EU Competition Policy and Its Impact

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Table of Contents

Introduction
EU Competition Policy
Impact of EU Competition Policy
Conclusion
Reference List

Introduction

Competition refers to contention or struggle to gain superiority in a commercial setup thus creating rivalry among parties. A competition policy aims at promoting competition for the welfare of consumers. The competition policy of the EU was established in Treaty of Rome in 1957 and is governed by articles eighty one to eighty nine. In addition, the merger regulation or Council Regulation 139/2004 also governs the EU competition policy.

The policy’s rationale is to enable companies to have equal level of competition it every European Union Member State. The competition policy acts as a guide to the European Commission in assessing its decision making.

Therefore, this has enabled EU to become powerful to guide competition strategies over firms. EU has gained power over price fixing, dominance of firms and trade agreements. The policy is facilitated by European Court of Justice and Directorate-General for Competition which is the part of the European Commission. EU member states have to adhere to the rules and cooperate through the aid of European Competition Network (ECN) (EU, 2004).

They do this by offering essential information on decisions and cases, coordination of investigations and documenting evidence. With the help of ECN, EU is able to attain an effective mechanism through which it is able to counter firms involved in breaching the competition policy. The main aim of ECN is ensuring that the EU competition law is consistently applied in all member states. It has continued to pursue and prosecute firms that breach competition law (McCormick, 2008).

The competition policy has enabled the EU to acquire power over takeovers, mergers, state aid, and cartels. It has achieved a single market operation in Europe through transparency, compatibility, and fairness in standardizing its regulatory framework. Its competition policy strengthens its leadership and enables it succeeds in open market operations among its member states. Its free market policy has had its impact and has developed and gained a world wide relevance.

Single European Market policy significantly affects the conduct of businesses in Europe and other parts of the world as well. Competition policy has profound meaning globally especially for increased linkages and multi-jurisdictional mergers that has existed between the United States and Europe through businesses cross-ownerships (McCormick, 2008). Moreover, the economic integration has seen the rise in the Europeans living standards.

The paper discusses major EU competition policy such as merger control, antitrust, monopolies and state aid limitation as well as it impact to its member states and international trade associations. The EU legislation encompasses trade associations since they are the foundation in which information is gathered. The European Commission could subject the trade association to even up to a hundred percent fine of previous financial year’s total turnover acquired if involved in breaching EU competition policy.

EU Competition Policy

Monopolies

Large firms may dominate the markets and abuse other firms since they have a higher economic strength which enables it to take actions inconsiderate of consumers or competitors. It is this reason as to why EU considers it illegal for firms to take advantage of their dominance to abuse others.

It may taken several forms which include exploiting consumers due to unreasonably high prices, charging unreasonable low prices to kick out competitors from the market or make it hard for them to venture the market, trade ,partners discrimination and putting trading conditions that are unjustified on partners.

This is prohibited by the EU competition law was illustrated by the Microsoft case which was accused by European commission of data overcharge which is essential for its competitor. Microsoft was restrained by European Commission from abusing its position to suppress others in the market and penalized it heavily for the breaching of law.

Cartels

A cartel refers to a group comprising same companies that are independent and join to divide markets control, prices and puts limits to competition. Cartel participants may not need to offer new products or even provide quality services because they can rely on agreed market share. Eventually, consumers may have to pay more for products or services that are of less quality. For this reason, cartels are illegal according to EU competition law. Since they are illegal, they are more secretive and hard to point out.

The EU competition law disregards restrictive agreements which include price fixing, exclusive distribution, predatory pricing, and all anti-competitive strategies which adversely affect Single market operations. Cartel policy entails vertical and horizontal agreements between companies present in the supply chain. The European Commission has engaged min about thirty five cartel decisions and fines imposing on firms in the recent past (McCormick, 2008).

