This article is written by Shristi Suman, a second-year student of Symbiosis Law School, Hyderabad. In this article, the provisions of EU Competition Laws in relation to particular sectors have been discussed.
European Competition law ensures fair competition among enterprises. It prevents large enterprises from creating a condition that would curb the opportunities for suppliers and customers to do business with their competitors. Treaty any Functioning of the European Union (TFEU) deals with internal market competition. Articles 101 to 109 of TFEU contains rules for internal market competition and prohibits agreements between undertakings which are anti-competitive. Competition laws apply not only to private enterprises but also extends to public undertakings, public services and services of general interest. Sector-specific objectives and smooth working of the market sector can be ensured by applying rules of Competition law on the sectors.
Nuclear energy accounts for approximately one-third of all of Europe’s electricity. The market supports 8 million jobs with €70 billion turnovers per year. The challenge which the sector is facing currently is an unpredictable investment framework and unstable design of the market. Nuclear energy produces almost 50 per cent of low carbon electricity and hence, is seen as the future for low carbon electricity. Rules for usage of nuclear energy are included in the Euratom Treaty. Rules regarding the aid for the nuclear industry have been put down in the Euratom Treaty under Article 106a (3) and in TFEU under Article 107.
State aid can be defined as an advantage that an undertaking receives from national public authorities. To ensure that there isn’t any disproportionate effect of State aid under TFEU, Article 107(c) is included in TFEU. The Commission checks on the compatibility of State aid and objectives of the internal market. In order to anticipate and curb inconsistencies in State aid between the Member States, the EEAG has been adopted. Member States are free to make support schemes but it has to be in compliance with the requirements set by EEAG.
Market at hand should be taken into consideration while applying competition law instruments and therefore, they should be adjusted accordingly. It is important that both the things are taken into consideration and then, accordingly the instruments should be designed and applied to the specific market sector. State subsidies are given for reduction of investor uncertainty. If the legislative instruments are not designed well then it may result in a distorted competition. The legislative instruments should not only stimulate innovation in the long term but also shouldn’t distort competition in the very short or short term. The support mechanisms of instruments of competition law must comply with rules. State intervention should be done in a manner that it does not maximize distort competition in the market sector.
The military equipment sector is a large industry with a turnover of approximately EUR 97 billion. The industry gives direct and indirect employment to 1.2 million people. The industry is a major sector but at present, is facing challenges like market fragmentation and decreased spending.
The defense equipment sector is governed by the EU on the basis of Article 352 of the Treaty and Article 173 of TFEU consists of EU industrial policy. However, the internal market rules (i.e. single market rules of EU) cannot be applied in the military equipment sector as the same has been restrained under Article 346(1) of TFEU. it states that “a Member State may take up measures that are considered to be necessary in order to protect the essential interests of its security, it can be connected with the production of or trade in arms, munitions and war materials.’’
EU defense industry policy on:
- European defense equipment market: a Green Paper on defense procurement was presented by the Commission with the aim of creation of defense equipment market in the EU between Member States clear and open basis. Green Paper was presented with the aim to raise competitiveness in the industry and make use of resources available, more efficiently. The standardization of military equipment for the EU is important so that all the Member States’ markets can be integrated. Several steps were taken for standardization by launching EDSTAR (European Defence Standards Reference System portal), EHDP (European Handbook for Defence Procurement), EDSIS (European Defence Standards Information System) etc. they lay down basic standards for materials that are to be used for military equipment which will be developed or which are already developed and needs to undergo modification.
- Defense procurement and intra-EU transfers of defense products: EU can also procure products that are related to defense through Directive 2009/43/EC by intra-EU transfers. For procurement by intra-EU transfers, relevant guidelines are established under Directive 2009/81/EC. Through the Directive 2009/43/EC which is based on intra-EU transfers of defense-related products and the Directive 2009/81/EC which is based on defense and security procurement, the EU has set some guidelines which are necessary in order to establish an EU framework in this area.
- European defense equipment agency: the functions which are performed by the European Defense Agency is to develop, promote and enhance European armaments cooperation, to strengthen the technological and industrial base of the European military and create a competitive European military equipment market and improve on research and technology in relation to military equipment.
The EU military equipment sector has faced European competition law in context to the integration process. For the integration process, there is a need to curb mergers and acquisitions that can reduce competition in the market sector. Where a merger can create dominant companies in the market sector is to be controlled by applying the principles of EU competition law. EU lays down two procedural instruments for maintaining economic rationality by EU merger control of the Member States:
- The Exception of Defence– The member states are expected to act fairly, openly and comply with competition rules at EU level. An exception can be provided only in a case where production or trade is for arms, munitions and war material, where it is considered to be necessary for the protection of national security by a Member State. In such a circumstance, the Member States can deviate from EU competition law by invoking Article 346 of TFEU.
- The Exception of Public Safety of Article 21 Paragraph 4 of the Merger Regulation- Article 21(4) of the Merger Regulation enables a Member State to take appropriate measures if necessary in order to protect legitimate interests other than those which are taken into consideration under Article 346 of TFEU. These measures are taken in case of public safety, media plurality, prudential rules. The exception of Public Safety of Article 21(4) unlike Exception of Defence enables Member States to take appropriate measures without giving a prior notice for it also these exceptions cannot set aside the European Law as a whole but only enables the Member States to supplement the Law with additional national measures. The Commission allows on the restrictions of mergers. However, a Member State is not enabled to allow a merger which has been already forbidden by the Commission.
