Germany has taken over the Presidency of the Council of the European Union at a time of major challenges for the competitive order in Europe. The COVID-19 crisis poses a long-term threat to economic stability. As a result of the recession and structural changes, market concentration will increase in many sectors. The surge in digitalisation accompanying the crisis will further strengthen the market power of the leading digital corporations. China is also placing a growing burden on European companies in the single market by supporting state-owned and private enterprises as part of its economic policy and influencing their actions. Strengthening the competition framework during the crisis will be one of the major tasks of the German Council Presidency. What is needed is an alternative to industrial policy approaches that would permanently damage competition in the single market and thereby jeopardise a central element of the European economic order.
The European Single Market is a success story. Competition within the Single Market should be strengthened through new instruments. The German Government can contribute to this by advocating for platform regulation during its Council Presidency. Abusive behaviour by dominant platforms must be prevented. In addition, a third-country state aid instrument should be introduced. Its aim is to ensure fair competition between European and, in particular, Chinese companies.
In its main report, “Competition 2020”, the Monopolies Commission sets out recommendations on how the competition framework in Germany and Europe can be strengthened. It presented its report today to the Federal Minister for Economic Affairs and Energy, Peter Altmaier. Specifically, the Monopolies Commission proposes:
- to continue applying competition law during the coronavirus crisis without any substantive concessions, and to complement state bail-out schemes for companies – which may distort competition – with measures that promote competition,
- to effectively limit the market power of large digital platforms at European level by establishing rules for dominant platforms,
- to reduce distortions of competition in the single market by introducing a new third-country state aid instrument into European competition law. This is intended to treat subsidies granted to companies by third countries, such as China, in the same way as state aid from Member States.
The majority of government measures to rescue businesses during the COVID-19 crisis are subject to scrutiny by the European Commission due to their potentially competition-distorting effects. However, not all aid measures that pass state aid scrutiny are competition-neutral. For example, aid granted to Deutsche Bahn AG could harm competition in the transport sector if it does not also benefit competitors – for instance, by being channelled into investments in rail infrastructure. State shareholdings in companies, such as in Deutsche Lufthansa AG, must be accompanied by conditions designed to promote competition and a plan for the resale of the state’s shares. During the crisis, a flexible application of competition law may be appropriate in the case of temporary business collaborations. However, this does not apply to the rules governing merger control. Unlike collaborations, which can be terminated relatively easily once the crisis is over, positions of power once acquired through mergers would persist permanently, to the detriment of competition and consumers.
The activities of large online platforms can lead to markets becoming skewed or ecosystems forming. As the market structure may consequently become permanently entrenched, the Monopolies Commission endorses the recommendation for a Platform Regulation to be adopted at European level. This would impose certain behavioural obligations on dominant platform companies, namely a prohibition on self-favouring, as well as stricter interoperability and portability obligations. In addition, the regulation could include remedies for abuses of market power with lasting effects on market structure and for breaches of the additional obligations of dominant platform companies set out in the Platform Regulation. Another issue requiring regulation is that, whilst competition authorities have extensive powers to obtain information, they may encounter considerable difficulties when exercising these powers during proceedings. The Monopolies Commission therefore recommends tightening the procedural obligations to cooperate in cases where the authorities have made every reasonable effort to investigate.
The Chinese state intervenes in economic activity in a variety of ways to achieve its economic policy objectives, including through subsidies to state-owned and private enterprises. As China’s importance to the global economy grows, these market interventions are having an increasingly adverse effect on European companies. Under the existing rules, the protection of the European market economy is patchy, particularly in the case of third-country subsidies. The Monopolies Commission advocates the introduction of a third-country aid instrument that would largely place third-country subsidies on an equal footing with Member State aid. This instrument should enable the European Commission to intervene in order to recoup subsidy-related advantages. In cases of company acquisitions and Member State procurement, a standstill obligation should also apply to all parties involved; in other words, the procedure should be suspended pending the assessment of the third-country aid. This would prevent the subsidy from flowing to the seller in cases of company acquisitions or to the contracting authority in procurement cases, thereby avoiding the need to impose a potential compensatory levy on this indirect beneficiary.
