This article is written by Chandrasmita Priyadarshini, from KIIT School Of Law, Bhubaneshwar. This article covers the changes that have occurred in the EU competition law in the past few years along with the perspective of competition law in India.
The last ten years have seen the emergence of competent competition policy institutions in various European countries that are constantly evolving, which is also debatable. Various competition policies at the European level have prompted other countries to make certain changes to their framework of competition policies. Monopoly sectors are restructured which has created an immense impact on the legal functionalities of competition policy which leads to healthy market policies. These Liberal reforms by the governments of various countries are causing irreversible changes for the upliftment of the company’s structure.
These policies prove how important competition is for an open market economy. On the other hand, economists certify competition in its purest form where all companies compete for an adequate substitutable product as no company must be able to affect market competition by fixing the price of products. Although it is seen that competition in market economies has more advantages or benefits than disadvantages. The main advantages of a competitive market are lower prices, better products, stronger innovation, wider choice, and efficient production which is achieved under these conditions.
Various entities can compete with each other either by reduction of price or offer for better quality at the desired quantity, this helps in attracting a large number of customers which in turn helps to expand the market which proves to be beneficial for the market. Effective competition in a market means that Companies Act independent of each other but are subject to market pressures created by their competitors. The European Commission firmly believes that competitive markets create downward pressure on prices, encourage quality of goods and services, widen consumer choice and stimulate innovation and entrepreneurship. Various economies will also agree that competition increases the productivity and efficiency of enterprises. Hence, creating favourable conditions for innovation and growth.
Objectives of EU Competition law
The main aim of the European Commission Competition Rules is to ensure the proper functioning of the internal market of various countries. Effective competition with the EU competition policies aims to enable the business to compete equally, along with providing the best quality products at the best prices to the customers and prevent any restriction which can distort the competition in the internal market. Competition policy strives to prohibit any form of anti-competitive agreements between entities, abuse of market position by dominant undertakings which can adversely affect trade in the country. As with the market in control, it would encourage innovations and long-term economic growth.
Mergers, amalgamations, and takeovers are usually monitored by the EU competition policies around Europe to keep a check so that competition is balanced. Competition policy works as a key instrument to achieve a free dynamic internal market and promotes economic welfare. Especially after the Covid-19 pandemic which has affected business, consumers, and the economy there emerged a need for a range of measures in the field of competition to enable an adequate response to these challenges.
Current scenario of Competition Law
The EU competition policy has evolved which plays a very important role in the market economy in the twenty-first century. Reciprocal effects among countries for international economic transactions called economic interdependence due to which the market is progressing immensely. Currently, the countries have increased their economic interdependence due to trade and inter-related market policies which has to expose the member states of the EU to compete with the economies which might have a low corporate tax, labour costs, also greater use of subsidies and tax breakage. Other Central and Eastern European countries are now transitioning to the market for economic growth to access EU competition policy and hence, create alternative locations for investment in the EU.
The member states of the EU also face intense competition from developing countries such as Brazil, Russia, India, and China. These countries mark a strong state interference in the form of subsidies, tax breaks, and privileged bank loans. This competition is increasing globally within the EU, entities face pressure on profit-making for state aid and discriminatory tax provisions. This has raised concerns about tax competition in the EU, not least because of the potential consequences it could have on nations’ ability to fund their welfare states. Intensifying economic interdependence has also given companies greater opportunities and reasons to engage in anti-competitive activities across borders.
Major changes brought in EU Competition law
A comprehensive ban on anti-competitive agreements
Anti-competitive Agreements are those when two or more companies agree between themselves to reduce the competition instead of allowing healthy competition which will be harmful to consumers and other companies not involved in such an agreement. Due to this reason, all the agreements between entities with the object of distortion of competition resulting in affected trade will be prohibited and void. This also includes a horizontal, vertical agreement, cartels, or any agreement which fixes price, limiting production, dividing the market among various undertakings that are dangerous to competition. However, some agreements may be excluded, as in those agreements that improve production, promote economic progress, and quality is maintained like agreements that accelerate innovation through cooperation in research and development or agreements on cost-sharing between companies as these agreements prove to be beneficial.
Article 101 of the Treaty on the Functioning of the European Union enlists the exceptions of agreements in market policy, as agreements that have a minor impact on the market along with benefits are excluded. Keeping in mind the Covid-19 pandemic, The European Commission established a temporary framework communication that provides antitrust guidance to companies cooperating to increase the production and optimize the supply of, in particular, urgently needed hospital medicines in response to the crisis.
Abuse of dominant position prohibited
If any company holds a position of dominance in a particular market and uses this to influence the market for its benefit then, it is said to be an abuse of that position for example charging customers at a higher price, this would affect the competitors in the market and customers hence, this behaviour is prohibited under EU competition policy. A dominant position is “a position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained in the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers, and ultimately of consumers.” Dominant position can be determined in consideration of market conditions as a whole or any substantial part of the market. This will help in determining how much of the market is to be taken into account for the dominant position which depends on the nature of the product, availability of alternative products, and consumers’ behaviour and readiness to switch to alternative products.