There are about 11 million farms and 44 million people engaged in the food supply chain in the European Union. The food supply chain along with the added value of employment, food processing and manufacturing industry, wholesale trade, and sales distribution sector accounts for 12 per cent of EU value. On average each household spends approximately 15 per cent of its budget on food. Farming and food sector alone generates about 6 per cent of European gross domestic product and is the largest exporter and importer of food products in the world.
Council Regulations 1184/2006 and 1308/2013
Application of EU competition rules to agricultural products:
It consists of the rules with respect to Articles 101 to 106 of TFEU. It is stated that Article 101(1) and 102 of the TFEU is applied in relation to the production of or trade in agricultural products that are produced or traded in the agricultural sector. All the agricultural products are covered under this regulation except for those which are included in Regulation (EU) no. 1308/2013 and Regulation (EU) no 1379/2013.
Article 1 of the Regulation lays down that Article 101 and 102 subjects to Article 2 will be applied to production or trade-in the products listed in Annex 1 of the Treaty. Article 2 lays down that Article 101(1) would not apply to those agreements which form an integral or vital part of a national market organization or which are necessary for the attainment of the objectives which are provided in Article 39 of TFEU. In case these exemptions (derogations) are allowed by the Commission, it must be followed by adequate reasons for allowing it.
Regulation 1308/2013 lays down a common organization of agricultural markets for the sectors which are mentioned in Annex 1 of the Treaties. It adopts a similar approach for application competition laws as Regulation (EU) no. 1184/2006.
In the case of Milk Marque Ltd, the question before the court was to consider the relationship between competition law and EU rules on the agricultural sector. The court said that the mere existence of some EU rules would not deprive (NCA’s) National Competition Authorities of their right to apply national laws to a milk-producing company who enjoys a powerful position in the market. It, however, laid down that they must not use any measure which might undermine or compromise the aims of the common agricultural policy.
Annexure I products
In case a product is not mentioned in Annex 1 of the Treaty, then that product cannot take the benefit of exemptions which were given in Article 2 of Regulation (EU) no. 1184/2006 and would only be subject to competition rules as an industrial product.
In the case of BNIC v Clair, the court held that cognac was an industrial product and was not entitled to the benefit of an exemption (derogation).
In BNIC v Yves Aubert, the question before the court was that Brandy can be treated as a product under the agricultural products or not. It was observed that Brandy was not listed in Annex 1 and so would be treated as an industrial product and not an agricultural product.
The First Derogation: National Market Organizations
It is provided by Article 2 of Regulation (EU) no. 1184/2006 that Article 101 would not be applied to those agreements which form an integral part of the national market organization whereas, Regulation 1308/2013 laid down a common organization for many agricultural products, and so, in turn, most of the national marketing organization ceased to exist. The Commission deduced and interpreted this derogation of Article 101(1), strictly.
In the case of FRUBO v. Commission, it was held that a Dutch fruit-marketing organization would not get the benefit of exemption of Article 2(1) since it isn’t a national marketing organization.
In the New Potatoes case, rules were laid down by seven economic committees in France, to regulate the concerns related to the production and marketing of new potatoes. The Commission was to decide on the applicability of Article 101(1) and on the question of whether the system constituted a national market. As there was no common organization of the market in question, it was decided that this term must be defined in a way that would be consistent with the objectives of the common organization under the second exemption of Article 2 of Regulation (EU) no. 26. Therefore, the objectives of the common agricultural policy, included in Article 39 TFEU, was taken to be in the first exemption of Article 2 of the Regulation.
The Second Derogation: Common Market Organization
Article 2 and Article 209 of Regulation (EU) no. 1184/2006 and Regulation (EU) no. 1308/2013 respectively enables agreements that are necessary for the attainment of the objectives laid down by common agricultural policy. Article 39 of the Regulation lays down the objectives of agricultural policy as follows:
- To increase agricultural productivity
- To ensure a standard of living for the people related to the agricultural sector
- To stabilize the agricultural markets
- To ensure that the supplies are available
- To ensure consumers pay a reasonable price for agricultural products.
The objectives which are laid down by Article 39 of the Regulation is both social and economic in nature with the aim of securing the interests of both producers and consumers in the market sector.
Coal and Steel
Coal and Steel market sector was previously controlled by the Treaty of Paris of 1951. The Treaty of Paris established the European Coal and Steel Community for the sector. The Community established dealt with rules for competition in the market sector. The rules were similar to that of Articles 101 and 102 TFEU except for some significant differences. The Treaty of ECSC expired on 23 July 2002. After the expiration of the Treaty, the coal and steel market sector is governed and is now subject to Articles 101 and 102 TFEU and the EUMR. To explain the consequences of the expiry of the Treaty of ECSC on coal and steel sectors, Communication was published by the Commission.
