A roadmap for competition in Europe

In its recent Communication “A competition policy fit for new challenges”, the European Commission outlines how it intends to contribute to post-pandemic economic recovery while achieving EU’s new goals.

The Communication acknowledges the importance of ensuring that the Recovery and Resilience Facility funds underpin the changes needed to secure EU-wide investment and innovation over the coming years. The objective is to guarantee open markets and a level playing field for business so that EU consumers continue to benefit from the competitive process. The European Commission also reviews competition policy instruments (merger, antitrust and State aid control) to make sure that they not only remain fit for purpose but also contribute to the same objectives.

Progressive phase-out of the State aid Temporary Framework on the path to recovery

The COVID-19 pandemic brought about an unprecedented reduction in consumption. Had it not been for extraordinary public support, otherwise viable companies would have been forced out of the market in certain sectors.

Making use of the possibility of providing flexibility in State aid rules in exceptional circumstances to remedy “a serious disturbance in the economy of a Member State” under article 107(3)(b) TFEU, the European Commission adopted the State aid Temporary Framework. This provided liquidity to European companies in an agile manner to alleviate the effects of the pandemic. Initially intended to run until December 2020, the Temporary Framework has undergone six amendments and extensions since its adoption (as discussed in these blog posts).

The sixth amendment prolonged the Temporary Framework until June 30, 2022. It introduced two new instruments setting out the path for a coordinated phase-out of the level of support in light of the different speeds of recovery. The first one enabled Member States to create direct incentives for private investments to kick-start the economy towards a sustainable recovery. The second one (with a considerably longer duration, until December 31, 2023) strengthened the possibility of granting solvency support to SMEs, start-ups, and small midcaps particularly affected by the increase in indebtedness during the crisis.

Measures to support the European green transition

The EU has placed the Green Deal at the center of its growth strategy with the goal of achieving climate neutrality by 2050.

As we pointed out in this blog, competition policy can complement the regulatory framework by conveying the right signals for investments to flow towards green technologies.  In this regard, the Communication highlights that the review of State aid rules for transport helps support the sector’s recovery and reinforce its ability to reduce emissions.

Likewise, the Communication points to business cooperation in joint green initiatives. Thus, agreements restricting competition could be exempted if the benefits for consumers offset the harms (e.g., replacing a non-sustainable product with a sustainable one improving its longevity or other features).

In this regard, the Commission is ready to offer guidance to provide legal certainty for companies pursuing sustainable objectives. In parallel, the Commission is working on the review of Horizontal Block Exemption Regulations and Guidelines, which will include additional guidance on cooperation between competitors to obtain more sustainable products or production processes.

Measures to support the digital transition

Another main objective of the European Commission is keeping digital markets competitive, with three major initiatives:

•  In addition to the proposed Digital Markets Act, the Commission intends to provide the necessary tools to get the most out of online platforms and data, so that both elements operate together: the Digital Markets Act will set ex ante rules to ensure contestable and fair digital markets, while competition rules apply ex post to individual cases where there are indications of anti-competitive practices.

• The Commission has issued Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to ensure the assessment of digital market transactions, due to their potential relevance, even when they are not subject to notification. Through this Guidance paper, the Commission encourages Member States to refer for review potentially problematic transactions even if they do not meet national notification thresholds.

• The Commission is reviewing the Horizontal Guidelines to provide further guidance on data sharing, so that companies can take full advantage without undermining competition and know the restrictions they can impose on online sales.

Similarly, the Commission has offered to provide guidance to facilitate pro-competitive agreements in the digital sector.

Measures to increase the resilience of the Single Market

To strongly respond to the crisis and meet the above objectives in a sustainable manner, the Single Market must be resilient and adapt swiftly to changing circumstances. The Commission seeks to achieve this resilience both through instruments specific to more vulnerable sectors and instruments of more general scope.

Regarding the former, the Commission is currently reviewing the State aid framework on Important Projects of Common European Interest, which encourages a combination of national, EU, and private funding for large-scale infrastructure projects (e.g., microelectronics or vaccine development).

Among the latter, the most noteworthy is the Commission’s announcement of a proposal to create a Single Market Emergency Instrument to provide a structural solution to safeguard the resilience, level playing field, and well-functioning of the Single Market in the context of possible future crises while facilitating a rapid EU joint response to critical situations.

Therefore, competition policy is seen as a key pillar of the Single Market’s resilience, ensuring that markets remain open and dynamic:

• It allows companies to gain necessary scale to compete, maintaining effective market competition to drive continued innovation and investment;

• It facilitates stronger cooperation between all interested parties without undermining effective competition (see Temporary Framework for assessing antitrust issues in response to situations of urgency stemming from the current COVID-19 outbreak, which provided for joint production and R&D agreements to effectively combine capabilities); and

• It enables Member States to coordinate their efforts to ensure security of supply of crucial inputs (e.g., vaccines).

Nevertheless, these efforts could prove ineffective if fair competition is not assured on a global scale. To somewhat mitigate this potential effect, in May 2021 the Commission proposed a new regulation to address distortive effects of foreign subsidies in the Single Market.

A global vision

Post-pandemic recovery is a challenge for the European Union. In its Communication, the Commission seeks to explain how competition policy can contribute while enabling European industries to lead the dual green and digital transition—in line with the Union's new priorities—without slowing down their growth.

The Commission’s Communication acknowledges that the objectives require changes in business practices and models, as well as long-term investments to facilitate the transition to the new green and digital production model. A policy that ensures the competitiveness of European companies in a global context is also necessary. Competition policy must contribute to this drive for investment and innovation, guaranteeing open markets and a level playing field for companies while ensuring that EU consumers continue to benefit from the competitive process.

The Commission has made ambitious proposals to address this need for flexibility. Examples of this are the ongoing comprehensive review of the EU competition framework and the legislation on digital markets and foreign subsidies. While in isolation they may not be sufficient to ensure recovery and avoid future crises, the ambition of the Communication and its overall vision are undoubtedly helpful.