Welcome to the inaugural edition of Competitive Edge, a column that analyzes and challenges ideas about competition, antitrust, cartels, state aid policy and more.
If anyone needed reminding that competition policy is highly political, China dropped a bombshell last month.
In the middle of a worsening trade war with the U.S., Beijing put pressure on U.S. President Donald Trump by failing to issue a green light to U.S. chip giant Qualcomm’s planned $44 billion acquisition of Dutch competitor NXP. That effectively killed the deal.
But surely, I hear you cry, that’s just China, a notorious master of asymmetric warfare, up to its old tricks. DG COMP is surely not such a political animal. After all, these Eurocrats always harp on about the rule book, timetables and due process.
Take that with a pinch of salt. European regulators are not neutral implementers of an adamantine rulebook. Of course there’s a political agenda in Brussels too.
As Alfonso Lamadrid de Pablo, competition lawyer at Garrigues, puts it: “Political principles guide competition policy. There’s nothing inherently wrong about that.”
So, think about the Commission’s key priorities and you can often see that competition cases are the main weapon to frogmarch companies into line with the broader political agenda: an energy union (Gazprom), a better functioning single market (AB InBev) and digital policy (Google).
But is it then fair to go as far as the U.S. has done (mainly under Barack Obama) and insist that Brussels is pursuing a political witch-hunt against successful competitors? Apple’s Chief Executive Tim Cook accused Brussels of conducting an entirely bogus campaign against his company’s tax arrangements in Europe, saying that the case was “political crap.”
Could Brussels operate that politically? Let’s have a look.
Politician at the helm
For starters, the EU’s competition commissioner is a political appointee. Margrethe Vestager is the former deputy prime minister of Denmark. Her predecessor had been a minister in Spain.
“Competition policy leadership in Europe is unusual, you’ve got to recognize the person in the driving seat is not an expert” but a politician, said Damien Géradin, partner at Euclid Law.
And Vestager uses her political discretion to decide what cases to take on. There are many complaints filed to her department from across Europe. It is then the Commission’s political priorities that determine which are chosen.
Vestager herself prefers to explain her chosen targets in terms of resources: “Like every public authority, the Commission’s resources are limited.”
That’s why she concluded that DG COMP would take into account Commission President Jean-Claude Juncker’s “10 most important priorities, including energy, financial services and the digital economy,” to allocate staff on cases. “When our resources are limited, we need to use them where it counts,” she added.
There is also a political art not just in closing big cases (sometimes with an eye-catching fine) but also in making them go away.
Nuclear power disputes provide some interesting examples of political damage control. State aid approvals for the Russian-backed Paks II power project in Hungary and the never-endingly expensive Hinkley Point C in Britain raised many eyebrows. But neither decision was a surprise. The Commission needed to try to soothe the EU’s broader political tensions with Hungary and Britain. Not that they really did, in either case.
Documents obtained by POLITICO show that Brussels ultimately struck a “global political decision” to approve Paks.
When to step in?
One of the more intriguing questions is where politicians can influence the Brussels process. One EU official said: “There may be a margin of discretion in some cases but the Commission generally has to act within legal boundaries.”
DG COMP cases can all be summarized as being a four-stage process: the opening, the investigation, the right to defence, the close.
Competition law experts usually agree that political meddling is extremely rare in the intermediate stages of an investigation, as EU officials fear the possibility of an appeal before the European Court of Justice. As Lamadrid notes: “The courts are well placed to identify and correct any undue influence of short-term politics.”
Furthermore, in mergers and state aid control, the Commission does not choose which cases to open under the current notification system: intervention can only take place when DG COMP is bringing files to a close.
There’s some disagreement about the extent to which politics can play a role in the opening of cases.
Gianni De Stefano, a Brussels-based competition lawyer, contends that political interference in antitrust cases “happens in particular at the very first step of any enforcement proceeding: when DG COMP decides if and which case to pursue.”
Géradin is more skeptical, however. “Too many observers think that it is Commissioner Vestager who drives the process from A to Z. This is wrong … Most cases originate from a complaint, and complaints sit with the case team for a very long time. The Commission is a bottom-up institution.”
Two EU administrators officials concurred with Géradin.
Despite this difference of opinion over where the political pressure can kick in, Vestager stresses that she can do what she wants. “Fortunately, we have the power to decide not to pursue complaints that are not priorities,” she said in February 2016. “But we always explain why we’ve decided not to pursue a complaint.”
Some countries are more equal than others
On occasion, the Commission is simply forced to — how do we put this nicely? — lie. Throughout the Gazprom case, Brussels had to swear that gas supply contracts were a purely technical issue unrelated to war in Ukraine and greater geostrategic concerns. That was, of course, nonsense.
Some Eastern European countries grumbled about a settlement with Gazprom earlier this year, but their interests counted for less than the dangers of a conflagration with the Kremlin.
When it comes to the U.S., Vestager also has a lot of explaining to do. She is adamant that there is no anti-U.S. discrimination. Americans just happen to be very active in the tech space, so they get clobbered.
There is data to suggest that the EU is very open-minded in M&A approval and doesn’t engage in protectionism.
The Americans, however, aren’t complaining about M&A. They are angry about antitrust and state aid. U.S. champions such as Google, Apple, Qualcomm, Intel and Amazon have all taken a beating from Brussels in the past few years. Vestager’s record antitrust fine was €4.3 billion against Google and her record state aid clawback forced Ireland to retrieve €13 billion from Apple. Her two biggest victims have been American.
Still, there’s plenty of opportunity for Brussels to show that it is as tough on Franco-German champions as on American tech. Intriguingly, DG COMP has carried out cartel raids into the hallowed German car industry — a sector as talismanic to Europe as California’s Silicon Valley is to the U.S.
Vestager has also shown an inclination to go after some of Europe’s top industrial manufacturers with a €3.8 billion cartel fine against leading truck makers.
And there are other household European names under close scrutiny. In the coming months, Vestager will have to decide whether to allow a huge bailout of France’s SNCF railways and clear a contentious merger between Alstom and Siemens so that Europe can keep pace with Chinese train makers.
Will Vestager prove to be as thorny an obstacle to French and German businesses in her final year as she has been to the Americans? We will have to see.
But let’s put it this way: the Americans will be mightily surprised if she takes decisions that play badly in Paris and Berlin. Competition is, after all, rather political.
Thibault Larger is a competition reporter at POLITICO.
This article is part of POLITICO’s new coverage of competition, antitrust and state aid issues, Competition Pro. This coverage includes the Fair Play newsletter every Monday morning. Email [email protected] to request a complimentary trial.
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