Article 90 to 100 of TFEU includes provisions for transport. Under this Treaty road, rail, inland waterway transport and sea transport, air transport are dealt with differently under different Articles. Provisions regarding road, rail, inland transport are included in Article 90(1) and regarding sea transport, air transport in Article 90(2). The sole reason for the distinction between the categories is that the latter is subject to international laws and arrangements. Articles 101 and 102 applies to the transport sector. In 1962, it was observed by the Council Regulation 141 that Regulation 17 which included the powers of the Commission to enforce competition rules on the market sectors, did not apply to the transport sector. The gap in law was needed to be filled and so three Regulations were introduced. First Regulation was Council Regulation 1017/68 which provided for application of competition rules on road, rail, inland waterway transport. Second Regulation which was introduced was Council Regulation 4056/86 which gave power to Commission to apply competition rules on maritime transport. The third Regulation was Council Regulation 3975/87, it was introduced to deal with and apply competition rules on the air transport sector.
Council Regulation 1017/68 provides for an exception for certain agreements. There are some technical agreements which do not infringe Article 101 and there are also some cooperation agreements between small and medium-size undertakings that benefit from Regulation of block exemption. The said Regulation was then repealed in 2009 by a new Council Regulation 169/2009. After Regulation 169/2009, the exception of certain technical agreements was included in Article 2 and for block exemption in Article 3.
There were several other Council Directives which were adopted by the Council in the first railway package of 1991, with an objective to introduce the rail transport sector to competition rules. The rail transport sector under UK law is subject to a complex regulatory regime, and the office of Rail and Road (ORR) has the power of application of the Competition Act 1998 to enforce competition rules and the Enterprise Act 2002 to the sector.
Practical Application of the Competition Rules to Inland Transport
In the case of EATE Levy, the agreement between French waterway carries and French forwarding agents was condemned for imposing a levy of 10% on freight charges for a boat to the destinations which were outside France, as it was discriminatory for French carriers; the Court of law upheld the Commission on appeal.
In case of Tariff Structures in the Combined Transport of Goods, the criteria of Article 101(3) had been considered to be satisfied by the commission in case of a tariff structure agreement between two or more rail companies of European Union for the sail of rail haulage in the international combined transport of goods.
In the European Night Services case, the Commission observed that the criteria of Article 101(3) are satisfied in a case where a joint venture is established by five rail operators for the object of providing night sleeper services between the UK and continental Europe through the Channel tunnel.
The maritime transport market sector can be divided into two categories; tramp services and liner services. It is in the liner services sector that the Council Regulation 4056/86 was repealed by Regulation 1419/2006. The aim set by Regulation 1419/2006 was to bring competition in the shipping industry.
The Commission got the power to enforce Articles 101 and 102 by Regulation 17. The Regulation did not apply to the maritime transport market sector. The power to enforce Articles 101 and 102 in relation to the international maritime transport sector was provided to the Commission by Council Regulation 4056/86. Regulation 1/2003 repealed these special procedural rules. The Commission was not empowered to enforce competition rules by Regulation 4056/86 in case of cabotage. Cabotage refers to services between ports within the regime of a Member State. Exemptions are provided under Article 32 of Regulation 1/2003 which was later repealed by Regulation 1419/2006. The Commission has the power to competition rules to the entire maritime transport market sector under Article 101 and 102.
Article 2 of Regulation 4056/86 excluded the exception of ‘technical agreements’ from Article 101. Article 3 and 4 of Regulation 4056/86 provides for block exemption for liner conferences. Linear conferences refer to agreements that are formed between carriers of maritime transport services. Regulation 4056/86 was then repealed by Regulation 1419/2006 but Article 1 of the Regulation provided transitional relief until 2008 for linear conferences that benefited from the block exemption. To provide guidance to interested stakeholders who were affected when block exemption ended, Guidelines were provided by the Commission for application of Article 101 TFEU to maritime transport services. It included the extent to which the competitors may exchange information by infringing Article 101.
Block Exemption for Shipping Consortia
Commission gets the authority to grant block exemption to some of the shipping consortia by Council Regulation 246/2009. The Commission adopted Regulation 906/2009. It confers block exemption on shipping consortia when they are for international liner shipping services. In a circumstance where consortium includes restrictions like price-fixing to third parties, the block exemption does not apply.
Practical Application of the Competition Rules to Maritime Transport
The Commission and operators in the maritime transport market sector do not always maintain a harmonious relationship. In several judgments, the Commission has found a violation of Articles 101 and 102. In the case of Secretama, the first time a fine was imposed on an operator under Article 16(3) of Regulation 4056/86 for giving incorrect information to Commission when it was requested.
The Commission is also entitled to impose fines when operators fail to submit to investigations under Article 18 of Regulation 4056/86. The first decision of the Commission to impose a fine under Article 101 and 102 for substantive infringement was taken in case of French West African Shipowners’ Committees. The substantive infringements arose under both Article 101 and 102.
In the case of Cewal, the fine of approximately Euro 10 million was imposed on members of the liner conference by Commission as they used their dominant position collectively to remove their main independent competitors. They lowered their freight rates, offered loyalty rebates, etc. these practices were found to be abusive by the Commission.
