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SPEECH/ 09/408

Neelie Kroes

European Commissioner for Competition Policy

Antitrust and State Aid Control – The Lessons Learned

Figures and graphics available in PDF and WORD PROCESSED


36th Annual Conference on International Antitrust Law and Policy , Fordham University

New York, 24 September 2009

I would like to first pick up on some topical antitrust issues, and then go through the issues around our state aid control system. To me, it is important that each antitrust authority can both learn from and teach its peers. This is something Christine Varney discussed at the International Bar Association conference in Fiesole this month. I think her speech is a welcome reminder of the responsibilities that are borne by competition authorities such as ours in Europe and in North America.

Antitrust progress

Looking back across the most significant events of European antitrust in recent years, several points stand out. For me, they are not the big cases, but the trends in working practices and the sheer number of cases. Some of these changes are the sensible response to a more complex, global business environment; most of the change is the result of hard fought innovation.

We have tried to anticipate problems and trends. In doing so, we strive for a pro-active competition culture.

Broken down, developing that culture has focused on:

  • c hoosing the best cases to pursue

  • g athering better evidence and market knowledge

  • b acking case law with economic analysis, for example in the Intel case

  • f ine-tuning remedies and fines to achieve the right market impacts.

  • c ommunicating again and again about how and why we do all of this.

Effective prioritis ation is the biggest culture change. Take our renewed use of commitment decisions. We get through more cases and therefore prevent more harm. By also avoiding delays in the implementation of remedies we can have a swifter market impact, which is our ultimate aim.

Some of this may be news – it seems that technology prohibition cases get most of the U.S. headlines about our system. But you should also be aware of our recent cases – for example against E.ON and RWE. The commitments we obtained in these cases are making the clearest recent steps towards opening up European electricity and gas markets. And we are testing commitments by another European energy giant, GDF-Suez. In a politically difficult environment, competition policy is opening up markets where other means have sometimes encountered obstacles in the way of real breakthroughs. It is worth watching the long-term impact of these cases.

Likewise, the European experience of sector inquiries in antitrust policy may also be useful for other jurisdictions, as might be the market studies of national competition authorities in the EU, such as the UK's Office of Fair Trading.

In my mind there can be no efficiency if a process lacks accuracy. Therefore, consolidating effects-based approaches has been critical to increasing the sophistication of our decisions. It also ensures our efforts to prove consumer harm match our rhetoric about the importance of consumer welfare.

Take our Article 82 Guidance… Building on the principles inherent in the case law and using mainstream economic thinking about consumer harm, we have tried to maximise the predictability of our work. The Guidance is welcomed by most stakeholders as adding clarity to our approach.

We therefore work within the framework of our case law and we prioritise our work by requiring evidence on the economic effects of a particular behaviour on the market before deciding to pursue it as problematic. This has strengthened our cases, in particular, in the technology sector.

Very quickly on cartels. My zero-tolerance approach to cartels is well-known.

Participating in a cartel is cheating the system. It's like taking steroids at the Olympics, or 'diving' in football.

But it is fines rather than analogies that really get your attention. So, let me touch now on my belief that we are starting to achieve effective deterrence with our fines. Never, ever under-estimate the effect large fines - in the absence of jail terms – have on the target audience. I don't mean only the companies and sectors affected by fines – I mean senior management across all sectors. They are now starting to understand that we mean business.

Fines were not deterrent in previous decades. Just think about that for a moment… year after year we would catch a cartel and impose a fine that would have little or no effect on a company's incentives. What is the point of that?

Now, taking better account of the economic impacts of abuses and cartels, we fine in order to deter, linking the fine to the relevant sales of the infringing company. If we catch recidivists – the French glass company Saint-Gobain is a good example – the fine increases are severe.

So, in adopting a clear policy basis for deterrent fines and a focus on the most serious infringements of course the fines have increased! For everyone, I might add. Ask Saint-Gobain, or E.ON or Gaz de France if they think we are soft on European companies!

The current context is one where temptations to cut corners are great. If we were to encourage cartelists and others at this point we would be guaranteeing disaster:

  • a drag on economic recovery

  • i ncreased consumer harm and

  • m any more cartels and cartel cases for years to come.

No-one wins - today's softness is tomorrow's nightmare.

I also hope observers see our critics and their bed-fellows for who they are. As far as I can see it is the law-breakers and their lawyers who have the problem with us. And their problem is driven by self-interest. It reminds me of the bankers now going to court to try to reclaim their ill-gotten bonuses.

Charges of "regulatory protectionism" are the ones I find most disturbing. These claims are based on lazy assumptions about Europe.

I say no to protectionism of any kind. Europe can't afford protectionism, and our competition rules don't allow it. We have one rule for all. Period.

