaud EU competition policy dilemma 5 Montebourg, former French Minister for Industrial Revival between 2012 and 2014. In an interview by a European media network EURACTIV in October 2013, he asserted that EU competition policy was ‘stupid and counter-productive’ (Robert 2013). His argument was threefold. First, EU competition policy hinders the emergence of European industrial champions that can compete in the global market. Second, since the EU’s major trading partners, such as the United States and China, actively subsidise various sectors and individual firms, it is unwise to maintain strict EU competition rules. Third, for these reasons, EU competition policy is outdated and does not fit the contemporary global economy. In the following year, he went as far as making confrontational arguments with the European Competition Commissioner Joaquín Almunia in open letters, particularly criticising the technocratic decision-making process and the strict enforcement of EU state aid and merger rules (Robert 2014). Furthermore, there has long been a suspicion that the EU’s competition authorities target non-EU firms, and that is why former and current European Competition Commissioners have defended their policy numerous times in front of non-EU audiences. For example, soon after the commencement of her term as European Competition Commissioner, Margrethe Vestager made the following statement in her speech at the Peterson Institute for International Economics in Washington D.C. on 16 April 2015. It was her first public speech to an American audience in her capacity as the European Commissioner. In all our cases, we are indifferent to the nationality of the companies involved. Our responsibility is to make sure that any company with operations in the territory of the EU complies with our Treaty rules. (Vestager 2015) It is clear why she mentioned the issue of nationality-based discrimination on this occasion. One day before this speech, the European Commission sent a statement of objections5 to Google, a giant American technology company, regarding an alleged favourable treatment of its comparison shopping services (Google Shopping) on the Internet.6 On the same day, the European Commission also announced the initiation of a formal investigation into Google’s practices regarding the Android mobile operating system.7 Considering the salience of these cases, Vestager tried to explain that the EU was impartial and did not target any non-EU country. However, she could not convince everyone. During her term as a member of the European Commission led by Jean-Claude Juncker (2014– 2019), the EU kept taking a tough stance on American firms, such as Google and Apple, in cases related to abuse of dominance and state aid (see Chapters 3 and 4 for more details). This led former US President Donald Trump to comment in June 2019 that ‘she hates the United States perhaps worse than any person I have ever met’, and that ‘Europe treats us worse than China’ (Dallison 2019). In the current European Commission led by Ursula von der Leyen, Vestager serves as Executive Vice-President for ‘A Europe Fit for the Digital Age’, while retaining 6 EU competition policy dilemma her responsibility for competition policy. She probably has to continue responding to the accusation that the EU targets non-EU firms for industrial purposes. As these political debates illustrate, the competition and/versus competitiveness issue and the discrimination issue are directly relevant to current policy discussions about the direction of EU competition policy. That is why the research questions raised at the beginning of this chapter deserve serious consideration. While this section focused on political debates relevant to the present research to place it in context, the next section will review the academic literature on this policy and explain how this book differs from other studies. 1.2 Contributions of this book The literature on EU competition policy is multidisciplinary and multidimensional. While this research area was largely dominated by economists and legal scholars in the past, some political scientists have also extensively published on this subject since the 1990s. More recently, a few historians have entered this field, making the body of literature genuinely multidisciplinary. The scope of research has also expanded over time. A vast majority of studies from the 1960s to the 1980s primarily focused on the internal dimension of this policy, but the external dimension and its interaction with the internal dimension have also been studied extensively since the 1990s. The internal dimension of EU competition policy has often been assessed in the context of European integration studies. For example, there are books written by lawyers and historians on the historical development of this policy (Gerber 1998; Patel and Schweitzer 2013). Political scientists also studied the historical origin, content, and institutional setting of this policy (Cini and McGowan 2009). In addition, using EU competition policy as a case study, some scholars made theoretical contributions to regional integration studies more explicitly. For example, this policy has been researched from the perspective of neo-functionalism (Büthe 2007; McGowan 2007b), Europeanisation (McCann 2010: 45–70), and historical institutionalism (Warlouzet 2016). Overall, the primary focus of these studies is the political, economic, and legal dynamics within Europe. More recently, the literature on the external dimension of EU competition policy has developed, putting more emphasis on its global regulatory influence and external relations at the bilateral, interregional, and multilateral levels. There have been lively discussions about the controversial issue of extraterritoriality (Jacquemin 1993), often focusing on high-profile cases involving American firms (Damro 2001; Morgan and McGuire 2004). There are also studies on topics such as transatlantic competition relations (Damro 2006), the EU’s failed initiative to establish a WTO competition law (Woolcock 2003), and the overall picture of the European Commission’s external competition relations (Aydin 2012; Botta 2014; Yoshizawa 2020). The EU’s competition-related agreements with other countries have been studied from a legal perspective (Demedts 2018; Papadopoulos 2010). Furthermore, several scholars published seminal books on EU competition policy dilemma 7 the EU’s external competition policy using explicit theoretical frameworks. For example, from a critical political economy perspective, Buch-Hansen and Wigger (2011) exposed the power struggles and competing economic ideologies behind the policy-making process—aspects often overlooked in competition policy studies. Another important contribution is the book of Damro and Guay (2016) that used the two-level games analytical framework to explain how the internal and external policy dimensions interact with each other. While these studies have certainly made positive contributions to the literature, this book differs significantly in three respects. First, while previous studies such as Damro and Guay (2016) tend to focus on transatlantic relations, especially in terms of case studies, this book analyses high-profile cases involving Japanese and South Korean firms as well as American and European ones. Second, the book directly addresses the issue of nationality-based discrimination, which is an underexplored and yet crucial issue when analysing the external consequences of the EU’s competition regulation. Third, it proposes an original concept of ‘stringent competition policy’ and distinguishes it from ‘strategic competition policy’. While the former is characterised by non-discriminatory and comparatively strict law enforcement, the latter refers to a neo-mercantilist style of competition policy that prioritises the promotion of domestic firms’ international competitiveness. This heuristic distinction between the two concepts helps to better understand the distinctiveness of EU competition policy. This book also differs from legal studies on the relationship between the EU’s competition and industrial policies (Käseberg and Van Laer 2013; Sauter 1997). While their primary concern is the legal compatibility between these policies, this research focuses on policy practices and examines whether EU competition policy is used for industrial policy purposes. The discrimination issue mentioned above is more important than ever and deserves serious consideration. If EU competition policy were underdeveloped and extremely lenient, the issue would have been negligible. However, this is certainly not the case. As discussed in detail in Chapter 4, EU competition policy’s enormous influence on firms is evident in the huge fines imposed on them, especially in the area of cartels and abuse of dominance. In some cases, the fines accounted for billions of Euros, showing the EU’s determination to confront giant multinational corporations. Under certain conditions, the EU can also block mergers and acquisitions between firms whose headquarters are outside EU territory. Therefore, from the perspective of non-EU firms, whether the EU is impartial or not is crucial. The empirical analysis in Chapter 4 will build on recent statistical analyses conducted by legal scholars (Bradford, Jackson, and Zytnick 2018) and economists (Cremieux and Snyder 2016), which addressed the discrimination issue in specific areas. While the former focused on the EU’s merger policy, the latter shed light on EU and US cartel policies. Chapter 4 will explore this issue further while putting it in the wider context of the competition and/versus competitiveness issue. Overall, the present research seeks to have implications for EU studies in two ways. First, it highlights the main characteristics of EU competition policy, 8 EU competition policy dilemma which plays a key role in European economic governance. It will be argued that EU competition authorities take the goal of industrial competitiveness seriously, but it does not take precedence over the goal of creating a level-playing field in the European single market. This finding indicates that the EU, especially the European Commission, sees competition policies through the lens of the single market despite the emphasis on international competitiveness in the EU’s various official documents. Second, this research would also be relevant to the study of EU external action because its findings demonstrate the EU’s external regulatory influence while identifying major constraints on it. As discussed in detail in the following chapters, the supranational institutional setting, which was primarily established for internal regulations, seems to hinder the EU’s external use of its competition rules in a neo-mercantilist way. This inside-out perspective may be useful for analysing other regulatory policies of the EU that were originally designed for internal socioeconomic regulations. 1.3 Theoretical framework From a theoretical point of view, the literature on regulatory states is particularly relevant to this research. Therefore, this section will first explain what a regulatory state is, why it matters to EU politics, and how it can be applied to the study of EU competition policy. Next, to analyse EU external relations, the literature on its policy export will be reviewed. This stock-taking exercise will help to understand the EU’s role in global competition governance. Finally, the research design of this book will be explained. The notion of regulatory state is useful for analysing the development and dynamics of regulatory policies such as the competition policy. While this notion can be applied to other regions too, it is particularly relevant to EU politics because regulatory policies are highly developed in Europe, especially at the supranational level.8 A regulatory state is a state that ‘attaches relatively more importance to the processes of regulation than to other means of policymaking’ (McGowan and Wallace 1996: 563). The main function of regulatory states is to make and enforce rules primarily based on the rule of law and judicial reviews rather than political decisions. In terms of market interventions, regulatory states are not as active as welfare states and developmental states. Regulatory states correct market failures such as the undersupply of public goods, negative externalities (e.g. pollution), and monopolies. The rise of regulatory states does not necessarily mean a decline of the government. On the contrary, as Majone (1994: 77–80) pointed out, the privatisation and market liberalisation trend in Western Europe in the 1980s paradoxically resulted in more regulation by the government because many de-regulated markets were eventually re-regulated in different ways. As economic interventionism gradually declined over time, the statutory control of the market by independent, non-majoritarian agencies became prevalent in Western Europe as well as other regions (OECD 2002: 19–25). EU competition policy dilemma 9 This literature on regulatory states is useful for the study of EU competition policy in two ways. First, as a starting point for research, it helps to explain why regulatory policies, such as competition policies, are essential in EU politics. According to this body of research, the development of redistributive policies has been constrained by two major factors: the limited competence of the EU in the area of taxation and spending, and its rather small budget. The EU’s budget is dominated by a small number of items, such as agricultural and regional policies, and accounts for only around 1 percent of the member states’ total gross domestic product. Consequently, the EU’s regulatory policies are generally more developed than its redistributive policies (Majone 1996: 63–64). While redistributive policies require direct public expenditure, regulatory policies are much cheaper and more feasible for authorities such as the European Commission because regulated parties rather than regulators bear a large proportion of administrative costs by adjusting their behaviours to rules and paying fines for law infringements. Second, the literature on regulatory states helps to understand the institutional setting of the EU in regulatory policies such as the competition policy. Three key points are relevant to the present research. (1) In many regulatory policies, independent agencies play a key role because it is widely believed that they are better placed than majoritarian institutions to assure policy efficiency and effectiveness (Coen and Thatcher 2005). Members of the parliament, a typical majoritarian institution, tend to pursue short-term interests because of electoral cycles. Therefore, if majoritarian institutions are responsible for public regulation, they are likely to use it for redistributive purposes (Hix and Høyland 2011: 190-191). For example, a government led by a left-wing political party would redistribute wealth to workers from others. When a conservative party is in power, the policy would swing in the opposite way. In either case, politicians have an incentive to benefit their main supporters at the expense of other constituencies for electoral considerations. Conversely, independent regulatory agencies at arm’s length from ministries can generally make decisions from a long-term perspective based on their legal mandate and expertise. (2) In the context of EU politics, the European Commission can be regarded as an independent regulatory agency that is less likely to be captured by special interests than national authorities because of its relative autonomy from electoral considerations and political party influences (Majone 1996: 71). (3) Since independent regulatory agencies are unelected bodies, their legitimacy depends on their impartiality as well as accountability and problem-solving capabilities (Majone 1999: 12). Therefore, it is essential for these technocratic bodies to enforce laws regardless of the origin of regulated parties. In other words, independent regulatory agencies do not have an incentive to favour particular groups because that would severely damage their credibility as independent and impartial regulators. These insights indicate that the European Commission, a supranational institution that plays a key role in the handling of individual competition cases, can be regarded as an independent regulator which is relatively autonomous from sectoral and national economic interests, and pursues the goal of correcting 10 EU competition policy dilemma market failures—a key role of regulatory states. Therefore, one may hypothesise the following: 1. Supranationally institutionalised competition policies, such as that of the EU, prioritise the promotion of market competition over the enhancement of local firms’ international competitiveness. Moreover, the European Commission has a long-term interest in nationalityblind regulation because, unlike national competition authorities, it has to regulate a large number of firms from numerous countries while dealing with transnational regulatory issues. Furthermore, the multinational composition of the College of Commissioners and the staff of the European Commission’s bureaucratic bodies such as Directorate-Generals (DGs) make it difficult for the European Commission to agree on measures that favour firms from certain countries (Bradford, Jackson, and Zytnick 2018: 170). Therefore, one may hypothesise the following: 2. The supranational institutional setting hinders the EU’s discriminatory use of its competition policy against non-EU firms. That is not to say that non-discriminatory law enforcement is primarily assured for the benefit of non-EU firms. The main beneficiaries of non-discrimination may well be the European ones. Nevertheless, firms from third countries would also benefit from non-discriminatory regulation; otherwise, the credibility of regulators—in this case, the European Commission—would be seriously undermined. A competition policy with these features can be conceptualised as ‘stringent competition policy’.9 It focuses on the correction of market failures, such as cartels and monopolies, and prioritises the creation and maintenance of a level-playing field in the market. It is also comparatively strict, indifferent to the nationality of firms, and relatively independent from minimalist or maximalist trends in public market regulation, which depends on the prevailing politics and macroeconomic conditions. It should be noted that non-discriminatory regulation is by no means free from values and interests. Business lobbying may well have an impact on competition-related legislation, and in fact, the European Commission often invites stakeholders, including the private sector, to express their views in public consultations on draft legislation. However, if the EU’s competition policy is really a stringent one as proposed above, the European Commission would make decisions on individual competition cases regardless of where the firm comes from. As summarised in Table 1.1, the concept of stringent competition policy proposed here significantly differs from ‘strategic competition policy’. A legal scholar, Roth (2006: 39), defines the latter as ‘a policy that goes beyond merely shaping a favourable environment for competition by fostering an attractive infrastructure (in all its dimensions) and sustaining innovation and technological innovation, and conceives and uses competition law as an instrument to assist European EU competition policy dilemma 11 competitors on world markets’. This type of policy prioritises domestic firms’ international competitiveness over the goal of promoting competition itself. In other words, the state plays the role of a welfare-maximiser, instrumentally uses competition rules for industrial policy purposes, and aims to foster exportoriented national champions in key sectors (Jacquemin 1993: 94-97). While it is not explicit in the study by Roth, the pursuit of strategic competition policies may involve measures that put foreign firms at a competitive disadvantage. For example, competition authorities may target foreign firms, hinder the acquisition of major local firms by foreign rivals, and exempt numerous categories of economic activities from competition laws to foster domestic industries. The notion of strategic competition policy does not take into consideration the EU’s key feature, namely its supranational institutional structure; therefore, the concept of stringent competition policy proposed in this book seems to be more useful for analysing EU competition policy. Nevertheless, empirical research is necessary to ascertain which of these is more useful. It should be noted that these two concepts are not presented here as normative models. They serve as a heuristic device that helps to gain a better understanding of complex EU competition regulations. With regard to the EU’s external competition relations, this book draws on the literature on EU policy export, which provides a useful analytical framework of interactions between the EU and global policy regimes. While the existing literature on the EU and global governance tends to emphasise the impact of EU policies on international regimes, especially in socioeconomic areas, Müller, Kudrna, and Falkner (2014: 1102–1103) argue that ‘EU policy export is a demanding phenomenon occurring much less frequently than is commonly assumed’. They define policy export as the ‘capacity to actively or passively project its own policy paradigms or norms beyond its borders’ (Müller, Kudrna, TABLE 1.1 A comparison of stringent and strategic competition policies Stringent competition policy Strategic competition policy Policy style • Comparatively strict enforcement • Comparatively lenient enforcement • Non-discrimination against foreign firms • Tendency to foster national/ regional champions in key sectors • Less sensitive to prevailing politics and macroeconomic conditions • More sensitive to prevailing politics and macroeconomic conditions Policy goals • Maintaining market competition while correcting market failures • Promoting the international competitiveness of firms based in its own territory Exemption from law • Covering only a limited number of areas • Covering numerous areas Role of the regulator • An independent regulator • An economic welfare maximiser Source: Developed from Jacquemin (1993), Majone (1996), and Roth (2006). 18 EU competition policy dilemma Buch-Hansen, H. and Wigger, A. (2011). The Politics of European Competition Regulation: A Critical Political Economy Perspective. Abingdon: Routledge. Büthe, T. (2007). The Politics of Competition and Institutional Change in the European Union: The First Fifty Years. In: S. Meunier and K. McNamara (eds), Making History: European Integration and Institutional Change at Fifty. Oxford: Oxford University Press, pp. 175–193. Caporaso, J. M., Kim, M. H., Durrett, W. N. and Wesley, R. B. (2015). Still a Regulatory State? The European Union and the Financial Crisis. Journal of European Public Policy, 22(7), pp. 889–907. Cini, M. and McGowan, L. (2009). Competition Policy in the European Union, 2nd ed. Basingstoke: Palgrave Macmillan. Coen, D. and Thatcher, M. (2005). The New Governance of Markets and NonMajoritarian Regulators. Governance, 18(3), pp. 329–346. Cremieux, P. and Snyder, E. A. (2016). Enforcement of Anticollusion Laws Against Domestic and Foreign Firms. Journal of Law and Economics, 59(4), pp. 775–803. Dallison, P. (2019). Trump: ‘Europe Treats Us Worse than China’. POLITICO Europe. June 26. Damro, C. (2001). Building an International Identity: the EU and Extraterritorial Competition Policy. Journal of European Public Policy, 8(2), pp. 208–226. Damro, C. (2006). Cooperating on Competition in Transatlantic Economic Relations: The Politics of Dispute Prevention. Basingstoke: Palgrave Macmillan. Damro, C. (2012). Market Power Europe. Journal of European Public Policy, 19(5), pp. 682–699. Damro, C. and Guay, T. R. (2016). European Competition Policy and Globalization. Basingstoke: Palgrave Macmillan. Demedts, V. (2018). The Future of International Competition Law Enforcement: An Assessment of the EU’s Cooperation Efforts. Boston: Brill. Dewatripont, M. and Legros, P. (2009). EU Competition Policy in a Global World. In: M. Telò (ed), The European Union and Global Governance. Abingdon: Routledge, pp. 87–103. European Commission (2010). Europe 2020: A Strategy for Smart, Sustainable and Inclusive Growth, COM(2010)2020 final. European Commission (2012). Report on Competition Policy 2011, COM(2012)253 final. European Commission (2014). Report on Competition Policy 2013, COM(2014)249 final. European Council (2000). Presidency Conclusions: Lisbon European Council, 23–24 March. Gerber, D. J. (1998). Law and Competition in Twentieth Century Europe: Protecting Prometheus. Oxford: Oxford University Press. Gow, D. (2007). EU Commissioner Takes on Sarkozy over Competition Rules. The Guardian. June 25. Hix, S. and Høyland, B. (2011). The Political System of the European Union, 3rd ed. Basingstoke: Palgrave Macmillan. Italianer, A. (2010). Competition Policy in Support of the EU 2020 Policy Objectives. Speech at Vienna Competition Conference 2010 ‘Industry vs. Competition?’. Vienna, 9 June [Online]. Available at: https://ec.europa.eu/competition/speeches/text/ sp2010_05_en.pdf [accessed: 31 March 2021]. Jacquemin, A. (1993). The International Dimension of European Competition Policy. Journal of Common Market Studies, 31(1), pp. 91–101. EU competition policy dilemma 19 Käseberg, T. and Van Laer, A. (2013). Competition Law and Industrial Policy: Conflict, Adaptation, and Complementarity. In: K. K. Patel and H. Schweitzer (eds), The Historical Foundations of EU Competition Law. Oxford: Oxford University Press, pp. 162–190. Kroes, N. (2008). Competitiveness: The Common Goal of Competition and Industrial Policies. Speech at the Aspen Institute, Paris, 18 April [Online]. Available at: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_08_207 [accessed: 31 March 2021]. Lianos, I. (2012). Competition Law in the European Union after the Treaty of Lisbon. In: D. Ashiagbor, N. Countouris and I. Lianos (eds), The European Union after the Treaty of Lisbon. Cambridge: Cambridge University Press, pp. 252–283. Lorenz, M. (2013). An Introduction to EU Competition Law. Cambridge: Cambridge University Press. 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Transatlantic Divergence: GE-Honeywell and the EU’s Merger Policy. Journal of European Public Policy, 11(1), pp. 39–56. Müller, P., Kudrna, Z. and Falkner, G. (2014). EU-Global Interactions: Policy Export, Import, Promotion and Protection. Journal of European Public Policy, 21(8), pp. 1102–1119. Müller, P. and Falkner, G. (2014). The EU as a Policy Exporter? The Conceptual Framework. In: G. Falkner and P. Müller (eds), EU Policies in a Global Perspective: Shaping or Taking International Regimes? Abingdon: Routledge, pp. 1–19. OECD (2002). Regulatory Policies in OECD Countries: from Interventionism to Regulatory Governance. Paris: OECD Publications. Papadopoulos, A. S. (2010). The International Dimension of EU Competition Law and Policy. Cambridge: Cambridge University Press. Patel, K. K. and Schweitzer, H. (eds) (2013). The Historical Foundations of EU Competition Law. Oxford: Oxford University Press. Robert, A. (2013). EU’s Competition Rules ‘Stupid and Counter-Productive’, Montebourg says. EURACTIV. October 24. Robert, A. (2014). ‘War Is Declared’ between Montebourg and Almunia. EURACTIV. January 27. Roth, W. H. (2006). Strategic Competition Policy: A Comment on EU Competition Policy. In: H. Ullrich (ed), The Evolution of European Competition Law: Whose Regulation, Which Competition? Cheltenham: Edward Elgar, pp. 38–52. Sauter, W. (1997). Competition Law and Industrial Policy in the EU. Oxford: Clarendon Press. 20 EU competition policy dilemma Szczepański, M. (2019). EU Competition Policy: Key to a Fair Single Market. European Parliamentary Research Service, PE 642.209. Vestager, M. (2015). Competition Policy in the EU: Outlook and Recent Developments in Antitrust. Speech at the Peterson Institute for International Economics, Washington DC, 16 April [Online]. 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Telò (eds), Supranational Governance at Stake: The EU’s External Competences Caught between Complexity and Fragmentation. Abingdon: Routledge, pp. 195–208. DOI: 10.4324/9781003163909-2 Chapter 1 proposed that the EU’s supranational institutional setting ensures a stringent competition policy that is nationality-blind and comparatively strict. The chapter also proposed that the EU promotes competition law and policy externally to deal with the competition–competitiveness dilemma. These propositions were based on three assumptions: First, EU competition policy is primarily administered by supranational institutions. Second, the EU possesses adequate capacity to regulate anticompetitive business activities within the union. Third, the EU has a clear legal basis for exercising extraterritorial jurisdiction and building external relations with non-EU countries. The goal of this chapter is to prove these assumptions, which are relevant to empirical research in the subsequent chapters of this book. The first section analyses how the decision-making process of EU competition policy has evolved over time. The analysis focuses on the power balance between national governments, intergovernmental institutions, and supranational institutions. The second section explains the four main sub-fields of EU competition policy and shows their similarities and differences in terms of procedures, legal measures, and policy priorities. The third section explores the development of three legal doctrines that underpin the EU’s extraterritorial application of its competition law. Furthermore, this section explains a legal basis for the EU’s external competition relations. 