The Challenges and Trajectories of EU Competition Policy in the Twenty-first Century

Abstract

Sixty years have now passed since the signing of the Treaty of Paris establishing the European Coal and Steel Community in 1951, and during that period competition policy has become firmly anchored as one of the key pillars of European integration. A regime of European competition governance has emerged that centers on the European Commission, specifically its Directorate-General for Competition (DG COMP), and has matured to tackle the four constituent parts of the EU competition policy brief, cartels, monopolies, mergers and state aid. The focus and enforcement of EU competition policy is constantly being reviewed in response to new challenges and opportunities as DG COMP seeks greater consistency in competition norms and greater policy convergence both within the EU and the wider global environment. The opening article of this volume introduces the context in which substantive changes to the EU competition regime has occurred in the twenty-first century. It identifies the major drivers for such change including economic interdependence, the proliferation of national competition laws, and the current financial and economic crisis, and describes how EU competition policy has evolved in response to these challenges.

Key Words:

• Competition policy
• European Commission
• interdependence
• financial crisis
• state aid
• antitrust

The study of European Union competition policy has long provided one of the best examples of European regulation and supranational governance. ¹ Students of European integration, however, often perceive this area as one of the most challenging to traverse given that it is a vast policy area that encompasses and has been shaped by numerous regulations and notifications, a voluminous case law and an abundant economic literature. European Union (EU) citizens for their part rarely encounter or appreciate the aims and functioning of this particular policy area. Yet, fewer policy areas are as central to the operations of the European integration project and the success of the single market as competition policy. Fewer have had as much positive impact on European consumers than the operation and objectives of competition policy.

Competition policy was given a central position in the Treaty of Rome, and it has played a crucial role since then in the creation and functioning of the single market (von der Groeben 1987; Ehlermann 1992). Its significance as an EU policy area finds reflection in its identification as one of only five exclusive Union competences under the Lisbon Treaty. At its core, competition policy is designed to encourage firms to produce high quality goods and to invest in technological developments, but it is also about enhancing consumer welfare by providing lower prices and greater choice. Today’s EU competition policy is also very much tied into wider EU objectives of promoting strong sustainable growth, competitiveness and job creation. It is regarded as a key component of the Europe 2020 Strategy for smart, sustainable and inclusive growth. In short, the creation and enforcement of a competition policy regime is not an end in itself; in the EU competition policy has also become an integral part of the single European market.

The significance of this policy to readers outside the disciplines of economics and law has slowly been realized. The last 20 years have seen the emergence of a political science community that is increasingly concerned with issues of institutional design, accountability and discretion in EU competition policy, as well as issues of ideational change, power and policy diffusion across the globe (Buch-Hansen and Wigger 2011; Büthe 2007; Cini and McGowan 2009; Damro 2006, Doleys 2009; Kassim and Wright 2009; McGowan 2010; Wilks 2007). ² A recent survey of EU studies journals finds that both the quantity and the quality of the articles focusing on European competition policy have risen in the period 1999–2009 compared to a decade earlier (Franchino 2005; Karagiannis 2010). Positively, this interest now coincides with a growing interest among historians about the early years of European integration and especially the workings of the Commission (Leucht 2009; Seidel 2009, Warlouzet 2010). Methodologically, too, the literature on European competition policy ‘is converging towards mainstream social sciences to a very appreciable extent’ (Karagiannis 2010, 607).

The existing literature has pointed out how a combination of the discretion left to the Commission by the Treaty provisions, entrepreneurial commissioners of competition, the broad interpretation of the treaties by the European Court of Justice, as well as the deepening of European integration itself has shaped the evolution of the EU competition regime internally (Cini and McGowan 2009; Wilks and McGowan 1996; Smith 1996, 1998). In the last decades, an increasingly integrated world economy has added to these intra-EU dynamics distinct pressures for change and reform, and in fact, it has become a major factor shaping the evolution of the EU competition regime. But the EU has not passively received influences from the world economy. Instead, it has actively responded by reforming its competition regime and seeking to influence global trends in competition policy.

The current volume is aimed at explaining the changing face of EU’s competition policy in the twenty-first century. Focusing on substantive areas of the EU competition regime including state aid, cartels, merger control, and international cooperation, the contributors to this collection describe how EU competition policy has evolved in the last decade. We argue that three developments in the global economy have strongly influenced the evolution of the EU competition regime in the twenty-first century: increased economic interdependence, the proliferation of national competition regimes, and the financial and economic crisis.