State Aid

A state aid is governmental support which may facilitate a firm to gain unfair advantage with respect to its competitors. The competition policy regulates the handouts from the government that are aimed at facilitating firms to gain unfair advantage over other companies thus distorting competition among the member states. Government holdings, guarantees, tax reliefs, fiscals, and grants are examples of State aid and are considered illegal.

If state intervention has an effect on trade among members of the union, is selective on particular sector or companies, and distorts competition, then, it is illegal according to EU Competition law. All the same, State aid, is not prohibited if it is geared to support public policies e.g. industrial regeneration. The European Commission investigates and assesses legality of all state aids. In case a state aid is declared as illegal, the European Commission then orders the involved member state to recover those finances (Roger & Eleanor, 2006).

Mergers

Mergers involve combining practices of other companies to allow a company to have declined production cost or efficient development of a product. They enhance consumer benefits and competitiveness in the market by offering products that are of higher quality at reduced prices.

Nevertheless, there are mergers that are aimed at reducing market competition by dominating it which harm consumers by less innovation and higher prices. The Single Market created by European Union offers increased competition as well as globalization which attract mergers. They are allowed only when they facilitate European industry competitiveness and do not impede it. This in turn is reflected in the lifestyle of EU member states that gain a higher living standard (McDonald & Dearden, 2005).

It is the responsibility of the European Commission to approve mergers, joint ventures, as well as acquisitions engaged by firms with defined and certain turnover to avoid monopolies or market dominance for a Single Market.

This is facilitated by the Council Regulation 139/2004 which controls the mergers, joint ventures and acquisitions proposed for firms with more than EUR 5 billion globally or that of EUR 250 million in the single market. European Commission assesses possible impacts and avails solutions for the involved parties. Most of the mergers are however approved in most instances and only a few are disapproved.

For instance, the European Commission disapproved a merger involving Honeywell and General Electric in 2001 which are US based companies in n Europe. EU had a parallel jurisdiction on the businesses irrespective of them being approved by American Authorities based on n the fact that the merger would create a horizontal monopoly which would stifle competition (Mario, 2009).

Impact of EU Competition Policy

Extraterritoriality

In essence, the Competition policy is applicable to member states of European Union. However, extraterritoriality guidelines were established to encompass the firms which have no affiliates in EU Single Market. The principles enable firm’s prosecution in a case where their anticompetitive engagements have effects on EU market irrespective the country the firm operates. For instance, the case involving the wood Pulp in nineteen eighty eight implemented the extraterritorial guidelines.

Companies from Canada, US, Spain, Portugal and Norway had colluded on prices thus breached Competition Law of the EU which affected its Wood Pulp Market. Defendants argued that EU had no mandate over the countries since they were not member states. However, European Court of Justice disregarded the claims based on the effect of price collusion not nationality or location. The competition law emphasize that what is essential is not the location of the agreements taken bit the place it is implemented (Mario, 2009).

Trade Associations

The sectors that are prone to breaching EU Competition law includes first, Information exchange which involves collection of statistical information, opinion exchange, market research, benchmarking and economic assessment. This may lead to more market transparency and may enhance competition through lower prices and improved products. It is the responsibility of trade associations to ensure transparency levels don’t exceed thus exposing vital and confidential, information in relation to transactions and member companies.

Secondly, when comparing and sharing member’s best practices, it is the role of trade associations to ensure that experiences exchange may not eventually lead to coordinated market practices by members such as similar pricing. Third, trade association members may agree on aspects that may breach EU competition policies during a meeting which may lead to fining of the association for enhancing a forum in which there results to infringement.

It is therefore the role of trade associations to facilitate avoidance of suggestions or spontaneous remarks which may suggest a joint market practice. Forth, the trade associations may offer recommendations that may result to a uniform market conduct from members facilitating infringement of policies guiding competition as stated by the EU. Fifth, Association may offer discriminative rules to its members which, may prohibit of restrict termination of membership or access to membership triggering competition concerns.