2.1 Evolving supranational governance Competition policies are highly technical, but at the same time they are also significantly constrained by the political climate and macroeconomic conditions. Therefore, to understand the origin and development of EU competition policy, one should consider the political and economic context of Western Europe before and after the Second World War. A few European countries enacted their 2 THE INSTITUTIONAL BASIS OF STRICT AND NONDISCRIMINATORY REGULATION 22 Strict and non-discriminatory regulation first competition laws in the 1920s. For example, the Weimer Republic legislated its competition law in 1923 to stimulate market competition and alleviate the hyperinflation that occurred after the First World War (Gerber 2010: 164). However, these nascent competition laws were short-lived. After the breakout of the Great Depression in 1929, numerous European countries tolerated cartels and other restrictive business practices to protect domestic producers. There is widespread belief in Europe that this process of market concentration and cartel formation, which was associated with protectionism, further aggravated the economic recession and confrontations between states. It is also widely believed that market concentration contributed to the maintenance of German and Italian totalitarian regimes based on economic centralisation (Gerber 2010: 166–167). This experience in the interwar period was one of the main reasons for the inclusion of competition provisions in the Treaty of Paris of 1951, which established the ECSC, and the Treaty of Rome of 1957, which established the EEC.1 Another key reason was that the original six member states of the EEC did not possess mature competition laws that could deal with anticompetitive business practices across borders (European Commission 1958: 61). Supranational competition rules were adopted to regulate these practices, which would negatively affect trade between member states. In other words, the EEC’s competition policy was intended to operate as a functional complement to the common market project (Goyder and Albors-Llorens 2009: 11–12; Jones and Sufrin 2016: 35–36). Articles 85–94 of the Treaty of Rome laid down the rules on competition, but these rules were vague and left ample room for interpretation. This ambiguity is largely attributable to disagreements between the German and French governments during the treaty negotiation process (Warlouzet 2016: 729–731). In essence, the German government sought to establish the principle of prohibition, according to which market dominance would be inherently illegal. Conversely, the French government preferred the principle of abuse, which would prohibit the abuse of market dominance. The ambiguous provisions of the treaty were a compromise between the two sides. Another shortcoming of these rules was that they did not specify the roles of national and supranational institutions in the enforcement of EEC competition law. The law became enforceable only after the EEC’s Council of Ministers adopted Regulation 17/62 in February 1962. The adoption of this regulation represented an important milestone in EEC competition policy. It was the first law for the implementation of the treaty’s Article 85 on restrictive practices and Article 86 on the abuse of dominance (currently Articles 101 and 102 of the Treaty on the Functioning of the European Union [TFEU]). The regulation established a centralised law enforcement system whereby the European Commission enjoyed considerable investigative and decision-making powers. The first European Competition Commissioner, Hans von der Groeben (West Germany), described the sensitive legislative process in his monograph about the formative years of the EEC published in 1985. According to him, France had proposed that member state governments and the European Commission Strict and non-discriminatory regulation 23 would jointly enforce Articles 85 and 86 of the treaty, and that the application of Article 85(3) concerning exemptions from cartel rules would not require prior notifications to the Commission. However, West Germany and the Netherlands had rejected this proposal because it ‘would in practice have led to the prohibition principle being replaced by the abuse-prevention principle’ (von der Groeben 1985: 109). France ultimately withdrew its proposal and supported the establishment of a supranational decision-making system. While the outcome of the negotiation was determined by various factors, including the positions of member states (especially West Germany), the European Commission, and nonstate actors (Pace and Seidel 2013: 64–77), one of the main reasons for France’s concession was that its vital interests had already been secured in parallel negotiations on the common agricultural policy (von der Groeben 1985: 108–110). In retrospect, the adoption of Regulation 17/62 was a ‘critical juncture’ that had a long-term effect on the decision-making process of the EEC’s competition policy (Warlouzet 2016: 733–734). The regulation laid the foundation for a supranational competition policy of the EEC (later European Communities [EC] and EU), primarily administered by the European Commission. This does not mean that the policy developed rapidly after the adoption of the regulation. The enforcement of supranational competition rules remained relatively weak in the 1960s and the 1970s. From a legal point of view, the Treaty of Rome and Regulation 17/62 did not provide a clear definition of key legal concepts, such as ‘abuse’ and ‘dominance’. Therefore, the supranational competition law developed only incrementally through European Commission decisions, litigation by private actors, and EU court judgements (Büthe 2007). Furthermore, the treaty provided no clear legal basis for supranational merger regulations. From a political point of view, member states did not fully support the strict enforcement of supranational competition rules. In the 1960s and the 1970s, numerous member states extensively used interventionist economic policies, including industrial subsidies, while adopting lenient policies towards various anticompetitive practices such as cartels and mergers. There was a widespread belief in member states that these business practices would positively contribute to industrial development, international competitiveness, and economic growth (Buch-Hansen and Wigger 2011: 57–72). In such a context, ‘[w]hatever its legal powers, the Commission had to remain sensitive to the balance of political opinion at the national governmental level if it was to avoid a powerful backlash against authority’ (McCann 2010: 51). The oil crises of the 1970s further undermined public confidence in stringent competition regulations. Responding to pressure from member states and the private sector, the European Commission exempted some restrictive agreements from EC competition law (‘crisis cartels’) and remained largely reactive in the policy-making process. The political climate changed in the late 1980s and the 1990s. EC member states signed the Single European Act in 1986 and set the goal of establishing a European single market by 1992. Regional economic integration was revitalised, and international trade and investment between member states 24 Strict and non-discriminatory regulation increased. Consequently, the EC and its member states attached more importance to the supranational competition policy to ensure that market competition was not distorted by restrictive business practices and state aid. In this sense, efforts to develop supranational competition regulations were assisted by the rise of neoliberalism and the market liberalisation trend from the mid-1980s onward (Buch-Hansen and Wigger 2011: 73–87). The European Commission’s 1985 ‘Completing the Internal Market’ white paper stressed the importance of supranational competition regulations for the single market project. The document stated that ‘any action taken to ensure the free movement of factors of production must necessarily be accompanied by increased surveillance by the Commission in the field of competition rules to ensure that firms and Member States adhere to these rules’ (European Commission 1985: 8). Furthermore, the paper stated that ‘a strong and coherent competition policy’ was necessary to ensure that ‘protectionist state aids or restrictive practices by firms’ would not distort competition in the European single market (European Commission 1985: 8). Against this background, the enforcement of supranational competition rules was strengthened under the leadership of high-profile and economically liberal European Competition Commissioners, such as Peter Sutherland and Leon Brittan (McCann 2010: 49–57; Wilks and McGowan 1996: 245–249). Table 2.1 provides a list of former and current European Competition Commissioners. The EC gained competence to control corporate mergers only in 1989. In the 1970s and the 1980s, the Council of Ministers rejected the European Commission’s proposal to introduce supranational merger rules three times, primarily because they were regarded as obstacles to the creation of national champions. However, the Commission persistently waited for a ‘window of opportunity’ to open, and the Council ultimately agreed on EC merger law to address two major challenges (Majone 1996: 74–75; McGowan and Cini 1999: 179–180). First, in the Continental Can judgement of 1972 and the Philip Morris judgement of 1987, the European Court of Justice ruled that Articles 85 and 86 TABLE 2.1 Former and current European Competition Commissioners Name Country Period Hans von der Groeben West Germany 1958–1967 Emanuel Sassen The Netherlands 1967–1970 Albert Borschette Luxembourg 1970–1976 Raymond Vouel Luxembourg 1976–1981 Frans Andriessen The Netherlands 1981–1985 Peter Sutherland Ireland 1985–1989 Leon Brittan The United Kingdom 1989–1993 Karel Van Miert Belgium 1993–1999 Mario Monti Italy 1999–2004 Neelie Kroes The Netherlands 2004–2010 Joaquín Almunia Spain 2010–2014 Margrethe Vestager Denmark 2014–present Source: Developed from annual reports of the European Commission on competition policy. Strict and non-discriminatory regulation 25 of the EC treaty applied to certain cross-border mergers. These judgements increased legal uncertainty. Second, the Single European Act entered into force in 1987 and prompted cross-border mergers. Consequently, the risk of jurisdictional conflicts between member states increased. Numerous multinational corporations and business associations advocated common merger rules to alleviate these problems. In 1989, the Council of Ministers adopted the first EC legislation on merger control, Regulation 4064/89, and significantly broadened the scope of EC competition policy. Today, EU competition policy exemplifies supranational economic governance. Its decision-making process has two key aspects: legislation and the handling of individual competition cases. Regarding legislation, the EU possesses exclusive competence regarding competition-related legislative actions under Article 3(1) of the TFEU. Therefore, domestic rules adopted by EU member states do not override EU competition law. In the legislative process, both supranational and intergovernmental institutions play significant roles. In the area of competition, EU institutions usually follow the consultation procedure for legislation under Articles 103 and 109 of the TFEU. Under this procedure, the European Commission proposes a piece of legislation (a draft ‘regulation’ or ‘directive’) and sends it to the European Parliament and the EU Council. Subsequently, the EU Council adopts, rejects, or amends the proposed legislation by a qualified majority after consulting the European Parliament. When the legislation concerns not only competition policy, but also the approximation of national laws under Article 114 of the TFEU, the EU follows the ordinary legislative procedure. For example, Directive 2014/104 on Antitrust Damages Actions, which entered into force in December 2014, was adopted in accordance with the ordinary legislative procedure.2 Under this procedure, the European Parliament and the EU Council adopt, reject, or amend legislation proposed by the European Commission. It should be noted that an intergovernmental institution, the EU Council, plays a key role in both types of legislative procedures. Conversely, the European Commission and EU courts play a prominent role in the enforcement of EU competition law in individual cases (Cini and McGowan 2009: 41–59; Wilks 2010: 146–150). Within the European Commission, DG Competition is primarily responsible for the enforcement of EU competition law. DG Competition investigates competition cases and prepares draft decisions on such cases. Subsequently, the College of Commissioners, comprising 27 European Commissioners, adopts a final decision on the matter by a simple majority. In reality, decisions are often made by consensus. The Commission’s decisions may be appealed to the General Court and Court of Justice of the EU. In the area of restrictive practices, abuse of dominance, and mergers, the Advisory Committee, consisting of the officials of national competition authorities, submits its opinion before the adoption of a final decision. However, this opinion is not legally binding. Amid the intergovernmental negotiations on Regulation 17/62, France proposed to give decision-making powers to the committee, but the regulation conferred only a consultative power on this body 26 Strict and non-discriminatory regulation (Pace and Seidel 2013: 82–84). In these policy areas, neither the EU Council nor the European Parliament has formal powers in case assessment. In the area of state aid, the EU Council has the power to approve the state aid of member state governments under Article 108(2) of the TFEU. However, this procedure is seldom used because it requires unanimity among members. This supranational decision-making process has become more complex after the ‘modernisation reforms’ of 2004, which were concerned with the enforcement of Articles 101 and 102 of the TFEU on restrictive practices and the abuse of dominant positions. In the early 2000s, the EU conducted the ‘modernisation reform’ of its competition policy under the leadership of the European Competition Commissioner, Mario Monti. This was partly a preparation for the EU’s eastern enlargement, that would increase the administrative burden of DG Competition, but also a response to mounting pressure on the European Commission to update its procedural and substantive competition rules (Cini and McGowan 2009: 59–61). The reforms aimed for more efficient and effective regulation based on closer cooperation with member state governments. The central pillar of these reforms was Regulation 1/2003, which entered into force on 1 May 2004.3 Under Articles 2 and 5 of this regulation, national competition authorities and the courts of EU member states apply Articles 101 and 102 of the TFEU in individual cases in parallel with the European Commission. These national competition authorities would not only deal with individual antitrust cases but also issue block exemptions, which exempt certain categories of economic activities from EU restrictive practice control under Article 101(3) of the treaty. Consequently, the EU’s competition law enforcement system was decentralised to a certain extent. Between 2004 and 2014, over 85% of decisions that applied Articles 101 and 102 of the TFEU were adopted by national competition authorities (European Commission 2017). However, a careful reading of Regulation 1/2003 reveals that the European Commission retains the power to decide the overall direction of the EU’s competition policy (Wilks 2005). Regarding the power balance between the Commission and national competition authorities, a crucial provision is Article 11(6) of the regulation. The article states that the initiation by the Commission of legal proceedings ‘shall relieve the competition authorities of the Member States of their competence to apply’ Articles 101 and 102 of the TFEU. This means that national competition authorities cannot handle cases that are already under investigation by the European Commission. Competition lawyers Jones and Sufrin (2016: 1019–1020) state that the existence of Article 11(6) is ‘a powerful weapon in the hands of the Commission and gives it considerable leverage’ over national competition authorities. The European Competition Network (ECN) was established in 2004 to ensure the coherent enforcement of EU competition law after the modernisation reforms of that year. The ECN consists of DG Competition and national competition authorities. This network of public authorities facilitates case allocation, information transfer, and policy convergence between these entities (Jones and Sufrin 2016: 1014–1019). The ECN is not a mere tool of the European Strict and non-discriminatory regulation 27 Commission to impose its regulatory standards on EU member states; it is a network that promotes the informal sharing of expertise and mutual learning in an experimental way among the European Commission and national competition authorities (Svetiev 2010). On 11 December 2018, the European Parliament and the EU Council adopted Directive 2019/1, concerning the further empowerment of national competition authorities.4 This so-called ‘ECN plus’ directive was adopted to ensure that the competition authorities of EU member states possess adequate enforcement and fining powers and resources necessary to apply Articles 101 and 102 of the TFEU effectively. EU member states were required to adopt domestic rules necessary to comply with Directive 2019/1 by 4 February 2021; the impact of this directive remains to be seen. Nevertheless, since its main objective is to set minimum regulatory standards to improve the enforcement capabilities of national competition authorities, the directive is unlikely to undermine the European Commission’s position in EU competition law enforcement. Overall, the European Commission possesses strong investigative and decision-making powers in competition policy. Neither the EU Council nor the European Parliament plays a significant role in individual competition cases. Furthermore, the Advisory Committee, which consists of representatives of EU member states, only plays a consultative role in individual cases. Modernisation reforms and the ECN plus directive have empowered the competition authorities of EU member states and have led to the establishment of a regulatory network of national and supranational competition authorities. However, the European Commission and EU courts are still the most influential actors in the enforcement of EU competition law. This supranational institutional setting is a distinctive feature of EU competition policy. 2.2 Four main regulatory areas The four main areas of EU competition policy are interlinked and complementary, but they follow different rules, involve different legal measures, and face distinctive challenges. Therefore, it is important to understand the features of each area with regard to its investigation process, regulatory instruments, and policy priorities. The first policy area is restrictive practices, referring to anticompetitive agreements and concerted practices between undertakings, most notably firms. The main legal basis for this policy is Article 101 of the TFEU enforced by the European Commission and national competition authorities. With regard to policy scope, the article only applies to anticompetitive business conduct that affects trade between EU member states. To be precise, Article 101(1) prohibits ‘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 internal market’. A typical example of restrictive practices is ‘price-fixing’ agreements by which firms commit to the maintenance of 34 Strict and non-discriminatory regulation of up to 10% of their annual turnover (Article 14). The two-phase review system has two main purposes. First, it helps the Commission clear unproblematic mergers faster in the first phase. Second, it allows the Commission to invest more time and energy in assessing particularly problematic cases in the second phase. All notified mergers undergo a Phase I review. While most cases are usually approved at this stage with or without conditions, mergers that raise serious competition concerns will be subject to a Phase II review. This involves thorough investigations and usually requires more time. After the Phase II review, the Commission decides to (1) clear the merger unconditionally, (2) approve it with conditions, or (3) disapprove it entirely. Since merger plans are time-sensitive, the regulation sets a time frame for merger reviews (Article 10). In principle, the Phase I review must be no longer than 25 working days, and the Phase II review must be no longer than 90 working days. These periods may be extended to a certain extent in case the European Commission and the merging firms negotiate ‘remedies’ to address competition concerns. Remedies refer to legally binding commitments made by merging firms, such as the divestiture of certain assets. From a political point of view, the European Commission faces two key challenges in merger control. They will be analysed in Chapters 3 and 4, respectively. The first challenge is mounting political pressure from member states that BOX 2.1 TURNOVER THRESHOLDS UNDER THE EU’S MERGER REGULATION The EU exercises jurisdiction over mergers with a Community dimension, which is currently called an EU dimension. Article 1 of Council Regulation 139/2004 defines mergers with a Community dimension. Article 1(2) sets the turnover thresholds as follows: 2. A concentration has a Community dimension where: a. the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5000 million; and b. the aggregate community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate community-wide turnover within one and the same Member State. Furthermore, Article 1(3) specifies mergers that do not meet these thresholds but are still large enough to have a Community dimension. In this way, Article 1 distinguishes between national and supranational jurisdictions over merger cases. Note that mergers can have a Community dimension, even if the firms are headquartered outside the EU. What matters is their turnover rather than their location. Strict and non-discriminatory regulation 35 demand more lenient competition regulations. The second challenge is occasional but serious conflicts with other economies, especially the United States, over cross-border mergers. The fourth component of EU competition policy is state aid control, which is primarily based on Articles 107–109 of the TFEU. In contrast to other areas, state aid rules regulate the actions of member state governments rather than firms. This supranational regulation of public aid to industries is a distinctive feature of EU competition policy. In the past, three DGs of the European Commission were responsible for state aid control. The agricultural and fisheries sectors were handled by the DG for Agriculture and Rural Development and the DG for Maritime Affairs and Fisheries, respectively. However, the von der Leyen Commission transferred these competences to DG Competition on 1 January 2020 (EURACTIV 2019). Therefore, DG Competition is currently responsible for the whole body of EU state aid law. As in many other areas, treaty provisions on state aid establish a principle and exceptions. Regarding the principle, Article 107(1) prohibits illegal aid in a very broad sense. It states the following: Save as otherwise provided in the Treaties, 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, in so far as it affects trade between Member States, be incompatible with the internal market. With regard to exceptions to this principle, Article 107(2) provides a list of aid that ‘shall’ be compatible with the EU’s internal market, whereas Article 107(3) lists types of aid that ‘may’ be compatible with the internal market. For example, public aid to ‘remedy a serious disturbance in the economy of a Member State’ is permitted under Article 107(3)(b). This exemption from EU state aid law has proven crucial in the wake of the global financial crisis and the outbreak of coronavirus disease. Apart from measures in such exceptional circumstances, the European Commission adopts ‘block exemption’ regulations to exempt certain categories of state aid from EU law. For example, Regulation 651/2014 generally exempts regional aid, aid to small and medium-sized enterprises, aid for research and development, and aid for environmental protection, among others.20 Since Article 107 is vague and leaves ample room for interpretation, the definition of illegal state aid has been clarified over time by EU court judgements and the European Commission’s soft law, such as notices.21 Member states have often attempted to circumvent EU state aid law by granting ‘creative’ forms of state aid. In response, the Commission has incrementally clarified the meaning of illegal state aid while defining ‘good’ state aid based on its policy priorities (Blauberger 2009). Consequently, state aid under EU law has become an encompassing concept that includes not only subsidies, but also various forms of public financial support to industries such as tax breaks, preferential purchasing, loans, and loan guarantees. 36 Strict and non-discriminatory regulation The treaty provisions and Regulation 2015/158922 lay down detailed state aid procedures (European Commission 2013d). The procedures have two features, as in the case of merger control. First, unlike the WTO’s subsidy control based on ex post reviews, the EU conducts ex ante reviews of state aid plans under Article 108(3) of the TFEU. In principle, member states must receive approval of state aid measures from the European Commission before implementing them. Second, the Commission uses a two-phase review system to regulate state aid. According to this system, the Commission conducts a Phase I investigation into a measure notified by a member state. Next, the Commission approves the case with or without conditions or initiates a thorough Phase II investigation into the case within two months. There is no time limit for the Phase II investigation. The Commission’s final decision will be approval, conditional approval, or disapproval (‘a negative decision’) of the notified measure. In addition, if illegal aid has already been paid out, the Commission has the power to require the member state concerned to recover that aid with interest from the beneficiary (‘the recovery of aid’). There is a limitation period of ten years for recovery, but this power of the Commission is considerable. As the European Commission (2011: 7) admits, EU state aid control has ‘developed gradually from scratch’ over time. It was not until 1973 that the European Court of Justice confirmed the European Commission’s power to require member states to recover illegal state aid.23 Generally speaking, EU state aid control remained less active until the 1980s and became more active only in the 1990s. There are four main reasons for this incremental policy development. First, it took time for the Commission to thoroughly investigate member states’ existing and new complex schemes of economic assistance to industries in various sectors. Second, many member states were generally resistant to the strict enforcement of EU state aid law because they regarded state aid as a key instrument for national industrial policies and other socioeconomic policies. Third, the treaty provisions are quite vague, and the clarification of key legal concepts, most notably state aid, required the accumulation of case law over time. Finally, since the Council of Ministers rejected two drafts of a state aid regulation in 1966 and 1972, the European Commission had no choice but to take a soft law approach in its early years (Cini 2001: 199). In other words, in the first few decades, EU state aid control relied heavily on a nameand-shame strategy based on non-coercive measures. It was only in the late 1990s that the Council established legislation on detailed rules for the application of treaty provisions on state aid. The first legislation of this kind was Regulation 659/1999,24 which was later replaced by Regulation 2015/1589. Today, hard law such as regulations and the European Commission’s soft law constitute the EU’s state aid rules. The EU’s state aid policy, discussed in greater detail in Chapter 3, has faced significant challenges since the late 2000s. The global financial crisis of 2007– 2008 caused the EU to relax its state aid rules as a temporary solution. After a few years, the European Commission once again began to ensure strict law Strict and non-discriminatory regulation 37 enforcement. Since 2013, the Commission has tackled the issue of tax benefits granted by member states to large multinational corporations. Between 2015 and 2019, the Commission made eight decisions related to taxation, showing its determination to address this highly controversial issue. However, this period of proactive state aid control was rather short. The outbreak of coronavirus disease has posed one of the biggest challenges yet to the EU’s state aid control. European economies have been severely impacted by the pandemic. Consequently, the Commission has faced a flood of urgent state aid notifications from member states since 2020. This is a reminder that state aid control is particularly sensitive to economic crises compared to other areas of competition policy. In summary, the four areas of EU competition policy have similarities and differences. There are two main similarities. First, all areas developed incrementally over time. Key legal concepts have been clarified by case law, and detailed procedural rules have been laid down in secondary law such as regulations. Second, the European Commission is now equipped with strong coercive measures in all areas, most notably financial penalties. Table 2.2 summarises these coercive measures. With regard to differences, the European Commission and member states clash more frequently in merger and state aid control than in other areas. It is also noteworthy that each policy area faces distinctive challenges. The fight against cartels is the top priority in the area of restrictive practices, whereas the regulation of information technology companies is a major issue in the area of abuse of dominance. In the area of mergers, firms and member state governments often criticise the Commission for failing to consider non-competition objectives, such as industrial policy concerns. Another major issue in this area is the risk of interjurisdictional conflicts with non-EU countries, although such conflicts do not occur frequently. In the area of state aid, the Commission has recently taken a proactive approach to the issue of national tax rulings, but several Commission decisions have been overturned by the EU courts. In addition, state aid control has been most severely affected by the global financial crisis and the current economic crisis caused by the pandemic. The empirical research in the following chapters considers these differences across policy areas. TABLE 2.2 The European Commission’s key coercive measures in its competition policy Policy areas Types of decisions Financial penalties Restrictive practices Commitment decisions Prohibition decisions Fines on firms (up to 10% of their worldwide turnover) Abuse of dominance Commitment decisions Prohibition decisions Mergers Conditional approval (Phase I and Phase II) Prohibition decisions (Phase II) State aid Negative decisions The recovery of aid Fines on member states Source: Articles 101–109 of the TFEU and Council Regulations 1/2003, 139/2004, and 2015/1589. 