The diminishing returns of ever greater profile of competition enforcement

A little over a year ago, I read Alex Chisholm’s speech,[1] the then chief executive of the UK’s Competition and Markets Authority (CMA), which was delivered at the June 2015 annual Chatham House competition conference. In his speech he mentioned a book by Anntje Ottow[2] titled Market & Competition Authorities. Good Agency Principles[3].

As an aspiring competition law student then, I thought I ought to read the book.  A big part of the book is devoted to the importance of independence of the competition authorities as an essential ingredient for effective enforcement.

Regulation 1[4] and the subsequent establishment of the European Competition Network (ECN) allowed the European Commission (EC) to see that, indeed, some national competition authorities (NCAs) enjoyed more independence than others and that there was room for improvement.

In a recent EC public consultation,[5] 82% of respondents agreed that further measures are needed to guarantee the independence of NCAs.[6] These ranged from resources to freedom from political pressures as well as guarantees related to the adequate procedures for dismissal of the NCAs’ management on objective grounds.

The EC itself wants to project an image of an agency that operates as if in a political pressure vacuum  ongoing investigations attracting controversy whether these involve  Luxembourg’s tax deals arranged by the current president of the EC Jean-Claude Juncker or allegedly abusive dealings of Gazprom Additionally, the US business lobby has criticised the EC for targeting US companies in its investigations The EC’s competition arm under its Commissioner Margrethe Vastager wants to do the right thing and wants others in Europe to do the same, disregarding potential political consequences.  Hence there was the consultation and the recent publication of its findings, so that also national competition authorities would be able to act with more freedom of financial or political pressures.

Larger than life personalities such as that of Ms Vestager can help to raise the profile of one’s cause. Ironically, though not at all surprisingly, this can have the opposite effect of the one desired, as increased visibility of competition enforcement makes it an attractive political

The raised profile of competition enforcement agenda, especially that pursued by the European enforcers, with consumer welfare in mind, can attract the attention of politicians who are always on the lookout for ways to demonstrate to the electorate that their efforts benefit the voters. What a better way to do this than through the work of a competition authority? Enforcement actions of those agencies typically do not discriminate by geography, race or religion. All voters are consumers and hence, they all benefit equally.

Let me go back for a moment to Annetje Ottow’s book. She gives examples of model agencies, among them the UK’s CMA. Surprisingly, little is devoted to the non-binding ‘Strategic Steer’ that the Department of Business Innovation and Skills (BIS) offers

 

However, it seems as if under a pressure of criticism that the relatively new CMA faced in its first 2 years of existence, many senior managers moved to pastures anew[10].

Following an unsuccessful criminal prosecution, at a great expense to the public purse, the head of enforcement left the CMA for Bank of England[11]. Not long after the National Audit Office criticised the CMA for its low activity and for applying low fines[12], the latter announced last May that its CEO will be leaving in a couple of months. Around the same time, the CMA also saw a departure of two senior merger directors to private practice – Jonathan Parker is now a partner at Latham & Watkins and Nelson Jung joined Clifford Chance, also as partner.

So, as I attended this year’s Chatham House annual competition conference, held on the faithful day of the EU referendum in Britain, it was Andrea Coscelli who was representing CMA as its acting chief executive, addressing the audience on the Globalisation of Competition Policy.

This, however, can still be seen as model behaviour. Looking elsewhere in Europe, things are less subtle.

 

Introducing a new legislation to address a competition concern can be seen as the ultimate way of enforcing political pressure and France has seen just that in a recent history.

It was the finance minister that introduced its eponymous measure addressing competition concerns in the online hotel booking sector. The so-called Macron law, barred most-favourite nation

In Germany, a recent decision to block a merger between two retailers was reversed by the government. German competition chief Andreas Mundt recently highlighted the fact that though competition law has always been politicised to some extent, the “interest of policy makers in competition law has risen significantly over the last year”. “The climate is changing,” Mundt said, adding that such change has influenced competition agencies. [15], The German appeals court temporarily banned the merger, pending appeal against the ministerial decision to allow the deal.[16] However, on 7 October the appellants have agreed to drop the case at a six-party round table.[17]

 

The most stunning recent display of a lack of respect for independence of competition agencies was observed in Poland and Greece.

 

In Poland, in January 2016, following national elections and change of government, Adam Jasser, the national agency’s head, was dismissed. He was in the job for less than two years.

His predecessor was sacked to appoint Jasser as the governments changed.  The current head, Marek Niechcial, appointed in May this year, already held the post for one year in 2007, before being sacked after the Law and Justice party, currently in power, lost the elections then. [18]

By contrast the president of the French NCA, Bruno Lasserre, was in the role since 2009.  Bruno Lasserre, left the agency to join the country’s highest administrative court the Council of State in September of this year.

 

Greece, on the other hand, passed a controversial law in January 2016, giving the government more control over the officials employed at the Greek competition authority.  The new rules, among others, include a provision introducing new conflict of interest covering any authority’s president, vice-president or board member, in circumstances where their spouse is a sitting member of the Greek parliament or the European Parliament, or a government minister. While one could argue that this reform introduces a higher standard of impartiality and independence of the members of the competition authority, a closer look reveals that it may have a photographic character. It interestingly catches the authority’s vice-president Dimitri Loukas in the cross hairs, since he is married to centre-right opposition New Democracy MP Niki Kerameos. As a result, Loukas would have to resign from his a position  the authority within a month of the measure coming into force. Yet, as it stands, according to the Greek authority’s website at the time of writing, Mr Loukas is still the vice-president. Margarethe Vestager’s meeting with the Greek finance minister Giorgos Stathakis to discuss the reforms last February may have put this provision on hold for the moment. [19]

 

Not all is doom and gloom though.