There have been several measures taken for the liberalization of air transport. In 1987, the first Directive was adopted. Council of Ministers has issued the Directive on fares to check on scheduled air services between the Member States and on sharing the passenger capacity between the Member States. In 1990, a Regulation 2343/90 was issued for air carriers so they can access scheduled intra-EU routes. In 1991, the Regulation 249/91 was adopted by the Council. It provided for air cargo services between the Member States. Regulation 295/91 which was later replaced by Regulation 261/2004 was regarding compensation to passengers who were denied to board for air transport. Regulation 2407/92 included provisions regarding the license of air carriers and Regulation 2408/92 provided for the provision for EU air transport carriers to have access to intra-EU routes. Regulation 2409/92 establishes that the air transport carriers of the EU can decide on and set their own fares. Regulation 95/93 provides a common set of rules on airports for the allocation of slots to ensure that they are made available on an open and non-discriminatory basis. Regulation 2299/89 established a Code of Conduct for Computerised Reservation Systems.
Despite these Regulations, free competition in air transport markets does not exist, some of the causes are lack of slots at premier airports, bilateral agreements between the individual Member States, other countries having access to air space, etc.
Earlier, air transport was subject to competition rules under Regulation 3975/87. The power of Commission for enforcing the competition rules in air transport market sector to air transport services between EU airports and air transport services which are between EU airports and other countries(not EU airport) can only be controlled by Commission according to the procedure which is provided for Articles 104 and 105 TFEU. this position is made simpler by application of Regulation 1/2003 and Regulation 41/2004 which lays down that the Commission’s powers under Regulation are not limited to those within the EU but apply to all routes.
Practical Application of the Competition Rules to Air Transport
Many cooperation agreements have been reviewed by the Commission under Article 101 in the air transport sector. Individual exemptions were granted by the Commission to cooperative agreements for the cases which were before Regulation 1/2003.
For example, Lufthansa/SAS, Australian Airlines/ Lufthansa, Societe Air France/Alitalia Lienee Aeree Italiane SpA and Austrian Airlines/SAS. The cases which arose prior to Regulation 1/2003, the Commission sometimes granted individual exemptions to cooperation agreements that were subject to conditions and obligations. that was true of the first three cases cited above.
After Regulation 1/2003, the Commission thought of closing the Australian Airlines/SAS case on the basis of commitments that were offered by the parties under Article 9. However, the case did not reach a final decision.
In the case of British Airways/American Airlines/Iberia, the Commission accepted commitments under Article 9 of Regulation 1/2003 that would lead to the divestment of slots at London Heathrow and Gatwick airports and associated remedies that would facilitate entry and/or expansion on air routes between London and various US cities such as New York, Boston, Dallas and Miami; as a consequence the Commission closed its investigation. The Commission worked closely with the US authorities for this case, especially with the Department of Transportation.
In some cases, where there’s an alliance between two airlines then it may fall to be considered under the EUMR rather than Article 101. This happened in the case of Alitalia/KLM, where the Commission regarded the alliance as a full-function joint venture, even though the parties did not create a corporate vehicle for the cooperation; the Commission cleared the merger after the parties agreed to modify the transaction to address its competition concerns. The Commission cleared a merger subject to conditions in the case of Air France/KLM, the clearance was unsuccessfully challenged in the General Court by a third party.
In the case of Ryanair/Aer Lingus, the Commission prohibited the proposed acquisition of Aer Lingus by Ryanair, a decision that was upheld on appeal to the General Court.
The Commission also blocked the acquisition which was proposed by Olympic Airlines of Aegean Airlines which would have led to a quasi-monopoly on the Greek air transport market. Mergers were cleared after Phase 2 investigations which can be seen in the cases of Lufthansana/SN Holding (Brussels Airlines) and Lufthanasa/Austrian Airlines on the basis of remedies offered to address the concerns about a reduction of competition on various routes. The remedies basically concentrated on the divestment of slots at certain airports which resembled those in the British Airways/American Airlines/Iberia case.
Another Phase 2 investigation, of KLM/ Martinair, concluded in an unconditional clearance. There have been many several other mergers between airlines that were reviewed and were cleared by the Commission. Apart from the cooperation agreements and mergers in the air transport sector which were mentioned, the Commission also proceeded against cartels (or alleged cartels) in this air transport sector.
It was seen in the case of SAS/Maersk Air, that the Commission imposed fines of Euro 39.4 million on SAS and Euro 13.1 million on Maersk for sharing market sector, especially because of the consequence that SAS acquired a de facto quasi-monopoly on the Stockholm to Copenhagen route. On appeal, the decision of Commission was upheld. In 2010, a fine was imposed by Commission of Euro 799 million on 11 airlines for participation in a cartel under the provision of air cargo services.
In the UK the CC considered that BAA’s ownership of seven UK airports was not good and beneficial for competition in the market sector and using its powers under the Enterprise Act 2002, required BAA to divest itself of three airports.
Demonopolization, Liberalization, and Privatization
A monopoly existed in the market sector until recent years. With the development of infrastructure facilities and services in the sector, the countries introduced economic reforms and competition laws. It further, resulted in increased competition in market sectors. The introduction of economic reforms and competition laws in the market sector also resulted in privatization and demonopolization. In order to make the introduced initiatives effective, it was important to implement those initiatives within a sound framework of competition law. Competition law provides for the policies within which these initiatives can work effectively.
