EU competition policy developed as an outgrowth of the desire for increased economic integration among EU member states. The 1957 Treaty of Rome provided a strong central authority, the European Commission, to oversee and regulate the European market and establish important rules against monopolies and business practices that could harm consumers.67 EU law is supreme, trumping laws of member states, and jurisdiction over competition issues is held by the EU institutions alone.
Article 3(1)(f) of the Treaty Establishing the European Community serves as the foundation for applying competition policy to the transport sector.68 Specific policies are enumerated by Articles 81 to 89 of the Treaty of Rome, of which Articles 81, 82 and 86 deal specifically with antitrust policy and Article 87 addresses state aid to firms. Article 81 outlines EU restrictive practices policy, which prohibits agreements or practices that are likely to prevent, restrict or distort trade. Article 82 governs monopoly policy, which outlaws “abuses of a dominant position,” with emphasis on the behavior of a firm, not simply its structure.69 Article 86 specifically addresses the role of state-owned monopolies, allowing these firms to operate without the obstruction of antitrust rules that might prevent them from providing the “specific tasks entrusted to these enterprises.” In fact, Article 86 was so contentious that state monopolies were not fully addressed until the 1986 Single European Act.70
One important aspect of EU competition policy is the institutional procedure for the application of articles from the Treaty of Rome. Agreement on these procedures took three years to negotiate among member states, and the procedure that emerged provided for a competition policy that would be common across the entire European Union, not just coordinated among member states.71 The European Commission is the only institution authorized to initiate EU legislation, and legislation normally must be enacted by the Council of Ministers. However, the Commission has sole authority over the application of Articles 81 and 82 and the application of Article 87 is subject to a veto by the Council only by unanimous vote.72 The Commission makes decisions by a simple majority vote.73
With respect to cartels and restrictive practices (Article 81), the Commission has broad powers to allow exceptions if four criteria are met. The agreement or practice must demonstrate efficiency improvements, must allow a fair share of benefits to consumers, must not impose any other restrictions “superfluous to these objectives,” and must not make it possible to eliminate competition.74 Firms may voluntarily provide notification to competition authorities of agreements or practices in the interest of gaining negative clearance, an exemption or a block exemption. Negative clearance is an acknowledgement by the Commission that an agreement lies outside the rules of Article 81. Exemption allows certain agreements if their pro-competitive effects outweigh their anti-competitive effects. Block exemptions allow extension of exemptions to cover several agreements at once.75 Such notification can prevent complaints from being brought against a firm following the implementation of an agreement or practice.
Article 87, which prohibits government subsidies to firms if they are likely to distort competition, would on its face appear to be violated in the case of Airbus. Again, an exception exists, which allows state aid for important projects, which have included the construction of the tunnel under the English Channel (“Chunnel”) and intra-European high-speed rail systems in addition to the development of aircraft for Airbus.76
The rules governing dominant or monopoly positions under Article 82 may be similarly bent, both in terms of determining whether a firm is dominant and whether it has abused that position. A firm is termed to be dominant if it can effectively prevent competition by acting independently of its customers and competitors. The finding of a dominant position usually coincides with a firm holding more than a one-third share of a market.77 Abuses of a dominant position can include charging different prices to different customers or charging prices in excess of the economic value of the product, but court cases have given precedence to the context in which these practices occurred and have not considered these practices a per se violation of Article 82.78
Article 82 was applied to merger law for the first time in 1972, when the Commission blocked Continental Can’s acquisition of a rival Dutch firm. While the European Court of Justice eventually overturned that decision, the Court accepted the Commission’s use of its powers to block a merger that would have anti-competitive effects. However, it was 1990 before the Council granted authority to the Commission to review mergers before they took place.79 The delay demonstrated the dilemma EU officials faced between preserving competition in the marketplace and promoting European champions that could compete on a more global scale. The desire to promote European champions was fueled by the perception that European industries were falling behind those of the United States and Japan.80
The 1990 Merger Control Regulation prohibits “a concentration which creates or strengthens a dominant position as a result of which effective competition would be significantly impeded in the common market.” The Commission would be allowed to review mergers where worldwide sales exceeded €5 billion, where the merging firms had sales within the European Union in excess of €250 million, or where at least one of the firms involved had more than two-thirds of its sales in a single member state.81 Additionally, a member state may request that the Commission review a merger even if these conditions are not met.
The Commission reviews mergers according to a three-step process. First, the relevant product and geographic markets are defined. Second, the Commission analyzes whether the merger will result in a dominant position. Third, the Commission determines whether the dominant position “stands as a significant impediment to competition.”82 Under Recital 15 of the Merger Control Regulation, mergers that result in a combined market share of less than 25 percent in the common market or in a substantial part of the market indicates that a merger is not “liable to impede effective competition.”83
Responsibility for reviewing mergers falls to the Merger Task Force (MTF) of Directorate General for Competition. Review often involves officials from DG Economic Affairs and DG Enterprise. During review, firms are required to provide the Commission with details of its accounts and of the effects of the merger in the marketplace, and firms are subject to fines for providing misleading information.84 Review of mergers by the MTF undergoes two phases, the first of which determines whether the merger falls under the scope of competition policy and warrants further investigation and the second of which involves more detailed investigation. Similar to U.S. policy, the MTF may allow the merger to go through, block the merger, or attach conditions to approval of the merger.85
The relatively small staff of the MTF compares to the much larger staff of the U.S. Antitrust Division. The difference potentially affects reviews of mergers and the application of competition policy more broadly. Anti-competitive behavior is normally discovered by complaint in the European Union, in contrast to the United States, where an investigative staff expends substantial resources to detect and challenge anti-competitive behavior.86