First, national economies have become increasingly interdependent with the international integration of markets in goods, services and capital (Keohane and Nye 1989; Garrett 2000). Economic interdependence has intensified the competition to attract investment among governments within the EU and with third countries, and has raised concerns about competition in subsidies and corporate tax rates. Interdependence has also increased the possibilities for cross-border anticompetitive activities such as international cartels and cross-border mergers, which has left competition authorities including DG COMP ill-equipped to investigate and tackle them, and has propelled them to cooperate on a global scale. Second, the proliferation of national competition regimes has created a complex global web of competition laws, and has necessitated DG COMP to intensify its efforts to cooperate and coordinate with other competition authorities and to attempt to harmonize competition laws at the international level. Finally, the financial and economic crisis that started in 2008 has generated pressures on the governments in the EU and around the world to adopt protectionist measures, which has kept DG COMP officials busy.

These developments in the global economy have challenged the European Commission to become more effective, more responsive and more far-reaching in its efforts. They have also given the EU a unique and historic chance to influence international developments in competition policy, and more broadly to manage globalization of the world economy (Jacoby and Meunier 2010). The contributors to this volume collectively describe and assess how the European Commission has responded to these challenges, how the EU competition regime evolved in the process, and where the policy is headed.

This introduction is organized as follows. In the next two sections, we discuss the fundamentals of the EU competition regime, its evolution since the Treaty of Rome and its objectives. The fourth section identifies the developments in the global economy in the last decade that have influenced the EU’s competition regime. In the fifth section, we discuss the EU’s responses to these challenges by summarizing the findings of the individual contributions. The conclusion identifies potential new avenues for research in EU competition policy.

The Evolution of EU Competition Policy

In Europe, the development of competition policy at the national level has been a gradual process that commenced after 1945. The first steps towards coherent national competition regimes occurred first in the United Kingdom (1948) and then West Germany (1957). The adoption of these national competition policies reflected new thoughts on industrial structures and competitiveness, and was influenced directly and indirectly by the well-established US competition model (Cini and McGowan 2009, 12–5), which was initiated under the Sherman and Clayton Acts in 1890 and 1914 respectively, and which sought to ensure that economic power was not concentrated in the hands of a few powerful trusts (Amato 1997; Stigler 1985).

Competition arose as one of the first policy themes in the European integration process. The competition provisions of the European Coal and Steel Community in 1952 were part of an effort to break up the West German coal and iron cartels (Warlouzet 2010, 7). Competition policy also became an integral aspect, and one of the very few common policy areas identified under the 1957 European Economic Community (EEC) Treaty. The immediate drive for a customs union and common market among West European governments was to maintain peace, but the initiative owed arguably equally to the desire to facilitate economic prosperity through the pursuit of greater competitiveness. The removal of tariff barriers and other quantitative restrictions were a step in the right direction, but such moves were limited without a competition policy.

Neo-classical economic theory postulates that competition between firms unleashes a range of dynamic and positive benefits for the economy and for consumers, as it forces firms to innovate and to constantly develop new and better products as well as lowering prices. Such benefits, however, could not readily be guaranteed without some form of regulatory control. With a long European tradition of companies engaging in anti-competitive strategies such as price fixing and artificially dividing markets, it became evident that if the objectives of the European Economic Community were going to be realized, it would be necessary to establish a regulatory system to police the common market (von der Groeben 1987, 59–60). Put another way, within the context and ambitions of a customs union it would have been simply counter-productive to dismantle trade barriers between the member states if private industry had been allowed to remain free to engage in cartel-like restrictions on competition and to undermine the advantages of opening up the markets in the first place.

The idea of a competition policy was not without controversy among member state governments and particularly in Paris where concerns were expressed about the risks for French businesses of greater competition (von der Groeben 1987, 59). Competition policy had come to form a central tenet of the West German social market economy and Bonn was largely instrumental in pushing this competition agenda within the EEC Treaty itself (Seidel 2009, 131–2; Warlouzet 2010, 8). In a quid pro quo, the West German government accepted the French pursuit of a European policy on agriculture. Article 3(f) of the EEC Treaty explicitly declared that competition should not be distorted in the common market while Articles 85 to 94 outlined the aims and objectives of the competition rules and focused on restrictive practices (including cartels), abusive monopolies and state aids.