Monopoly traditionally existed in the market sector as the infrastructure facilities and services were provided only to state-owned enterprise or to private enterprises. There was a restriction on entry to the market sector. It was later realized that the monopoly is likely to restrict the development of the market sector. Many state-owned enterprises in most sectors failed and as a result of it, in the 1990s there was an increase in private sector enterprises. It was seen that the private enterprises reduced costs and increased supply in the competitive market scenario and therefore, reduced the financial burden which was imposed by the market sector.
Simultaneously, it should also be recognized by the governments that the interventions imposed must be more liberal and explicit so that the possibility of misguided interventions is reduced.
EU law and the Liberalization of Markets
Considerable steps have been taken by the EU commission towards the liberalization of utilities and the development of a single market. Directives were adopted in the sectors of electronic communications, post and energy markets in order to enhance competition in the market sectors. EU Commission also applies the principles of competition law to the sectors. The market sectors can also be liberalized removing unjustified public restrictions of competition. The regulatory rules can also be removed to make the market sector liberal. The Commission and NCA’s can also pinpoint and criticize the restrictions which are imposed by State in relation to competition in the market sector. The practice of criticism by the EU Commission and NCA is known as ‘competition advocacy’.
Regulatory Systems in the UK for Utilities
Regulatory regimes were provided for the enterprises which were established as private enterprises in the 1980s and 1990s in sectors like telecommunications, gas, electricity, water, aviation and rail transport. The regimes provided guidelines on various matters along with guidelines for price control. According to the guidelines on price control, under normal circumstances and in the normal process of competition, competitive prices to consumers would not be faced.
Many other regulatory obligations were imposed like to avoid certain cross-subsidies and share essential facilities, not to discriminate unduly between market participants, etc. the regulatory in sectors act as a surrogate for competition. This is done by imposing constraints on enterprises. The regulators also have the responsibility to protect consumers, promote competition in the market sector and control on prices by price control.
The operation of Regulated enterprises is subject to licenses that impose obligations on them and checks on the conduct. If the subjection is removed, Regulated enterprises can be discriminatory and exploitative and can hinder fair competition in the market sectors. The licenses are monitored by the regulators. In a situation of a dispute with regulated enterprise, with regards to the terms licenses, regulators can make a ‘modification reference’ to the Competition and Markets Authority (CMA). The Competition and Markets Authority then decides on the matters of dispute. The Sectoral regulators also have the power to decide on the disputed matters.
One of the problems which are faced by the regulated industry is price control. One of the main features of Competition law is that the price is not determined by the State itself or an agency by it is determined by the market. One of the main problems which exist in the regulated industry is the control of prices. A central proposition of competition policy is that the price should be determined by the workings of the market and not by the state or an agency of the state.
Competition authorities can take action against excessive prices. In cases where there is a monopoly or near-monopoly, especially in relation to services like voice telephony, broadband services or the supply of electricity then price control becomes necessary. Where this is the case then various techniques can be deployed by Commission authorities to determine what the price should be. One method of capping prices is to fix an upper limit on the rate of return which is permissible on the capital invested in the industry. However, there’s a possibility that this may encourage regulated bodies to over-invest so that they can expand the base on which they can earn profits. This technique may increase profits but it does not improve efficiency.
In the UK there is a formula to control price function. The price control function is exercised through the RPI minus X formula. The regulated enterprises are allowed to increase their prices only by the increase in the Resale Prices Index, less a particular percentage as fixed by the relevant regulator. Over a period of time, this formula leads to a reduction in prices in real terms, thereby benefiting the consumers and forcing the privatized industry to increase efficiency in so that they can continue earning the profit. The ‘RPI minus X’ formula is relatively simple to apply as the regulatory simply sets the figure and after that, the only thing which is necessary is to check that the price is not being exceeded. When deciding the value of X for the purpose of ‘RPI minus X’, after this the regulator is then asked to determine the extent to which added efficiency is possible within the industry in question.
There are two ‘streams’ or ‘sets’ of Directives in relevance with the electronic communications sector. The first consists of Directives adopted by the Council of Ministers and the European Parliament under Article 114 TFEU to bring about harmonization necessary for the establishment of an internal market.
A series of Directives that dates back to 1990, was adopted under Article 114 and by the end of that decade, the telecommunications, media and information technology sectors were converted to a single regulatory framework. The regulatory framework was then called to be electronic communications and it should cover all transmission networks and services.
This led to the adoption of second set of directives; a package of five Directives and one Decision in 2002. The package which was adopted was amended in 2009 by two further Directives. Under this regulatory framework, national regulatory authorities are required to impose regulatory obligations on enterprises that are in the electronic communications market sector and has significant market power. For the purpose to impose regulatory framework in any market sector, the meaning of the word dominance shall be used and be interpreted in the same way as given in Article 102. The Commission also published a Recommendation on Relevant Product and Service Markets which are regulated in accordance with the rules set out in the package. A new Recommendation was published in 2007 and 2002 by the Commission in which the guidelines were published.
Application of EU competition law
The Commission has been actively applying the competition rules to the telecommunications sector for many years. In 1991, the Commission published Guidelines on the Application of EEC (European Electronic Communication) Competition Rules in the Telecommunications market sector. Part I is entitled ‘Framework’ and discusses the relationship between the competition rules and sector-specific regulation. Part II deals with market definition, and Part III provides a detailed analysis of the application of the principles of competition law to access agreements.