A commission is also being set up to assess these practices. As per Article 102 of the Treaty on the Functioning of the European Union, though the dominant position is not violative of EU competition policy, holding such a position and then distorting competition is what causes infringement. So, if this same conduct is done by a non-dominant entity this won’t be illegal. A very famous case of abuse of dominance is when it was found that Microsoft had abused its dominant position in PC operating systems by withholding critical interoperability information from its competitors, meaning that providers of rival operating systems were unable to compete effectively.
Procedure to control mergers and acquisitions
Mergers and acquisitions prove to be beneficial for any company and economy as they create efficient synergies and economies of scale, and balance for both companies. But, if they have a strong market economy they can very well weaken the competition. This is the reason certain mergers and acquisitions must proceed after authorization from NCLT. However, planned mergers can exceed certain thresholds which can be reviewed by competition authorities. The rules of EU competition policies equally apply to companies outside the EU or businesses carried in the internal market.
This review process might get triggered if control is acquired over any other entity. As this will impact the assessment for merger and acquisition on competition policy, now it’s on the Commission to approve or reject the same or To grant an approval with certain conditions and obligations as specified under Article 8. On the other hand, there is no systematic scrutiny by the Commission or unbundling of the association of companies. In 2014, the Commission carried out a consultation on possible amendments to EU Merger Control Rule 8, aimed at improving the combined effectiveness of the rules at the EU level and at the national level. Though the outcome of this process is still pending.
State aid must be prohibited
As stated under Article 107 of the Treaty on the Functioning of the European Union, state aid is prohibited in order to prevent distortions of competition in the internal market that could result from the granting of selective advantages to certain companies. Usually, member states of the EU are granted direct aid such as tax is exempted, loan guarantee, any non-repayable subsidiaries loans given to favourable entities are banned completely. Along with giving advantage which can be given due to preferential treatment to companies which can misrepresent the competition in the market and affect the trade in the market conditions. There is no exception to this ban, serious economic disturbances can be taken into consideration.
Due to the Covid-19 pandemic, there has been a temporary framework set up to monitor state aid measures, and the objective to set such a framework was to be lenient on companies and prevent any conditions that affect the entire market system but such framework can only come to effect when it is approved by the Commission. This also has the power to stop or help entities recovering from irreconcilable state aid. The Commission also bans any form of preferential tax treatment given to companies in certain member countries in order to prohibit state aid. For example, in 2016, the Commission instructed Ireland to seek payment from Apple of EUR 13 billion in taxes. Both Apple and the Irish authorities have challenged the decision and a court case is pending.
Public services of general economic interest
In various other member states, various essential services like electricity, postal services, rail transport are still provided by public undertakings in control of public authorities. These services are said to be services of general economic interest and hence, subjected to specific rules in the context of the EU state aid framework. Services of General Economic Interest (SGEI) are the activities that are of great importance for the citizens of that country and this interest cannot be owned by private individuals or even if so owned it will be not efficient as these private entities might fail in availing these services of general economic interest equal to all. The Treaty on the Functioning of the European Union emphasizes the objectives behind these public services, its diversified access and the discretion on these interests enjoyed by national, regional, and local authorities, and the principle of universal access. Article 36 of the Charter of Fundamental Rights also recognizes the access that European citizens should have to SGEIs, to promote social and territorial cohesion within the Union.
EU Competition Law in India
Competition in any field lays a basic pillar for an efficient system. Similarly, inefficient market system competition is essential as this has several advantages over a planned economy and constitutes the pre-condition that prevents freedom of decision and action of self-interested individuals or entities from leading to anarchy or chaos rather than economically optimal, socially fair and desirable market results. (Report of the High-level Committee on Competition Policy, Department of Corporate Affairs, 2000) In India, Competition law and policy is a new concept. Various economists felt the need for competition law in India as the market in India was starting to grow and market conditions like failures or deformations were an issue. Market entities can go by anti-competitive activities like a cartel, abuse of dominance, anti-competitive agreement, etc which will affect the economy and consumers, customers, etc.
Hence, this need for a proper framework of competition law along with a commission that will act as a watchdog for the act’s enforcement led to the Monopoly Restrictive Trade Practices Act, 1969, the first-ever enactment related to competition law in India. The objective of such action was to prevent the concentration of economic power, control monopolies, and prohibit monopolistic and restrictive trade practices. Various amendments were made to this act, later it was realized that the structure of this act was no more adequate to accommodate the demands of a changing economic landscape. The government decided to appoint a High-level committee on Competition policy on whose recommendations and consultations Competition Act, 2002. Its objectives are to establish a commission that would prevent those practices that are unfavourable towards the market and the economy and to protect the interest of consumers and ensure freedom of trade carried on by other participants in markets of India. As per this act, the Commission can enquire and adjudicate in respect of anti-competitive agreements, abuse of dominance, regulation of mergers and acquisitions.
The Commission also has the responsibility to undertake competition advocacy. The Indian competition law is largely inspired by the jurisprudence that has been developed in the EU and the US. The Competition Commission of India is taking an active role towards the development of the competition law by regularly monitoring, spreading awareness, amendments with time, penalties as required by passing orders to deter anti-competitive practices, and develop a stringent competition law framework in India.
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