In retrospect, we can describe the evolution of the EU competition regime in three phases of generational renewal. The initial phase, which occurred in the late 1950s and early 1960s, is marked by the agreement of the six member state governments to delegate powers in the competition arena to the supranational level through Regulation 17 (von der Groeben 1987, 108–11). This regulation put in place a fairly centralized enforcement system with the Commission at its heart wielding wide powers in the enforcement of competition provisions (Akman and Kassim 2010, 115–6).

The second phase saw the metamorphosis of DG COMP in the mid 1980s from a sleepy backwater to being at the forefront of Commission activity (Wilks and McGowan 1996, 225). The single market program created an ‘overriding need for competition policy’ to ensure that the barriers to economic exchange that have been removed to create the single market were not replaced by private or public conduct that had similar effects (Ehlermann 1992, 259–61). The single market project resulted in the stricter application of the existing competition rules, particularly in state aid. It was in this context that the Council passed the Merger Regulation (4064/1989), giving DG COMP the power to investigate mergers. This period also heralded the gradual and voluntary policy convergence of national competition rules with the EU rules and led to the exporting of the same EU rules to third (for example, potential accession) countries as part of the acquis communautaire (Ehlermann 1992, 258). By the end of the 1990s a puissant and prestigious supranational competition regime was exerting its force and power on both business undertakings and member state governments.

The supranational competition order was not however problem free by any means. It has always had its critics who have pointed to the so-called weaknesses within this system, such as the length of time taken to settle cases, a lack of transparency, weak analyses of the facts that have settled cases, and too much room for politicization (Neven, Papandropoulos and Seabright 1998). At times, DG COMP officials were criticized for being too dogmatic in promoting the competition principle over other factors (Greenhouse 1991). While DG COMP’s efforts may be laudable there is little doubt that its limited resources were severely stretched. Positively, DG COMP has repeatedly displayed its determination to confront the challenges and even displayed degrees of ingenuity as it has regularly reviewed its operating practices and procedures, to learn from ‘best practices’ elsewhere and to refine its core priorities. In a concerted effort to ‘modernise’ its procedures and practices, and in a new and third generational change, DG COMP initiated the first major review of the EU competition machinery in 1999. Ensuing discussions with its stakeholders (the national competition authorities, legal firms, businesses, consumer groups and academics) led to two new Council approved regulations that came into force in May 2004 (Clarke and Morgan 2006, 11–4).

The Modernization Regulation of 2004 eliminated the requirement to notify the Commission of agreements among companies, and thus reduced the workload of the Commission. It also gave the national competition agencies and national courts increased responsibilities in enforcing EU competition provisions, and therefore significantly decentralized the EU’s competition regime. ³ In order to coordinate national and EU competition policies, the European Competition Network was set up. Furthermore, DG COMP was restructured in 2003–2004 along sectoral lines, integrating merger units into antitrust teams in a number of key sectors such as energy, telecoms, transport, and financial services (Lowe 2009, 34). In 2007, the state aid teams were also integrated into these sectoral directorates. In response to criticisms about the weakness in its economic analysis, DG COMP also created a chief economist position in 2003. The chief economist heads a team of 20 PhD economists, reports directly to the director general, and provides guidance on economic methodology in competition investigations and contributes to general policy development (Lowe 2009, 35). The Merger Regulation of 2004 also brought important substantive and procedural changes in the merger control regime. Finally, modernizing efforts in state aid sought to increase the degree and quality of economic analysis in state aid decisions and in the general policy direction.

The recent changes to competition policy not only have empowered DG COMP within the EU context, but also transformed it into a global actor. DG COMP has long had a presence as an actor on the global stage. Its key priority here has been to foster cooperation with other competition authorities and if possible, to pursue policy convergence or at least growing acceptance of competition norms. Any such challenge is not to be underestimated given the realities of more than 110 national competition policy regimes across the globe. DG COMP has signed a number of bilateral agreements with third states, commencing with Canada and the US in the mid 1990s, which have led to further engagement and cooperation such as greater EU–US cooperation in merger investigations. In March 2011 the Commission entered into a Memorandum of Understanding with the Russian competition authority and recent initiatives have also been introduced to boost the emerging relationship and co-operation with the competition agencies in China and India. On the multilateral front, DG COMP pro-actively engages in a number of international institutions and networks such as the International Competition Network (ICN), the Organisation for Economic Cooperation and Development (OECD), the United Nations Conference on Trade and Development (UNCTAD) and the World Trade Organisation.

