How Vestager and Breton can complement each other

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Thierry Breton will propose on March 4 an industrial strategy for the European Union around digital, ecological transformation and critical technologies. It is not too early, some would say, as industrial policy appears to be the poor relation of the Union’s public policies. The French commissioner’s proposal is therefore eagerly awaited, but be careful not to pay for words once again. Commissioner Breton’s proposal will undoubtedly be very interesting, but it will meet, at one time or another, the limits of European law for which competition policy prevails. This debate is not new. It has been fueled by more than 30 reports and documents since 2016 and it rebounded more sharply when Commissioner Vestager rejected, on behalf of the Commission, the proposed Alstom-Siemens merger. A rain of criticism fell on her – notably from Bruno Le Maire – when in truth, under the rule of law, the Danish commissioner could not take another decision.

Why does Europe prioritize competition law over all industrial policy and how to remedy it? Professor Bruno Deffains, director of the Cred (*), Olivier d’Ormesson, lawyer specializing in competition, and Thomas Perroud, professor of public law at Assas, are attached to this work. In their report written for the Schuman Foundation, many things are clarified. “Europe is the only entity where the rules of competition have a quasi-constitutional status,” observes Professor Bruno Deffains. The United States and the Chinese do not have as many constraints. This primacy resides in part in texts, such as the EU Functioning Treaty or the Merger Regulation. There is therefore a particularity of European law which establishes the primacy of competition law over all other Union policies except those which are of equal rank, such as the Common Agricultural Policy. The Commission has relatively few tools to support industrial policies. “

DG COMP, a state within a state

The very organization of the von der Leyen Commission reproduces, moreover, this hierarchy: the Commissioner for Competition, Margrethe Vestager, has the rank of executive vice-president (in short, she is number two), while Thierry Breton, commissioner of simple rank, is responsible for the single market and in particular for industrial policy. Many speculate on the glitches that could occur between the two personalities. “Thierry Breton, as boss of Atos, has not received an order from anyone for ages, it is not today that it will start,” says one of his friends. If it can feed the gazettes, this reading “people” far exceeds the shock of personalities and does not change this fact: DG COMP – which prepares decisions of the Commission in competition matters – has, because of treaties, unequaled power within the Commission. “A State within a State” whose proposals are only very rarely discussed orally in the college where a written procedure prevails.

Read also Margrethe Vestager: “If the Gafam did something very serious, we could dismantle them …”

Margrethe Vestager is ready for development, but without throwing the baby out with the bathwater. “The main point of the competition rules is to ensure that our activities remain competitive,” she said on January 30 in Brussels. The Danish Commissioner considers that only competition can stimulate innovation and offer the best value for money to consumers. “That doesn’t stop us,” she continues, “from examining whether these rules are working as they should because the market has changed, business models are evolving, because the way of creating value is changing.” . This is why I announced that I would update the definition of the market. Commissioner Vestager insists that price tests are becoming difficult to perform, particularly in the area of ​​online services offered “for free”. “You are priceless because in fact you are paying with your personal data,” she said. For Thierry Breton, questioned by European parliamentarians on January 28, “trade (worldwide, editor’s note) will have to be done more and more, obviously, avoiding any unfair competition, wherever it is found”. A statement which seems more radical.

US protects public services

Will the evolution of the market definition that Commissioner Vestager is considering be sufficient? For the three rapporteurs of the Schuman Foundation, we are very far from the account. They believe that it is futile to wait for the WTO – where the unanimity rule blocks any progress – to reform in order to hope for better regulation of trade. They recommend, on the other hand, a small retouching of the treaty on the functioning of the European Union. “It would be a matter of slightly rewriting article 173 of the treaty by adding a paragraph which would give the Commission more power to implement the Union’s industrial policies,” explains Olivier d’Ormesson. This paragraph could be worded as follows: “The Competitiveness Council sets each year the industrial policy objectives which the Commission must take into account” , completes Bruno Deffains. So that, when DG COMP proposes a decision to the college of commissioners, they can carry out a cost / benefit analysis with regard to industrial objectives in order to take decisions that are an exception to the pure and simple application of the law of competition. Margrethe Vestager, cautious, did not venture to open Pandora’s box of treaty change…

Is it a blasphemy to temper competition by the pursuit of industrial goals of collective interest? The United States is not shy. The inventors of antitrust have largely amended their doctrine over time. The first major difference with Europe is that American law does not apply to public activities. It is only in Europe that public services have been subjected to competition … The federal states of the United States may decide to “immunize” certain sections of their activity from competition law. ” The state action doctrine is directly inspired by federalism and the idea that we must respect the will of each state, ”read the report. Preference was given to state sovereignty. The purpose of competition law is different between the United States and the Old Continent. On the other side of the Atlantic, the aim is to sanction anti-competitive practices between private competitors rather than the activity of entities attached to the State, while in Europe anti-competitive practices are banned because they could affect trade between Member States. American doctrine dates back to a 1943 Supreme Court decision, Parker v. Brown. Ditto for companies owned by the US federal state, such as the postal service (US Postal) which is exempt from competition law.

