EU competition policy and the consumer

In practical terms …
Where can I get more information?
Useful addresses and glossary
pages 22-27
ir
comp anies play fa
Making sure
1

pages 2-7

ergers
Examining m
2

pages 8-11

markets to competition
Opening up
3

pages 12-14

State aid
Monito9ring
4

pages 15-1

l co operation
Interna1tiona
pages 20-2
5

© PhotoDisc
This booklet has been prepared by the Directorate-General for Competition
of the European Commission as a guide for non-specialists. It does not have
any legal value and does not bind the European Commission in any way.
Making sure companies play fair
In a free market, business Why are cartels so bad for the in any cartel to do so will not have VITAMIN CARTELS
is a competitive game. economy and how do you find to pay a fine. This results in the In 2001, the European Commission
Sometimes, companies them? cartel being destabilised. The policy fined eight companies (among
may be tempted to avoid has been very successful since its which Hoffman-La Roche) for their
competing with each other A cartel is a group of similar, introduction in the EU. participation in cartels designed
and try to set their own independent companies which join to eliminate competition in the
rules for the game. together to control prices or divide In recent years, most cartels vitamin sector. Vitamins are used
up markets and limit competition. have been detected by the in a wide variety of products,
At times, a major player
Participants in a cartel can rely on European Commission after one such as cereals, biscuits, drinks,
in the game may try to
their agreed market share and do cartel member confessed and asked animal feed, pharmaceuticals and
squeeze its competitors not need to provide new products for leniency, though the European cosmetics. This was reflected in the
out of the market. or quality services at competitive Commission also successfully fine of more than EUR 800 million.
The European Commission prices. Therefore, consumers end up continues to carry out its own For almost 10 years, the companies
acts as the referee to ensure paying more for less quality. investigations to detect cartels. were able to charge higher
that all companies play by Annual fines totalling between prices than if there had been
the same rules. This is why cartels are illegal under EUR 0.5 billion and EUR 1 billion real competition between them,
EU competition law and why the have been imposed in cartel cases. harming consumers and allowing
European Commission imposes These fines go into the Community the companies to make illicit
heavy fines on companies involved budget, help finance the EU and profits.
in a cartel. Since cartels are illegal, ultimately save taxpayers’ money.
they are generally highly secretive Perhaps more importantly, the risk
and evidence of cartels is not easy of large fines deters companies from
to find. setting up or continuing cartels.

The ‘leniency policy’ encourages

companies to hand over inside
evidence of cartels to the European
Commission. The first company

Page 2
 ANTITRUST
Companies conclude Agreements between rival companies for luxury perfume impose some VIDEO GAMES
agreements every day: may restrict competition but restrictions on retailers as to the Between 1991 and 1998, Japanese
are they all illegal? may also be necessary to improve shop decoration or the training of video games maker Nintendo and
products or services, develop new personnel. On the other hand these seven of its official distributors
There are certain types of agreements products or find new and better agreements ensure that consumers in Europe worked together to
which are particularly harmful ways of making products available can both buy in an environment maintain artificially high price
for competition and are therefore to consumers. For example, new which suits the product and differences across the EU. Each
almost always prohibited, namely products requiring expensive benefit from personalised advice. distributor was obliged to prevent
secret cartels and other agreements research may only become available They also avoid a situation where exports from its territory to another
in which competitors agree to fix to consumers if several companies one distributor ‘free rides’ on the through unofficial distribution
prices, to limit production or to pool their efforts to develop promotional efforts of another channels (so-called parallel trade).
share markets or customers between them. Research and development distributor. Whether other Under Nintendo’s leadership, the
them. Agreements between a agreements and technology transfer distribution arrangements, such as companies collaborated intensively
producer and its distributors may agreements are therefore often exclusive distribution or selective to find the source of any such
also be prohibited, especially if they compatible with competition distribution, are lawful will depend exports. Traders who allowed these
fix resale prices. law. This may also be the case for on the market position of the exports were punished by being
other cooperation agreements companies involved and requires given smaller shipments or by
Not all agreements which restrict (concerning joint production, individual assessment above certain being boycotted altogether.
competition are necessarily illegal. purchasing or commercialisation, or market share thresholds. As a result, prices for play consoles
Agreements which have more standardisation), but will normally and games differed widely from
positive than negative effects depend on a detailed analysis one European Union country to
are allowed. Generally speaking, of circumstances and economic another, with the United Kingdom
agreements are more likely to benefits of these agreements. being up to 65 % cheaper than
be allowed when they are not Germany and the Netherlands.
concluded between competitors Other types of agreement which The European Commission imposed
or where the companies involved may restrict competition are those a total fine of EUR 168 million on
have only a small part of the between suppliers and retailers. For Nintendo and the distributors.
market. instance, distribution agreements