These different institutions all reflect the salience of competition policy in the early twenty-first century. DG COMP’s involvement with the ICN is the prime example of competition authorities’ search for policy convergence. This agency has expanded dramatically from an initial membership of 15 competition authorities at its creation in 2001 to some 117 in 103 jurisdictions a decade later (Coppola 2011, 222). As a virtual network, the ICN allows competition officials and other interested parties to keep abreast of the latest developments, to identify and disseminate best practice and to push the convergence agenda. It now holds annual conferences and hosts a number of highly specialised working groups in areas such as anti-cartel policy and merger control. DG COMP has been actively involved in the ICN and its various working groups as a means to try to shape the global competition policy developments.

The Objectives of Competition Policy

Competition policy in the EU has four main components. First concerns the prohibition of cartels, or secret agreements ‘between competitors who in coordination fix or increase their prices, restrict supply by limiting their sales or their production capacities, and/or divide up their markets or consumers’ (Commission 2004, 2). Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits such agreements with some limited exceptions. Article 102 of the TFEU is aimed at preventing abuses of dominant positions by firms in a particular market, such as predatory pricing to drive out competitors. ⁴ While the competition provisions of the Treaty of Rome did not include merger control, the Merger Regulation adopted in 1989 and replaced by the Merger Regulation of 2004 allows the European Commission to review proposed mergers to determine their potential to impede competition in the single market. Finally, state aid policy, based on Articles 107–109 of the TFEU, ⁵ regulates and monitors national subsidies to ensure that they do not distort competition by giving an unfair advantage to their recipients.

Objectives of competition laws differ across countries and over time based on the particular economic, social and political objectives of a country (Rodger 2000, 304). A variety of objectives are often associated with competition policies, such as promoting consumer welfare, efficiency, innovation, defense of smaller firms, and total welfare (referring to the sum of consumer and producer welfare) in the economy (Budzinski 2008; Hoekman and Mavroidis 2002; Motta 2004, 17–30; Vanberg 2009, 16). Among the early adopters, for example, US antitrust policy has a strong efficiency and consumer welfare orientation, while the Canadian competition policy has an explicit total welfare approach (Weinrauch 2004, 27–8). Developing countries have also used competition policies to serve a variety of ends. South African and Indonesian competition laws include provisions to help bring discriminated-against or left-out majorities into the economic mainstream (Fox 2000, 580), and both developed and developing countries also frequently make room for industrial policy concerns in their competition policies. It is no surprise therefore that the European Community’s competition policy has reflected particularly European challenges and economic ideas.

The central objective of competition policy in the European Economic Community until the 1990s was market integration. As discussed above, the founding treaties included competition provisions due to the belief that within a common market, competition policy was ‘even more necessary than in national markets’ (von der Groeben 1987, 60). A major role for competition policy in the context of the EEC was to ‘break down privately constructed barriers to trade between the EU member states’ (Cini and McGowan 2009, 5). According to Gerber (1998, 347) ‘this “unification imperative” has shaped institutional structures and competences within the system, supplied much of its legitimacy, and generated the conceptual framework for the development and application of its substantive norms’. Thus, for most of the history of the European Community, market unification was the priority of the Commission and the Court of Justice when interpreting and enforcing competition provisions of the Treaty.

The market unification imperative also explains the emergence of a uniquely European aspect of competition policy, state aid control (Fox 2002). Bringing down tariff and non-tariff barriers to trade, and tackling private barriers that could replace them would not ensure a competitive single market if the member states of the European Community were able to continue subsidizing industries without limits. The founders of the European Community acknowledged that state aids could give companies an unfair advantage and undermine the functioning of the common market, and sought to limit and regulate their use.

With the completion of the single market in the early 1990s, EU competition policy has become more concerned with ‘“normal” or generic goals of competition law — that is, the prevention of harm to competition — rather than with market integration’ (Gerber 1998, 384). This involved some revision and reorientation in the Union’s competition policy priorities, and went hand in hand with a ‘public’ turn, in the sense that DG COMP started to more forcefully tackle anticompetitive behavior of member state governments in the form of state aids and public monopolies (Gerber 1998, 382; Smith 1996, 1998).

