EU competition policy

The purpose of the European Union's competition policy is to increase economic efficiency in member states and to remove barriers to trade between member states. The principles of EU competition law apply in all member states and - with the exception of matters affecting only one member state - are enforced by the European Commission

Origins

The principles of EU competition law have been attributed to the combined influence of United States antitrust law and German cartel law. They were first embodied in the 1951 Treaty of Paris (which set up the European Coal and Steel Community) and subsequently in Articles 85 and 86 of the 1957 Treaty of Rome (numbered 81 and 82 in the 2003 Treaty of Nice ).

Legislation

Articles 81 and 82 of the Treaty

Article 81 of the Treaty of Nice prohibits as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between member states and which have as their object or effect the prevention, restriction or distortion of competition within the common market and in particular those which:

(a) directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, market, technical development or investment;

(c) share markets or sources of supply;

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby :::placing them at a competitive disadvantage;

(e) make the conclusion of contracts subject to acceptance by the other parties of :::supplementary obligations which, by their nature or according to commercial usage, have no :::connection with the subject of such contracts.

Article 82 prohibits as incompatible with the common market: any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it ... in so far as it may affect trade between member states. Such abuse may in particular consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with other trading parties, :::thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of :::supplementary obligations which, by their nature or according to commercial usage, have no :::connection with the subject of such contracts.

The term dominant position has been defined as "a position of economic strength enjoyed by an undertaking which enables it to hinder the maintenance of effective competition in the relevant market by allowing it to behave to an appreciable extent independently of its competitors and customers". EU law does not stipulate a market share criterion for dominance, but the Commission has stated that it generally be said to exist once a market share to the order of 40 per cent to 45 per cent has been reached; and the absence of a market share above 20 per cent has been taken as adequate evidence of the absence of dominance

Regulations

The treaty articles are supplemented by Community Regulations , issued by the Commission, which have the force of law. The more important of these are:

• The merger regulation which prohibits mergers having a community dimension that create a significant impediment to effective competition (and which defines, for the purpose of the regulation, the terms "community dimension" and "significant impediment").
• Block exemptions, which are regulations specifying the conditions under which certain types of agreements are exempted from Article 81 prohibition. When an agreement fulfils the conditions set out in a block exemption regulation, the agreement is automatically valid and enforceable. There are block exemptions for vertical agreements,, R&D agreements, specialisation agreements technology transfer agreements and car distribution agreements. Each block exemption regulation contains a black list of practices that must not be included in an agreement.

Updates

EU competition law is amended from time to time as a result of a rolling programme of consultations, green papers and Commission decisions. Amendments are notified in the Official Journal and in the Annual Competition Reports

Implementation

Jurisdiction

Regulation 1/2003 The application of the above rules in each member state is summarised in the 2004 Annual Competition Report

Remedies and penalties

Remedies that may be ordered by the Commission include an order to end a harmful agreement or practice (or to resume a desireable practice), or an order that a company must divest itself of a company that it had acquired. The Commission may impose fines for infringement of articles 81 and 82 of the Treaty of up to one million ecu, or 10 per cent of turnover, whichever is the greater.