Christian Koenig and Bernhard von Wendland discuss the strengths and weaknesses of EU regulation in light of global competitive pressures.
In the EU, robust regulation curbs unfair competition practices – excessive concentration of market power, abuse of market power or unfair state subsidies. The objective is to preserve and develop fair and effective competition in the EU’s internal market. This would boost innovation, increase economic efficiency and, thus, enhance the competitiveness of the European economy in total.
Competition on the global market is not always fair and effective, though. As regards unfair behaviour of firms, competition authorities around the world are cooperating well. Most importantly, the EU competition regulator can decide on cases which have an impact in the EU and concern non EU-companies abroad. For example, in December 2016, the EU Commission fined the rechargeable battery producers Sony, Panasonic and Sanyo €166 million in a cartel settlement.
But what about EU state aid control in a world where protectionism is seeing its chances again? How legitimate is the competitiveness argument for state aid control when non-EU countries resort to heavily subsidising its industries? After all, EU State aid control is a unique concept, is restricted to public funding granted by EU Member states and, contrary to subsidies abroad, is totally transparent.
So do these restrictive rules place EU-industry at a disadvantage vis-à-vis its counterparts in a global economy? Does state aid control limit the ability of EU industries to compete with foreign ones, not being subject to similar regulatory standards? Is the EU facing a dilemma between securing the integrity of the internal market and global competitiveness, one ruling out the other?
Should EU Member States be allowed to exceed state aid limitations if this keeps manufacturing, know-how and jobs in the EU? There are strong arguments against:
Firstly, the prospect of state aid is not necessarily decisive – investment decisions are influenced by multiple considerations such as pre-existing production at the selected location, proximity to markets and/or raw materials, the availability of labour force and the rule of law. Secondly, EU-wide uniform and transparent state aid rules build a basis for trust. This is highly relevant since investment decisions also depend on the quality and intentions of the regulatory framework. In particular as regards foreign investment, there is legal certainty in the EU as to whether local companies are subsidised, the level of subsidies that can be expected or possible anti-competitive behaviour by other companies. Third, loosening state aid control could trigger intra-EU subsidy races where mobile investors are the only winner. Fourthly, EU competition policy – and thus the functioning of the internal market – would become dependent on subsidies allegedly awarded abroad.
This is where the EU’s strength is: Its common vision.
Rather, there are good arguments in favour of state aid control: It is preparing the EU’s industry for the economic challenges of global competition, e.g. by allowing state aid only if it promotes, for example, R&D, innovation, high environmental standards, SME-financing, training, or broadband infrastructure, to name a few objectives. The EU is, however, not only about efficiency, it is also about equity and a fair share of welfare for all citizens. This is where the EU’s strength is: Its common vision. It is the common vision that enables the EU to strike the balance between the integrity of the internal market and global competitiveness. According to Trump, `[protection] will lead to great prosperity and strength´. But the EU illustrates that competition policy in the pursuit of sustainable social welfare objectives is a better way to face global challenges.
Globally, the EU’s trade policy promotes these values, too. The EU with its Member States constantly pushes for more robust transparency anti-subsidy provisions in negotiations with third countries, both multilaterally and bilaterally.
This is why it is important to keep a legal framework that combines tools for safeguarding competition within the EU and a strong trade policy to tackle subsidies abroad.
Christian Koenig is Professor at the University of Bonn, Germany and Bernhard von Wendland is a policy officer in the Directorate General for Competition at the European Commission, Belgium.
The Art of Regulation: Competition in Europe – Wealth and Wariness
Christian Koenig, University of Bonn, Germany and Bernhard von Wendland, European Commission, Belgium is available now.
Read Chapter 1: Why Regulation free on Elgaronline.