Page 3
 CAR SALES BETWEEN EU certain customers or by offering
ANTITRUST

MEMBER STATES discounts only to those customers

In 1998, following many which obtain all or most of their
complaints from consumers, supplies from the dominant
the European Commission fined company;
Volkswagen AG EUR 90 million
for banning its Italian dealers • forcing unjustified trading
from meeting orders from conditions on trading partners,
German and Austrian customers for example where a dominant
attracted by lower prices in Italy. company makes the sale of one
It is illegal for car manufacturers product conditional on the sale of
to discourage their dealers from another product.
selling to customers resident in
other EU Member States. The
European Commission publishes
a six-monthly review of pre- What if a large company Such abuses may involve:
tax car prices in each of the EU tries to squeeze competitors
Member States to help consumers out of its market? • charging unreasonably high
to identify the country in which prices, which may exploit
the car they might want to buy is If a company (or group of customers;
cheapest. companies) has a large proportion
of the business in a particular • charging unrealistically low
market, it is likely to have a prices, which may be used
dominant position in the market. to drive competitors out of
Dominant companies have a market or to make it more
the economic strength to act difficult for competitors to enter
without having to take account the market;
of either their competitors or
their consumers. This is why it is • discriminating between
illegal for companies to abuse their trading partners, for example
dominant position. by refusing to deal with

Page 4
TYRES MICROSOFT Who enforces EU competition restrict competition to be stopped

ANTITRUST
In 2001, the European Commission In 2004, the European Commission law on business practices which and fine companies that have
fined French tyre-maker Michelin fined Microsoft EUR 497 million restrict competition? broken EU competition law.
EUR 20 million for abusing its for abusing its dominant position
dominant position in the market in the market for operating The European Commission applies As part of their close cooperation in
for heavy vehicle replacement systems for personal computers and enforces EU law. It can require the European Competition Network
tyres in France during most of (PCs) between 1998 and 2004. companies to provide information (ECN), the European Commission
the 1990s. Over 50 % of new Microsoft’s Windows operating and, if necessary, carry out surprise and the national competition
replacement tyres for heavy system holds a 95 % share of the inspections in the offices of authorities inform each other
vehicles and an even higher share market. Microsoft was found to companies and, with a court order, about new cases to avoid multiple
of retread tyres were made by have: in the homes of company personnel. investigations. They also inform
Michelin. None of its competitors (i) withheld information which each other before taking a decision
were comparable in size so it rival server software would have If the European Commission finds in their cases to ensure that the law
was difficult for dealers to avoid needed to ’talk’ properly with evidence of illegal business practices is applied consistently regardless of
doing business with Michelin. Windows-based PCs. This meant which restrict competition, it can who enforces it. More information
Michelin used a system of rebates that rivals could not compete fairly act to prohibit such behaviour. on the ECN can be found below.
and bonuses to make dealers in the market; and It can also fine companies up to
dependent on its tyres and (ii) made the purchase of Windows 10 % of their annual turnover if Can national courts be asked to
prevented them from choosing conditional on the simultaneous the companies have, for example, apply EU competition rules?
their suppliers freely. acquisition of Microsoft’s separate participated in a cartel that fixed
Windows media player product. prices or agreed how to share out the Yes. Like the competition
This had the effect of populating market between them. authorities, national courts have
virtually all PCs with Windows the power to determine whether
media player, and hence distorting Does the Commission enforce EU a particular agreement complies
competition by artificially driving competition law alone? with the requirements of EU
content providers and applications competition law or not. Companies
developers to the Windows media No. All EU Member States have and consumers can claim damages
platform. national competition authorities if they have been the victim of
Microsoft has appealed to the which have the power to enforce illegal behaviour which restricts
European Court of First Instance EU competition law. They can order competition.
against this decision. agreements and practices which