But that does not mean our rules can be wholly identical to the US or elsewhere. As Christine recognised this morning there are legal and cultural differences that mean some divergence will always remain.  But the important thing is to share goals such as improving consumer welfare, and we do.

So - if you operate in Europe you must play by Europe's rules , just as if you operate in the US you must play by US rules. The rules are implemented fairly, predictably and transparently. Our decisions are made without regard for the size, success or origin of companies – our decisions are based on the facts about a company's behaviour and nothing else.

Speaking of facts, I would like to point out that only 13 of the 180 companies fined by the European Commission in my term are based in the US.

Moving on to due process. While the Court provides the greatest check in our system – and I will get to that - there are many others.

Internal checks include:

  • r egular review of whether a case is strong enough to be pursued

  • c onsultations with other Commission services,

  • l egal scrutiny

  • p eer review, as well as

  • o ur two independent internal hearing officers whose role it is to ensure procedural fairness.

A further 53 external sources (27 other competition authorities and 26 other Commissioners) may input into each decision before it is made. It is hard to engage in arbitrary enforcement under that sort of scrutiny

Indeed, others are actually importing elements of our system, including the Department of Justice (DoJ). The DoJ’s use of peer review panels is an example of this exchange of practice.

Some have suggested our system is not in line with the fundamental right to a fair hearing under the European Convention on Human Rights.

The courts have however drawn a distinction between the prosecution of conduct like murder, where sanctions could deprive liberty, and lesser wrong doing, for example in the economic sphere, including competition law. Whilst a court must be directly involved in sanctioning the murderer, the European Court of Human Rights recognised that in the other type of case, an administrative system, provided it is subject to appropriate judicial review, is compatible with fundamental rights.

This is indeed the case. The Court has unlimited jurisdiction to review Commission fines, and leaves no stone unturned on other aspects of our decisions. It can look at any evidence brought to it, and is not restricted to the facts on the Commission's file. These are facts well proven by the Court's scrutiny of the Microsoft case.

As the Court of First Instance stated in the Microsoft judgment (para 89):

While the Community Courts recognise that the Commission has a margin of appreciation in economic or technical matters, that does not mean that they must decline to review the Commission’s interpretation of economic or technical data. The Community Courts must not only establish whether the evidence put forward is factually accurate, reliable and consistent but must also determine whether that evidence contains all the relevant data that must be taken into consideration in appraising a complex situation and whether it is capable of substantiating the conclusions drawn from it (see, to that effect, concerning merger control, Case C-12/03 P Commission v Tetra Laval [2005] ECR I-987, paragraph 39).

The fact that fines have increased does not change the position on due process. Our processes must be sound as a matter of principle. We do not scale our efforts to follow due process according to the possible size of the fine.

There's also a suggestion that something would be different if our procedures were different. Really? Which cartels have we wrongly prosecuted? Which cases would we have dropped in this alternative world?

We believe that we hold ourselves to extremely high standards: in the cases we bring, the evidence we gather, and the conclusions we reach. I agree again with Christine Varney here – as enforcers we do have "special responsibility" to ensure a fair and transparent process. But the great weight of evidence says we meet this responsibility.

So, while we are happy to debate our system and we believe in constant review… I hope that like most reasonable people, you will agree that our system has a few things going for it.

The value of state aid control

It takes more than the elimination of internal trade barriers to create a functioning Single Market. And it is naïve to think that a market of 27 countries and 500 million consumers will manage itself.

So we need state aid control means – it keeps our market alive and protects the EU's greatest achievement alongside lasting peace.

These controls on national subsidies are harder to exercise than it may appear. They touch upon nationally sensitive issues and the Commission must use its weight carefully. Without guns or deep pockets, the Commission's ability to enforce the system relies upon the system's inherent logic and a fair application of the rules.

Throw in a financial crisis like this one and it’s almost a miracle that the system survives. Our system has survived however, and I think it offers a case study of what works to promote open markets and what doesn’t.

Comparing our system to the US, there are two potential advantages, and one issue Europe will need to closely monitor. Timothy Geithner (US Treasury Secretary) has said it was a "tragic failure" that the US could not move quicker to address the banks' problems in 2008. Separately a number of observers are worried about the limited tracking of how the bank bail-out money has been spent.

Let me say that I think the policymakers here in the US have done well to stabilise the banking and insurance sectors. But equally, I believe that having a centralised but autonomous control system in place from the outset could have helped deliver bank support faster in the US, while also tracking how those tax dollars were spent.

Taxpayers around the world are rightly asking: are we getting 'bang for our buck?' With state aid control we can at least give them a straight answer. We can give those numbers and an assurance that aid is serving the common European interest.