Finally, it is the role of trade associations to update its members on developments and issues essential in the industry. The association may make statements which might cause members to terminate business operation with particular parties. It may be taken as boycott by European Commission which may be a case of infringement of competition law (Roger & Eleanor, 2006).

Trade associations should be well aware that they could be fined a hundred percent of overall turnover gained in previous fiscal year due to breaching competition law as stipulated by the European Union. Global marketplace is beneficial, but may as well result to challenges while trying to comply with foreign jurisdictions which may be very costly. Impact of EU competition policy is experienced globally.

Liberalization

Opening up monopolized markets such as energy, transport, telecommunication, and postal services to competition is referred to as liberalization. Member States of EU enjoy international competition which allows the consumers to have a diversified choice of products and services.

Competition has enabled consumers to enjoy lower prices, new, improved, and efficient products, as well as services making the overall economy competitive. There has been a freedom of choice enjoyed by consumers which n raise their living conditions. This would not have been achieved if the consumers are harmed by unfair competition existing in the market.

New markets opened provide public services under regulations aimed at protecting consumers. Single Market as a major EU achievement but has to be reregulated by enforcing more rules. Consequently, among other advantages, low cost airlines have emerged in Europe due to the European commission opening the airline sector to competition.

These services are affordable and are enjoyed by European consumers. In addition, the European Commission’s intervention in liberalizing the market has benefited the consumers in Germany and France by allowing them to benefit from the now competitive gas market (McDonald & Dearden, 2005).

Conclusion

Competition is essential in enhancing economic growth given that it ensures that companies operate more efficiently. Moreover, competition policy, being a cross-border aspect, running it at European level is essential and significant in progress of globalization. However, competition may exploit some essential industries such as nuclear power, healthcare, and defense and therefore it should not be encouraged in these cases.

Moreover, the European Commission has engaged fiercely in pursuit of those cases that are beyond its jurisdiction which n eventually dilutes European Union’ s authority. Finally, the extra costs for businesses and taxpayers are uncalled for which are incurred while the EU engages in assessment of problems. All the same, healthy competition is crucial in generation of new products, services, and strategies by firms.

The EU competition policy involves strict adherence to rules for fair competition and encourage innovation and ensure that consumers acquire quality and affordable products. It is the role of the European commission to control trade amongst the members of the European Union. It achieves this by imposing heavy penalties on the parties involved in breaching of its competition laws and keeping on guard to ensure the laws are followed.

In a free-market, competition is inevitably high and businesses may look for strategies to avoid it by trying to kick competitors out. In that case, the European Commission has acted as a referee ensuring that there is fairness in the market. Other firms may combine forces in the market to harm consumers or else reduce competition.

The European commission examines them and their motive and either approves or disapproves them. The European commission has significantly been instrumental in market liberalization which enables consumers to access services at ease and with affordability. Is of great importance that there is fairness in competition for all member states. The free trade and liberalization of market may trigger the state to promote national industries by offering g them public resources.

This may end up disfiguring effective and fair competition for member states firms which eventually cause harm to the economy, a reason why state aid is closely monitored by the European Commission. Therefore, the role of EU competition policy in the economy cannot be ruled out and should be emulated by other trade unions across the world to encourage the process of globalization and economic growth (EU, 2004).

Reference List

European Union (EU). 2004. EU Competition Policy and the Consumer. Luxembourg: Official Publications of the European Communities. Web.

McDonald, F. Dearden, S. 2005.European Economic Integration. United Kingdom: Prentice Hall Financial Times.

McCormick, J. 2008. Understanding the EU: A Concise Introduction. 4th ed. England, United Kingdom: Palgrave Macmillan.

Mario, T. 2009.The European Union and Global Governance. New York: Routledge, Taylor & Francis e-library.

Roger, C. and Eleanor, M. 2006. New Developments in UK and EU Competition Policy. United Kingdom: Edward Elgar Publishing Limited.

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