Page 5
 The European Legislation: Article 81 of the EC
Competition Network
ANTITRUST

Treaty (restrictive agreements)

The European Commission and the Agreements between companies

national competition authorities or ‘undertakings’ which lead
in all EU Member States cooperate to an appreciable restriction of
with each other through the competition are prohibited. In fact,
European Competition Network
they are automatically void, so that
(ECN) by:
the normal rule ‘agreements need
• informing each other of new to be respected’ does not apply.
cases and decisions; The European Commission or a
• coordinating investigations, national competition authority can
where necessary; order companies to end such illegal
• helping each other with agreements and impose fines on
investigations; and companies for having concluded
• exchanging evidence. them. This applies also to unwritten
agreements, as well as to concerted
This creates an effective practices.
mechanism to counter companies
© Digital Vision Ltd

which engage in cross-border Examples include agreements

practices restricting competition. which:

The main objective of the ECN is to p fix purchase or selling prices or

ensure that EU competition law is other trading conditions;
applied consistently across the EU. and effective application of the law, competition problems and p limit production, markets,
Through the ECN, the competition the European Commission may promote a common approach. technical development or
authorities inform each other of decide to deal with a case itself. In this way, the ECN allows the investment;
proposed decisions and take on competition authorities to pool p share markets or sources of
board comments from the other Within the ECN, groups of experts their experience and identify best supply between competitors; or
competition authorities. Where in certain sectors (for example, practices. p apply discriminatory conditions
it is necessary to ensure consistent insurance and railways) discuss to companies that are not parties

Page 6
 to the agreement, placing them of agreements in detail. Restrictive most common types of agreements its own distribution network

ANTITRUST
at a competitive disadvantage. agreements that fulfil the affect competition and use and whether the company
conditions of a block exemption examples to illustrate how the has favourable access to raw
However, some restrictive regulation are allowed under Commission would look at such materials; all are factors which
agreements between companies Article 81. Current block exemption agreements. allow the company to evade
are allowed as they may encourage regulations cover notably research normal competition;
competition, for example by and development agreements, Regulations and guidelines are p the company dominates the
promoting technical progress specialisation agreements and published in the Official Journal European market or a ‘substantial
or by improving distribution. An technology transfer agreements, as of the European Union. Details and part’ of it;
agreement satisfying all of the well as distribution agreements — additional information — like an p the company abuses its position
following conditions is allowed: both in general and, more introductory brochure specifically by, for example, overcharging
specifically, in the car sector. dealing with vertical agreements customers, charging excessively
p it improves the production Furthermore, a number of block — are available on the Internet low prices designed to squeeze
or distribution of goods or exemption regulations relating (see http://europa.eu.int/comm/ out competitors or bar new
promotes technical or economic to particular sectors (insurance, competition/antitrust/legislation/ entrants from the market,
progress; transport) are in place. entente3_en.html#iii_1). or granting discriminatory
p it allows consumers a fair share advantages to some customers.
of the resulting benefit; The European Commission also Legislation: Article 82 of the
p the restriction of competition issues guidance on how it will EC Treaty (abuse of dominant The European
must be necessary to achieve apply the conditions mentioned position) Commission
the two points above; above in order to help companies or a national
p it must not eliminate to distinguish between agreements This article prohibits the abuse of competition
competition for a substantial that are compatible with a dominant position and applies authority can
proportion of the products or competition law and those which under the following conditions: prohibit an
services. are not. Commission guidelines abuse and fine the
on the assessment of horizontal p the company holds a dominant offending company.
On that basis, the European agreements (mainly between position, taking into account
Commission has adopted so-called competitors) and of vertical its market share and other
block exemption regulations agreements (such as distribution factors, such as whether there
which spell out the conditions to agreements) are a case in point. are credible competitors,
be fulfilled by certain categories These guidelines discuss how the whether the company has