State aid control is essential in the EU to avoid subsidy races emerging between our Member States. Think of it like firefighting. You have to keep the spot fires under control – because you never know when a sudden gust of wind will drive them together and overwhelm you. A raging wild-fire is almost impossible to control, and that is what protectionism is like.

Personally, I believe that elements of our system could be applied by other trading and economic blocs for the benefit of the global economy.

One thing Europe will have to be very careful of is ensuring temporary measures to address the crisis do not become permanent policy. Several US banks and key policymakers have excelled in this regard – moving quickly towards a more conventional policy approach.

This will be on the minds of those in Pittsburgh this week. It is on my mind too. I do not want to see our temporary measures to assist banks and the real economy last a day longer than they are needed.

How does the system work?

Let me explain how our system works in practice for those who are new to the subject. We don't hand out the cash itself, but we do check whether it conforms to the Europe-wide rules. We claw-back illegal aid if needed – to the tune of more than US$13 billion during my term.

In terms of enforcement, the most crucial thing in my inbox is bank restructurings.

This is the second stage of 'rescue and restructuring' aid offered in the past year. In plain English – the price of state support is that you must submit a restructured business to us for approval in order to offset the competition distortions of aid. With the banks it also addresses moral hazard and gives us a chance to ensure business models that are viable in the long-term.

The crisis also emphasis ed the Commission’s role as an enabler. We brought parties together to co-ordinate and avoid duplications, and we ensured that the European Commission as a whole maintained a pro-competition stance.

This role was possible because DG Competition is part of the wider European Commission. Having a seat at the 'main table' gives competition specialists the opportunity and the clout to stand up for open markets. I think we would have been marginalised in those debates had we been an agency separate from the Commission.

The other factor in retaining influence during the crisis was our approach of “firm on principle, flexible on procedure.” We did not shy from asking tough questions, but understood that the market had changed and that we had to adapt.

One striking element of that adaptability is our Temporary Framework for State Aid, which tries to remedy financing problems caused by the credit crunch. This 'social face' to our policy recognises that there are many innocent victims in this crisis. From small businesses cut off from credit to the newly unemployed. The Temporary Framework ensures that efforts to give support to groups in need are consistent with the level playing field.

The key word here is need. We are here to support those with needs rather than those with wants. As I touched on earlier – the crisis can't be a back-door means for pushing old-style industrial policy.

The car industry

Ultimately, we have to keep our eyes on the prize of 'targeted' state aid, even in struggling industries such as the car industry. This could be targeting of aid to desirable social outcomes, such as improved or greener products, or more viable business structures.

The car industry's difficulties must invoke reform as well as sympathy. You only need to read this week's Economist to see this point. Europe's car companies are producing millions (at least 4 million) cars a year more than the European market wants.

An industry divorced from its customers and wider changes in the world is not sustainable, and its problems cannot be blamed on the crisis.

The car industry's situation also reminds us that we are wasting money if we don't protect people by creating for them real jobs with real futures. A job that only lasts as long as the taxpayers' money does is not the sort of thing we want to achieve.

What we want to achieve is a market-based and European solution for those car-makers operating in Europe. We cannot accept one government bribing companies in order to steal or end the jobs of another. We cannot accept companies becoming addicted to aid. Such behaviours are a recipe for a trade war and poverty – not a way out of this recession.

So, for example, we do not accept geographic operating obligations as a legitimate part of aid. We stopped France earlier this year from implementing such ideas, and we would not hesitate to halt other problematic aid if it comes to our attention. For that reason I am currently examining carefully the conditions for the rescue by Germany of GM's European arm, Opel.

Is the system working?

Given the sort of tensions I have just mentioned, you might wonder – is the system actually working?

I am one of the observers who believe this crisis is far from finished. We might have stabilized the finance sector, but the economic fall-out will be with us for a long time: notably in the form of public debt.

However, I think we've shown the value of competition and state aid control. Instead of giving in to the temptations and the critics who want less competition, we have shown how undermining competition can wreck our Single Market.

To head off such threats we have operated a policy of total open access and round-the-clock support for all parties. This day-to-day support has been backed up by four official guidance documents issued since October 2008, so that everyone knows where they stand.

If I may make a final observation - in practice it seems that the Commission's role in the crisis is often to pose the tough questions which have not been asked before. Sometimes these questions were not asked by others because they are politically inconvenient, other times it was because the parties were simply in denial.

I think that is an idea with a wider application. No matter what its instruments, a competition authority must objectively ask the tough questions, have the guts to take on the tough cases, and it must challenge vested interests. If a competition authority can’t do that, then what purpose does it serve?


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