Europeans more rigorous than the United States

In addition, the United States has decided to explicitly exempt certain private sectors from competition law, such as the insurance sector. Sometimes the exemption is considered implicit when the sector is part of a regulated activity. In this case, the judge must be able to identify a clear incompatibility between the antitrust laws and the specific regulatory system put in place.

The Schuman Foundation report cites a striking example of the differences in treatment between the European Union and the United States with regard to electronic communications. On the other side of the Atlantic, the Supreme Court excluded the application of competition law to the telecommunications sectors, since it was already regulated by a legislative device (Verizon decision of 2004 and Pacific Bell Telephone of 2009). In Europe, the regulation of telecommunications in no way prevents the parallel application of competition law (Deutsche Telekom judgments of 2010 and Telefonica of 2014).

State aid is not being debated across the Atlantic

In terms of state aid, the Americans do not have our prejudices either. When General Motors experienced the worst setbacks in the aftermath of the 2008 crisis, the US state invested $ 50 billion to save the company. The US Treasury temporarily took control of the company and imposed drastic restructuring on it in record time. Three years later, GM resumed colors and established itself – provisionally – as the world’s leading manufacturer (it didn’t last). In Europe, the slightest state aid to a European car manufacturer is impossible … During the crisis of the 1930s, the federated states massively supported private companies and case law has approved aid for “public interest purposes”. As the report shows, there is not even debate across the Atlantic!

For the authors of the report, the difference in approach between America and Europe “could cause prejudice to Europeans by depriving them of the means of law to enforce a principle of equity between economic actors who should not benefit undue advantages by the public authorities ”. Needless to say, the situation in China is even more dire for Europe: the Chinese Communist Party steers the country’s industrial policy and the Chinese state supports its large national groups with all kinds of advantages. Foreign groups are subject to technology transfer and the merger law only applies to foreign companies and Chinese private groups… The Chinese Competition Authority complies with the national interest criterion decided by the State . The government therefore makes the rain and the good weather …

A European industrial policy in the “gray areas”

The Schuman report therefore recommends that the Commission adopt a mechanism “which would make it possible to” compensate “for unfair competition from public undertakings supported by third countries, both in the context of merger control and in that of aid. state. ” The Commission is said to be working on it… Even the Dutch government, which is rather liberal if ever there is one. In a December 2019 “non-paper”, the government of Mark Rutte suggests strengthening the control of any acquisition, merger or any behavior emanating from groups subsidized by a third country or which would benefit from a dominant position in a country third. Other authors (François Brunet and Patrice Gassenbach), in a forum for The echoes, suggest that the Commission equips itself with an economic intelligence service to more finely detect the sometimes masked public aid which benefits foreign groups, notably Chinese.

However, the Commission uses certain “gray areas” to try to pursue some industrial policies. However, this is a roundabout use of certain provisions which were not originally intended to do so. Thus, in an emergency, DG COMP turned a blind eye to the fact that, in the panic of the financial crisis of 2008, 112 European banks received massive state aid. The Commission has laid down a few conditions and very few prohibitions… Necessity rules. This is reminiscent of American practice during the 1929 crisis …

Who will choose the “European champions”?

Ditto for the protection of the environment, the Commission authorizes certain aids which encourage the use of green energy sources. Conversely, it has reclassified as “state aid” – to proscribe them – the discriminatory tax advantages from which certain large groups have benefited from Ireland (the famous Apple case), Luxembourg, the Netherlands and from Belgium… Taxation is one of the areas voted unanimously, therefore almost unchangeable. To get around this difficulty, the Commission therefore went out the window by regulating State aid. And, in fact, Ireland, Luxembourg and the Netherlands ended up modifying their tax ruling system themselves (a process of fiscal dumping)…

The Commission has also relaxed its doctrine to authorize “important projects of common European interest” (PIIEC). Public aid is authorized, in this case, if it involves several Member States in advanced areas: nanotechnologies, electric batteries. Again, it is by authorizing state aid that it promotes an industrial policy. The idea of ​​creating “European champions” in this or that field, however, runs up against the fear of small Member States of being crushed by large industrial States. Little Lithuania suspects that a European champion will not emerge from its land … It therefore has everything to fear that a large group of German, French or Italian origin will eventually crush its small Lithuanian players on its market national.

“Who decides the European champions? Who will choose those who will win? To avoid this argument against the industrial policy, we propose to take the example on the American DARPA (a research agency of the Department of Defense at the origin of many innovations, of which Internet, Editor’s note) to implement an industrial policy objective that is not from within, ”explains Thomas Perroud. The idea of ​​creating a European DARPA for disruptive innovation was among the proposals of Emmanuel Macron in his speech at the Sorbonne. Ursula von der Leyen cited DARPA as an example to follow in the field of innovation. Will Thierry Breton take up this idea in his proposals on March 4? To be continued.

(*) Research center in economics and law.

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