European Union Competition Law - Historical Background

Historical Background

One of the paramount aims of the founding fathers of the European Community - statesmen around Jean Monnet and Robert Schuman - was the establishment of a Single Market. To achieve this, a compatible, transparent and fairly standardised regulatory framework for Competition Law had to be created. The constitutive legislative act was Council Regulation 17/62 (now superseded). The wording of Reg 17/62 was developed in a pre Van Gend en Loos period in EC legal evolution, when the supremacy of EC law was not yet fully established. To avoid different interpretations of EC Competition Law, which could vary from one national court to the next, the Commission was made to assume the role of central enforcement authority.

The first major decision under Article 101 (then Article 85) was taken by the Commission in 1964. They found that Grundig, a German manufacturer of household appliances, acted illegally in granting exclusive dealership rights to its French subsidiary. In Consten & Grundig the European Court of Justice upheld the Commission's decision, expanded the definition of measures affecting trade to include "potential effects", and generally anchored its key position in Competition Law enforcement alongside the Commission. Subsequent enforcement of Art 101 of the TFEU Treaty (combating anti-competitive business agreements) by the two institutions has generally been regarded as effective. Yet some analysts assert that the Commission's monopoly policy (the enforcement of Art 102) has been "largely ineffective", because of the resistance of individual Member State governments that sought to shield their most salient national companies from legal challenges. The Commission also received criticism from the academic quarters. For instance, Valentine Korah, an eminent legal analyst in the field, argued that the Commission was too strict in its application of EC Competition rules and often ignored the dynamics of company behaviour, which, in her opinion, could actually be beneficial to consumers and to the quality of available goods in some cases.

Nonetheless, the arrangements in place worked fairly well until the mid-1980s, when it be clear that with the passage of time, as the European economy steadily grew in size and anti-competitive activities and market practices became more complex in nature, the Commission would eventually be unable to deal with its workload. The central dominance of the Directorate-General for Competition has been challenged by the rapid growth and sophistication of the National Competition Authorities (NCAs) and by increased criticism from the European courts with respect to procedure, interpretation and economic analysis. These problems have been magnified by the increasingly unmanageable workload of the centralised corporate notification system. A further reason why a reform of the old Regulation 17/62 was needed, was the looming enlargement of the EU, by which its membership was to expand to 25 by 2004 and 27 by 2007. Given the still developing nature of the East-Central European new market economies, the already inundated Commission anticipated a further significant increase in its workload.

To all these challenges, the Commission has responded with a strategy to decentralise the implementation of the Competition rules through the so-called Modernisation Regulation. EU Council Regulation 1/2003 places National Competition Authorities and Member State national courts at the heart of the enforcement of Arts 101 & 102. Decentralised enforcement has for long been the usual way for other EC rules, Reg 1/2003 finally extended this to Competition Law as well. The Commission still retained an important role in the enforcement mechanism, as the co-ordinating force in the newly created European Competition Network (ECN). This Network, made up of the national bodies plus the Commission, manages the flow of information between NCAs and maintains the coherence and integrity of the system. At the time, Competition Commissioner Mario Monti hailed this regulation as one that will 'revolutionise' the enforcement of Arts 101 & 102. Since May 2004, all NCAs and national courts are empowered to fully apply the Competition provisions of the EC Treaty. In its 2005 report, the OECD lauded the modernisation effort as promising, and noted that decentralisation helps to redirect resources so the DG Competition can concentrate on complex, Community-wide investigations. Yet most recent developments shed doubt on the efficacy of the new arrangements. For instance, on 20 December 2006, the Commission publicly backed down from 'unbundling' French (EdF) and German (E.ON) energy giants, facing tough opposition from Member State governments. Another legal battle is currently ongoing over the E.ON-Endesa merger, where the Commission has been trying to enforce the free movement of capital, while Spain firmly protects its perceived national interests. It remains to be seen whether NCAs will be willing to challenge their own national 'champion companies' under EC Competition Law, or whether patriotic feelings prevail.