38 Strict and non-discriminatory regulation 2.3 Legal and political basis for extraterritorial jurisdiction and external relations The EU’s actorness and presence in international competition relations have developed over time, especially since the 1990s. On the one hand, the EU plays the role of a ‘market power’ in this policy field (Damro 2012). A market power is an international actor that intentionally and unintentionally externalises its socioeconomic regulations to other countries and international institutions while shaping the behaviour of firms with coercive measures and the attractiveness of access to its large market. On the other hand, the EU actively engages with other countries in this area at bilateral and multilateral levels. These aspects, namely, global regulatory influence and external relations, constitute the EU’s external competition policy. With regard to global regulatory influence, the EU applies its competition law not only within the European single market but also beyond its borders. This is not obvious. On the contrary, it is a result of the incremental development of case law over the past five decades. As with many other jurisdictions, the EC lacked a clear legal basis for the international enforcement of competition law in its early years. Therefore, the EC mainly applied its competition law to economic activities within member states. However, the gradual development of case law since the 1970s allowed the EC to adopt an approach based on the idea of ‘extraterritoriality’ as opposed to the principle of territoriality in public international law. The EC adopted an approach based on extraterritoriality to cope with the emerging global economy that involved anticompetitive business practices across jurisdictions. The case law accumulated further after the EU was established. Today, the extraterritorial application of competition rules is one of the EU’s major policy instruments to regulate non-EU firms. Case law concerning the extraterritorial application of competition law was first developed in the United States (Dabbah 2010: 432–452; Jones and Sufrin 2016: 1210–1218). The US Supreme Court established the ‘effects doctrine’ in the Alcoa judgement25 as early as 1945. The Alcoa case concerned a cartel of Swiss aluminium producers. A key question in this case was whether US antitrust law applies to cartels operated outside the country. The court ruled that the Sherman Antitrust Act is applicable to business practices conducted outside the United States, if they have adverse effects on its economy. The Foreign Trade Antitrust Improvements Act of 1982 elaborated on this point and established that US antitrust law applies to foreign commerce that has ‘direct, substantial, and reasonably foreseeable’ effects on competition in the American market. This formulation of the effects doctrine was confirmed by judgements on cases such as Hartford Fire Insurance.26 Furthermore, there were two major developments in the 1990s. First, in the Nippon Paper case,27 the court upheld the US government’s first application of the effects doctrine to criminal proceedings against the breach of antitrust law. This case involved a Japanese firm, Nippon Paper, which participated in a cartel concerning the price of fax paper sold to the American Strict and non-discriminatory regulation 39 market. The US government brought a criminal prosecution against the executives of this firm, although the cartel was entirely conducted outside the country. Second, the government decided to apply its antitrust law against foreign economic activities that negatively affect US exporters’ interests, even if these activities do not directly affect the American market (Dabbah 2010: 451). As these cases illustrate, the United States defines the effects doctrine very broadly. Unsurprisingly, such an approach to competition law enforcement is widely considered unilateral and confrontational, and has caused interjurisdictional conflicts at times. Nevertheless, the United States has inspired many competition authorities and courts, including that of the EU, by demonstrating how to put the idea of extraterritoriality into practice. The extraterritorial application of EU competition law is underpinned by three main legal concepts, namely, the ‘single economic entity doctrine’, the ‘implementation doctrine’, and the ‘qualified effects doctrine’ (Jones and Sufrin 2016: 1219–1233). The single economic entity doctrine concerns the issue of parental liability and was established by the ICI v. Commission (Dyestuffs) judgement of the European Court of Justice in 1972.28 This judgement concerned the European Commission’s decision on an international cartel involving dye manufacturers. The cartel participants included a British firm, ICI; the United Kingdom had not yet joined the EC. After being fined by the Commission, ICI appealed to the court and argued that the Commission had no power to apply its competition law to firms established outside the EC. The Commission made two arguments to justify its decision. One of the arguments rested on the effects doctrine, whereas the other was based on a new concept that would be named the implementation doctrine. Based on the latter, the Commission stated that ICI effectively controlled the management of its subsidiaries in the European common market and should therefore be held responsible for their activities. The court did not clarify its position on the effects doctrine, but supported the Commission’s justification of its decision based on the implementation doctrine. This judgement is significant because it established that parent companies based outside the EU (then the EC) are in principle responsible for the anticompetitive business practices of their subsidiaries in the EU market.29 The implementation doctrine is based on the idea that the parent company and its subsidiaries together constitute a ‘single economic entity’ under EU competition law. This doctrine particularly matters for non-EU firms. They need to ensure that their subsidiaries in EU member states comply with EU competition law. It is also important to note that the global and European turnovers of parent companies are taken into consideration when the Commission calculates fines on their European subsidiaries. The implementation doctrine is another important basis for the EU’s extraterritorial application of competition law. According to this doctrine, EU competition law applies to anticompetitive business practices that have been ‘implemented’ in the EU market regardless of the location of firms’ registered offices and production sites. In other words, even firms that do not physically 40 Strict and non-discriminatory regulation exist in Europe could be subject to EU competition law. This doctrine was established by the Wood Pulp judgement of the European Court of Justice in 1988.30 The judgement concerned an international cartel among wood pulp producers and associations of wood pulp producers based in four non-EC countries, namely, the United States, Canada, Sweden, and Finland. While the producers had headquarters outside the EC, the European Commission imposed fines on them on the grounds that their cartel had a negative impact on the EC market through direct export and sales by their European subsidiaries. The firms claimed that the European Commission’s decision was incompatible with public international law because the conduct was agreed upon outside the EC. They also claimed that the Commission had no power to interfere in the case because the court did not adopt the effects doctrine in the Dyestuffs judgement. However, the court upheld the Commission’s decision based on a threefold argument (paragraph 16). First, it is important to distinguish between two elements, namely, where anticompetitive conduct is agreed, and where it is implemented. Second, firms can easily evade EC competition law if its applicability depends on the first element, that is, where the agreement is formed. Finally, ‘[t]he decisive factor is therefore the place where it is implemented’ (paragraph 16). In this way, instead of adopting the effects doctrine developed in the United States, the European Court of Justice established its own concept, the implementation doctrine.31 The judgement significantly expanded the territorial scope of the EC’s jurisdiction. While the Dyestuffs and Wood Pulp judgements concerned cartels, the issue of extraterritoriality is also relevant to merger control. As explained in the previous section, the EU has exclusive jurisdiction over mergers with an EU dimension, and Article 1 of Regulation 139/2004 defines thresholds for the EU dimension in terms of merging firms’ worldwide and EU-wide turnover. This rule applies regardless of the location of their headquarters. Therefore, mergers may be subject to EU competition law, even if they exclusively involve non-EU firms. This issue arose in the controversial judgement of the Court of First Instance on Gencor v. Commission in 1999.32 This judgement concerned the European Commission’s disapproval of a notified transaction between Gencor of South Africa and Lonrho of the United Kingdom. The proposed operation involved two steps. First, Gencor and Lonrho acquire joint control of Implats, a South African firm holding all of Gencor’s platinum group metal mining and refinement operations. Second, Implats acquires sole control of two South African firms, Eastern Platinum and Western Platinum, holding all of Lonrho’s platinum business. The notified operation was approved by the South African Competition Board. However, the European Commission disapproved this operation on the grounds that it would create an oligopoly in the platinum and rhodium industries. Gencor appealed to the Court of First Instance and complained that the European Commission had no jurisdiction over the case. Specifically, Gencor said it was wrong for the Commission to intervene in this case based on the implementation doctrine because all production facilities of Implats, Eastern Platinum, and Western Platinum were outside the EC, and Strict and non-discriminatory regulation 41 the proposed operation would also be implemented outside the EC. The court rejected this complaint and upheld the Commission’s prohibition decision. In paragraph 87 of the judgement, the court ruled the following: According to Wood Pulp, the criterion as to the implementation of an agreement is satisfied by mere sale within the Community, irrespective of the location of the sources of supply and the production plant. It is not disputed that Gencor and Lonrho carried out sales in the Community before the concentration and would have continued to do so thereafter. Although the court emphasised the consistency between the judgement and case law in those sentences, many commentators suspected that the judgement departed from the implementation doctrine in a significant way. In the judgement, in order to ascertain the compatibility between the European Commission decision and public international law, the court examined whether the proposed concentration had an ‘immediate, substantial and foreseeable effect’ on the European common market (paragraph 92). The logic and specific words used in the judgment indicated that the court adopted an approach quite similar to the effects doctrine (Dabbah 2010: 457–460). The ‘qualified effects’ doctrine is the third and most recent legal basis for the EU’s extraterritorial jurisdiction. This doctrine was established by the General Court’s Intel judgement of 201433 and confirmed by the Court of Justice of the EU in 2017.34 The Intel case concerned the abuse of dominance under Article 102 of the TFEU. In 2009, the European Commission imposed a record-breaking fine of 1.06 billion euros on an American firm, Intel, for abusing its dominant position in the semiconductor industry.35 In its decision, the European Commission stated that Intel aimed to exclude the products of its main rival, AMD, from the market by using two strategies. First, Intel paid loyal rebates to computer manufacturers that used its product, namely, central processing units. Second. Intel requested that manufacturers cancel contracts with AMD regarding the purchase of central processing units while paying compensation fees that AMD imposed on the manufactures. The manufacturers included Lenovo and Acer, whose production facilities were in China and Taiwan, respectively. Intel appealed to the General Court and, inter alia, challenged the EU’s jurisdiction over the transaction with Lenovo and Acer. According to Intel, the implementation doctrine was irrelevant in this case because the conduct was exclusively implemented outside the EU’s territory, and few of the products concerned were exported to the EU market. Furthermore, the effects doctrine had not been explicitly adopted in EU competition law. Therefore, Intel argued that the European Commission had no power to assert jurisdiction over the case. In its judgement in 2014, the General Court rejected Intel’s complaint and fully supported the European Commission’s decision. The court referred to the Gencor judgement and stated that it relied heavily on the qualified effects doctrine, according to which the EU exercises jurisdiction over business activities when 42 Strict and non-discriminatory regulation it is foreseeable that they will have an immediate and substantial effect on the EU market, even if these activities are conducted by non-EU firms with no production facilities and offices in EU territory (paragraphs 233 and 240). In 2017, the Court of Justice rejected the General Court’s judgement in several respects and referred the case back to the General Court. That being said, the Court of Justice largely upheld the judgement regarding the use of the qualified effects doctrine as the basis for the EU’s jurisdiction (paragraphs 40–47).36 There is criticism of these judgements by EU courts. An opinion of Advocate General Nils Wahl is particularly noteworthy concerning the issue of jurisdiction (Fox 2019: 984–992). The Advocate General did not deny the importance of an effectsbased approach, but criticised the General Court for failing to demonstrate that Intel’s conduct would have a substantial, immediate, and foreseeable effect on the EU market.37 Although his criticism may be convincing, it does not undermine the importance of these judgements. They represented an important milestone for EU competition policy because, in these judgements, EU courts explicitly acknowledged the qualified effects doctrine as one of the legal bases to establish the EU’s extraterritorial jurisdiction. Overall, the three doctrines have significantly expanded the EU’s jurisdiction. They have laid the foundation for the EU’s emergence as one of the most powerful competition regulators in the world. That being said, the development of the EU’s extraterritorial jurisdiction has been a source of occasional but serious political friction with other economies. Extraterritoriality is a politically sensitive issue because it may impinge on the sovereignty of other countries. For this reason, the EU has been interested in competition cooperation with major economic partners, especially the United States, to reduce the risk of interjurisdictional conflicts that derive from differences in national and regional competition rules and their extraterritorial applications. The EU has concluded various types of competition-related agreements with major world economies (Demedts 2018; Papadopoulos 2010). These agreements include ‘competition cooperation agreements’ that aim to enhance information exchange and the coordination of investigations between competition authorities. The European Commission’s competence to conclude these international agreements is not obvious; it was contested by the French government (Damro 2006: 109–113). The European Commission signed its first competition cooperation agreement with the United States in 1991. When the Council of Ministers adopted its first merger rule (Regulation 4064/89) in 1989, the risk of interjurisdictional conflicts between the EC and the United States increased. Hence, EC and US competition authorities signed an agreement to minimise such risk (Klein 2000). Subsequently, the French government appealed to the European Court of Justice and claimed that the European Commission breached EC law by concluding the agreement. According to France, the Council of Ministers retained the power to conclude international competition agreements, and the European Commission only had the competence to negotiate based on the Council’s authorisation. The European Commission responded that the agreement with Strict and non-discriminatory regulation 43 the United States was not a treaty, but a non-binding administrative agreement that did not require the Council’s authorisation. However, the court rejected the European Commission’s defence and decided that competition agreements had to be concluded by the Council rather than the Commission.38 The EU–US agreement ultimately entered into force with amendments after the Council of Ministers accepted communication from the European Commission, and the two issued a joint decision in 1995.39 This political settlement paved the way for the EU’s external competition relations based on competition cooperation agreements. As discussed in greater detail in Chapter 5, the EU also signed free trade agreements (FTAs) with competition provisions with some countries while actively participating in competition-related multinational institutions, such as the ICN, the OECD, and UNCTAD. Conclusion This chapter presented three key findings. First, the European Commission possesses strong investigative and decision-making powers in EU competition policy, although its law enforcement system has been decentralised to a certain extent since modernisation reforms in 2004. Second, the four sub-fields of EU competition policy developed at different speeds and face different challenges, but the European Commission is now equipped with strong legal measures, especially financial penalties, in all sub-fields of this policy. Third, while EU competition policy originally focused on its internal aspects, a legal basis for extraterritorial jurisdiction has incrementally developed through case law. Furthermore, the European Commission started to proactively build external competition relations in the 1990s. Building on these findings, Chapters 3, 4, and 5 examine how the EU is coping with the competition–competitiveness dilemma internally and externally. Notes 1 For more details about the treaty negotiations and the role of a transatlantic network of elites, see Leucht (2009). 2 Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, OJ L349/1, 5 December 2014. 3 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L1/1, 4 January 2003. 4 Directive (EU) 2019/1 of the European Parliament and of the Council of 11 December 2018 to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market, OJ L11/3, 14 January 2019. 5 Commission Notice on the conduct of settlement procedures in view of the adoption of Decisions pursuant to Article 7 and Article 23 of Council Regulation (EC) No 1/2003 in cartel cases, OJ C167/1, 2 July 2008. 50 Supranational and national regulation products and geographic markets. The latter is a particularly sensitive issue in the EU because the degree of regional economic integration varies across sectors. If geographic markets are broadly defined, the merging firms’ market shares are usually lower, and their mergers are more likely to be approved. Therefore, if EU merger control is strategic, geographic markets would be defined relatively broadly. Conversely, if the policy is stringent, geographic markets would be defined more narrowly. The second major issue is the international competitiveness of EU firms. If EU merger control is strategic, the European Commission would permit mergers on the grounds of international competitiveness, even if they significantly constrain competition in the EU market. Conversely, if the policy is stringent, the Commission would make decisions based solely on the competition criteria (i.e. whether mergers create or strengthen dominant market positions). The third issue is that some member states try to obstruct the takeovers of large domestic firms by competitors from other member states. Such actions can be regarded as discrimination based on the nationality of the firms. Therefore, it would cause conflicts between member states and the Commission, if the latter pursues a stringent competition policy. Such conflicts may also involve the matter of jurisdiction over cross-border merger cases. To test whether EU merger control has the characteristics of stringent competition policy in these aspects, the following part conducts three case studies: Volvo/Scania (1999–2000), Siemens/Alstom (2018–2019), and E.ON/Endesa (2006). These cases were selected for three reasons. First, all of them were highly politicised because of fundamental disagreements between the European Commission and certain member state governments. The controversies over these cases help to understand the position of the Commission, which is not always apparent in the EU’s general policy documents and legislation. Second, the cases represent politically sensitive sectors: motor vehicles, rail transport, and energy. They are politically sensitive because the first one is in the high-tech sector, and the others concern infrastructure that is essential for national economies. Third, these cases are directly relevant to the three key issues in EU merger control mentioned above. Volvo/Scania, which was blocked by the Commission, provides a good test of whether the Commission defines geographic markets relatively broadly. The Swedish firms, Volvo and Scania, produced trucks, coaches, and buses, mainly in northern European countries, but their market shares were lower in other EU member states. The Commission’s disapproval of the proposed merger between Siemens (Germany) and Alstom (France) caused heated debate about the relationship between competition and industrial policies. One of the main objectives of this merger was to create a large European firm that could compete with American and Chinese rivals. Therefore, this case helps to understand whether the Commission considers the issue of international competitiveness in merger reviews. The public bid by E.ON (Germany) for Endesa (Spain) concerned the problem of national governments’ obstruction of foreign takeovers. The Commission approved this transaction, but the Spanish government intervened to protect Endesa, the largest Spanish electricity company. Supranational and national regulation 51 Each case study consists of three elements. First, it provides a chronological description of the case, focusing on the European Commission’s investigation and the merging firms’ responses. Second, it analyses the case from a political perspective. Finally, it reflects on whether the Commission’s decision can be explained from the stringent competition policy perspective. The case studies are based on numerous sources, such as the European Commission’s decisions and press releases, European Competition Commissioners’ speeches, European and non-European newspapers, and academic studies. 3.1.1 Volvo/Scania: the politics of market definitions Volvo/Scania is a merger case between 1999 and 2000 that involved two leading Swedish manufacturers with similar product portfolios. While Volvo primarily produced trucks, buses, construction equipment, marine and industrial engines, and aerospace components, Scania was mainly active in the market for heavy trucks (i.e. trucks above 16 tonnes), buses, and marine and industrial engines (European Commission 1999). In 1999, Volvo searched for a business partner to strengthen its competitiveness in relation to its European and American rivals. It sold its automobile business to Ford in March and concentrated on the production of trucks, buses, and engines. After months of negotiation, Volvo agreed to purchase the majority stake of Investor (Sweden) in Scania for 60.7 billion kronor (nearly 7 billion euros), aiming to become the largest maker of heavy trucks and buses in the European market and the second-largest worldwide after DaimlerChrysler of Germany (Latour 1999). On 22 September 1999, Volvo officially notified the European Commission of its plan to acquire Scania. At that time, Volvo’s Chief Executive Leif Johansson was confident that the European Commission would approve the merger (Miller and Lindroth 2000). Much to Volvo’s surprise, the European Commission expressed serious concerns about the proposed merger and launched an in-depth investigation on 25 October 1999 because the initial investigation showed that the proposed acquisition could lead to the creation of oligopolies in several markets. After an in-depth investigation, the European Commission (2000a) concluded that the transaction would create dominant positions in the following areas: • the market for heavy trucks in Finland, Ireland, Norway, and Sweden; • the market for touring coaches in Finland and the United Kingdom; • the market for inter-city buses in Denmark, Finland, Norway, and Sweden; • the market for city buses in Denmark, Finland, Ireland, Norway, and Sweden. The Commission found that Volvo and Scania were the closest competitors in these markets. ‘By removing the largest and closest competitor, the merger would therefore significantly change the market structure to the detriment of the customers’, the Commission argued. 