The Commission has adopted numerous favorable decisions related to strategic alliances in the electronic communications sector and has also approved the GSM MoU Standard International Roaming Agreement, which enables GSM mobile telephone users in one country to use the network in another country.
In the case of T-Mobile Deutschland/O2 Germany, the Commission authorized an agreement that would enable the parties to roam on one another’s 3G networks. On appeal, the General Court critically examined the Commission’s finding that the roaming had the effect of restricting competition and so the court partially annulled the decision.
Prior to OFCOM (Office of Communications), the Director-General of Telecommunication had powers to regulate the media and communications industry. The position of the Director-General of Telecommunications has now been abolished, and his powers have been transferred to OFCOM. OFCOM is a single regulator for the media and communications industries and has considerable regulatory powers under the Communications Act 2003. OFCOM is required by the EU regulatory framework to review certain markets to determine whether the market is ‘effectively competitive’. If OFCOM determines that a market is not effectively competitive it must identify enterprises and impose specific regulatory obligations or maintain or amend such obligations where they already exist.
OFCOM has concurrent powers with the OFT to apply Articles 101 and 102 TFEU. A Guideline has been adopted for it under Competition Act 1998. The Guideline provides for the application of competition in the Telecommunications Sector and explains the application of the competition rules in this sector. It especially discusses the approach that will be taken to determine the costs in a network industry such as telecommunications.
OFCOM has adopted numerous decisions in which it concluded that there had been no infringement of the EU or the UK competition rules. Many disputes in the electronic communications sector are now being dealt with, not under competition law but under sector-specific legislation. In practical terms, this may be a simpler and quicker way to address problems of market failure. OFCOM also has concurrent powers with the OFT in relation to market investigation references under the Enterprise Act 2002.
The development of EU competition law and policy in the postal sector has come about because of the initiatives which were taken by the Council of Ministers and the Commission.
The Postal Services Directive (97/67/EC) is the Directive which established a regulatory framework for the EU postal market sector and The universal service obligation (USO) is the core of the Directive (97/67/EC). The Directive provides flexibility to the EU Member States and also allows them to adopt elements of domestic postal services according to their own needs.
The Directive lays down the following objectives:
- Tariff principles and transparency of accounts for universal service provision;
- the setting of quality standards for universal service provision;
- the harmonization of technical standards;
- the creation of independent national regulatory authorities.
As regards the 1st two matters the Directive establishes minimum standards and maximum limits to the permissible monopoly. Member States are enabled to confer lesser, but not broader, monopoly rights than those set out in the Directive. Article 7(1) provides essentially that the services which may be reserved (that is which may remain monopoly) shall be ‘the clearance, sorting, transport, and delivery of items of domestic correspondence, provided they weigh less than 350 grams. The monopoly was reduced to letters weighing less than 50 grams by Directive 2002/39/EC. The monopoly was abolished by Directive 2008/06/EC in 2010; the remaining Member States followed suit two years later. All postal services in the EU are open to competition. The Directive 2008/06 also contains provisions relating to the universal service and the powers and role of independent national regulatory authorities. The Commission and the national regulators together operate within the framework of the European Regulators Group for Postal Services.
Application of EU Competition Law
The Corbeau Case and the Universal Obligation
There is general agreement among the Member States that there are societal benefits in the maintenance of universal postal services, of a specified quality, which must be provided in all Member States at affordable prices for the benefit of all users, irrespective of their geographical location. People living in remote rural areas should have access to these services on no less favorable terms than those living in urban places; there is an obvious benefit, in terms of social unity, if all members of society can communicate with one another through the postal system, no matter where they live. A complex policy issue is to determine whether, and if so how large a legal monopoly needs to be granted to the undertaking charged with performing this universal service in order to enable it to perform its duties; this question turns in part on how costly the universal service obligation is to the undertaking that has to perform it. Clearly the maintenance of a universal service is likely to be expensive, and the relevant provider will need to be assured of sufficient profits to pay for it; competitors should not be able to ‘pick the cherries’ or, depending on taste, ‘skim the cream’ and earn profits from profitable services, while leaving the unprofitable services to the undertaking charged with the universal service obligation.
These issues came before the Court of Justice in the Corbeau Case, Corbeau had been charged with infringing a Belgian criminal law which conferred a monopoly on the regicide Posts to collect, carry and distribute post in Belgium. Corbeau offered local courier services, but not a basic postal service. The Belgian court sought a prior ruling on the compatibility of the monopoly conferred by Belgian law with Articles 102 and 106 TFEU. The task for the Court of Justice was to determine whether Belgium was in breach of Article 106(1) in maintaining in force a measure contrary to Article 102, or whether the rights conferred on Regicidal Posts satisfied the terms of Article 106(2). This provision does permit a restriction of competition or even the elimination of all competition- where this is necessary to enable an undertaking to carry on the task entrusted to it, at para 15 of its judgment the Court noted that it could not be disputed that Regicidal Post was entrusted with a service of common economic interest , the question was the extent to which a restriction of competition was necessary to enable it to carry on that function. The Court continued at para 17:
The starting point of such an examination must be the basis that the obligation on the part of the undertaking entrusted with that task to perform its services in conditions of economic balance presupposes that it will be possible to counterbalance less profitable sectors against the profitable sectors and hence justifies a restriction of competition from individual undertakings where the economically profitable sectors are concerned.