Page 7
Examining mergers
While companies Why are mergers examined at the extent that they do not impede competition authorities in the
combining forces European level? competition and hence are capable EU Member States may review
(referred to below as of increasing the competitiveness of the merger.
mergers) can expand Combining the activities of European industry, improving the
markets and bring benefits different companies may allow the conditions of growth and raising the These rules apply to all mergers
to the consumer, some companies, for example, to develop standard of living in the EU. no matter where in the world the
combinations may reduce new products more efficiently or to merging companies have their
reduce production or distribution The objective of examining proposed registered office, headquarters,
competition and harm
costs. Through their increased mergers is to prevent harmful effects activities or production facilities.
consumers.
efficiency, the market becomes more on competition. Mergers going This is so because even mergers
competitive and consumers benefit beyond the national borders of any between companies based outside
from higher-quality goods at fairer one Member State are examined the European Union may affect
prices. at European level. This allows markets in the EU if the companies
companies trading in different EU do business in the EU.
However, some mergers may reduce Member States to obtain clearance for
competition in a market, usually their mergers in one go. The European Commission may also
by creating or strengthening a examine mergers which are referred
dominant player. This is likely to Which mergers are examined by to it from the national competition
harm consumers through higher the European Commission? authorities of the EU Member
prices, reduced choice or less States. This may take place on the
innovation. If the annual turnover of the basis of a request by the merging
combined businesses exceeds companies or based on a request by
Increased competition within specified thresholds in terms of the national competition authority
the European single market and global and European sales, the of an EU Member State. Under
globalisation are among the proposed merger must be notified certain circumstances, the European
factors which make it attractive to the European Commission, Commission may also refer a case to
for companies to join forces. Such which must examine it. Below the national competition authority
reorganisations are welcome to the these thresholds, the national of an EU Member State.

Page 8
When are mergers prohibited When does the European MERGERS IN THE in development which would
or approved? Commission approve mergers PHARMACEUTICALS SECTOR compete with Pfizer’s Viagra,
conditionally? Two large mergers in the thereby allowing the deal to be
All proposed mergers notified to the pharmaceutical sector were cleared.
Commission are examined to see However, not all mergers which notified to the European

MERGERS
if they would significantly impede significantly impede competition Commission: Sanofi/Synthélabo MERGERS IN THE CONSUMER
effective competition in the EU. are prohibited. Even if the European and Pfizer/Pharmacia. The GOODS/FOOD SECTOR
If they do not, they are approved Commission finds that a proposed European Commission concluded The initial analysis of the European
unconditionally. If they do, and no merger could distort competition, that both mergers could have an Commission concluded that
commitments aimed at removing the parties may commit to taking adverse impact on competition, the merger between the food
the impediment are proposed by action to try to correct this limiting the choice of certain companies Unilever and Bestfoods
the merging firms, they must be likely effect. ey may commit, drugs available to patients. would reduce competition in the
prohibited to protect businesses for example, to sell part of the In both cases, the parties markets for instant soups, pasta
and consumers from higher prices combined business or to license proposed transferring some of sauces, jams and other food
or a more limited choice of goods technology to another market their products to competitors, products in almost all EU Member
or services. Proposed mergers player. If the European Commission which the European Commission States. Consumers would have
may be prohibited, for example, is satisfied that the commitments agreed would restore competition been significantly affected by the
if the merging parties are major would maintain or restore in the markets and so protect the proposed merger, which could
competitors or if the merger would competition in the market, thereby interests of patients. In the case have resulted in a reduced choice
otherwise significantly weaken protecting consumer interests, of Sanofi/Synthélabo, among of products at higher prices. As a
effective competition in the it gives conditional clearance for the products transferred or sold result, the parties proposed the
market, in particular by creating or the merger to go ahead. It then were, for instance, vitamin B₁₂ sale of an estimated EUR 1 billion
strengthening a dominant player. monitors whether the merging sold under the name ‘Delagrange’, of their business to competitors
companies fulfil their commitments certain antibiotics, hypnotics and this allowed the European
and may intervene if they do not. and sedatives. In the case of Commission to give conditional
Pfizer/Pharmacia, the parties, for clearance to the merger.
instance, proposed transferring When examining the acquisition
to competitors certain products of Wella by Procter & Gamble, the