52 Supranational and national regulation To address these concerns, Volvo proposed a set of remedies to the European Commission on 21 February 2020 (European Commission 2000a). They included the opening up of dealer and service networks of Volvo and Scania to other entrants and the divestiture of three bus and coach bodybuilding plants in Denmark and Sweden. Volvo also proposed to make efforts to convince the Swedish government to abolish a technical safety rule applicable to heavy trucks’ cabs (the ‘cab crash test’) because this test was considered one of the major trade barriers to the Swedish truck market. However, the European Commission stated that these measures were insufficient to resolve the competition concerns and pointed out that the cab crash test could only be abolished by the Swedish government. During the review, the Swedish government pressurised the European Commission to approve the Volvo/Scania merger. The government had political motives for this action (Milner 2000). At that time, the Social Democratic Party of Swedish Prime Minister Göran Persson was planning a meeting to discuss the timing of Sweden’s accession into the Eurozone. The government was concerned that the EU’s disapproval of the merger could negatively affect the political campaign on the issue of the euro and reinforce Euroscepticism in Sweden. In addition, Prime Minister Persson wanted to protect his country’s motor vehicles sector from foreign capital. In mid-February, Persson held an unusual meeting with then European Competition Commissioner Mario Monti and told him that the proposed merger was of ‘vital importance’ for the Swedish economy. Persson also stated that if the Commission blocked the merger, Volvo or Scania might have to pursue a partnership with a foreign company, causing serious damage to employment in the country (Mitchener 2000). Despite this extensive lobbying by the Swedish government on behalf of Volvo and Scania, the Commission stood by its position and waited for Volvo to make further concessions. Volvo proposed new remedies on 7 March, although the submission deadline had already expired on 21 February. In response, the European Commission stated that Volvo failed to justify this delay and that the new proposal did not address all competition concerns adequately. On 14 March 2000, the Commission made the final decision that the proposed acquisition was incompatible with the EU market.1 It was difficult for the College of Commissioners, the highest decisionmaking body in competition cases, to reach an agreement about this case because there was dissent from Nordic members of the Commission and strong lobbying from the Swedish Prime Minister (Winestock 2000). Nevertheless, the European Commissioners ultimately decided to prohibit the merger, following the opinion of DG Competition. This case received widespread media coverage and showed the tough stance of Mario Monti, who became the European Commissioner for Competition just before the beginning of this case. Volvo strongly opposed the European Commission’s opinion during the review, especially regarding the definition of relevant geographic markets. While the Commission was concerned that the merger would create market dominance in northern European countries, Volvo argued that the Commission Supranational and national regulation 53 should look across the entire European single market and stop focusing on a particular region in isolation. For example, in the case of heavy trucks, the combined market share of Volvo and Scania was extremely high in a few countries, such as Sweden (around 90%). However, the share was only around 30% in many Western European countries (Milner 2000). In its official communication with the Commission, Volvo attempted to show that European truck and bus markets were integrated significantly and should be considered a single market. Volvo emphasised that there were no significant price differences between the member states in the heavy trucks market except for a single country, Sweden (the European Commission’s decision, paragraph 35). The Commission responded that the argument was flawed and inconsistent with the data submitted earlier by Volvo itself (paragraphs 45–46). Furthermore, the Commission maintained that the European market for heavy trucks and buses was still nationally fragmented and hard to penetrate due to high barriers to entry, such as national dealer networks and different national technical standards on safety. This observation was based on the analysis of non-price factors, such as customer preferences, national technical requirements, and distribution and service networks. The debate over the definition of relevant markets continued after the European Commission blocked the merger. Most notably, Prime Minister Persson raised this issue and severely criticised EU merger control. He stated, ‘[t]he present rules are disadvantageous to us since we tend to dominate our market fraction to such a great extent’, and ‘[t]here is a structural error in the EU’s competition rules’ (quoted by Monti 2001). From his perspective, the EU’s tendency to narrowly define geographic markets was particularly disadvantageous to firms in smaller member states such as Sweden. As Swedish firms operated in a relatively small national market, it was difficult for them to expand their business and compete on a global stage without breaking EU competition law. The Swedish Minister for Industry and Communications, Bjorn Rosengren, also expressed concern and commented, ‘I hope this will not mean that major Swedish companies cannot merge at a national level in the future’ (Winestock 2000). Furthermore, the director of regulatory affairs for the European Automobile Manufacturers Association, Marc Greven, cast doubt on the consistency of the European Commission’s arguments. He observed that the Commission often referred to the European single market but focused on national markets in the Volvo/Scania case as if the single market had not existed (Winestock 2000). Commissioner Monti challenged these views in his speech ‘Market definition as a cornerstone of EU competition policy’ in Helsinki on 5 October 2001. He denied that EU competition policy discriminated against firms from smaller member states while emphasising that the European Commission used a standard method of defining relevant markets in the Volvo/Scania case. He argued that it was not impossible for firms from smaller member states to become competitive worldwide. For example, they may expand their business abroad or merge with firms operating in other countries (Monti 2001). As this heated debate over the issue of market definitions suggests, merger cases sometimes cause serious 54 Supranational and national regulation conflicts between member state governments and the Commission. The underlying question is whether the creation of larger firms should be pursued at the expense of effective competition in the EU market or any substantial part of it. To comprehensively understand the political implications of Volvo/Scania, one should also examine a subsequent case in the same sector—Volvo/Renault Vehicule Industriels (RVI). RVI was a wholly owned subsidiary of Renault (France). In September 2000, the European Commission approved Volvo’s acquisition of RVI under certain conditions. While RVI’s product portfolio resembled that of Scania, this transaction was allowed for two main reasons (European Commission 2000b). First, this merger was unlikely to create dominant positions in any EU member state because RVI and Volvo did not have much overlap in terms of geographic markets. Unlike Scania, which directly competed with Volvo, RVI generally complemented Volvo’s business. Second, Volvo and RVI made substantial concessions (‘commitments’) to win the European Commission’s approval. For example, the firms promised to remove their close ties to Scania and Iveco (Fiat Group’s company in Italy), respectively, within a specific time frame. In addition, they promised to eliminate their overlap in France’s bus market. Not surprisingly, the Commission presented its decisions positively. Commissioner Monti made the following statement to justify the Commission’s prohibition of the Volvo/Scania merger and the subsequent approval of the Volvo/RVI merger. Since [the prohibition decision], not only Volvo has teamed up successfully with RVI, also Scania has found an alternative strategic partner in Volkswagen […]. These transactions will hopefully contribute to the development of a more competitive situation in the European markets for heavy vehicles. (European Commission 2000b) While his positive interpretation of the whole story is debatable, these cases have two significant political implications. First, Volvo/Scania showed the EU’s commitment to stringent competition regulation. In this case, the European Commission resisted the Swedish government’s pressure to allow the emergence of a new national champion. Furthermore, the Commission rejected Volvo’s demand that relevant markets should be defined more broadly. These findings indicate that the Commission prioritised the protection of market competition rather than the creation of larger EU firms. Second, Volvo/Scania and Volvo/ RVI illustrated the EU’s considerable regulatory influence on the behaviour of firms. As Monti’s comment implies, Volvo seems to have learned a lesson from the first case and made more substantial concessions in the second while choosing a merger partner more carefully, considering the EU’s stringent competition policy. In other words, the disapproval of Volvo/Scania demonstrated the EU’s direct coercive influence on firms, whereas Volvo/RVI showed the EU’s longterm influence on their business strategies. Supranational and national regulation 55 3.1.2 Siemens/Alstom: the politics of international competitiveness The next case, Siemens/Alstom,2 involved two leading European manufacturers: Siemens (Germany) and Alstom (France). Alstom is known for the manufacture of TGV (high-speed rail service) trains. Both firms operate globally and offer numerous products and services related to rail transportation. They include rolling stock (especially trains, trams, and metros), rail electrification systems, and rail automation and signalling solutions (European Commission 2018). Siemens/ Alstom makes an interesting case study because it received widespread media coverage and sparked a heated debate in Europe about the future direction of EU merger control. The political salience of this case can be attributed to three major factors. First, Siemens and Alstom are based in two large and politically powerful member states—Germany and France. Second, this case concerned the rail transport industry, which is widely considered essential for the public interest. Third, the case is directly relevant to a key issue in merger control—the tension between competition policy and industrial competitiveness. The following analysis shows why the European Commission blocked the Siemens/Alstom merger and how these firms and the German and French governments reacted to the decision. In essence, the Commission primarily evaluated the potentially restrictive effect of this merger on competition in the EU market. Conversely, Siemens and Alstom, which were supported by the German and French governments, underlined the importance of the proposed merger for competition with American and Chinese rivals. In June 2018, the European Commission received a notification from Siemens about its plan to acquire sole control of Alstom. This plan was already well known because it had been discussed for years. In September 2017, Siemens and Alstom published a joint press release entitled ‘Siemens and Alstom join forces to create a European Champion in Mobility’ and announced that they had signed a memorandum of understanding to prepare for the merger. The combined firm would have had an annual revenue of 15.3 billion euros and around 62,300 employees in more than 60 countries (Siemens and Alstom 2017: 2). Henri Poupart-Lafarge, Chairman and Chief Executive Officer of Alstom, celebrated the day by saying that ‘[t]oday is a key moment in Alstom’s history, confirming its position as the platform for the rail sector consolidation’. Joe Kaeser, President and Chief Executive Officer of Siemens, stated that the merger was an opportunity for them to create ‘a new European champion in the rail industry for the long term’ (Siemens and Alstom 2017: 1–2). They believed that the merger had two major merits. First, the operations of Siemens and Alstom were largely complementary in terms of product portfolios and geographic markets. Potential synergistic effects were estimated at 470 million euros per year (Siemens and Alstom 2017: 3). Second, as Kaeser’s use of the term ‘European champion’ indicates, both leaders believed that the merger would enable them to challenge the world’s largest train manufacturer, CRRC, based in China (EURACTIV 2017). CRRC itself was a product of the 2014 merger of two state-owned firms. 56 Supranational and national regulation Despite the enthusiasm of both firms, the merger plan faced opposition from the European Commission. Based on an initial assessment, the European Commission decided to open an in-depth investigation into the merger on 13 July 2018. The Commission was particularly concerned about the merger’s effect on competition in two markets (European Commission 2018). The first is the market for mainline and urban signalling systems that are used to prevent train, metro, and tram collisions. The second is the market for high-speed, mainline, and urban rolling stock. High-speed rolling stock includes trains for longdistance travel, and mainline rolling stock includes intercity and regional trains. Urban rolling stock refers mainly to metros and trams. Regarding the existence of competitors, the Commission’s preliminary finding showed that potential competitors, especially Chinese ones, were unlikely to enter these markets in the EU in the foreseeable future (European Commission 2018). From late 2018 to early 2019, Siemens proposed remedies to address these concerns but failed to win the Commission’s approval. In the investigation process, the Commission consulted with the national competition authorities. Belgian, Dutch, German, Spanish, and UK competition authorities agreed with the Commission that the merger would seriously impede competition in the markets concerned (Barker 2019). The European Commission’s in-depth investigation prompted discussions on reforming European industrial policies. At the sixth ministerial meeting of the Friends of Industry in Paris on 18 December 2018, 18 member states, including France and Germany, announced a joint statement that said they would propose a new European industrial strategy to the next European Commission after the May 2019 European Parliament elections.3 These states argued that the EU ‘must build a European industrial policy that encourages the creation of major economic players capable of facing global competition on equal terms’. Regarding competition matters, the joint statement called for the reform of EU competition law ‘to better take into account international markets and competition’ in merger reviews. It is considerably unusual for numerous member states to make such a proposal. However, this joint statement had little direct effect on the Commission’s assessment of the Siemens/Alstom case. It had become increasingly clear by December 2018 that the merger was going to be disapproved. The disagreement between the European Commission and the French and German governments remained unresolved. In a break with convention, the College of Commissioners met in mid-January 2019 to discuss this issue, although the investigation was ongoing (Barker 2019). This unusual decision-making process showed the political significance of the Siemens/Alstom case. Meanwhile, the French Minister of Economy and Finance, Bruno Le Maire, criticised the European Commission’s position on various occasions between late 2018 and early 2019. He commented, ‘if we want to be able to face competition with Chinese giants, we have to bring European forces together’, and that applying the EU’s ‘obsolete’ competition law to prohibit the Siemens/Alstom merger would be ‘an economic error’ and ‘a political mistake’ (Barker 2019; EURACTIV 2018, 2019a). The German government took a similar position. Supranational and national regulation 57 The German Federal Minister for Economic Affairs and Energy, Pater Altmaier, presented a ‘National Industrial Strategy for 2030’ on 5 February 2019, which was just one day before the Commission made the final decision on the Siemens/ Alstom case. The strategy focused on industrial policy issues such as support for small and medium-sized enterprises, investment in artificial intelligence, and protection of key technologies from foreign takeovers. He took this opportunity to state that EU merger rules should be reformed to allow the emergence of leading EU firms that are sufficiently large to compete with their Chinese and US competitors (EURACTIV 2019b). On the same day, the President of the European Commission, Jean-Claude Juncker, delivered a keynote speech at the EU Industry Days event and stressed the importance of EU merger rules. Considering the timing of the speech, it is reasonable to assume that Juncker had the Siemens/Alstom controversy in mind. EURACTIV (2019a) reported that his speech prepared the ground for the disallowance of the Alstom/Siemens merger. He made two remarks concerning competition rules. First, he argued that EU merger control does not necessarily impede industrial development and that the European Commission approves most notifications with or without conditions. Between 1990 and 2019, the Commission approved more than 6,000 deals and blocked less than 30. He said that ‘this is a message for those who are saying that the Commission is composed of blind, stupid, stubborn technocrats’ (Juncker 2019). Furthermore, he commented, ‘we believe in competition – as long as it is fair for all. We will never play politics or play favourites when it comes to ensuring a level playing field’. Thus, President Juncker indicated that the European Commission would make independent decisions on merger cases despite mounting political pressure from certain member states. On 6 February 2019, the European Commission decided to block the merger of Siemens and Alstom.4 European Competition Commissioner Vestegar remarked as follows: Without sufficient remedies, this merger would have resulted in higher prices for the signalling systems that keep passengers safe and for the next generations of very high-speed trains. The Commission prohibited the merger because the companies were not willing to address our serious competition concerns. (European Commission 2019) Specifically, the Commission made the following argument in its decision (European Commission 2019). First, the proposed merger would remove a major competitor from the market of mainline and urban signalling systems in the EU market. Second, the merger would also remove one of the two largest manufacturers of considerably high-speed trains in the EU market. Third, the entrance of Chinese suppliers to these markets was unlikely because entrance barriers were high. Regarding signalling systems, Chinese manufacturers were not present in the EU market and had not even tried to participate in any tender. Their 58 Supranational and national regulation entrance to the considerably high-speed trains market was also unlikely because the experience of winning previous tenders was important in this area. Finally, while Siemens and Alstom proposed remedies, they did not fully address the competition concerns. While the European Commission generally prefers structural divestitures to other types of remedies, the firms took a different approach. For example, they offered to divest a train in capable of running at extremely high speeds (Alstom’s Pendolino) or sell a license for Seimens’ Velaro very highspeed technology, but the license was subject to multiple restrictive terms. The French Minister of Economy and Finance, Bruno Le Maire, criticised the European Commission’s decision and called it ‘a political mistake’. He added that the European Commission’s role is to defend the economic interests of Europe, but the Commission’s decision to block the merger would serve China’s economic and industrial interests (EURACTIV 2019c). Nevertheless, it is apparent that he failed to influence the Commission’s decision on this case. An article by the Financial Times reported that the failure of the Alstom/Siemens merger showed the ‘limits of political brute force’ exercised by the German and French governments (Toplensky, McGee, and Keohane 2019). In addition, the article argued that the failure of the merger was partly attributable to the two firms’ poor negotiation strategies, especially the reluctance of Siemens during the negotiations to make more substantial concessions, such as asset sales. Further, notably, within the EU, there was significant opposition to the merger from several member state governments, such as Denmark, Spain, and the United Kingdom, as well as several national competition authorities (Ewing 2019). The European Commission’s prohibition of the merger prompted a quick move by the French and German governments to propose major reforms in the EU’s competition rules (EURACTIV 2019d). At a joint press conference in Berlin on 19 February 2019, the two governments published a policy document entitled ‘A Franco-German Manifesto for a European Industrial policy fit for the 21st Century’. It proposed reforms on EU competition policy in the wider context of economic governance. The manifesto consists of three parts: ‘Massively investing in innovation’, ‘Adapt our regulatory framework’, and ‘Effective measures to protect ourselves’. The second part is dedicated to competition policy issues. The part states the following: Competition rules are essential but existing rules need to be revised to be able to adequately take into account industrial policy considerations in order to enable European companies to successfully compete on the world stage. Today, amongst the top 40 biggest companies in the world, only 5 are European.5 Based on this assessment of the current situation, the manifesto suggested considering five options, including the following three ideas about merger control6: 1. Taking into greater consideration the state-control of and subsidies for undertakings within the framework of merger control Supranational and national regulation 59 2. Updating current merger guidelines to take greater account of competition at the global level, potential future competition, and the time frame when it comes to looking ahead to the development of competition to give the European Commission more flexibility when assessing relevant markets 3. Consider whether a right of appeal of the EU Council which could ultimately override European Commission decisions could be appropriate in well-defined cases, subject to strict conditions The third point about the idea of giving veto power to the EU Council was particularly controversial. Germany and France abandoned it later because they faced strong opposition from other stakeholders (Oster 2020). Not surprisingly, DG Competition has reiterated that the independence of a supranational authority is essential for the maintenance of a level-playing field in the EU market. Similarly, French and German competition authorities disagree with the argument that EU competition rules are outdated and require substantial change. A group of smaller member states (the Czech Republic, Estonia, Finland, Ireland, Latvia, Lithuania, and the Netherlands) also take the view that EU competition policy should not be politicised. They seem to be afraid that larger member states may prioritise their interests if intergovernmental bodies gain more power in the competition decision-making process. Furthermore, the European Round Table for Industry—an association of the heads of large European firms—has expressed concerns about political interference in competition cases. It remains to be seen whether the EU’s merger rules, most notably Regulation 139/2004, will be substantially changed based on the Franco-German manifesto. Alstom changed its business strategy after the merger with Siemens was blocked. One year after the European Commission’s decision, Alstom achieved a merger with a different partner, Bombardier Transportation, headquartered in Germany (European Commission 2020). Bombardier Transportation is a rail division of Bombardier, a diversified industrial group based in Canada. Alstom notified the Commission of the acquisition of Bombardier Transportation on 11 June 2020. After the merging parties proposed various remedies to address competition concerns, the Commission approved the merger on 31 July 2020.7 The Siemens/Alstom case provides three insights into EU merger control. First, this case exhibited once again the European Commission’s enormous regulatory influence on firms. Alstom abandoned the merger with Siemens and made substantial concessions in the merger with Bombardier Transportation to win the Commission’s approval. Second, as with the Volvo/Scania case, the Commission resisted political pressure from member states. Even two of the largest member states, France and Germany, failed to change the Commission’s position on this case. Third, although Siemens and Alstom stressed that their merger would lead to the creation of a European champion with greater international competitiveness, they failed to convince the Commission that this merit overweighs the merger’s negative impact on market competition. This stance strongly suggests that the Commission’s merger reviews are almost exclusively 66 Supranational and national regulation promotes cross-border mergers, which is why the Commission confronts member states that try to protect their large domestic firms from foreign capital. This finding confirms that EU merger regulation aims to ensure non-discrimination, a key element of strategic competition policy. 3.2 State aid control in times of economic crisis The EU’s state aid control during and after the global financial crisis of 2007– 2008 provides another good test of whether the EU pursues a stringent competition policy. There are two reasons why this case has been selected. First, state aid control is politically sensitive because it involves direct supranational actions against national governments and significantly constrains their economic policies, such as industrial policies. Such political sensitivity is evident in the fact that the EU’s state aid control developed slowly and incrementally, as explained in Chapter 2. Therefore, it is worth examining whether the EU, especially the European Commission, adopts a stringent state aid policy, even if it risks a political backlash by EU member states. Second, it is widely recognised that economic crises pose a serious challenge to state aid control because governments tend to provide firms and other undertakings with massive state aid, such as subsidies, loans, and tax benefits, when their economies are in recession. Thus, the case of the global financial crisis that severely impacted the EU’s economy helps to ascertain how resilient (or vulnerable) EU state aid control is to changes in macroeconomic conditions and prevailing politics. As noted in Chapter 2, the main legal basis for EU state aid control is Articles 107–109 of the TFEU (formerly Articles 87–89 of the EC Treaty). Regarding these articles, there are two key points relevant to the following empirical analysis. First, in principle, EU member states must notify the European Commission of their state aid plans under Article 108(3) of the TFEU and obtain approval before implementing them, unless they are exempted from the EU’s state aid rules. Second, Article 107 of the TFEU is particularly relevant to state aid control in the context of economic crises. On the one hand, the first paragraph of the article states that any aid granted by an EU member state that affects trade between EU member states and distorts market competition in the EU market shall be illegal. On the other hand, various exceptions to this general rule are listed in the second and third paragraphs of the article. Article 107(3)(b) states that state aid that is intended to ‘remedy a serious disturbance in the economy of a Member State’ may be permitted under EU law. This provision allows a degree of flexibility in the enforcement of EU state aid rules. The outbreak of the global financial crisis between 2007 and 2008 caused serious and lasting damage to the European financial sector. Numerous European banks and other financial institutions were on the brink of bankruptcy and urgently needed financial assistance by EU member states (Doleys 2012: 554). For example, in late 2007 and early 2008, Northern Rock (United Kingdom), Roskilde (Denmark), and WestLB (Germany) were bailed out by Supranational and national regulation 67 governments. The crisis escalated in September 2008 because investment bank Lehman Brothers filed for bankruptcy protection in the United States. In the same month, the Belgian and Dutch governments rescued Fortis and Dexia, and this showed the real impact of the financial crisis on major European financial institutions. The total amount of state aid by EU member states sharply increased between 2008 and 2009. While the amount accounted for 0.54% of the total gross domestic products of the member states in 2007, it soared to 2.51% in 2008 and 3.62% in 2009 (European Commission 2011a: 20). This series of events had two significant implications for EU state aid control. First, the European Commission received a flood of state aid notifications by EU member states within a strict time frame. The European Commission had to find a way to cope with this unprecedented level of administrative overload. Second, uncoordinated government responses to domestic financial problems began to have negative external effects on other countries, such as capital outflows from their markets (Doleys 2012: 554–555). In order to address this problem, the finance ministers of EU member states met at the meeting of the EU Council (‘Ecofin Council’) on 7 October 2008 and collectively called on the European Commission to clarify how it intended to apply EU state aid rules to the financial sector (EU Council 2008: 3). Against this background, the European Commission issued four temporary communications between 2008 and 2009 to provide EU member states with guidelines on its state aid control in the face of the global financial crisis. On 25 October 2008, the Commission adopted the ‘banking communication’, which was concerned with the application of state aid rules to measures taken in relation to financial institutions in the context of the crisis (European Commission 2008). While state aid to firms in difficulties are normally assessed under Article 87(3)(c) of the EC Treaty, this communication clearly stated that the treaty provision on economic crises would be applicable to crisis-related state aid to financial institutions: In the light of the level of seriousness that the current crisis in the financial markets has reached and of its possible impact on the overall economy of Member States, the Commission considers that Article 87(3)(b) is, in the present circumstances, available as a legal basis for aid measures undertaken to address this systemic crisis. (European Commission 2008, paragraph 9) At the same time, the communication stressed that Article 87(3)(b) could be invoked ‘only in genuinely exceptional circumstances where the entire functioning of financial markets is jeopardised’ (paragraph 11). Subsequently, to provide additional guidelines, the European Commission adopted three communications that were concerned with the recapitalisation of financial institutions, the treatment of impaired assets in the banking sector, and the assessment of restructuring measures, respectively (European Commission 2009a, 2009b, 2009c). In these 68 Supranational and national regulation documents, the European Commission explained what EU member states could do under existing state aid rules and clarified conditions that must be met before invoking Article 87(3)(b). In these ways, the Commission facilitated the rescue of financial institutions by EU member states. The financial crisis impacted not only the financial sector, but also the real economy. Therefore, the European Commission amended its state aid rules to ensure that they would not obstruct EU member states’ timely provision of state aid to non-financial firms. On 22 January 2009, the Commission adopted a temporary framework under Article 87(3)(b) of the treaty to allow the speedy granting of a limited amount of aid to firms and other undertakings severely impacted by the global financial crisis (European Commission 2009d). This framework applied from 17 December 2008 to 31 December 2010 and temporarily permitted EU member states to provide state aid that did not exceed a cash grant of 500,000 euros per undertaking without obtaining approval from the European Commission in advance. As the exemption threshold was 200,000 euros before the crisis, the framework gave more discretion to member state governments to grant state aid to firms in difficulties. After the expiry of this temporary framework, a similar communication was adopted by the European Commission in January 2011 and applied until December 2011 (European Commission 2011b). During the crisis, the Competition Commissioner, Neelie Kroes, played a key practical and discursive role in the maintenance of supranational state aid control (Cini 2014: 32–34). Regarding policy practices, the Commission issued the above-mentioned communications during her term. Regarding policy discourse, she resisted mounting pressure from member states to relax EU competition policy and consistently insisted that they must comply with EU state aid rules to avoid the serious distortion of market competition. Referring to past economic crises such as the Great Depression, she stressed the danger of protectionism and the importance of maintaining competition even in a time of crisis (Kroes 2009). Overall, the case of the global financial crisis showed the resilience of the EU’s supranational state aid control. There are three key pieces of evidence of this point. First, concerning the real economy, the relaxation of EU state aid rules was temporary. As noted above, the temporary framework of 2009 was prolonged by one year, but there was no additional extension. Second, the EU’s regulation of state aid to financial institutions followed a similar pattern. In the early phase of the financial crisis, the Commission temporarily authorised all crisis-related state aid to financial institutions, deviating from its own 2004 Rescue and Restructuring Guidelines. However, in the above-mentioned communication of July 2009 on the assessment of restructuring measures, the European Commission required banks and other financial institutions to submit restructuring plans in exchange for the temporary authorisation of crisis-related state aid. By obliging beneficiaries of emergency state aid to implement their restructuring plans (e.g. the divestment of non-core assets), the European Commission ensured that competition in the EU financial sector would not be distorted significantly in the long run (Botta 2016: 272–274; Doleys 2012: 561–562). Third, Supranational and national regulation 69 the European Commission’s competence on state aid control was preserved, despite mounting pressure from member states. At a European Council meeting in September 2008, French President Nicolas Sarkozy proposed the exemption of crisis-related aids to financial institutions from EU state aid rules (Botta 2016: 269). Such exemption could have considerably undermined the European Commission’s decision-making power. However, this French initiative failed because most member states increasingly recognised that uncoordinated national measures to rescue their own financial institutions could trigger a ‘subsidy war’ and jeopardise a speedy economic recovery of the EU economy (Botta 2016: 269). As the proposed decision under Article 82(2) of the EC Treaty required unanimity, France ultimately abandoned the idea. While EU state aid control was largely passive during the global financial crisis, the European Commission gradually began to take a proactive state aid policy in the mid-2010s under the leadership of the Competition Commissioner Joaquín Almunia (2010–2014) and his successor, Margrethe Vestager (2014–present). In 2013, the Commission started to investigate the tax ruling practices of member states to address the issue of tax avoidance. While the EU member states retain their taxation competence, the Commission insisted that state aid rules apply to the favourable tax treatment of certain firms that distorts competition in the EU market. On 11 February 2014, Almunia delivered a speech at the European Competition Forum, a flagship event organised by DG Competition, and stressed the Commission’s determination to tackle this salient issue in the context of state aid control. He emphasised the importance of fair taxation, referring to policy debates over corporate-tax regimes in the OECD and the Group of Twenty, which intensified after the global financial crisis (Almunia 2014). Between 2015 and 2020, the European Commission adopted eight decisions on state aid cases concerning the tax ruling practices of EU member states, as shown in Table 3.1. In October 2015, the European Commission ordered the Governments of Luxembourg and the Netherlands to recover aid granted to Fiat (Italy) and Starbucks (United States), respectively. These were the first Commission decisions concerning tax rulings. While the amount of aid to be recovered was relatively small (23 and 26 million euros, respectively), these two cases set a precedence in this regulatory area. In January 2016, the Commission decided that Belgium’s tax exemption scheme, which benefited 39 multinational companies, violated EU state aid law. In August 2016, the Commission ordered Ireland to recover 14.3 billion euros from Apple (United States). This case attracted widespread media coverage because of the record-breaking amount of aid to recover. Furthermore, between 2017 and 2018, the Commission adopted decisions on three cases and asked Luxembourg to recover approximately 1.3 billion euros in total from the beneficiaries—Amazon (United States), ENGIE (France), and McDonald’s (United States). The United Kingdom did not comply with the Commission’s decision of 2 April 2019 and withdrew from the EU without recovering its aid to certain multinational companies. The European Commission brought this case to the Court of Justice in March 2021. 