Twenty Years After: The Future of Competition Enforcement in the European Union

Renato Nazzini, Dec 09, 2010

Any prediction on where Union competition law enforcement will be in 20 years time must start by taking stock of the progress so far, or the lack thereof. Nor can an attempt at such a prediction be limited to the realm of procedure. Substantive law is as important to enforcement as procedure. In particular, the type of rule that prevails-to simplify, object, effect or, in U.S. terminology, per se rules or rule of reason-is a crucial determinant of the level and style of enforcement at a given time.

The drafters of the Treaty of Rome of 1957 did not have a clear idea of the goals of European competition law. Nor did they give much thought to the enforcement regime best suited to it. They had, however, the fundamental intuition that a common market (now the internal market) without competition would be not only futile but, almost, a contradiction in terms. And the common market was necessary for the very survival of post-war Europe as a competitive world economy and for the well-being of its peoples. As for the enforcement mechanism, the drafters chose, almost by default, the only model that was obviously available to their common legal traditions: enforcement was entrusted to a strong administrative body-now the European Commission-subject to the scrutiny of the courts. And according to the French tradition of administrative law-which an analysis of the original text of the Articles of the Treaty dealing with judicial review suggests must have been the most influential precedent-judicial scrutiny was to be respectful of the degree of discretion that the executive has in making the decisions entrusted to it.

For a while, this system worked reasonably well. A powerful-even though at times overcautious-DG IV (now DG Competition or DG Comp) was given the monopoly over the granting of exemptions, based broadly on efficiency considerations, for restrictive agreements that were duly notified to it. This gave DG IV the opportunity to shape a competition law on agreements with the overarching objective of ensuring the well-functioning of the internal market. The European judiciary endorsed this approach and contributed to its development. The result was a competition policy not dogmatically enslaved to short-term welfare analysis but focused on the development of the market in the long-term by preserving pluralistic, open, and dynamic market structures. European competition law is not, and never was, purely a market-integrationist tool although it cannot be explained without the internal market objective.

The internal market is not only one of the goals of European competition law. It is also the premise on which an efficient, competitive, and sustainable European economy is predicated. This economic model requires an effective competition law in order to function. Thus, competition law has a dual role: fostering the creation of the internal market and ensuring its well-functioning. In this way, competition law benefits the peoples of Europe: not only consumers, but also employees, and shareholders.

The market-integrationist agenda did mean, however, that European competition law was concerned about vertical restraints to an extent that is perhaps inexplicable otherwise. The strict prohibition of resale price maintenance (“RPM”) and absolute territorial protection (“ATP”), which has been retained in the new and slightly improved version of the Block Exemption for Vertical Agreements and the Vertical Guidelines, is the prime example of this approach. But one must not forget the somewhat regulatory approach to distributional practices that still pervades European competition law in other areas; for instance, in the “regulation” of aftermarkets in the motor vehicle sector.

On the other hand, one must also not forget the huge steps forward that European competition law has made in the past two decades or so. In 1989, the first merger regulation was adopted, based on the one-stop-shop principle for mergers having a European dimension. In 2004, a new merger regulation introduced a test that was supposed to be less structuralist than the previous one. Complemented by a set of guidelines inspired by a mix of sound pragmatism and modern economic thinking, the merger regime is by and large working reasonably well.

In 2003, a new procedural regulation abolished the Commission’s monopoly on the granting of exemptions for restrictive agreements that also produced efficiencies. Undertakings are now required to assess their agreements by themselves. Furthermore, the new regulation introduced a system in which the Commission and the national competition authorities of the Member States all share the power and the duty to apply and enforce the European competition rules in a coordinated fashion.

Finally, in the past ten years or so, the fight against cartels has been taken to a new level, with fines much higher than they used to be and ever improving leniency programs to help destabilize and detect secret cartels.

Against this background of changes and what also what many critics would call at least moderate success, what are the developments to be expected over the next 10 to 15 years? What will European competition enforcement look like 20 years after? The challenges ahead can be broadly divided into three headings: 1) the substantive legal framework; 2) sanctions and procedure; 3) globalization.