DG COMP’s search for a new mission in the 1990s and its efforts at reform and modernization led to a ‘paradigmatic transformation’ in the European competition regime, and transformed it into a supply side economic policy that favors ‘free competition, minimal government regulation, short term economic efficiency, consumer welfare, and a faith in market outcomes’ (Wilks 2009, 271–2). This increased emphasis on efficiency and total welfare, which Wigger (2007) describes as microeconomization, has not been limited to DG COMP, but has also been fostered and reinforced through the common competition culture shared by an international and European community of competition officials, experts, and academics (Kassim and Wright 2009, 750–1; Pera 2008; Wilks 2009, 275). This approach has also redefined competition policy as the basis for national and European competitiveness in the global economy (Wilks 2009, 272). The normative basis for EU competition policy has come increasingly under pressure since the financial and economic crisis hit Europe in 2008 (Wilks 2009), and it remains to be seen whether the impact of the crisis will usher in a new competition policy paradigm.

EU Competition Policy in the Twenty-first Century

We focus, in particular, on three developments in the international economy in the twenty-first century that have played a crucial role in the recent evolution of EU competition regime.

Economic Interdependence

First, economic interdependence, defined here as ‘reciprocal effects among countries or among actors in different countries’ (Keohane and Nye 1989, 8) resulting from increased international economic transactions, has intensified and reached unprecedented degrees. Heightened economic interdependence has exposed EU member states’ economies to competition from countries with lower corporate taxes and labor costs and greater use of subsidies and tax breaks. Central and Eastern European countries’ transition to market economies and their accession to the EU have created alternative locations for investment on the European continent. The member states have also faced intense competitive pressures from emerging economies, particularly from the BRIC (Brazil, Russia, India and China) countries, which are marked by strong state interference in the form of subsidies, tax breaks and privileged bank loans (Commission 2010a, 6–7; Li 2006; Oman 2000; Thomas 2011).

With increased competition globally and within the EU, firms facing pressures on their profits aggressively vie for state aid and discriminatory tax provisions. This has raised concerns about tax competition in the EU, not least because of the potential consequences it could have on nations’ ability to fund their welfare states. While curtailing such competition within the Union by enforcing the state aid provisions of the Treaty, DG COMP is now also increasingly expected to take into account global competition for investment (Blauberger and Krämer 2010).

Intensifying economic interdependence has also given companies greater opportunities and reasons to engage in anticompetitive activities across borders. This has meant that national competition authorities and the DG COMP can no longer rely on enforcement of competition laws within their jurisdictions alone in order to ensure competitive markets. For instance, cross-border mergers — the annual value of which peaked at $1000 billion in 2007 — even when both companies are located outside of the EU may have as much impact on competition in the EU market as in their home market. Similarly, international cartels have become widespread. In the early 2000s, 35 international cartels were discovered each year, with a typical cartel causing more than $2 billion in economic harm (Connor and Helmers 2007, 1, 21). The increase in cross-border anticompetitive practices such as cross-border mergers and international cartels has necessitated greater international involvement on the part of the DG COMP.

The Diffusion of Competition Laws

As part of a wider trend of the diffusion of ‘regulatory capitalism’ (Levi-Faur 2005), competition laws have spread to all parts of the world in the last 30 years. While there were 22 national competition laws in 1985, there were a total of 116 national competition laws by 2011. A typical merger between large companies now ordinarily requires approval not just in the companies’ countries of origin, but also in the United States, the EU, Canada, Brazil, South Africa, Russia, Korea and many other jurisdictions that have merger review procedures in place (Geradin 2009, 191). Similarly, international cartel cases have involved competition authorities of multiple jurisdictions, even requiring simultaneous raids on company headquarters. The number of bilateral agreements on competition, and regional trade agreements with competition policy provisions has also multiplied. There is no doubt that the diffusion of competition policy across the world generates many benefits, however, ‘the adoption of national rules often varying in scope, objectives, methods, and the manner in which they are enforced’, also create significant challenges for transnational corporations, as well as competition authorities around the world including DG COMP (Geradin 2009, 193).

In response to the proliferation of national competition regimes, DG COMP increasingly finds that it needs to work with competition authorities in third countries to cooperate and coordinate enforcement efforts in individual cases, to share information, and in the long run, to seek the harmonization of rules. It also has more opportunities to do so, given the emergence of a global network of competition policy officials, lawyers and academics that meet regularly in the conferences and meetings of the various international and transnational organizations that work on competition policy.