70 Supranational and national regulation On the one hand, this assertive state aid policy of the European Commission has been questioned from numerous legal experts (Gormsen 2019). On the other hand, the policy has been partly challenged by the General Court of the EU. In the Fiat judgement of 24 September 2019, the General Court upheld the European Commission’s decision against Luxembourg.15 Conversely, in the Starbucks judgement, the General Court annulled the Commission’s decision against the Netherlands on the grounds that the decision did not show how tax rulings provided by the Netherlands disadvantaged competitors of Starbucks.16 Furthermore, in July 2020, the General Court overturned the Commission’s decision regarding Ireland’s tax rulings addressed to Apple, saying that the Commission failed to show why Ireland’s practice had discriminatory effects.17 The Commission appealed the case to the Court of Justice of the EU (European Commission 2021). While this judgement is widely regarded as a major setback in the European Commission’s stringent state aid control relating to taxation, it should also be noted that the court did not question the EU’s competence in this area. The Commission continues investigating other cases related to tax rulings. In summary, EU state aid control was temporarily relaxed during the global financial crisis, but its overall structure was largely preserved despite political pressure from member states such as France. Since the mid-2010s, the European Commission has adopted a strict state aid policy regarding the tax practices of member states. It seemed that the Commission would once again pursue a stringent state aid policy. However, the outbreak of the coronavirus pandemic prompted EU member states to grant massive state aid, posing a major challenge TABLE 3.1 The European Commission’s state aid decisions concerning tax rulings as of 31 March 2021 Member states involved Case title Decision date Case number The United Kingdom UK tax scheme for multinationals: controlled foreign company rules 02.04.2019 SA.44896 Luxembourg Alleged aid to McDonald’s 19.09.2018 SA.38945 Luxembourg State aid implemented by Luxembourg in favour of ENGIE 20.06.2018 SA.44888 Luxembourg State aid granted by Luxembourg to Amazon 04.10.2017 SA.38944 Ireland State aid implemented by Ireland to Apple 30.08.2016 SA.38373 Belgium Excess profit exemption in Belgium: Article 185(2)(b) 11.01.2016 SA.37667 The Netherlands State aid implemented by the Netherlands to Starbucks 21.10.2015 SA.38374 Luxembourg State aid which Luxembourg granted to Fiat 21.10.2015 SA.38375 Source: Adapted from DG Competition website ‘Tax rulings’: https://ec.europa.eu/competition/ state_aid/tax_rulings/index_en.html, accessed 31 March 2021. Supranational and national regulation 71 to EU state aid control (for more details, see Chapter 6). Overall, the evidence shows that, among the four main sub-fields of EU competition policy, state aid control is most sensitive to macroeconomic conditions and prevailing politics. Conclusion The disallowance of the proposed Volvo/Scania and Siemens/Alstom mergers in 2000 and 2019 suggests that the European Commission prioritises the maintenance of market competition rather than the creation of larger EU firms. The Commission tends to define geographic markets narrowly while adopting decisions based solely on the competition criteria. This does not necessarily mean that the Commission is more hostile than member states to all types of mergers. As the E.ON/Endesa case in 2006 and the subsequent court battle between the Commission and Spain illustrate, the Commission generally promotes cross-border mergers and confronts member states that try to protect their large domestic firms from foreign capital. The analysis of state aid control has offered more nuanced insights. After the global financial crisis of 2007–2008, EU state aid rules were temporarily relaxed. Subsequently, the Commission once again began to ensure strict law enforcement and tackled the issue of tax rulings. However, the ongoing outbreak of COVID-19 posed one of the biggest challenges to EU state aid control. Further research is necessary to thoroughly evaluate the impact of the economic crisis caused by the current ongoing pandemic. Notes 1 Case COMP/M.1672, Volvo/Scania, Commission decision of 14 March 2000, OJ L143/74, 29 May 2001. 2 Case M.8677, Siemens/Alstom. 3 A joint statement by France, Austria, Croatia, Czech Republic, Estonia, Finland, Germany, Greece, Hungary, Italy, Latvia, Luxembourg, Malta, the Netherlands, Poland, Romania, Slovakia, and Spain [Online]. Available at: https://www.bmwi.de/ Redaktion/DE/Downloads/F/friends-of-industry-6th-ministerial-meetingdeclaration.pdf?__blob=publicationFile&v=6 [accessed: 31 March 2021]. 4 Case M.8677, Siemens/Alstom, Commission decision of 6 February 2019, C(2019)921 final. 5 A Franco-German Manifesto for a European industrial policy fit for the 21st Century [Online]. Available at: https://www.gouvernement.fr/sites/default/files/locale/ piece-jointe/2019/02/1043_-_a_franco-german_manifesto_for_a_european_ industrial_policy_fit_for_the_21st_century.pdf [accessed: 31 March 2021], p. 3. 6 Ibid., p. 4. 7 Case M.9779, Alstom/Bombardier Transportation, Commission decision of 31 July 2020, C(2020)5412 final. 8 Bundeskartellamt, Cases B8-109/01 and B8-149/01. 9 Case COMP/M.4110, E.ON/Endesa, OJ L114/4, 16 May 2006. 10 Case COM/M.4197, E.ON/Endesa, C(2006)4279 final, 26 September 2006, paragraph 18. 11 Case COM/M.4197, E.ON/Endesa, C(2006)4279 final, 26 September 2006. 12 Case COM/M.4197, E.ON/Endesa, C(2006)7039 final, 20 December 2006. 13 Court of Justice, Case C-196/07, Commission v. Spain, ECLI:EU:C:2008:146. 72 Supranational and national regulation 14 Case COMP/M.4685, Enel/Acciona/Endesa, OJ C212/2, 11 September 2007. 15 Joined Cases T-775/15 and T-759/15, Grand Duchy of Luxembourg and Fiat Chrysler Fiance Europe v. European Commission, ECLI:EU:T:2019:670. 16 Joined Cases T-760/15 and T636/16, Kingdom of the Netherlands and Others v. European Commission, ECLI:EU:T:2019:669. 17 Joined Cases T-778/16 and T-892/16, Ireland and Others v European Commission, ECLI:EU:T:2020:338. References Almunia, J. (2014). Fighting for the Single Market. Speech at the European Competition Forum, Brussels, 11 February [Online]. Available at: https://ec.europa.eu/commission/ presscorner/detail/en/SPEECH_14_119 [accessed: 31 March 2021] Barker, A. (2019). Regulator Raises Antitrust Doubts Over Siemens-Alstom Tie-up; Rail Merger. Financial Times (USA Edition). 14 January. Botta, M. (2016). Competition Policy: Safeguarding the Commission’s Competences in State Aid Control. Journal of European Integration, 38(3), pp. 265–278. Bundeskartellamt (2002a). Bundeskartellamt Prohibits E.ON/Gelsenberg (Ruhrgas) Merger, Press Release, 21 January. Bundeskartellamt (2002b). Bundeskartellamt Prohibits E.ON’s Acquisition of Majority Stake in Ruhrgas, Press Release, 28 February. Chassany, A. S., Johnson, K. and Kahn, G. (2006). France Moves to Block Italian Suitor for Suez. Wall Street Journal. 27 February. Cini, M. (2014). Economic Crisis and the Internationalisation of EU Competition Policy. In: M. J. Rodrigues and E. Xiarchogiannopoulou (eds), The Eurozone Crisis and the Transformation of EU Governance. Surrey: Ashgate, pp. 29–39. Cini, M. and McGowan, L. (2009). Competition Policy in the European Union, 2nd ed. Basingstoke: Palgrave Macmillan. Doleys, T. (2012). Managing State Aid in a Time of Crisis: Commission Crisis Communications and the Financial Sector Bailout. Journal of European Integration, 34(6), pp. 549–565. Eberlein, B. (2008). The Making of the European Energy Market: The Interplay of Governance and Government. Journal of Public Policy, 28(1), pp. 73–92. EU Council. (2008). Immediate Responses to Financial Turmoil: Council Conclusions: Ecofin Council of 7 October 2008, 13930/08, Presse 284. EURACTIV. (2006). Spain Warned over Endesa Merger Blockage. 28 August. EURACTIV. (2017). Alstom, Siemens Merge to Create New European Rail Champion. 27 September. EURACTIV. (2018). 19 EU Countries Call for New Antitrust Rules to Create “European Champions”. 19 December. EURACTIV. (2019a). Juncker Prepares the Ground for Alstom-Siemens Merger Rejection. 5 February. EURACTIV. (2019b). German 2030 Industrial Strategy: Altmaier Backs “European Champions”. 7 February. EURACTIV. (2019c). Six Takeaways from Siemens-Alstom Rejection. 7 February. EURACTIV. (2019d). France, Germany Call for a Change of European Regulatory Rules. 20 February. European Commission. (1999). Commission Opens In-depth Inquiry into Volvo/Scania Merger, Press Release, IP/99/793. Supranational and national regulation 73 European Commission. (2000a). 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Communication from the Commission: The Recapitalization of Financial Institutions in the Current Financial Crisis: limitation of the Aid to the Minimum Necessary and Safeguards against Undue Distortions of Competition, OJ C10/2, 15 January 2009. European Commission. (2009b). Communication from the Commission on the Treatment of Impaired Assets in the Community Banking Sector, OJ C72/1, 26 March 2009. European Commission (2009c). Commission Communication on the Return to Viability and the Assessment of Restructuring Measures in the Financial Sector in the Current Crisis under the State Aid Rules, OJ C195/9, 19 August 2009. European Commission. (2009d). Temporary Community Framework for State Aid Measures to Support Access to Finance in the Current Financial and Economic Crisis, OJ C16/1, 22 January 2009. European Commission. (2011a). Report on Competition Policy 2010, COM(2011)328 final. European Commission. (2011b). 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European State Aid and Tax Rulings. Cheltenham: Edward Elgar. Green, R. (2009). European Union Regulation and Competition Policy Among the Energy Utilities. In: X. Vives (ed), Competition Policy in the EU: Fifty Years on from the Treaty of Rome. Oxford: Oxford University Press, pp. 284–313. Harker, M. (2007). Cross-Border Mergers in the EU: The Commission V the Member States. European Competition Journal, 3(2), pp. 503–535. Henriksson, E. (2005). Assessing the Competitive Effects of Convergence Mergers: The Case of the Gas-Electricity Industries. Licentiate Thesis, Luleå University of Technology. Jacoby, M. (2006). EU’s Kroes Rejects Talk of Protectionist Battle. Wall Street Journal. 30 March. Juncker, J. C. (2019). Keynote Speech. Speech at the EU Industry Days 2019, Brussels, 5 February [Online]. Available at: https://ec.europa.eu/commission/presscorner/ detail/en/SPEECH_19_870 [accessed: 31 March 2021]. Kroes, N. (2006a). Challenges to the Integration of the European Market: Protectionism and Effective Competition Policy. Speech at the Institute of Electrical Engineers, London, 12 June [Online]. Available at: https://ec.europa.eu/commission/ presscorner/detail/en/SPEECH_06_369 [accessed: 31 March 2021]. Kroes, N. (2006b). Cross-border Mergers and Energy Markets. Speech at Villa d’Este Forum, Cernobbia, 2 September [Online]. Available at: https://ec.europa.eu/ commission/presscorner/detail/en/SPEECH_06_480 [accessed: 31 March 2021]. Kroes, N. (2009). Lessons Learned from the Economic Crisis. Speech at the European Parliament, Brussels, 29 September [Online]. Available at: https://ec.europa.eu/ commission/presscorner/detail/en/SPEECH_09_420 [accessed: 31 March 2021]. Latour, A. (1999). Volvo to Buy Majority Stake in Scania for $7.4 Billion. Wall Street Journal. 6 August. Miller, S. and Lindroth, J. (2000). Volvo-Scania Deal Appears Doomed: Latest Concession May Be Too Late. Wall Street Journal. 9 March. Milner, M. (2000). Volvo Hardens its Stance on Bid for Rival Scania: Truck Maker at Impasse with EU Competition Body. Guardian. 9 March. Mitchener, B. (2000). EU Commission Is Unmoved By Rare Plea From Stockholm. Wall Street Journal. 17 February. Monti, M. (2001). Market Definition as a Cornerstone of EU Competition Policy. Speech at Helsinki Fair Centre, Helsinki, 5 October [Online]. Available at: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_01_439 [accessed: 31 March 2021]. Oster, T. (2020). European Industrial Policy vs. European Competition Law: State of Play 18 Months after the Siemens-Alstom Decision [Online]. Available at: https:// www.twobirds.com/en/news/articles/2020/global/european-industrial-policy-vseuropean-competition-law-state [accessed: 31 March 2021]. Siemens and Alstom (2017). Siemens and Alstom Join Forces to Create a European Champion in Mobility, Joint Press Release [Online]. Available at: https://assets.new. siemens.com/siemens/assets/api/uuid:a4c5055b-1954-4eda-80f0-501904dd73ea/ pr2017090442coen.pdf [accessed: 31 March 2021]. Supranational and national regulation 75 Thatcher, M. (2014). European Commission Merger Control: Combining Competition and the Creation of Larger European Firms. European Journal of Political Research, 53(3), pp. 443–464. Toplensky, R., McGee, P. and Keohane, D. (2019). Death of Planned Alstom-Siemens Merger Shows Limits of Political Brute Force; Antitrust decision. Financial Times (USA Edition). 8 February. Winestock, G. (2000). European Commission Bars Volvo, Scania From Merging. Wall Street Journal. 15 March. 82 Discrimination against non-EU firms Commission (JFTC). The cartel involved not only EU firms such as Siemens but also Japanese firms, namely, Mitsubishi Electric, Toshiba, Fuji Electric, Hitachi, and Japan AE Power Systems. Therefore, the Commission was supposed to notify the JFTC when it started the investigation in 2004. However, the JFTC became aware of the case only when the Commission fined the cartel members in 2007. In this case, the Commission seems to have violated Article 2 of the 2003 EU–Japan agreement concerning cooperation on anticompetitive activities. Article 2(1) states that ‘[t]he competition authority of each Party shall notify the competition authority of the other Party with respect to the enforcement activities that the notifying competition authority considers may affect the important interests of the other Party’. According to Article 2(2), typical enforcement activities that may affect the important interests of the other party include investigations into firms based on the other party’s territory. The gas-insulated switchgear case meets this criterion because the firms investigated by the Commission include Japanese firms. The EU–Japan agreement has neither dispute settlement mechanisms nor sanction clauses, but the JFTC took the Commission’s neglect of its notification obligation seriously. At the ICN’s annual conference in Kyoto in April 2008, the JFTC staff asked senior competition officials of the European Commission to fulfil the obligations of the agreement (Yomiuri Shimbun 2008). All these factors reinforced a widespread suspicion in the Japanese business community that EU competition policy was disproportionately tough on non-EU firms. Consequently, the European Commission’s senior officials felt it necessary to explain their cartel policy to Japanese stakeholders more clearly. For example, then Competition Commissioner Neelie Kroes talked about the discrimination issue in an interview conducted by officials of the EU Delegation to Japan in 2009. The interview was published in Europe, a quarterly magazine the delegation used to publish as part of its public relations activity. Taking the car glass cartel case of 20088 as an example, Kroes (2009: 7) stressed that EU competition policy did not discriminate against Japanese firms based on their nationality. While this case involved Japanese firms, she underlined that a record-breaking fine of 880 million euros was imposed on a French firm, Saint Gobain. Alexander Italianer, then Director-General of DG Competition, also commented on the discrimination issue four years later. He made a threefold argument in his speech at Keidanren (Japan Business Federation) in Tokyo on 22 November 2013 (Italianer 2013: 11–12). First, while Japanese firms were involved in 26 out of 82 cartel cases in the EU between January 1999 and November 2013, this relatively frequent involvement of Japanese firms should have been no surprise given the large volume of trade and investment between the EU and Japan. Second, Japanese firms were fined around 1.6 billion euros in these cases, representing only 9% of the EU’s total cartel fines during the period. Third, he took the TV and computer monitor tubes cartel case mentioned above as an example to illustrate that the EU was ‘just as tough on European firms that break the rules’. Discrimination against non-EU firms 83 Specifically, Italianer stressed that the firm that received the largest fine (705 million euros) in this case was Dutch firm Philips, whereas smaller fines were imposed on Japanese firms, namely, Toshiba (114 million euros), Panasonic (252 million euros), and their joint venture MTPD (94 million euros). Since the publication of the METI report in 2010, neither METI nor JFTC has raised the discrimination issue. Today, Japanese firms’ complaints about EU cartel control centre on three other issues: the calculation of cartel fines, transparency of the decision-making process, and speed of case handling.9 The first common complaint of Japanese firms about EU cartel control is that the fines are excessively high.10 This issue became salient in the 2000s. As explained in Chapter 2, EU cartel control became much stricter during the tenure of Neelie Kroes, who served as the European Commissioner for Competition between 2004 and 2010. The adoption of the 2006 guidelines on the method of setting fines was crucial in this respect because it allowed the Commission to impose heavier fines on cartels. Today, it is common for Japanese firms to appeal Commission decisions to the General Court and Court of Justice of the EU, asking for the reduction of fines. The second major complaint, which is closely related to the first one, is that DG Competition has too much administrative discretion over cartel control. This issue was addressed in the 2011 annual report of the Japan Business Council in Europe (JBCE), which represents the interests of major multinational corporations of Japanese parentage operating in the European market.11 In this report, the JBCE (2011: 21) argued that, while the 2006 European Commission guidelines clarified the method for calculating cartel fines to a certain extent, the Commission should enhance the transparency of its decision-making process further. Specifically, the degree of cartel members’ cooperation with competition authorities carried weight in the calculation of fines, but how the Commission measured ‘cooperation’ was not very clear, the JBCE argued. METI’s report also points out that the EU’s cartel fines are hard to predict because of the Commission’s broad discretion (METI 2015: 30). The third common complaint is that the EU’s cartel investigations could have been faster. It often takes three to four years, whereas cartel cases in Japan are usually concluded in one or two years. Firms have the right to appeal Commission decisions to EU courts, but the judicial process may also take many years. Therefore, the whole process can be very costly and time-consuming for firms involved in EU cartel cases. In summary, a critical view of EU cartel control is widely shared among Japanese firms and business associations operating in Europe. In response, senior officials of the European Commission have argued that the policy is impartial and tough on all firms. Today, neither the Japanese government nor the Japanese business community voices concerns about nationality-based discrimination. Their main criticisms of EU cartel control focus on other regulatory issues, such as the method of setting fines, transparency and predictability of the decision-making process, and speed of investigations. 84 Discrimination against non-EU firms 4.2 Abuse of dominance In the area of abuse of dominance, the European Commission regulates firms using three main policy tools: commitment decisions, prohibition decisions, and fines for non-compliance with Commission decisions. Commitment decisions are a kind of legal settlement between the Commission and the firms under investigation. When firms propose adequate remedies to address competition concerns, the Commission makes these remedies (‘commitments’) legally binding. Commitment decisions allow the Commission to shape the behaviour of larger firms based on negotiations while reducing the risk of lengthy court battles with these firms. When firms severely infringe on Article 102 of the TFEU (formerly Article 82 of the EC Treaty) or fail to propose adequate commitments to address competition concerns, the Commission may resort to prohibition decisions that forbid certain business conduct that infringes on Article 102 of the TFEU. Most prohibition decisions include the imposition of fines. Furthermore, the Commission has the power to impose fines on firms that have breached these types of Commission decisions. While commitment decisions may be useful for the Commission, they do not include financial penalties. Therefore, the following analysis focuses on Article 102 cases concluded by the other two types of decisions. Table 4.4 provides a list of all cases between 1999 and 2020 that involved fines for the infringement of Article 102 of the TFEU or European Commission decisions related to this article. The author collected this data using the case search engine of the DG Competition website, which allows case searches by the type of Commission decision. While there were 18 prohibition decisions between 1999 and 2020, Table 4.4 excludes two because they did not involve fines. The Commission’s 16 prohibition decisions with fines were addressed to 8 EU firms, 7 American firms, and 1 Norwegian firm. All three fines for non-compliance with Commission decisions were imposed on a single American firm, Microsoft. In the history of EU competition policy, Microsoft is the only company that has been fined for non-compliance with the Commission’s decisions related to Article 102. The table indicates three key points. First, EU firms are as likely to be fined as non-EU firms. A total of 50% of prohibition decisions had been addressed to EU firms. Second, the vast majority of non-EU firms fined by the European Commission were American firms. Third, the highest fines were imposed on four American firms: Intel, Microsoft, Google, and Qualcomm. However, this does not necessarily mean that the Commission has an anti-US bias. There are two factors in this pattern. First, the Commission targets the information and technology sector, which is vital for the EU’s economic growth, as clearly stated in the EU’s grand economic strategy, Europe 2020. This interpretation is consistent with the observation that the Commission tends to investigate competition cases in specific sectors. For example, three prohibition decisions in Table 4.4 involved telecommunication firms and two involved energy firms.12 Second, many American firms are highly competitive in the information and technology sector. If there were large European technology firms that abuse their Discrimination against non-EU firms 85 dominant positions in the digital market, the Commission would investigate these. However, in reality, Silicon Valley has been extremely successful in fostering dominant firms in the information and technology sector (Pratley 2017). These two factors contribute to the relative frequency of American firms in the Commission’s prohibition decisions on the abuse of dominance. In-depth case studies are useful to further examine whether the EU’s abusive dominance control has an anti-American bias. Thus, the following section analyses two cases that involved Microsoft and three cases that involved Google. These cases are officially referred to as Microsoft, Microsoft (Tying), Google Search (Shopping), Google Android, and Google Search (AdSense).13 These were selected for case studies for three reasons. First, the European Commission repeatedly imposed severe fines on Microsoft and Google. Therefore, they are the most likely victims if the Commission discriminates against American firms. Second, the cases concerned key substantive issues that have significant implications for the digital economy. These issues include interoperability between computers, the tying of software products, online shopping, and online TABLE 4.4 The European Commission’s fines for abusive dominance, 1999–2020 Year Case Nationality of firms Fine (€ million) Decision types 2004 Microsoft American 497 Prohibition 2006 Prokent/Tomra Norway 24 2007 Telefonica S.A (Broadband) Spain 152 2009 Intel American 1,060 2011 Telekomunikacja Polska Poland 128 2014 Slovak Telekom German and Slovak 70 2014 OPCOM/Romanian Power Exchange Romanian 1 2016 ARA foreclosure Austrian 6 2017 Google Search (Shopping) American 2,424 2017 Baltic rail Lithuanian 28 2018 BEH gas Bulgarian 77 2018 Google Android American 4,343 2018 Qualcomm (Exclusivity payments) American 997 2019 Qualcomm (Predation) American 242 2019 AB InBev (Beer trade restrictions) Belgian and Dutch 200 2019 Google Search (AdSense) American 1,490 2006 Microsoft American 281 Fines for noncompliance with European Commission decisions 2008 Microsoft American 899 2013 Microsoft (Tying) American 561 Source: Collected by the author using the case search engine of DG Competition website: http:// ec.europa.eu/competition/elojade/isef/index.cfm, accessed 31 March 2021. 86 Discrimination against non-EU firms advertisements. Third, the Commission initially made a commitment decision on the Microsoft (Tying) case, but the company was fined later for a breach of this decision. Therefore, this case was selected for a case study. The other four cases were concluded by the Commission’s prohibition decisions, as shown in Table 4.4. 