In the following paragraph the Court of justice notes that, in the absence of a monopoly, it would be possible for individual undertakings to concentrate on the economically profitable operations’ (in other words, to ‘cherry-pick’). But the Court went on, at paragraph 19: However, the barring of competition is not justified as regards specific services removed from the service of general interest which meet special needs of economic operators and which call for certain additional services not offered by the traditional postal service, such as collection from the senders’ addresses, greater speed or reliability of distribution or the possibility of changing the destination in the course of shipment in so far as such specific services, by their nature and the conditions in which they are provided, do not compromise the economic balance of the service of common economic interest performed by the holder of the exclusive right.
In paragraph 20, the Court said that the application of the foregoing tests would be a task for the national court dealing with the case. The importance of this carefully crafted judgment is clear: postal monopolies may be consistent with EU competition law, but subject to the important tests set out in paragraph 19. That paragraph makes clear that it is possible, as a matter of law, that a Member State may have conferred a monopoly that is wider than is legal for the purpose of maintaining the universal service, and that, where this is the case, the monopoly rights in question may be ineffective. The first package of measures in the postal sector attempts on the one hand, in Directive 97/67, to determine the permissible limits of the legal monopoly and on the other, in the Commission’s Notice, to explain the circumstances in which a legitimate monopolist might nonetheless be found guilty of infringing the competition rules. The Commission has itself taken action to strike down monopolies that go beyond what is justified under the Corbeau judgment.
The Commission’s Notice on Competition in the Postal Sector
The Commission’s Notice includes details regarding the application of competition law rules in the postal market sector. It also lays down the procedure and expectations of the Commission to apply the competition rules in the postal sector. The Commission’s notice on competition in the postal sector is divided into nine parts. After a preface and a discussion on the terms of the Notice, it considers market definition in the postal sector.
Para 3 of the notice, discusses the issue of cross-subsidization, the position of public undertakings and the freedom to provide services are then discussed which then followed by state measures and state aid. Part 8 discusses Article 106(2) TFEU in relation to services of general economic interest.
Cases and decisions
In the case of Spanish International Courier Services, it was held by the Commission held that it was unlawful for Spain to reserve to the Spanish Post Office as the country already has a monopoly on the basic postal service which is an ancillary activity of international courier services. The Spanish Post Office was not able to meet the demand for international courier services practically and effectively. It was also seen that the postal service failed to cover the entire territory of Spain and also it did not extend its services to other countries in the world. There was a limited supply and technical development was also slow because of the reasons mentioned above as per Article 102(2)(b) of TFEU.
In Slovakian postal Legislation v Commission case, the Commission held that Slovakia had infringed Article 101 of TFEU as the country extended the monopoly of the Slovakian Post Office over the basic letter service to hybrid mail services.
In Deutsche Post case, a fine of Euro 24 million was imposed by the Commission on the incumbent operator in Germany for offering loyalty rebates to customers of its business parcels service, and it also observed that the business was guilty of predatory pricing.
In the case of New Postal Services, the business was in Italy and it guaranteed delivery in Italy on a Day-or-Time basis. The Commission observed that the Italian Decree was excluding market competition for a specific type of hybridized electronic mail service and thus, was contrary to Article 106(1) in conjunction with Article 102.
In Reims II case, the Commission observed that when there is an agreement between the postal operators of the EU and other operators for payment of an amount when a letter is posted to be delivered in the territory of other operators then in such cases, criteria of Article 102(3) is satisfied. The amount paid is known as ‘terminal dues’.
There has been a long-running battle between the Union Francaise de l’ Express and La Poste of France. A fine of Euro 2.5 million was imposed on the Belgian postal operator by Commission as the company was giving a more favorable tariff for its general letter mail service to those customers who also used its new business-to-business mail service.
In the case of UPS v Commission, rejection of a complaint by the Commission was upheld by the General Court. UPS filed a complaint that Deutsche Post was abusing its dominant position as it was using the income from its reserved letter market in order to finance the acquisition of a shareholding in the express parcels operator DHL and was hence, guilty.
UK postal services competition law is similar to that of EU competition rules on the postal sector. OFCOM regulates competition law in the territory. On issues relating to fair access, commercial terms, universal service, and competition law are dealt with by OFCOM. A number of Acts is applied by the UK for the postal market sector. Under the Postal Services Act 2011, it is the primary duty of OFCOM to carry out functions to secure the postal service sector.
Energy Sector in European Union was a monopoly and it was only after the mid 90’s that the Member States decided to open the market sector to competition. This resulted in the formation of an internal energy market. Numerous competition issues resulted due to a high concentration of pre-existing market participants and a lack of opportunity for entry in the market for new participants. In the 1990s, most of the market participants i.e. companies were still owned or controlled by the European Union and the Member States publically. The liberalization of the energy market was first brought in force in 1996. After that several other legislation was adopted which gradually resulted in market integration from market liberalization.
Competition law works for the protection of competition between different market participants in the market sector. EU Competition law is, therefore, an instrument to achieve the aim of competition law. The main motive is to avoid harmful competitive practices of companies and to achieve effective competition in the market sector.