The Financial and Economic Crisis

The recent financial and economic crisis has led governments and companies in the EU and around the world to resort to protectionist measures, keeping officials of DG COMP busy. The crisis resulted in a severe economic downturn in the EU, with economic activity contracting, and GDP falling approximately by 1.4 per cent in 2008, further by almost 4 per cent in 2009 (Commission 2010b, 5). During economic downturns, private firms engage in anticompetitive activities such as crisis cartels to maintain their profit margins, and expect more forgiving treatment from competition agencies and governments in the enforcement of competition laws. Governments may also resort to subsidies to aid firms in difficulty and prevent unemployment. Both sorts of anticompetitive behavior breach the competition provisions of the TFEU as well as threaten the enforcement record that DG COMP has painstakingly built over the years (Blauberger 2009; Cini 2001; Smith 1996, 8).

In fact, since the crisis began, the member states have granted significant amounts of crisis aid particularly for banks, totaling €279 billion in 2008 and €354 billion in 2009, amounting to 2.7 and 3 per cent of the EU’s GDP respectively (Commission 2009, 7; Commission 2010b, 9). As a result, overall aid levels in the EU rose to 3.6 per cent of the EU’s GDP in 2009, up from 0.5 per cent in 2007 (Commission 2010b, 9). Member state governments communicated to the Commission early on in the crisis their expectation that it would apply the state aid rules of the Treaty ‘in a way that meets the need for speedy and flexible action’ (European Council 2008, 2).

Similarly, there has been a call for the less stringent enforcement of the Treaty provisions in the case of crisis cartels and defensive mergers (Wilks 2009, 272–3). Overall, the economic and legal consensus, or the ‘common competition culture’ that emerged and has formed the basis of European competition regime might be under attack (Wilks 2009, 271). DG COMP has thus had to rise to the challenge of balancing the shorter-term interests of firms and governments in the EU with the longer-term effectiveness and coherence of the EU competition regime and its normative foundations.

Overview of the Papers

In response to the challenges identified above, DG COMP has introduced innovative rules to deal with specific problems of state aid and tax competition, streamlined its own work and expanded cooperation with other competition authorities, and reacted quickly to prevent the financial crisis from undermining the normative underpinnings of EU by steering national responses to the crisis.

The state aid papers presented here show a generally positive evaluation of the functioning of DG Competition’s ability to control subsidies, with some caveats. Thomas Doleys examines aid to the financial sector in the wake of the crisis after the collapse of Lehman Brothers in September 2008. As private credit dried up, member states employed a series of crisis measures, totaling billions of euros, to prop up their national banking sectors. Doleys argues that while the Commission was accommodating initially, it gradually was able to maintain transparency and channel aid into its preferred forms. If we examine aid excluding crisis measures, we see that the Commission maintained total state aid to industry and services at a level very close to the pre-crisis amount of 0.5 per cent of gross domestic product (Commission 2009, 2010b). This supports the contention that state aid generally remained under control, despite the economic crisis.

Kenneth Thomas’ paper focuses on state aid to mobile inward investment, a motivation present from the origins of regional aid policy in the 1970s but made most explicit with the adoption of the Multisectoral Framework (MSF) in December 1997. Examining state aid through the lens of locational tournaments, bidding wars for specific investment projects, he compares the outcomes in the European Union with those of the United States. There was a sharp dropoff in the aid intensity awarded to projects under the MSF 2002 compared to the MSF 1998, due to the introduction of what Fiona Wishlade (2008) calls a ‘reduction matrix’ that lowered the maximum allowable aid for projects over €50 million. This reduction was maintained with the incorporation of the MSF rules into the Regional Aid Guidelines effective in 2007. At the same time, Thomas’ paper shows that similar projects (often by the same company) received consistently higher levels of support in the United States than in the European Union, even as the regional aid rules restricted the highest subsidies to the least prosperous parts of the EU, areas with lower income per capita than US states attracting comparable projects. Moreover, the sheer number of investments receiving incentives of over $100 million/€74 million has been far higher in the United States than in the European Union over the last two years. Thus, in Thomas’ view, this is one area in which state aid control has been highly successful.