4.2.1 Microsoft: interoperability and tying Microsoft Corporation (‘Microsoft’) is an American software company with the largest market share in the personal computer (PC) operating system (OS) industry. On 10 February 2000, the European Commission requested Microsoft to provide them with information about the technical features of its PC OS, Windows 2000. The Commission took this initiative because of complaints from end-users, small and medium-sized enterprises in the information and technology sector, and competitors of Microsoft (European Commission 2000a). They complained that Microsoft tied Windows 2000 to other products, most notably the company’s work group server OS. Some functions of Windows 2000 required connection to Microsoft’s server OS. However, Microsoft did not disclose sufficient information about the link (‘interface’) between these products to competitors in the server OS market. Consequently, they were put at a serious disadvantage. Thus, the Commission sent a formal request for information to Microsoft to examine this case. Those who complained to the Commission wished to remain anonymous. On 3 August 2000, the European Commission officially instituted legal proceedings against Microsoft. The Commission explained its preliminary findings in its first ‘statement of objections’ to Microsoft (European Commission 2000b). Microsoft had a market share of approximately 95% in the PC OS market at the time. The company leveraged this dominant position onto the work group server OS market. Since most PCs were embedded into networks controlled by servers, ‘interoperability’ (i.e. the ability of PCs to operate with servers) was crucial in the computer software industry. Microsoft limited the interoperability of Windows 2000 to exclude competitors from the market. Specifically, Microsoft provided competitors with interface information only on a partial and discriminatory basis. The Commission’s preliminary findings showed that this conduct (‘refusal to supply’) constituted a breach of Article 82 of the EC Treaty (now Article 102 of the TFEU). The European Competition Commissioner, Mario Monti, articulated the Commission’s position on this case as follows: The Commission welcomes all genuine innovation and advances in computer technology – wherever they come from […] However, we will not tolerate the extension of existing dominance into adjacent markets through the leveraging of marker power by anti-competitive means and under the pretext of copyright protection. (European Commission 2000b) Discrimination against non-EU firms 87 The Commission acknowledged that this case was opened following a complaint by another American software company, Sun Microsystems (‘Sun’), in December 1998 (European Commission 2000b). Sun requested Microsoft to disclose interface information about its OS software, such as Windows 95, Windows 98, and NT 4.0, but Microsoft rejected the request in October 1998. According to Sun, the launch of Windows 2000 in February 2000 was the final step in Microsoft’s strategy to drive all major competitors out of the server OS market. In addition to the issue of interoperability raised by Sun, the Commission examined the issue of tying with its own initiative. Microsoft sold Windows 2000 with Windows Media Player – software that played music and video. The Commission’s preliminary findings showed that Microsoft’s tying of these products artificially reduced other firms’ incentive to develop new media players (European Commission 2003). The Commission sent its third statement of objections to Microsoft on 6 August 2003 and provided the company its last opportunity to defend its conduct. Microsoft’s chief executive, Steven Ballmer, visited Brussels in March 2004 to negotiate with the commission. However, they failed to reach a settlement. The Commission insisted on provisions that would significantly constrain Microsoft’s future conduct, and Ballmer refused such provisions (Landler 2004). On 24 March 2004, the Commission concluded that Microsoft abused its dominant position in the PC OS market and infringed on Article 82 of the EC Treaty (European Commission 2004). The Commission ordered Microsoft to provide competitors with interface information within 120 days and to offer a full-functioning version of Windows without Windows Media Player to PC manufacturers and end-users within 90 days. In addition, the Commission ordered Microsoft to propose a monitoring mechanism for these commitments and a monitoring trustee independent from the company. Furthermore, Microsoft was fined 497 million euros, a record against a single firm.14 This decision clearly showed the Commission’s determination to scrutinise the anticompetitive business practices of dominant players in the information and technology sector. Microsoft’s chief lawyer, Brad Smith, maintained that interface information related to server software was its intellectual property protected by law. Furthermore, he argued that Windows and other software products would not work properly without Windows Media Player (Dombey 2004; Kanter, Clark, and Wilke 2004). On 7 June 2004, Microsoft appealed to the Court of First Instance and demanded the annulment of the European Commission’s decision. Furthermore, Microsoft applied for a suspension of the orders specified in the decision. However, the president of the Court of First Instance dismissed this application on 22 December 2004 on the grounds that Microsoft failed to explain the urgency to obtain interim relief.15 Regarding the appeal of 7 June, the court upheld most parts of the Commission’s decision on 17 September 2007.16 The court only annulled the Commission’s order to Microsoft to propose a monitoring mechanism and to bear the costs associated with the appointment of a monitoring trustee. 88 Discrimination against non-EU firms Despite the Commission’s decision and the Court of First Instance’s judgement, Microsoft refused to disclose interoperability information to competitors adequately. Consequently, the Commission imposed fines on Microsoft in July 200617 and February 200818 for non-compliance with the Commission’s decision. These fines amounted to 1.17 billion euros in total. European Competition Commissioner Neelie Kroes stated that Microsoft was ‘the first company in fifty years of EU competition policy that the Commission has had to fine for failure to comply with an antitrust decision’ (European Commission 2008). The European Commission instituted another legal proceeding against Microsoft on 14 January 2008 and sent a statement of objections to the company on 17 January 2009. This case concerned the tying of Microsoft’s web browser, Internet Explorer, to Windows. Because of such tying, Internet Explorer was available on over 90% of PCs worldwide. The Commission considered that this conduct significantly distorted competition and discouraged innovation in the web browser market (European Commission 2009). This case was opened following a complaint by a Norwegian web browser developer, Opera Software (‘Opera’), in December 2007. Microsoft’s competitors and various business associations, such as the European Committee for Interoperable Systems (ECIS), welcomed the Commission’s legal action (EURACTIV 2008, 2009). The ECIS, a non-profit association founded in 1989, represented the interests of information and communications technology software and hardware providers. The members of the association included major US firms such as Adobe, Corel, IBM, Opera, RealNetworks, Red Hat, and Sun, as well as a few non-US firms such as Corel (Canada) and Nokia (Finland). After extensive discussions with the European Commission, Microsoft proposed to ensure that PC manufacturers and end-users in the EU would be able to install any web browser of their choice when they purchase Windows XP, Windows Vista, and Windows 7 software. Microsoft further committed not to retaliate against PC manufacturers that pre-install non-Microsoft web browsers on PCs. The Commission accepted these proposals and adopted a commitment decision under Article 9 of Regulation 1/2003 on 16 December 2009.19 The decision made Microsoft’s proposals legally binding for five years. Consequently, Microsoft was obliged to invite Windows software users to choose from 12 web browsers, including Internet Explorer, Apple Safari, Google Chrome, Mozilla Firefox, and Opera (European Commission 2010a). However, the Commission later discovered that Microsoft did not adequately implement its commitments. One of the main OS products of the company, Windows 7 Service Pack 1, did not display a browser choice screen between February 2011 and July 2012. Hence, the Commission reopened legal proceedings on 17 July 2012 and fined Microsoft 561 million euros on 6 March 2013.20 This was the first time that the Commission fined a firm for non-compliance with agreed commitments in the area of abuse of dominance (European Commission 2013a). The key finding of these case studies is that the main competitors of Microsoft were non-EU firms. The complainant in the first case was an American firm, Discrimination against non-EU firms 89 Sun. Numerous firms that were admitted by the European Commission as ‘interested third parties’ were also Microsoft’s American rivals such as Time Warner, Lotus, Novell, and RealNetworks (paragraph 11 of the Commission’s decision). Regarding the second case, the complainant was a Norwegian firm, Opera, and a majority of Microsoft’s competitors in the web browser market were American firms such as Google, Apple, and Mozilla. Thus, it is unlikely that the European Commission targeted Microsoft to foster dominant EU firms. No EU firm could compete with Microsoft in the OS, media player, and web browser markets. The cases examined provide no evidence of nationality-based discrimination. They have demonstrated the Commission’s commitment to the strict enforcement of competition law in the information technology sector and electronic commerce (‘e-commerce’). Commitment is evident in the Commission’s legal action against Microsoft, especially through the fines that were applied. Numerous press releases of the Commission also show its determination to fight the abuse of dominance in these economic sectors. For example, after sending the request for information to Microsoft in February 2000, the European Commission (2000a) stated that ‘whoever gains dominance in the server software market is likely to control e-commerce too’. Similarly, after sending the first statement of objections to Microsoft in August 2000, the European Commission (2000b) commented that the resolution of this case was ‘of the utmost importance as operating systems for servers constitute a strategic sector in the development of a global market for information technology and e-commerce’. The Microsoft cases paved the way for the Commission to tackle other serious cases in this sector (Damro and Guay 2016: 66). Recent cases involving Google have proved the continuing efforts of the EU to regulate monopolies in the digital market. 4.2.2 Google: online shopping, mobile software, and online advertising As the court battle with Microsoft was ongoing, the European Commission opened investigations into the practices of another American technology company, Google. The Commission began legal proceedings against Google in November 2010, following complaints that the company had abused its dominant market position in the online search market (European Commission 2010b). The Commission informed Google of its preliminary findings in March 2013, and these findings showed that Google had violated Article 102 of the TFEU by privileging links to its own services within online search results and by imposing restrictive agreements about online advertisements on website providers and advertisers. Google proposed various commitments to address these concerns, and the Commission invited public comments on these commitments in April (European Commission 2013b). After further negotiations with the Commission, Google offered revised commitments in February 2014. The vice president of the European Commission in charge of competition policy, Joaquín Almunia, welcomed these commitments. He stated that Google’s new 90 Discrimination against non-EU firms proposal would adequately address the Commission’s concerns, and that ‘[t]urning this proposal into a legally binding obligation for Google would ensure that competitive conditions are both restored quickly and maintained over the next years’ (European Commission 2014). This indicated that Almunia was willing to make a commitment decision under Article 9 of Regulation 1/2003 to settle this case without resorting to financial penalties on Google. However, the Commission later changed its strategy and explored the possibility of imposing fines, most likely because numerous public and private actors had put pressure on the Commission (Damro and Guay 2016: 68). The critics in this case included not only Google’s American rivals but also media firms such as Axel Springer (Germany) and Lagardère (France), government ministers of EU member states such as France and Germany, members of the European Parliament, and European Energy Commissioner Günther Oettinger. Under the leadership of the new European Competition Commissioner, Margrethe Vestager, who succeeded Almunia in November 2014, the European Commission conducted further investigations into the alleged anticompetitive practices of Google. The Commission sent a statement of objections to Google on 15 April 2015, alleging that the company systematically favoured its online ‘comparison shopping’ service, Google Shopping, in its search results pages (European Commission 2015). On the same day, the Commission opened its second case against Google, which was concerned with restrictive practices in the mobile software market. Google has played a key role in the development of the Android mobile OS since the mid-2000s. While Android is an opensource system that can be freely used and developed by anyone, most smartphone and table producers active in the EU market use the Android mobile OS in conjunction with Google applications and services. Thus, the Commission examined whether Google had abused its dominant position in the Android mobile OS. Commissioner Vestager stressed the importance of mobile software in the digital economy. She commented that ‘[s]martphones, tablets, and similar devices play an increasing role in many people’s daily lives and I want to make sure the markets in this area can flourish without anticompetitive constraints’ (European Commission 2015). After investigations, a statement of objections on this issue was delivered to Google on 20 April 2016 (European Commission 2016b). Three months later, the Commission opened its third case against Google, which was concerned with online advertisements. The Commission sent a statement of objections on this case to the company on 14 July 2016. The opening of the case followed a complaint that Google had imposed restrictions on the ability of certain website providers to display search advertisements of Google’s competitors (European Commission 2016c). Today, numerous websites have search functions and display advertisements with search results. Through its ‘AdSense for Search’ platform, Google plays the role of an intermediary, connecting advertisers and website operators. These operators and Google receive a commission when users click advertisements associated with search results. Discrimination against non-EU firms 91 The European Commission ultimately imposed severe financial penalties on Google three times between 2017 and 2019 for a breach of Article 102 of the TFEU. On 27 June 2017, the Commission fined Google 2.42 billion euros for abusing its dominant position in the general Internet search market.21 According to the Commission, Google privileged its comparison shopping service, Google Shopping, by showing it at or near the top of Internet search results. Conversely, Google disadvantaged rivals’ shopping services. Even the most highly ranked rival service appeared on average only on the fourth page of Google’s search results or even further down (European Commission 2017b). During the investigation into this case, Google stressed that it faced significant competition with online shopping sites such as Amazon.com and eBay (Fairless, Winkler, and Barr 2015). However, the Commission narrowly defined the relevant market and concluded that there was insufficient competitive pressure for Google in the comparison shopping market.22 On 18 July 2018, the Commission fined the company 4.34 billion euros for three restrictive practices concerning Android mobile software.23 First, Google tied its Android mobile devices to its ‘Google Search’ applications and ‘Google Chrome’ web browser. Second, Google granted significant financial incentives to mobile device manufacturers and mobile network operators on the condition that they exclusively pre-installed Google Search software. Third, Google prevented mobile device manufacturers from developing and distributing other types of Android OSs. These three types of abuse disadvantaged rival web browsers and search engines, such as Microsoft’s Bing search engine on Windows Mobile devices, while reducing the incentive of mobile device producers to innovate new OSs (European Commission 2018). On 20 March 2019, the European Commission levied a fine of 1.49 billion euros on Google for its restrictive practices concerning online advertising.24 In this case, the company was accused of imposing restrictive clauses in contracts with website providers. The clauses prevent Google’s rivals, such as Microsoft and Yahoo, from placing their search advertisements on these websites. In other words, Google significantly reduced competition in the online search advertising intermediation market. Google conducted this practice for a decade and ceased only after receiving the Commission’s statement of objections in July 2016 (European Commission 2019). These Google cases show two key points. First, unlike the Microsoft cases, the European Commission launched a formal investigation into Google following complaints by four firms and one association based in EU member states. According to paragraphs 39 to 42 of the Commission’s 2017 decision, these were Foundem (United Kingdom); Ciao (Germany), whose complaint was transferred from the German competition authority to the Commission; eJustice (France); its parent company 1plusV (France), and a German association of business listings Verband freier Telefonbuchverleger (Germany). However, this does not necessarily mean that the Commission only represented the interest of EU firms. Other parties also communicated with the Commission during the investigative process. After the Commission initiated legal proceedings against Google in November 2010, numerous firms and groups submitted complaints or applied to 98 Discrimination against non-EU firms 4.3.2 Causes and implications of the transatlantic divide Studies suggest three key reasons why the European Commission and the US Department of Justice made opposing decisions in this case. First, the European Commission and the US Department of Justice communicated extensively during their investigations based on the competition cooperation agreement of 1991, as both sides repeatedly said. Therefore, it is unreasonable to claim that the transatlantic divide resulted from a lack of communication between competition authorities (Morgan and McGuire 2004: 42). Second, one of the determining factors that contributed to the transatlantic divide was the difference between EU and US merger policies in terms of substantive assessment. On the one hand, the US authority used the ‘substantial lessening of competition’ test for the assessment and took into consideration the merger’s positive economic effects (‘efficiency gains’). On the other hand, the EU authority used the ‘dominance test’ for assessment and exclusively focused on the merger’s anticompetitive effects (Morgan and McGuire 2004: 51). In other words, the United States and the EU focused on consumer welfare and the maintenance of market competition, respectively. Another difference is that the US authority exclusively assessed short-term economic effects, whereas the EU evaluated long-term effects as well (Vivest and Staffiero 2008: 32). Specifically, the European Commission was concerned about the merger’s conglomerate effects, such as the bundling of products in related markets.29 Many experts both in Europe and the United States criticised this economic analysis, saying that it was speculative and not supported by concrete evidence (Baxter, Dethmers, and Dodoo 2006; Morgan and McGuire 2004). In other words, after the merger, GE could have bundled its aircraft engines and related services with Honeywell’s avionics products, but that was just a possibility, critics said. Third, another key factor in the outcome of the merger was GE’s poor negotiation strategy (Damro and Guay 2016: 50–51; Sorkin 2001). GE led by Welch rushed to make a deal with Honeywell because GE’s American rival, United Technologies, was also considering the acquisition of Honeywell. The merger negotiation was concluded in only three days, indicating that GE did not conduct a sufficient legal assessment of the deal before signing it. The company could have consulted with counsel in Brussels before concluding the agreement. Furthermore, while merging firms may have held confidential meetings with the European Commission before formal merger notifications, GE did not take this opportunity. Instead, GE launched a publicity campaign, especially one of media exposure, while expecting the US government to put pressure on the European Commission. This strategy clearly failed and showed GE’s limited understanding of the Commission’s commitment to autonomous decision-making. While the GE/Honeywell merger was abandoned, the European Commission’s decision was severely criticised by the Court of First Instance four years later (Baxter et al. 2006). In December 2005, the court rejected the Commission’s argument about the merger’s conglomerate effects.30 According to the judgement, Discrimination against non-EU firms 99 the Commission failed to show how exactly the financial strength and vertical integration resulting from the merger would lead to the abuse of dominance. Consequently, the court concluded that ‘the Commission made a manifest error of assessment in holding that the financial strength and vertical integration of the merged entity would bring about the creation or strengthening of dominant positions on the markets for avionics or non-avionics products’ (paragraph 364). The court also denounced the Commission’s claim about the possibility of bundling by the merged entity. According to the judgement, the Commission failed to explain why bundling was likely to occur after the merger. The Commission also overlooked the deterrent effect of Article 82 TEC (now Article 102 TFEU) on the abuse of dominant positions (paragraph 387). For these reasons, among others, the court concluded that ‘the Commission made a manifest error of assessment in finding that the merged entity’s future use of bundling would lead to the creation or strengthening of dominant positions on the markets for avionics or non-avionics products, or to the strengthening of GE’s pre-merger dominant position on the markets for large commercial jet aircraft engines’ (paragraph 473). The only major point supported by the court was that the merger would have had anticompetitive effects because of horizontal market integration. While the Commission’s decision to prohibit the merger was upheld for this reason, the judgement posed a serious challenge to the credibility of the Commission’s handling of merger cases. The GE/Honeywell case provides three insights into the external dimension of EU merger control. First, with regard to the review of individual competition cases, the European Commission is resistant to external political pressure, even when it comes from the United States. This is remarkable, but not entirely new. It was already evident in a preceding case in the aerospace industry, Boeing/McDonnell Douglas in 1997 (Damro and Guay 2016: 42–45). The Commission stood firm in its position and imposed conditions on this merger between American firms, although the Clinton administration and US Congress strongly condemned the Commission’s interference in the case. Second, there is no clear evidence that the EU blocked the GE/Honeywell merger to protect European firms. When the European Commission reviewed the merger, then US Senator Ernest Hollings accused the Commission of using its merger rules as a tool to protect and promote European industry at the expense of US competitors (Wilke 2001). However, those who complained to the Commission about the merger included not only EU firms, such as RollsRoyce (United Kingdom), but also American ones, such as United Technologies and Rockwell International (Wilke 2001). Therefore, it is hard to interpret the EU’s merger prohibition as the use of competition policy for industrial policy purposes. Finally, the GE/Honeywell case revealed that the main problem of EU merger control is not discrimination against non-EU firms but rather the quality of the European Commission’s economic and legal analysis. In fact, the Commission makes errors at times, regardless of the nationality of firms. During 100 Discrimination against non-EU firms Commissioner Monti’s tenure between September 1999 and November 2004, the European Commission prohibited eight mergers, and the Court of First Instance overturned four of the eight decisions (Levy 2005: 100). It is ironic because Monti was the first European Commissioner for Competition with work experience as a professor of economics. The four overturned decisions involved both European and non-EU firms. They were Airtours (United Kingdom)/First Choice (United Kingdom), Schneider (France)/Legrand (France), Tetra Laval (Sweden/Switzerland)/Sidel (France), and MCI WorldCom (United States)/ Sprint (United States).31 Mainly in response to these judgements and the controversy over GE/Honeywell, the European Commission conducted a series of reforms, as explained in Chapter 2. The reforms included the appointment of a Chief Competition Economist, the introduction of new guidelines on the assessment of horizontal mergers, and the adoption of Regulation 139/2004, which allows the Commission to examine merger cases using a more flexible time frame. It should be noted that the Commission also makes errors at times in the opposite direction. During the term of Monti’s successor, Neelie Kroes, the court overturned the Commission’s approval of a merger. The Commission approved a proposed joint venture between subsidiaries of Sony (Japan) and Bertelsmann (Germany) in 2004,32 but the court ordered the Commission in 2006 to assess the case again. The judgement harshly criticised the Commission’s decision, saying that it relied on insufficient evidence and a weak assessment with manifest errors.33 Consequently, the Commission had to reopen the case for a thorough analysis. The notified merger was finally clarified in 2007. As all these cases illustrate, Commission decisions have been subject to close scrutiny, especially since the early 2000s. In summary, the European Commission’s prohibition of GE/Honeywell is best understood as a controversial decision that was made when the Commission was struggling with a transition from a legalistic approach to a new approach that relies more heavily on economic analyses. On the one hand, the decision-making process has demonstrated that the Commission is resistant to external political pressure to a great extent. On the other hand, EU court decisions and discussions on both sides of the Atlantic caused the Commission to substantially revise its merger rules. Some politicians claim that GE/Honeywell exemplified the Commission’s discrimination against American firms, but this opinion remains speculative. The main cause of the EU–US disagreement in this case was the difference between their merger policies in terms of substantive assessments. Conclusion Past and present European Commissioners for Competition have stressed the impartiality of EU competition policy at times in their public speeches. One of the leading proponents of this discourse is Margrethe Vestager, the European Commission’s Executive Vice-President for ‘A Europe Fit for the Digital Age’ Discrimination against non-EU firms 101 and Competition. For example, in her speech in New York on 20 April 2015 she stated the following: Deng Xiaoping [said] that it does not matter whether a cat is black or white as long as it catches mice. The antitrust enforcer version of this saying should be that it does not matter where the company comes from, as long as it competes – by the rules. (Vestager 2015b) As articulated in this statement, the European Commission’s official line is that the EU enforces its competition law regardless of the nationality of firms. According to this argument, the EU’s main goal is to keep its internal market open, competitive, and level because that would result in greater competitiveness and more innovation, at least in the long run. By using data from both EU and non-EU sources, this chapter investigated whether EU competition policy is non-discriminatory, as the EU claims. The analysis focused on three policy areas: cartels, abuse of dominance, and mergers. The empirical findings show that the European Commission treats EU and non-EU firms equally. This is most likely because, as suggested in Chapter 1, the EU’s priority is the fight against anticompetitive business practices rather than the protection of EU firms from their non-EU rivals. Regarding cartel control, the sharp increase in fines since the 2000s attracted widespread media coverage in third countries, particularly in Japan. Nevertheless, the EU’s strict approach to cartels is a general trend and does not necessarily mean that the European Commission imposes higher fines on non-EU firms. The quantitative data and case studies show no evidence of nationality-based discrimination. The Japanese government and business community have been critical of EU cartel control for other reasons, but they do not raise the discrimination issue any longer. In the area of abuse of dominance, a relatively large number of American firms have been subjected to the European Commission’s commitment decisions and prohibition decisions. This fact is attributable to two main factors, namely, the EU’s focus on the regulation of digital markets and the strong presence of American firms in these markets. As the Microsoft and Google cases illustrate, the main rivals of American firms fined by the European Commission are often headquartered in the United States. Therefore, it is not reasonable to argue that the EU targets non-EU firms to create or strengthen dominant EU firms. With regard to mergers, the European Commission regularly clears a vast majority of merger notifications, and the number of prohibition decisions is comparatively small. However, these decisions are insightful because they illustrate how the European Commission treats large mergers, including those that exclusively involve non-EU firms. There is a persistent claim that the hidden goal of EU merger control is the protection of EU firms; however, this claim is not based on concrete evidence. As the case study of GE/Honeywell has shown, the main 102 Discrimination against non-EU firms cause of occasional jurisdictional conflicts between the EU and the United States is not discrimination, but the difference between their merger policies in terms of substantive assessment. It should be noted that the European Commission’s controversial merger decisions were mainly made during the transitional period, the time when DG Competition was trying to shift from a legalistic approach to a new approach that relies more on economic analyses. The main challenges faced by the European Commission have been the improvement of its economic analysis and provision of sufficient evidence to support that analysis. To provide a balanced argument, this chapter has reviewed discussions in Japan and the United States over the external aspects of EU competition policy. These discussions were mainly prompted by high-profile cases, especially those studied in this chapter. The discrimination issue was occasionally raised in both countries. However, claims about the issue have not been developed, and they remain speculative. More convincing criticism of EU competition policy centres on two broad issues. The first is the problem of governance, including the insufficient transparency of the decision-making process, comparatively slow case handling, and the problematic legal and economic analysis of individual cases. The second major issue is divergent procedures and substantive rules across jurisdictions, including the EU, the United States, and Japan. Overall, the empirical findings support the central argument of this book that EU competition policy is ‘stringent’ rather than ‘strategic’. In theory, the European Commission could have discriminated against non-EU firms to enhance the international competitiveness of EU firms, but that is not the case. The Commission is tough on all firms, regardless of their country of origin. This implies that the main goal of EU competition policy is the maintenance of market competition rather than the direct creation and strengthening of dominant EU firms. Notes 1 These fines were imposed on AU Optronics Corporation of Taiwan (Taiwan); Roche (Switzerland); Yazaki Corporation (Japan); Bridgestone Corporation (Japan); LG Display (South Korea) and its American subsidiary, Société Air France (France); Koninklijke Luchtvaart Maatschappij (the Netherlands); Korean Air Lines (South Korea); British Airways (United Kingdom); Samsung Electronics Company (South Korea) and its American subsidiary; and BASF (Germany). 