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Should european competition law be countervailed by a genuine European industrial policy ? A necessary debate

{European competition law has recently been in the subject of serious criticism from different, diametrically opposite angles of attack. But behind this criticism could lurk the necessity to rethink entirely the European approach to economic and industrial policy.}

The Commission is criticized for a wide array of reasons :

– its decisions are allegedly not based on sound economic theory – as a result, it hinders the implementation of certain projects that are positive for the economy,

– the same persons within the Commission are responsible for investigating cases as well as for taking the final decision, which may supposedly give rise to problems of partiality,

– the general public seems to find that the Commission is too liberal.

The first serious reproaches made to European competition law, which drew attention from a public larger than just experts, came from the United States, following the Commission’s decision to block the GE/Honeywell merger in 2001. Since then, the annulment of several decisions of the Commission by the Court of First Instance of the European Communities has fuelled the debate. Under the pressure of the media, which has widely propagated certain arguments put forward in particular by industry lobbies, the Commission has started reforming the rules that govern merger control and antitrust. The reform of merger control is not a radical one: the Commission has improved the existing system and hired a few economists. The reform of antitrust rules is more substantial. The Commission has abandoned its exclusive jurisdiction for the exemption of agreements that contribute to “economic progress”. Wider powers are thus conferred on national authorities and courts and the Commission has announced that it will now focus on cartels and so-called “hard-core” infringements of the antitrust rules.

The somewhat polemic debates in the press about the Commission being too zealous and strict in the implementation of merger control (e.g. Tetra/Laval, Alcan/Pechiney, Schneider/Legrand cases) and State aid rules (e.g. Alstom case), on one hand, and too liberal in connection with the dismantling of state monopolies, on the other hand, are narrowly related to the real issue at stake: the lack of a clear European industrial policy. But the debates usually do not go that far and the recent reforms have not addressed this issue.

Let’s put aside reproaches that relate to certain specific cases. Companies complaining about the way their merger project has been handled are often the first ones to complain about a competitor receiving unlawful State aid, and vice versa. The strict implementation of antitrust rules, which leads to prohibiting certain mergers or joint-ventures, the prohibition of Sate aid that may distort competition within the European Union and the dismantling of national monopolies that prevent trade between Member States are based on the Treaty of Rome, the fundamental set of rules that governs the European Union. The Commission must apply these rules and does not have a wide margin for maneuver in doing so. On the other hand, the Commission does not have the power to soften the effects of antitrust policies: when it dismantles a monopoly at the national level, it cannot recreate monopolies at the European level; when it prohibits State aid, in particular in the form of tax breaks or more subtle measures of tax relief, it cannot recreate similar measures at the European level; while it may prohibit certain mergers or joint-ventures, it lacks the political power to encourage industrial concentrations at the European level.

To make it short, while the Commission has huge powers in the antitrust field, it is a political “dwarf” with respect to industrial policy. What makes it worse is that, in fact, nobody is responsible for such policy at the European level. Member states try to conduct their own national policy – to the extent possible in a global market and with powers that are reduced by the European rules concerning State aid and the Maastricht criteria. The only industrial sector where there seems to be some sort of a beginning of European cooperation is the defense sector (and even there, the cooperation is rather multilateral than European-wide).

This absurd situation is particularly blatant with respect to the Commission’s task concerning State aid. The Commission is fervently fighting almost any kind of State interventionism, in accordance with the rules provided for under the Treaty of Rome and with the principles set forth by the European Court of Justice. This is necessary because State aid at the national level may distort competition within the European Union. However, since there is no genuine aid policy for the industry at the European level, the systematic prohibition of State aid by the Commission causes the European Union to pursue, in practice, a radical free market policy. This is not a choice made by the Commission – it is the result of the unbalanced situation of powers described above. There is no doubt that if the Commission had the powers to conduct an interventionist policy in the industrial sector, the Commission would be as interventionist as an administration can be.
{
The existing situation is the logical consequence of a European integration policy which transfers important powers only partly to the European institutions, while reserving other components of such powers to the Member States, thus impeding both Member State governments and European institutions to pursue a coherent global economic policy.

This being said, the debate should now focus on whether it would not be time now to grant the European institutions (or any other organism or form of international cooperation) the power to conduct a genuine European-wide industrial policy – without forgetting, of course, the importance of a simultaneous debate on how such powers may be controlled democratically.}

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