Fiona Wishlade sounds a note of caution, based on the fact that not all methods of competing for investment are subject to the state aid rules (compare Thomas 2000, 253). In particular, member states can set the level of the corporate income tax to attract inward investors, and under the treaty there is no way to sanction this because treaty changes on direct taxation require unanimity, not a qualified majority vote. Wishlade’s paper shows that this has worked to the detriment of some of the outermost regions (OMRs). By virtue of their distance and small size (precluding economies of scale), these regions have permanent cost disadvantages, which previous Commission decisions said could, in principle, be compensated with permanent operating aid. However, in practice the Commission has been hesitant to allow permanent operating aid in the OMRs, giving rise to inequities between member states which can set a low tax rate for the entire country and non-autonomous regions which cannot have a different tax rate than the national one under the Azores decision of the ECJ. Thus, Ireland can have a 12.5 per cent corporate income tax that is not considered a state aid, whereas Madeira cannot have a 5 per cent income tax because its fiscal dependence on Portugal makes this tax reduction specific and hence a state aid.

On the antitrust front, the contributions of Lee McGowan and Eleanor Morgan, and Angela Wigger explore the evolution of cartel policy and merger control respectively. McGowan and Morgan investigate whether the Commission has adopted a softer approach towards cartels since the beginning of the financial and economic crisis in 2008. Firms are more likely to resort to crisis cartels to maintain their profit margins in times of economic crisis, as was the case during the Great Depression. Governments also tend to adopt a more tolerant attitude towards cartels during economic downturns. McGowan and Morgan explore in a comparative study of the European Commission and the Bundeskartellamt (German Cartel Office) whether there has been any softening of cartel policy as a response to the crisis. Since the 1990s, the Commission’s approach to cartels has become more rigorous over time, as can be observed by an increasing number of cartel decisions and rising levels of fines imposed on cartels found to be in breach of Treaty rules. The modernization reforms of 2003–2004 have also helped streamline cartel policy in the EU. McGowan and Morgan find no slowdown of the Commission’s cartel enforcement during the crisis. While there are more applications for reductions on fines due to firms’ ‘inability to pay’, the Commission has not granted many reductions during the crisis. Overall, the evidence shows that neither the Commission nor the Bundeskartellamt have softened their policy on cartels during the crisis.

Wigger’s contribution to this collection analyzes the relationship between the EU’s merger control and the recent financial and economic crisis from a critical political economy perspective. She identifies a gradual change in the nature of economic activity in general and merger activity in particular with the rise of neoliberalism in the 1980s. One of the manifestations of the changing nature of economic activity is that mergers have become much more common, including in the financial sector, have increasingly been hostile takeovers rather than based on mutual consent, and have involved very large firms. Wigger argues that these developments have had the effect of increasing economic concentration, strengthening the position of financial capital vis-à-vis productive capital, and aiding the emergence of a market for corporate control, and in turn contributing to the financial crisis of 2008. According to Wigger, the Commission’s permissive stance towards mergers, buoyed with the 2004 merger regulation that replaced the 1989 regulation, facilitated these trends, rather than counter them. Wigger’s account of EU merger control thus suggests that in some areas, rather than protecting the member states and their citizens against the excesses of markets, the EU may have facilitated the free play of market forces and destructive trends in globalization.

Chad Damro and Terrence Guay as well as Umut Aydin focus on the external dimensions of EU’s competition policy in their contributions. Both papers note the growing need for the EU to respond to an increasingly internationalized market, where competition policy no longer is only about domestic regulation of business activity. Both also identify the reasons why competition authorities worldwide seek to cooperate with one another: to increase information acquisition as international anti-competitive activity becomes ever more complex, to avoid contradictory decisions that could introduce tensions in the world trading system, and to reduce costs and increase efficiency for the agencies. While Damro and Guay focus on the EU’s cooperation with the United States on merger policy in the last two decades, Aydin more broadly evaluates the EU’s choice of strategies in internationalizing competition policy.

Damro and Guay explore cooperation between the EU and the US in merger policy, especially in the wake of substantial conflict between DG COMP and the Department of Justice over the 1997 Boeing–McDonnell Douglas merger. In particular, they argue that cooperation between the agencies is driven by the need for information exchange and the desire to avoid divergent decisions, and has been undertaken through negotiated agreements and ad hoc working groups, along with increasing cooperation on practical stages of the merger review process. Cooperation has increased certainty for companies and minimized political intervention and tensions between the authorities; however, convergence in merger rules and review procedures between the EU and the US has remained partial. Work by the EU/US Mergers Working Group may narrow some of the differences between the two competition authorities over time.