2 Case COMP/E-1/37.512, Vitamins, Commission decision of 21 November 2001, OJ L6/1, 10 January 2003. 3 Case COMP/39.437, TV and Computer monitor tubes, Commission decision of 5 December 2012, OJ C303/13, 19 October 2013. 4 Case AT.39824, Trucks, Commission decision of 19 July 2016. 5 Case AT.39824, Trucks, Commission decision of 27 September 2017. 6 Cases COMP/39.125, Car glass; AT.39922, Bearings; AT.39748, Automotive Wire Harnesses. 7 Case COMP/F/38.899, Gas Insulated Switchgear. 8 Case COMP/39.125, Car glass, Summary of Commission decision of 12 November 2008, OJ C173/13, 25 July 2009. Discrimination against non-EU firms 103 9 This is based on an interview with a First Secretary of the Japanese Mission to the EU in Brussels on 23 May 2014. 10 Note that there is an opposing opinion on this issue. Some experts, especially economists, argue that the European Commission’s fines should be even higher to effectively deter cartels. 11 The JBCE was established in 1999. It makes policy recommendations to EU institutions. As of March 2021, the JBCE represents the interests of 90 multinational companies of Japanese parentage active in Europe. For more details, see JBCE (2020) and the JBCE website: https://www.jbce.org/about-us/who-we-are/ about-jbce/. 12 Telefonica S.A (broadband), Telekomunikacja Polska, and Slovak Telekom cases concern the telecommunications sector. OPCOM/Romanian Power Exchange and BEH gas cases concern the energy sector. 13 Cases COMP/C-3/37.792, AT.39530, AT.39740, AT.40099, and AT.40411. 14 Case COMP/C-3/37.792, Microsoft, Commission Decision of 24 May 2004, OJ L/32/23, 6 February 2007. 15 Order of the President of the Court of First Instance, Microsoft v. Commission, ECLI:EU:T:2004:372. 16 Microsoft v. Commission, ECLI:EU:T:2007:289. 17 Case COMP/C-3/37.792, Microsoft, Summary of Commission Decision of 12 July 2006, OJ C138/10, 5 June 2008. 18 Case COMP/C-3/37.792, Microsoft, Commission Decision of 27 February 2008, OJ C166/20, 18 July 2009. 19 Case COMP/39.530, Microsoft (Tying), Summary of Commission Decision of 16 December 2009, OJ C/36/7, 13 February 2010. 20 Case COMP/39.530, Microsoft (Tying), Summary of Commission Decision of 6 March 2013, OJ C120/15, 26 April 2013. 21 Case AT.39740, Google Search (Shopping), Commission decision of 27 June 2017, C(2017)4444 final. 22 For a critical analysis of this decision, see Eben (2018). 23 Case AT.40099, Google Android, Commission decision of 18 July 2018, C(2018)4761 final. 24 Case AT.40411, Google Search (AdSense), Commission decision of 20 March 2019. 25 DG Competition’s website, https://ec.europa.eu/competition/mergers/statistics.pdf, accessed 31 March 2021. 26 Case COMP/M.2220, General Electric/Honeywell, Commission decision of 3 July 2001, OJ L48/1, 18 February 2004. 27 The first merger between American companies blocked by the EU was MCI WorldCom/Sprint in 2000 (Case COM/M.1741). The United States also prohibited it, and that is the difference between this case and GE/Honeywell. 28 See Gerber (2003), who surveyed US responses to the EU’s GE/Honeywell decision and reflected on their underlying assumptions. 29 For more details, see Giotakos et al. (2001), which was written by staff members of DG Competition. 30 Case T-210/01, General Electric v. Commission, ECLI:EU:T:2005:456. 31 Case COMP/M.1542, Airtours/First Choice, Commission decision of 22 September 1999, OJ L93/1, 13 April 2000; Case COMP/M.2283, Schneider/Legrand, Commission decision of 30 January 2002, OJ L101/134, 6 April 2004; Case COMP/M.2416, Tetra Laval/Sidel, Commission decision of 30 October 2001, OJ L42/13, 13 February 2004; COMP/M.1741, WorldCom/Sprint, Commission decision of 28 June 2000, OJ L300/1, 18 November 2003. 32 Case COMP/M.3333, Sony/BMG, Commission decision of 19 July 2004, OJ L62/30, 9 March 2005. 33 Case T-464/04, Impala v. 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U.S. Antitrust Chief Criticizes EU Decision to Reject Merger of GE and Honeywell. Wall Street Journal. 5 July. Yomiuri Shimbun (2008). 重電カルテル 欧州委、日本へ通達怠る 公取、数十億円取れ ず. 14 April. DOI: 10.4324/9781003163909-5 The empirical findings of Chapters 3 and 4 suggest that the EU pursues a non-discriminatory and comparatively strict competition policy with the exception of state aid control. Such stringent regulations could put EU firms at a competitive disadvantage. Thus, this chapter explores the proposition that the EU externally promotes competition law and policy to alleviate the competition– competitiveness dilemma. Section 1 explains the key political and economic reasons for the EU’s commitment to external competition relations. Section 2 provides an in-depth analysis of the EU’s failed attempt to create the WTO competition law from the late 1990s to early 2000s. Furthermore, this section examines the implications of two competition-related trade disputes brought to the WTO: Japan–Film (1996–1998) and Mexico–Telecoms (2002–2004). Section 3 first explains the ICN’s history and governance mode, and based on this insight, examines how this global regulatory network constrains the EU’s role as a global rule-maker. Subsequently, the section provides an overview of the EU’s current institutional instruments for bilateral and interregional competition relations and analyses how useful they are for the EU’s external transfer of its competition rules. Overall, evidence shows that the EU has been consistently committed to the international promotion of competition law and policy, as hypothesised in Chapter 1. However, the EU’s rule transfer capability is significantly constrained by systemic constraints, such as the WTO negotiation deadlock, a growing trend for voluntary competition cooperation based on soft law, and competition with the United States. 5 SYSTEMIC CONSTRAINTS ON THE EU’S ROLE AS A GLOBAL RULE-MAKER 114 EU’s role as a global rule-maker enlargement policy has been one of the most established methods for the EU to transfer its competition rules to neighbouring countries, there was no surprise that the EU preferred the WTO, one of the most institutionalised and judicialised international organisations.1 The former European Competition Commissioner Karel Van Miert and a group of experts played a key role in shaping the European Commission’s concrete WTO policy regarding the issue of trade and competition. Van Miert was vice president of the European Commission (1993–1999), responsible for EU competition policy, and a strong advocate of competition rule-making at the WTO. He stressed the European Commission’s commitment to multilateral economic cooperation in various speeches and initiated internal policy discussions on international competition relations. In 1994, he established the ‘wise men group’, which consisted of three external experts and six European Commission officials.2 This group was mandated to design an institution of international competition rules, as well as to create effective implementation procedures once foreseen in the Havana Charter, while developing an approach based on the EU’s experience in regional economic integration (European Commission 1995: 24). This reference to the Havana Charter and the EU’s market integration experience indicated that the European Commission preferred multilateral rule-making in the WTO rather than cooperation based on soft law in other institutions. After conducting extensive research and discussions, the wise men group submitted a final report to Van Miert in 1995. This report was entitled ‘Competition policy in the new trade order: strengthening international cooperation and rules’, and is commonly referred to as the Van Miert Report. The report explained the importance of international competition cooperation and made the following recommendations (European Commission 1995: 21–22): 1. Countries and groups of countries should be encouraged to introduce competition laws while ensuring effective law enforcement. Where necessary, developed countries, including the EU and its member states, should provide technical assistance to less experienced countries, especially developing countries. 2. On the one hand, bilateral cooperation between competition authorities should be maintained and strengthened. On the other hand, a plurilateral framework should be established, building on bilateral cooperation experiences between major competition agencies. Such a framework should acknowledge the basic principles of competition regulation, set up an effective dispute settlement mechanism, and have a limited geographical coverage at the beginning while keeping the membership potentially open to other countries. 3. The bilateral and plurilateral efforts noted above are complementary and reinforce each other. Therefore, they should be developed in parallel. As the former deputy director-general of DG Competition Jean-François Pons (1999) noted in his speech, the report set ambitious long-term goals for the EU while also suggesting cautious smaller steps toward these goals. Regarding EU’s role as a global rule-maker 115 the short-term goals, the report strongly recommended a ‘building block’ approach consisting of two closely linked elements: a two-track approach and an incremental approach. The proposal of a two-track approach is evident in the second and third recommendations of the report mentioned above. Regarding the incremental approach, the report consistently used the term ‘plurilateral’ rather than ‘multilateral’ in order to emphasise the restrictive membership of the proposed international competition forum (European Commission 1995: 14–17, 21–22). As this word choice indicates, the wise men group considered that the idea of establishing binding competition rules in the WTO was premature and unrealistic. Referring explicitly to the WTO, the report stated that it would be ‘counterproductive’ to propose the creation of a multilateral legal framework, whose fate would fully depend on potential partners’ willingness to participate (European Commission 1995: 22). Alternatively, the report suggested building a bridge between smaller regional blocks in which international cooperation in competition law enforcement was already active (e.g. the United States and Canada, Australia and New Zealand, and the EU itself). The group maintained that such efforts would be a significant step towards the creation of a plurilateral cooperation framework, possibly accommodating other OECD countries and interested parties. However, the European Commission did not follow the experts’ main advice. Instead of adopting the building block approach proposed in the report, the commission decided to pursue a more ambitious goal of establishing a WTO competition law. In other words, the European Commission ultimately made its own decision regarding the overall direction of the policy while following only a few recommendations that matched its own preferences (e.g. the reinforcement of existing bilateral cooperation). In retrospect, the European Commission was optimistic about the prospect of multilateral competition rule-making and failed to predict the profound opposition of numerous developing countries regarding this issue. The process of the failure of WTO competition rule-making can be analytically divided into two phases: the first phase of initial exploratory discussions between 1996 and 1999 and the second phase of more substantial discussions between 1999 and 2004. The first phase began at the Singapore Ministerial Conference in 1996, which was the first major event of the WTO after its foundation in 1995. The Ministerial Conference is the highest decision-making body of the WTO and normally takes place every two years. At the conference in 1996, the EU proposed discussing Singapore issues in the next round of multilateral trade negotiations. Consequently, the issues of competition and investment were mentioned in paragraph 20 of the Singapore Ministerial Declaration adopted on 13 December 1996 (WTO 1996). Regarding the issue of competition, the paragraph delivered three key messages. First, the WTO decided to establish a Working Group on the Interaction between Trade and Competition Policy.3 Second, the establishment of a working group would not presuppose the opening of official negotiations on trade and competition. This implied a disagreement among WTO members regarding the 116 EU’s role as a global rule-maker commencement of formal negotiations on competition rules. The lack of consensus among the members was reflected in the limited mandate of the working group. It was merely mandated to ‘identify any areas that may merit further consideration in the WTO framework’. Third, the paragraph stated that an ‘explicit consensus’ would be required for the commencement of negotiations on competition matters. Put simply, all WTO members – around 130 at that time – were granted veto power regarding this issue. The explicit consensus is more demanding than the WTO’s standard decision-making procedure, an implicit consensus, according to which proposals are approved without voting unless opposition is clearly expressed. Furthermore, paragraph 20 stated that the progress of the working group would be reviewed by the General Council (i.e. an ambassador-level body of the WTO that supports the Ministerial Conference). Under the chairmanship of French economist Frédéric Jenny, the newly established working group conducted research on existing competition laws in various jurisdictions and explored the possibility of addressing trade-related competition issues within the WTO’s legal framework. The working group submitted annual reports to the General Council from 1997 to 2003, based on discussions at regular meetings. The following analysis of the WTO’s discussions on competition issues mainly draws on these reports and communications submitted by WTO members. Between the Singapore Ministerial Conference in 1996 and the Doha Ministerial Conference in 2001, the working group focused on the study of three broad topics addressed by the chairperson in his memo, ‘A Checklist of Issues Suggested for Study’ (WTO 1997: 3). These topics were (1) the stocktaking and analysis of existing instruments, standards, and activities regarding trade and competition policy; (2) the relationship between the objectives, principles, concepts, scope, and instruments of trade and competition policy; and (3) the interaction between trade and competition policy. As the working group held discussions on these substantial issues, it became clear that WTO members held widely divergent opinions (WTO 1999a: 10–12). On the eve of the 1999 Seattle Ministerial Conference, many states expressed their opinions in written communications. For example, the EU and its member states believed that ‘the time has come for the WTO’ to officially commence a multilateral negotiation on ‘a basic framework of binding principles and rules of competition law and policy’ (WTO 1999b: 1). Despite this optimistic view, only a few countries, such as Japan and the Republic of Korea (South Korea), supported the EU’s call for official negotiations on binding competition rules and core principles (WTO 1999c, 1999d). The United States was highly critical of the EU’s proposal (see below for details). Furthermore, a vast majority of WTO members strongly opposed the EU’s proposal. As the communication from Cuba articulated, these opponents maintained that the exploratory discussions should continue in the working group without presupposing the commencement of official negotiations. They also argued that the WTO’s priority should be the reinforcement of technical assistance programmes for developing and leastdeveloped countries rather than rule-making (WTO 1999e: 1–2). EU’s role as a global rule-maker 117 After the Seattle Ministerial Conference in 1999, the disagreement proved fundamental and irreconcilable. In the process of preparing a draft ministerial declaration for the 2001 Doha Ministerial Conference, some WTO members harshly criticised the EU’s proposal. For example, the Commerce Secretary of India Prabir Sengupta delivered a speech at the General Council meeting in 2001 and stated that ‘the manner in which the four Singapore issues are dealt with’ was ‘extremely disturbing’. India and many other countries repeatedly expressed serious concerns about the commencement of official negotiations on the competition issue ‘without acquiring at least some minimum experience in implementing domestic competition law’. However, the EU and its key allies attempted to present the commencement of negotiations as the only option in the draft ministerial declaration. Sengupta commented that this tactic by the EU was ‘surprising’, ‘upsetting’, and unacceptable (WTO 2001a: 1). The WTO adopted the Doha Ministerial Declaration on 14 November 2001 (WTO 2001b) and announced the launch of a post-Uruguay Round negotiation, the Doha Round. However, the fundamental disagreement between the WTO members on the Singapore issues remains unresolved. While the issue of competition was noted in paragraphs 23, 24, and 25 of the declaration, there was no substantial change. Paragraph 23 merely repeated the reservation made in the Singapore Ministerial Declaration. According to the paragraph, WTO members agreed that official negotiations on competition rules would occur ‘after the Fifth Session of the Ministerial Conference [in Cancun in 2003] on the basis of a decision to be taken, by explicit consensus, at that Session on modalities of negotiations’. Therefore, the explicit consensus condition continued to be the biggest obstacle to the inclusion of competition issues in the WTO’s negotiation agenda. Concerning the role of the working group, paragraph 25 of the declaration stated that further work in the working group should focus on clarifying the following issues: 1. Core principles, including transparency, non-discrimination, procedural fairness, and provisions on hardcore cartels 2. Modalities of voluntary cooperation 3. Support for progressive reinforcement of competition institutions in developing countries through capacity building At the Cancun Ministerial Conference in Mexico in September 2003, the WTO members once again discussed whether the Singapore issues should be incorporated into the WTO’s negotiation agenda. At this conference, a large majority of developing countries, including emerging economies such as India, collectively and strongly reaffirmed their opposition to the commencement of official negotiations on the Singapore issues, especially competition and investment. There were five main reasons why a large majority of developing countries profoundly disagreed with the commencement of negotiations on multilateral competition rules (Bhattacharjea 2006: 295–303; 118 EU’s role as a global rule-maker Papadopoulos 2010: 232–242; Woolcock 2003: 252–253). First, these countries believed that they were clearly disadvantaged in this policy area. They were concerned that developed countries with more experience in competition law enforcement might set international standards based on their own interests, taking advantage of less experienced countries in WTO trade disputes. Second, there was a wide belief among developing countries that strict competition laws would significantly constrain their national industrial policies and hinder their economic development. According to this viewpoint, industrial policies rather than competition policies should be prioritised, at least in the early stages of economic development, and that is exactly what many developed countries did in the past. Therefore, it was considered unfair to impose international competition rules on developing countries. Third, there was a problem with domestic implementation. Since many developing countries did not have any competition law at that time, it would have been difficult for them to ensure domestic legislation in accordance with new WTO rules on competition (i.e. the problem of de jure implementation). Furthermore, the enforcement of domestic competition laws was considered even harder and more costly for these countries because they had no experience in competition law enforcement and lacked regulatory capacities for it (i.e. the problem of de facto implementation). Fourth, the Working Group on the Interaction between Trade and Competition Policy did not address certain issues that were potentially of interest to many developing countries. These issues included export cartels, which were often conducted by large firms in developed countries and caused serious damage to the economies of developing countries. Fifth, developing countries had a general distrust of developed countries and expected them to make more concessions in other policy areas, especially trade in agriculture, before raising new trade issues such as competition. Research shows that developing countries exerted more influence on the Doha Round than in the GATT negotiations because of successful coalition building. At the Doha Ministerial Conference in November 2001, 14 developing countries4 formed the ‘Like-Minded Group’ and opposed the inclusion of the Singapore issues in the negotiation agenda while stressing the importance of development issues (Narlikar and Tussie 2004: 949). The pressure from this group was the main reason why the explicit consensus procedure was codified in the Singapore and Doha Ministerial Declarations. A similar position was taken by the Core Group, which consisted of 12 developing countries.5 For example, the group issued a joint statement on 8 July 2003 and opposed the EU’s communication that assumed the commencement of negotiations on the Singapore issues after the Cancun Ministerial Conference (WTO 2003a). Furthermore, to form a majority, these two groups cooperated with African, Caribbean, Pacific, and least developing countries (Narlikar and Tussie 2004: 950). All these groups behaved as a cohesive coalition concerning the Singapore issues under the leadership of emerging economies, most notably India, which belonged to the likeminded group and core group. EU’s role as a global rule-maker 119 The United States was also highly critical of the EU’s proposal for the WTO competition law. The Assistant Attorney General of the Antitrust Division of the United States Department of Justice Joel Klein harshly criticised the EU at the OECD’s conference on trade and competition on 30 June 1999. In his speech, he pointed out three shortcomings of the EU’s proposal (Klein 1999: 42–43): 1. The EU’s proposal does not articulate what practical problems the WTO faces, and how exactly new competition rules can solve them. The ambiguity of the proposal is evident in the fact that the EU has used numerous terms, such as common rules, common criteria, and principles, in its policy documents. 2. Even if problems are specified, it is difficult to create multilateral competition rules. There is no consensus among WTO members regarding the economic and legal principles of sound competition policies. Moreover, nearly half of the WTO members have no competition law, and many other members have extremely limited experience in competition law enforcement. 3. The WTO is not suitable for the enforcement of international competition law because the WTO has no experience in this policy area. If new competition rules are subjected to the WTO’s dispute settlement mechanism, the dispute settlement body may make decisions for political reasons at the expense of economic rationality and legal neutrality. For these reasons, Klein (1999: 43) concluded that the ‘WTO antitrust rules would be useless, pernicious, or both, and would serve only to politicise the long-term future of international antitrust enforcement, including through the intrusion of trade disputes disguised as antitrust problems’. The American opposition to the EU’s proposal is unsurprising because the WTO’s competition law associated with a dispute settlement mechanism would have limited the American competition authorities’ ability to apply its antitrust law extraterritorially. The United States preferred international enforcement cooperation based on non-binding and executive agreements (Fox 1997: 10–12). According to former Deputy Director-General of the European Commission’s DG Competition Jean-François Pons, another concern of the United States was that negotiations on competition matters would reopen discussions over related and controversial issues, such as antidumping, which were of great importance for many developing countries (Pons 1999). For all these reasons, the United States preferred the status quo, where its competition authorities exerted considerable external regulatory influence. After facing profound opposition from developing countries and the United States, the EU modified its negotiating strategy at the Cancun Ministerial Conference in September 2003. While the four Singapore issues were initially presented as a package, the EU suggested treating them separately in the negotiations (Woolcock 2003: 250). However, this suggestion confused the EU’s key allies in the negotiation, most notably Japan and South Korea, and failed to gain 120 EU’s role as a global rule-maker support from the coalition of developing countries. Consequently, the fundamental disagreement among WTO members over the Singapore issues remained and contributed to the failure of the entire trade negotiation in Cancun. The Foreign Minister of Mexico Luis Ernesto Derbez, who chaired the conference, held extensive consultations with the delegates of numerous countries to facilitate the negotiation, but the WTO members did not reach a consensus (WTO 2003b). The five-day-long conference ended on 14 September 2003 without any substantial progress. As the Singapore issues triggered heated debates, the delegates could not spend sufficient time on discussions about other key issues, such as trade in agriculture and market access to goods. The delegates did not even have time to decide on the date and venue of the next ministerial conference. Concerning the EU’s internal politics, research suggests that the European Commission was not truly cohesive regarding WTO negotiations (Damro 2006b: 878; Papadopoulos 2010: 242–245). The European Commission’s DG for Trade (‘DG Trade’) favoured competition rule-making at the WTO because it is the organisation where DG Trade plays the role of chief negotiator within the Commission. In other words, DG Trade had an organisational interest in connecting trade and competition policies in the WTO’s negotiations. Conversely, DG Competition merely plays a supporting role in the EU’s common commercial policy and does not have a strong organisational interest in the issue linkage. DG Competition preferred other institutions that focused on enforcement cooperation rather than rule-making because such institutions would improve the effectiveness of DG Competition’s competition law enforcement without constraining its administrative discretion. It is difficult to determine how much this internal divide of the European Commission contributed to the failure of its efforts to create the WTO competition law. However, the analysis of the preferences of the two DGs helps to understand why the EU was simultaneously committed to two contrasting projects: rulemaking at the WTO and the establishment of a less institutionalised network of competition authorities, the ICN. As the Singapore issues were one of the sticking points of the trade negotiations at the Cancun Ministerial Conference, the WTO members abandoned the commencement of official negotiations on competition, investment, and transparency in government procurement rules. Among the four Singapore issues, only trade facilitation became an agenda point for official negotiations. The WTO’s General Council adopted a decision on 1 August 2004 and officially announced this modification of the negotiation agenda. At point 1(g) of the decision, the General Council declared that the issues of competition, investment, and transparency in government procurement ‘will not form part of the Work Program set out in the [Doha] Declaration and therefore no work toward negotiations on any of these issues will take place within the WTO during the Doha Round’ (WTO 2004). Consequently, the Working Group on the Interaction between Trade and Competition Policy stopped its activities, and it remains inactive to the present. Furthermore, the Doha Round negotiation as a whole stagnated. There were a few developments; for example, the Bali Ministerial Conference EU’s role as a global rule-maker 121 in 2013 resulted in an agreement on several issues, such as trade in agriculture and trade facilitation (Dee 2013). However, the Doha Round is unlikely to be concluded. The refusal of the Trump administration to appoint new members of the WTO’s Appellate Body worsened the situation, putting the WTO’s dispute settlement mechanism in crisis since December 2019. Considering the challenges faced by the WTO, it is safe to conclude that its members do not have an incentive to raise the competition issue again, even if the current debates about WTO reforms progress under the new leadership of Director-General Ngozi Okonjo-Iweala. The analytical framework of policy export (Müller et al. 2014) explained in Chapter 1 helps to conceptualise key factors in the failure of the EU’s proposal for a WTO competition law. These factors are concerned with two key concepts proposed by the policy export literature: ‘global constellation’ and ‘global setting’. There are three key factors in the global constellation. The first is the divergence of the preferences of the EU and United States (Botta 2014). The second is the profound opposition from the vast majority of developing countries. The third is their effective coalition building to block negotiations on competition issues. Regarding the global setting, a major factor that significantly constrained the EU’s rule export capability was the decision-making procedure. As noted above, the Singapore and Doha ministerial declarations stated that an explicit consensus would be required for the commencement of official negotiations on competition rules. The explicit consensus procedure is much more demanding than the WTO’s standard procedure of an implicit consensus and contributed to the negotiation deadlock. Overall, the WTO saga vividly illustrates the limitation of the EU’s role as a global rule-maker in the area of competition law and policy. 