Through this instrument, the European Commission can impose fines within its powers on companies that are dominant and are exercising anti-competitive behaviour. It also determines whether the behaviour of the dominant company is on the whole EU internal energy market or only on the internal electricity market.
This instrument is used by European Commission to make sure that companies don’t merge up to become dominant as it may impede effective competition in the market sector. Merger control also allows new companies to enter the market sector as it keeps check that the market shares are not limited to a few dominant dominant companies.
State Aid Control
Companies that receive state aid i.e. government support usually has an advantage over its competitors. Through this instrument, state aid is prohibited unless there is a reason to provide it and it should only be for economic development. European Commission ensures that the prohibition of aid is complied with effectively and applied only where it is required. State aid control is used to overcome market failures by the European Commission. It ensures a market sector which is free from undue competition.
Application of EU Competition Law
The Commission has investigated a number of agreements in the energy sector. The privatization of the electricity industry in Great Britain led to a decision that Article 10 (3) applied to the Scottish Nuclear, Nuclear Energy Agreement. In 1995 the Commission gave its approval to a joint venture established by nine gas companies to construct and operate a gas interconnector between the UK and Belgium. The Commission has also approved a number of long term agreements for the supply of gas and electricity. However, it has taken action (or is taking action) in a number of cases involving territorial restrictions and profit-sharing mechanisms in gas supply agreements.
In the case of Ijssel power station, the Commission held that an agreement between all the generators of electricity in the Netherlands and a joint subsidiary that only the latter could import and export electricity to and from that country entailed a restriction of competition that infringed Article 101(1).
Following the Commission’s sector-based inquiry, it brought a number of cases under Article 102 in the energy sector. This enforcement action led to a striking number of decisions under Article 9 of Regulation 1/ 2003, in which structural commitments were offered to, and accepted by, the Commission to address its concerns about barred practices by vertically-integrated undertakings. In Romanian Power Exchange /OPCOM, the Commission imposed a fine of just over Euro 1 million on OPCOM, the operator of the only power exchange in Romania, for discriminating on the basis of nationality and place of establishment on the market for services facilitating short term trading in electricity in Romania.
The Commission has investigated several mergers involving undertakings in the energy sector. The Commission prohibited proposed acquisition by EDP, the existing electricity company in Portugal, of GDP, the existing gas company; the Commission’s decision was upheld on appeal to the General Court.
The regulatory regimes for the gas and electricity sectors are respectively contained in Gas Act 1986 and the Electricity Act 1989. Both sectors are regulated by the Gas and Electricity Markets Authority (GEMA), which is assisted by the Office of Gas and Electricity Markets (OFGEM). GEMA has concurrent powers with the CMA to apply Articles 101 and 102 TFEU. A Guideline has been adopted under the Act, the Competition Act 1998:the Guideline set down rules to be applied in the energy sector in Northern Ireland. GEMA imposed a fine of Euro 46 million on National Grid for abusing its dominant position in the market for the supply of domestic gas meters. On appeal, GEMA’s finding of abuse was upheld by the Competition. Appeal Tribunal (CAT) and Court of Appeal, but the fine it had imposed was reduced to EURO 15 million.
In 2008 GEMA conducted an Energy Supply Probe and concluded that in important respects the energy markets were working well. Amid popular concerns about energy prices, however, in 2013 the Government announced that OFGEM (working with the CMA) would review the state of competition in energy markets every year. Following its first annual review, in 2014 GEMA found that there were features of the markets for the supply and acquisition of energy that was harmful to competition, such as vertical integration and weak customer responses, and made a market investigation reference to the CMA.
The Water Industry Act of 1991 established a Community called the Water Services Regulation Authority in the UK. The community was regulated by the Office of Water Services (OFWAT). The Water Services Regulation Authority (WSRA) fixes the prices for providing water to the households. The competition in the market sector was increased after the Water Act 2003 was introduced as it provided for water services to non-household users and increased opportunities for the market participants. The Water Act 2014 further increased opportunities for market participants in England as the retail and wholesale competition was introduced in relation to the supply of water.
WSRA has powers to apply Article 101 and 102 of the TFEU in the market sector. A guideline was established for managing the Water and Sewerage sectors under the Competition Act 1998. In some instances, there have been complaints regarding exclusionary and dominant behaviour of the incumbents in the market sector but the WSRA has proved that there was no interference by the incumbents or complaint itself was one that could be pursued under competition law.
In the case of Albion Water v. WSRA, WSRA rejected two complaints which were against an incumbent water undertaking, Dwr Cymru but on appeal, it was found that the incumbent undertaking was actually guilty as it used its dominant position to infringe on the rights of Albion Water. had rejected two complaints against an incumbent water undertaking, Dwr Cymru. WSRA’s decision was set aside and declared to be null.
The European Union competition law deals in different sectors of the European Territory. It works for regulating fair competition practices of market sectors. The European Commission aims to guarantee fair pricing to consumers as well. EU Commission looks on and investigates anti-competition practices, mergers and state aid in order to ensure equal opportunities for all market participants in different sectors. The sectors like nuclear energy, military equipment, and agriculture are completely or partly excluded from EU competition law. The coal and steel market sector are dealt with under the European Coal and Steel Community treaty. EU competition rules apply to the transport sector, the electronic communication sector, the postal sector, and the energy sector.