Aydin investigates the motivations that drive the Commission’s efforts to internationalize EU’s competition policy and the effectiveness of its strategies in doing so. She identifies three functional goals that the Commission’s DG Competition pursues on the international front of competition policy: preventing anti-competitive practices from outside the EU to harm competition within, ensuring market access in third countries for EU firms, and ensuring fair antitrust treatment of EU firms in third countries. DG Competition has tried various strategies to achieve these objectives: extraterritoriality, bilateral agreements, the transfer of its competition policy model to other countries, binding multilateralism at the World Trade Organization, and non-binding multilateralism in venues such as the OECD and the International Competition Network. Aydin’s evaluation shows that DG Competition has been most successful in furthering the EU’s competition policy goals through its strategy of policy transfer to third countries, particularly its membership applicants. With the slowdown in enlargement, however, this strategy may have reached its natural limits, and thus may need to be combined with cooperation in non-binding multilateral forums such as the ICN.

Conclusion

The contributors to this volume collectively demonstrate that the EU’s competition policy has proven itself in responding to a series of challenges in the world economy in the last few decades, with some caveats. The Commission’s efforts have been effective in averting spiraling subsidy races among the EU’s regions, and have brought order into the member states’ efforts to help financial institutions and industries with state aid during the recent financial and economic crisis. The Commission has also managed to maintain and even improve its firm stance on hard-core cartels during the crisis. On the international front of competition policy, despite some high-profile cases to the contrary, the Commission has maintained significant cooperation with the US on individual merger cases, and has achieved some limited policy convergence. It has also been at the forefront of global developments on competition policy, through bilateral cooperation agreements, the transfer of its competition provisions to third countries, and cooperation in non-binding multilateral forums. The EU’s competition policy regime seems to have responded to challenges ranging from economic interdependence and the proliferation of new competition regimes to the effects of the recent financial and economic crisis.

The contributors also draw attention to areas where the Commission has been less successful in confronting these challenges. For instance, the Commission has not succeeded in making state aid policy more coherent with the regional policies objectives of the Community. This has led to an ironic outcome whereby member states are frequently able to reduce corporate taxes in richer regions of the Community to attract companies, while not being able to do so in the poorer outermost regions. It has also created a perverse outcome in that the aids that are approved by the Commission in the poorer OMRs are not appropriately designed to spur development there. The Commission has also been open to criticism with regard to the influence of large transnational businesses and of financial capital on its policy direction. The influence of these actors on the EU’s merger control regime has meant that the Commission has maintained a lenient stance on mergers, and thus contributed to economic concentration and the strengthening of financial capital vis-à-vis industrial capital, and in turn to the depth of the current economic crisis.

In taking stock of the recent developments in the EU’s competition policy, the collection does not claim to address all relevant issues and challenges confronting the regime. Many important questions lie ahead. For instance, this collection has touched on only a few areas of the modernization reforms in EU competition policy. Future research could focus more directly on the consequences of the modernization reforms of the last decade. Additionally and most crucially, we have not speculated at length on the future of the EU’s competition regime. It is too early to tell whether there will be a broader paradigm shift in EU competition policy as a result of the recent financial and economic crisis. The debate started even before the crisis, when in June 2007 French President Sarkozy criticized competition as an ideology or a dogma, and asked what it had done for Europe (Euractiv 2007). He therefore triggered a debate that resulted in the removal of competition as one of the objectives of the Union as stated in the TFEU, and that implied a downgrading of competition as one of the formal purposes of the Union (Wilks 2009, 274). With the crisis, many more have begun to question the economic ideas underlying EU’s current competition policy. While contributors to this volume show that individual aspects of the EU’s competition policy have weathered the storm of the crisis, the jury is out on whether there will be a broader paradigm shift in the near future.

Acknowledgements

We would like to thank Lee McGowan and an anonymous reviewer for their valuable comments.

Notes

1. Competition policy in the EU refers to what is commonly called antitrust in the United States; however, it is a broader term as it also includes state aid policy.

2. The publication of this current volume, which brings together scholars from different disciplines and from both sides of the Atlantic, is a testament to the flourishing interdisciplinary network of scholars working on EU competition policy.

3. See Wilks (2005) for an argument that suggests that rather than decentralizing, the impact of the reform was to increase the centralized power of the Commission.

4. Articles 101 and 102 of TFEU correspond to Articles 85 and 86 of the Treaty of Rome. While the content of the provisions have not changed the numbering has changed with the Treaty of Amsterdam and the TfEU.

5. These correspond to Articles 87–89 of the Treaty of Rome.