5.2.3 Japan–film and Mexico–telecoms: WTO disputes over trade and competition Among the trade disputes brought to the WTO (formerly, the GATT), two cases are particularly relevant to the issue of interaction between trade and competition. One is the case of Japan–Film (DS 44) between 1996 and 1998 and the other is the case of Mexico–Telecoms (DS204) between 2002 and 2004. They were selected as case studies because Japan–Film is the first case related to the intersection of trade and competition, whereas Mexico–Telecoms is the first case in which the WTO’s panel ruled against a member state based on competition-related articles of the GATS. Japan–Film was a trade dispute between the United States and Japan between 1996 and 1998. In this case, the United States explored the possibility of raising competition issues based on the WTO’s existing trade law. In other words, this case can be regarded as an attempt by the United States to address competition matters despite a lack of comprehensive competition rules in the WTO law. A root cause of this dispute was a rivalry between the Japanese firm Fuji Film and the American firm Kodak. The following description of the case mainly draws 122 EU’s role as a global rule-maker from the WTO’s panel report of 19986 and a report by the OECD (2014: 16) on international competition issues. After the Second World War, Japan’s tariffs on imported consumer photographic film and paper allowed major Japanese firms, especially Fuji Film and Konica, to grow without full exposure to international competition. In 1967, as a result of the Kennedy Round (1964–1967) of the GATT trade negotiations, the Government of Japan began to gradually reduce tariffs on photographic film and paper for both black-and-white and colour photographs. This issue was further discussed during the Tokyo Round (1973–1979) and the Uruguay Round (1986–1994) of the GATT trade negotiations. Finally, in 1994, the government agreed to remove all remaining tariffs on these products. In 1995, Fuji and Konica together controlled around 85 percent of the domestic photographic material market, while two non-Japanese firms, Kodak (United States) and Agfa (Germany), had roughly 10 percent and 5 percent market share, respectively. Kodak regarded the removal of tariffs as a business opportunity and sought to increase its sales in the Japanese market using various promotional instruments such as rebates and discounts. Its market share increased temporarily but soon declined to the pre-1967 level. Subsequently, Kodak accused the Japanese photographic film and paper market of not being fully open to foreign firms because of Fuji’s exclusive agreements with distributors (‘vertical constraints’). Furthermore, Kodak argued that the Government of Japan violated the WTO law by supporting Fuji’s restrictive practices. In May 1995, Kodak requested the Office of the United States Trade Representative to initiate legal action against Japan’s allegedly exclusive governmental measures and competition-restricting business practices in the market. In response to Kodak’s allegation, the Government of the United States officially requested the Japanese competition authority, JFTC, to investigate Fuji’s business practices. However, the JFTC published a report on the case and concluded that Fuji’s behaviour did not violate Japan’s competition law. The United States termed this report ‘a whitewash’ and criticised it for being ‘weak and woefully insufficient’ (Hansen 1999: 1625). However, rather than imposing unilateral sanctions, the United States brought this case to the WTO, which established a dispute settlement panel for the case on 16 October 1996. As the WTO law only applies to the actions of governments, the case focused on the Government of Japan’s public measures rather than Fuji’s conduct. The United States complained that Japan tolerated an exclusive distribution system in the photographic film and paper industry and that the system was based on vertical business agreements between producers, wholesalers, and retailers. The complaint concerned three legal and administrative measures taken by Japan’s Ministry of Trade and Industry (MITI) and the JFTC—(1) distribution countermeasures; (2) the Large Stores Law of 1973; and (3) the Premiums Law and related measures. Regarding distribution countermeasures, the United States argued that the MITI’s administrative guidelines, especially the 1970 Guidelines for Rationalisation of Transaction Terms, violated the WTO laws. While these measures were intended to streamline the distribution system in the photographic EU’s role as a global rule-maker 123 film and paper industry, they excluded imported goods from such traditional distribution channels. In particular, the MITI promoted the use of transaction terms such as discounts and rebates, and encouraged manufacturers, wholesalers, and retailers in the domestic photographic industry to share facilities such as joint warehouses and distribution routes. From the American perspective, this MITI policy resulted in the establishment of a single-brand distribution system that disadvantaged foreign firms (paragraphs 4.2 to 4.5). Regarding the Large Stores Law, the United Stated maintained that larger retailing stores tended to provide a wide range of products and tended to sell more imported photographic material than smaller retailers did. Therefore, by restricting the establishment of larger retail stores, the law hindered the growth of alternative distribution channels for imported photographic material (paragraph 4.14). Regarding the issue of restrictions on premiums, Japan’s Premiums Law and other measures issued by the JFTC under the Japanese Antimonopoly Law restricted sales promotion activities such as discounts, gifts, coupons, and other advertising campaigns. According to the United States, these measures were intended to disadvantage foreign producers that tended to have ample financial and human resources as well as the ability to translate them into extensive and innovative commercial campaigns (paragraphs 4.16 and 4.18). In response to these accusations, the Government of Japan made the following arguments. First, the MITI guidelines concerning distribution systems were intended to modernise Japan’s distribution system and did not discriminate against imported goods (paragraph 4.6). Furthermore, the choice of a single-brand distribution system was a voluntary decision by individual firms and was not a result of government measures (paragraph 4.9). Second, there was no evidence of correlation between the size of stores and the likelihood of selling foreign products. Therefore, the United States’ allegation regarding the Large Stores Law was flawed (paragraph 4.15). Third, the Premiums Law restricted only excessive commercial promotions and made no distinction between domestic and foreign products. Thus, the law did not discriminate against foreign firms (paragraph 4.17). The panel’s final report was adopted by the WTO’s Dispute Settlement Body on 22 April 1998 and dismissed the central arguments of the United States. The report drew three conclusions (paragraphs 10.402–10.404). First, the United States did not demonstrate that Japan’s distribution measures (the Large Stores Law and restrictions on premiums and commercial promotion) individually or collectively caused financial damage to American firms. Second, Japan’s distribution measures regarding the photographic material market were origin-neutral and did not discriminate against imported products. Therefore, the measures did not breach the principle of national treatment under Article 3(4) of the GATT. Finally, the United States did not demonstrate that Japan breached its legal obligation of publishing its administrative rulings adequately and promptly under Article 10(1) of the GATT. Thus, the Unite States’ first attempt to address a competition-related trade dispute within the WTO’s legal framework failed. This case showed how difficult 130 EU’s role as a global rule-maker competition rules; it has always focused on voluntary policy convergence based on the dissemination of non-binding measures such as recommended practices. Hence, it is difficult for the EU to use the ICN to transfer its own competition rules to other jurisdictions in a hierarchical manner. 5.3.2 Bilateral and interregional cooperation Regarding bilateral and interregional relations, the EU uses three main types of international agreements on competition cooperation: (1) competition cooperation agreements, (2) memoranda of understanding, and (3) FTAs with competition provisions. The EU also concluded general agreements containing competition rules with several countries, groups of countries, and regional organisations. These general agreements include Stabilisation and Association Agreements with Balkan states; the Cotonou Agreement with African, Caribbean, and Asian countries; and interregional agreements with the Caribbean Community and Central American Economic Integration (SIECA). The European Economic Area Agreement with Iceland, Liechtenstein, and Norway also covers competition issues.15 A comprehensive survey of all agreements concluded by the EU is beyond the scope of this book (see Demedts 2018; Papadopoulos 2010; Sekine 2020 for more details). Instead of discussing differences between individual agreements, this section explains the features of the three main types of agreements to identify systemic constraints on the EU’s external competition policy. The EU concluded competition cooperation agreements with the United States (1995 and 1998), Canada (1999), Japan (2003), South Korea (2009), and Switzerland (2014). This indicates that the EU tends to use this type of agreement for substantial cooperation with experienced competition authorities. These are voluntary agreements and do not have dispute settlement mechanisms. The agreements are intended to enhance law enforcement cooperation in individual cases between competition authorities while reducing the risk of interjurisdictional conflicts. Competition cooperation agreements, including those of the EU, usually include provisions on the following key issues16: 1. Mutual notifications: Each party notifies the other party when its enforcement activities are likely to affect the interests of the other party. 2. Exchange of information: The parties exchange information about the cases under investigation. While legal constraints on the disclosure of information pose a major challenge to such exchanges, the ‘second-generation’ agreements, such as the one between the EU and Switzerland, allow the parties to exchange confidential business information under certain conditions.17 3. The principle of negative (or traditional) comity: A party considers the interests of the other party at all stages of its enforcement activities. 4. The principle of positive comity: A party may request another party to investigate alleged anticompetitive activities that taking place within the latter’s jurisdiction but negatively affecting the referring party’s market.18 EU’s role as a global rule-maker 131 5. Coordination in enforcement activities: For example, the parties coordinate the timing of their cartel investigations and remedies they impose on the proposed mergers. While competition cooperation agreements are concluded between governments, the EU and many other jurisdictions also use agency-to-agency agreements (‘memoranda of understanding’) to build international competition relations (OECD 2016). DG Competition representing the EU concluded such an agreements with Brazil (2009), Russia (2011), China (2012), India (2013), and South Africa (2016). The DG also signed a similar agreement (‘administrative agreement on cooperation’) with Mexico in 2018. It is difficult to make a clear distinction between the EU’s competition cooperation agreements and memoranda of understanding in terms of content because there are numerous overlaps between them (Demedts 2012: 238–243). The main difference between the two types of agreements is the EU’s partner countries. On the one hand, the EU has concluded competition cooperation agreements with developed countries that have experienced competition authorities. On the other hand, the EU uses memoranda of understanding to establish channels for regular dialogues, trust building, and enforcement cooperation with emerging economies. In contrast to the first and second types of agreements, FTAs allow the EU to place competition rules in the broader legal framework for international economic cooperation.19 While the content of competition provisions of the EU’s FTAs varies significantly depending on its partners, these provisions have two common characteristics. First, compared with competition-dedicated agreements, a greater emphasis is placed on the establishment of principles rather than the facilitation of law enforcement in individual cases. For example, the EU’s recent FTA with Japan that came into force in 2019 codified legal principles, such as the operational independence of competition authorities, nondiscrimination, procedural fairness, and transparency in Articles 4, 5, 6, and 7 of Chapter 11. Second, the EU has a general tendency to include not only competition rules on traditional issues (e.g. cartels, abuse of dominance, and mergers), but also relatively detailed state aid rules in its FTAs (Sekine 2020). As the European Commission’s report on competition policy 2019 states, the EU seeks to include both sets of rules when negotiating FTAs with its partners (European Commission 2020b: 26). This linkage is almost impossible in bilateral competition-dedicated agreements because most national competition authorities outside the EU do not have competence in the area of state aid. Overall, at both the multilateral and bilateral levels, the EU’s external competition relations mainly rely on voluntary cooperation. This is evident from the EU’s engagement in activities of the ICN, the OECD, and UNCTAD, and its extensive use of non-binding agreements for bilateral relations. An exception to this general trend is FTAs. On the one hand, they provide binding international competition rules, including state aid rules. On the other hand, competition provisions of the EU’s FTAs tend to be more abstract than competition-dedicated bilateral 132 EU’s role as a global rule-maker agreements and merely confirm general principles that are already widely shared among several jurisdictions. Therefore, except for state aid rules, these provisions generally do not have enough added value. Apart from a few bilateral general agreements with (potential) candidate states and interregional agreements, such as the European Economic Area agreement, the EU does not possess any effective legal framework for the external transfer of its competition rules. Conclusion The EU has consistently promoted competition law and policy externally since the 1990s. A key goal of the EU’s external competition policy is to address the competition–competitiveness dilemma, which derives from a combination of increasing competitiveness pressure in the global market and stringent competition regulations within the union. The EU initially pursued the international transfer of its own competition rules to other countries, mainly based on formal negotiations and legal agreements, especially in the context of its enlargement policy. Furthermore, the EU attempted to establish international competition rules within the WTO’s legal framework. However, there is a growing trend of voluntary international competition cooperation and policy convergence based on soft law, especially after the collapse of the WTO negotiations on competition rule-making. Consequently, the EU’s current external competition relations rely heavily on non-binding agreements and less institutionalised regulatory networks, such as the ICN, rather than rule-making bodies. Therefore, it is difficult for the EU to translate its economic resources and regulatory capacity into direct influence on other countries. While it uses FTAs to promote competition law and policy externally, the role of competition provisions in these agreements is usually limited to the establishment of general principles. These findings suggest that the competition–competitiveness dilemma remains unresolved, despite the EU’s political commitment to the externalisation of its own competition rules through various channels. Notes 1 A speech by the former European Competition Commissioner Karel Van Miert about competition policies in relation to Central and Eastern European countries is indicative of the link between the EU’s enlargement policy and external competition policy. See Van Miert (1998: 2). 2 The external experts of this group were professors Frédéric Jenny, Ulrich Immenga, and Ernst-Ulrich Petersmann. The selected European Commission officials were Claus-Dieter Ehlermann and Jean François Pons of DG IV (competition policy), Roderick Abbott of DG I (external relations), François Lamoureux and Jean-François Marchipont of DG III (industrial policy), and Alexis Jacquemin of the Forward Studies Unit. 3 Regarding the other Singapore issues, the Working Group on Trade and Investment and the Working Group on Transparency in Public Procurement were established soon after the Singapore ministerial conference. At the conference, it was decided that the WTO’s existing institution, the Committee on Trade in Goods, would be EU’s role as a global rule-maker 133 responsible for the issue of trade facilitation, which was less controversial than the other Singapore issues. 4 The Like-Minded Group consisted of Cuba, the Dominican Republic, Egypt, Honduras, India, Indonesia, Kenya, Malaysia, Pakistan, Sri Lanka, Tanzania, Uganda, and Zimbabwe. Jamaica and Mauritius participated as observers. 5 The Core Group initially consisted of 12 countries: Bangladesh, Cuba, Egypt, India, Indonesia, Kenya, Malaysia, Nigeria, Pakistan, Venezuela, Zambia, and Zimbabwe. 6 WTO, Japan–Film (Japan–Measures affecting consumer Photographic Film and Paper), Report of the Final, WT/DS44/R, 31 March 1998. 7 WTO, Mexico–Telecoms (Mexico–Measures Affecting Telecommunications Services), Report of the Final, WT/DS204/R, 2 April 2004. 8 Fox (2006) provides a useful account of the establishment of these annexes. 9 The annex consists of seven sections: objectives, scope, definitions, transparency, access to and use of public telecommunications transport networks and services, technical cooperation, and relations with international organisations and agreements. 10 For general discussions on trans-governmental regulatory networks, see Abbott, Kauffmann, and Lee (2018) and Slaughter (2004). 11 As of 31 March 2021, heads of competition authorities of the following countries comprise the ICN’s Steering Group: Germany (Chair), Mexico, Brazil, Colombia, Russia, South Africa, Canada, the United Kingdom, the United States (the Department of Justice and the Federal Trade Commission), France, Singapore, Belgium, Portugal, Hungary, South Korea, Italy, Australia, Japan, and Turkey. 12 For more details about the Steering Group and working groups, see ICN (2012). 13 The ICN website, ‘ICN Training on Demand’: https://www.internationalcompetitionnetwork.org/training/ [accessed: 31 March 2021]. 14 This point is based on an interview with two officials of DG Competition in Brussels on 12 June 2014. 15 The latest list of the EU’s international agreements containing competition rules can be found at https://ec.europa.eu/competition/international/bilateral/index.html. 16 See, for example, Articles 2–6, and 8 of the EU–United States agreement (1995). 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To answer this broad question on a step-by-step basis, the book raised three more specific research questions: (1) Does EU competition policy seek to create or strengthen dominant EU firms at the expense of promoting competition? (2) Does this policy discriminate against non-EU firms for industrial policy purposes? (3) How effective is the EU’s attempt to alleviate the dilemma by creating international rules congruent with its own law? Chapter 1 provided a theoretical framework for this research. Chapter 2 explained the institutional basis for the EU’s internal and external competition regulations. Chapters 3, 4, and 5 conducted empirical research to answer the three research questions, respectively. This chapter first summarises the key findings of each chapter and draws conclusions. Theoretical and empirical contributions of this book to the existing literature are also explained. Section 2 provides further reflections on the internal and external implications of the EU’s stringent competition policy. Section 3 suggests three important and underexplored topics for future research: the longterm regulatory influence of the EU on non-EU firms, the ongoing review of EU competition rules, and the impact of the current coronavirus (COVID-19) pandemic on EU competition policy. 6 THE EU Stuck between competition and competitiveness 138 EU: competition and competitiveness 6.1 Empirical and theoretical contributions to the literature To place this research in context, Chapter 1 sketched current political debates over EU competition policy while explaining the intended contributions of this book to the literature on this policy. Furthermore, the chapter reviewed the literature on regulatory states and, based on this insight, made two propositions. First, it was proposed that the EU’s supranational institutional setting ensures a stringent competition policy that is non-discriminatory and comparatively strict. Two more specific hypotheses were generated based on this proposal: (1) Supranationally institutionalised competition policies, such as that of the EU, prioritise the promotion of market competition over the enhancement of local firms’ international competitiveness. (2) The supranational institutional setting hinders the EU’s discriminatory use of its competition policy against non-EU firms. Second, it was proposed that the EU promotes competition law and policy externally to address the competition–competitiveness dilemma. Chapter 2 established three points to provide a basis for further analyses in subsequent chapters. First, the European Commission possesses strong investigative and decision-making powers in EU competition policy, although its law enforcement system has been decentralised to a certain extent since modernisation reforms in 2004. Second, the four main areas of EU competition policy (i.e. restrictive practices, abuse of dominance, mergers, and state aid) developed at different speeds and face different challenges; however, the European Commission is now equipped with strong legal measures, especially financial penalties, in all areas of this policy. Third, while EU competition policy originally focused on its internal aspects, a legal basis for extraterritorial jurisdiction has incrementally developed through case law. Furthermore, the European Commission started to proactively build external competition relations in the 1990s through bilateral and multilateral channels. Chapter 3 focused on the internal aspects of EU competition policy and examined whether it prioritises the promotion of market competition over the enhancement of local firms’ international competitiveness, as hypothesised in Chapter 1. The literature shows that merger and state aid policies are a frequent source of disagreement between national and supranational competition authorities regarding the balance between market competition and industrial competitiveness. To ascertain which goal takes precedence in practice, the chapter first analysed selected merger cases in three politically sensitive sectors: motor vehicles, rail transport, and energy. The disallowance of the proposed Volvo/Scania and Siemens/Alstom mergers in 2000 and 2019 suggests that the European Commission prioritises the maintenance of market competition rather than the creation of larger EU firms. This does not necessarily mean that the European Commission is more hostile than member states to all types of mergers. As the E.ON/Endesa case (2006) illustrates, the Commission generally promotes cross-border mergers and confronts member states that try to protect their large domestic firms from foreign capital. The analysis of state aid control offered EU: competition and competitiveness 139 more nuanced insights. After the global financial crisis of 2007–2008, EU state aid rules were temporarily relaxed. Subsequently, the European Commission once again began to ensure strict law enforcement and proactively tackled the issue of tax rulings. However, the current outbreak of COVID-19 posed one of the biggest challenges to EU state aid control. Further research is necessary to thoroughly evaluate the impact of the economic crisis caused by the pandemic. Chapter 4 investigated whether EU competition policy discriminates against non-EU firms through an analysis of quantitative data and controversial cases that involved non-EU firms from the 1990s to the 2010s. The analysis focused on three policy areas: cartels, abuse of dominance, and mergers. The case studies included the vitamins cartel, the TV and computer monitor tubes cartel, Microsoft (interoperability and tying), Google (online shopping, Android mobile devices, and online advertising), and the proposed GE/Honeywell merger. To provide balanced arguments, the chapter engaged with discussions about EU competition policy in Japan and the United States. While the European Commission’s competition decisions are sometimes criticised for their lack of rigorous economic and legal assessments, the analysis in Chapter 4 showed that there is no clear evidence of systematic discrimination against non-EU firms. The European Commission is tough on all firms, regardless of their country of origin. This is most likely because, as suggested in Chapter 1, the main goal of EU competition policy is the maintenance of market competition rather than the direct creation and strengthening of dominant EU firms. Chapter 5 analysed the EU’s external competition relations. The evidence showed that, instead of discriminating against non-EU firms, the EU attempts to address the competition–competitiveness dilemma by externally promoting competition law and policy. The EU initially used formal negotiations and legal agreements as the main method of international transfer of its own competition rules to other countries, especially in the context of its enlargement policy. Furthermore, the EU took an initiative with the WTO to create binding international competition rules. However, the EU’s primary focus shifted to international cooperation and voluntary policy convergence through soft law, especially after the collapse of WTO negotiations on competition rule-making. Since the EU’s current external competition relations rely heavily on regulatory networks such as the ICN rather than rule-making bodies, it is difficult for the EU to translate its economic resources and regulatory capacity into direct influence on other countries. While the EU uses FTAs to promote competition law and policy externally, the role of competition provisions in these agreements is generally limited to the establishment of general principles. These findings suggest that the EU’s capability to transfer its own competition rules to other jurisdictions and international institutions is significantly constrained by systemic factors, such as the WTO negotiation deadlock, a growing trend for voluntary competition cooperation based on soft law, and competition with the United States. In conclusion, the findings of this study suggest two key points. First, the supranational institutional structure, which was originally designed for internal