 

This challenging environment makes the agencies re-think how they operate and come up with creative ways towards regaining some ground of independence.

 

Lithuania proposed a levy on business to fund the country’s NCA. A flat fee of around EUR6,000 was debated in the parliament in May this year. The levy would be imposed only on firms with revenues no less than EUR20m and, if comes into force, the levy is expected to increase the country’s Competition Council’s budget from the current EUR1.6m to EUR2.7[20]

 

Commenting for this article, Šarūnas Keserauskas, the head of the agency said: “our authority is in favour of initiatives that address the problem of insufficient funding and provide financial backing to our independence.” He added that he hopes that the proposed legislation will be debated in the parliament in the autumn, as several MPs support the funding proposal.

Effective enforcement of competition rules can be costly. Not only do you have to attract talent away from private practice but actions, such as unannounced inspections, can be expensive and if there is no money to do them, effective enforcement will be impeded.

 

The head of the Council stated before the EU parliament during its 19th April hearing that the rules guaranteeing agency’s independence should be as concrete as possible. He also urged the EU to take action to prevent national governments from retaliating against NCAs whose decisions are not welcomed by putting pressure on them through their budgets.

 

Any potential positive changes that can happen on the back of the European Commission’s public consultation will take a long time to materialise.

Following publication of the responses to the public consultation, the spokesperson to the EC said, that EC is yet to decide to what, if any, next steps it will propose. On the other hand, some most recent developments have a potential to curtail independence of competition authorities.

One, the EC’s decision on Apple’s Irish tax rulings is a great examples of competition policy entering mainstream.[22] Another is Brexit. The UK’s current unelected prime minister said that there will be a review of industrial strategy for takeovers. She announced: “A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain.”

These developments highlight the two conflicting forces at play. On the one hand, politicians want to have more influence in competition matters. On the other, competition enforcers want more freedom. We have to wait and see which of the two becomes a dominant one and in the meantime, Europe’s competition faces interesting times ahead.

by Sylwester Gumienny

 

[1] Speech given by CMA Chief Executive, Alex Chisholm, at the Chatham House conference ‘Politicisation of Competition Policy’ https://www.gov.uk/government/speeches/alex-chisholm-speaks-about-competition-and-politics

[2] Non-executive director of the Competition and Markets Authority Board and Professor of Public Economic Law at the Europa Institute of Utrecht University.

[3] Annetje Ottow, Market & Competition Authorities: good agency principles, Oxford University Press, (2015)

[4] Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.

  1. Consultation on Empowering the national competition authorities to be more effective enforcers, closed on 12 February 2016.
  2. Summary report of the replies to the Commission’s Public Consultation on Empowering the national competition authorities to be more effective enforcers, May 2016 http://ec.europa.eu/competition/consultations/2015_effective_enforcers/Summary_report_of_replies.pdf

  1. Ibid

[7] European Comission’s investigation into abuse of dominance by Gazprom involving the purchase, transmission and sale of gas (Case COMP/39.816)

  1. European Comission’s state aid investigation into Luxembourg tax rulings for Fiat and McDonald’s (Case COMP/SA.38375 and COMP/SA.38945)

[8]Robert Stack, US Treasury official, quoted in the Guardian on 29.01.2016 (http://bit.ly/2eb6eOR)

[9] The UK government issues a non-binding Ministerial Strategic Steer outlining the Government’s strategic priorities for the CMA.

[10] The UK’s CMA was established in 2014, by merging many functions of two previously operating agencies: Competition Commission and the Office of Fair Trading;

[11] UK criminal prosecution concerning galvanised steel tanks for water storage (2014) PaRR-Global https://app.parr-global.com/cases/view/1067784

[12] UK CMA criticised for low activity and fines by state auditors, PaRR-Global, 5 February 2016; https://app.parr-global.com/intelligence/view/1360628

[13] Most-favourite nation clause, which, in this context, does not allow the hotel owners to offer lower prices than they offer to the online booking platform.

[14] St Gallen International Competition Law forum, report by PaRR-Global https://app.parr-global.com/intelligence/view/1401342

[15] Ibid

[16] Interim ruling of higher Regional Court of Dusseldorf, 12 July 2016.

[17] German retailers to drop appeal over Tengelmann/Edeka, report by PaRR-Global https://app.parr-global.com/intelligence/view/1455272

[18] Polish chief’s dismissal questions independence of competition agency, lawyers say, report by PaRR-Global https://app.parr-global.com/intelligence/view/1357064

[19] Greek minister to meet Vestager over country’s competition agency reforms – report, report by PaRR-Global; https://app.parr-global.com/intelligence/view/1368745

[20] PaRR-Global: Lithuania lawmakers to debate business levy to fund antitrust agency, 3 May 2016; https://app.parr-global.com/intelligence/view/1393641

[21] PaRR-Global, EU survey finds majority want national enforcement improvements, 18 May 2016;

[22] Case at the EC SA.38373


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