Page 9
 European Commission concluded the service stations on French
that competition could be reduced motorways. It would also have
in the markets for hair-care products become the leading supplier of
(such as shampoos, conditioners, liquid petroleum gas (LPG). The
treatments and colourants) in European Commission considered
MERGERS

Ireland, Sweden and Norway. To that this level of market power

correct this, the parties offered to would have pushed up prices.
license a number of hair-care brands To remedy these competition
such as Herbal Essences, Silvikrin concerns, TotalFina/Elf proposed
and Catzy to competitors in these the sale of a large proportion of
countries. This allowed the European these operations to competitors.
Commission to give conditional For example, it proposed selling
clearance to the acquisition. 70 motorway service stations
in France to competitors.
MERGER OF FRENCH This allowed the European
PETROLEUM COMPANIES Commission to
TotalFina and Elf Aquitaine were
the main players in the French
petroleum products sector
and their merger would have

independent petrol distributors.

In particular, this would have

© Digital Vision Ltd

helped to reduce fuel prices in
France.
The combined company would
have operated around 60 % of

Page 10
Community law on merger control

Regulation (EC) No 139/2004 — every year. The detailed unconditionally, or it may merger control which provide
the merger regulation: statistics are available on the prohibit it, notably in cases a detailed explanation of the
Europa competition website. where the companies have analytical framework employed
Details of the notification not been able to propose by the Commission in assessing
p The European Commission requirements as well as appropriate solutions to the likely impact of mergers

MERGERS
has the exclusive power to the notification form the concerns raised by the on competition, and of some
investigate mergers with (Form CO) are regulated by Commission. ‘Conditions’ of the basic terms used in
a Community dimension. Commission Regulation (EC) attached to the authorisation merger control law (such as,
Companies thus have a one- No 808/2004. frequently entail the sale to for example, a notice on the
stop shop for merger control, competitors of assets, shares, concept of concentration). These
which simplifies and reduces p After an initial scrutiny period patents, etc. can be found on the Europa
administrative procedures. of 25 working days, the competition website.
The main benchmarks for Commission decides either to p Over 90 % of notified cases
determining which mergers authorise the transaction or, if are approved after the initial
have a Community dimension it thinks that the concentration scrutiny period of 25 working
are that the worldwide turnover might result in a significant days. Most cases going through
of the merging companies is over impediment to effective the 90 working days’ in-depth
EUR 5 000 million and that their competition, it may initiate investigation procedure are
Community-wide turnover is an in-depth investigation resolved by a conditional
over EUR 250 million. procedure which usually takes authorisation. Since 1990, there
up to a further 90 working days have been only 18 outright
p Mergers with a Community (in certain circumstances, this prohibitions. Detailed statistics
dimension have to be notified may be increased to 105 or 125 are available on the Europa
to the Commission for its working days). competition website.
agreement before they are put
into effect. The Commission p At the end of this procedure, p The Commission has adopted
currently receives between the Commission may authorise a number of interpretative
200 and 300 notifications the merger conditionally or notices on various aspects of

Page 11
 Opening up markets to
o competition
co
Services such as transport, What are the advantages of LOWCOST AIRLINES How has freedom of choice been
energy, postal services and liberalisation? Low-cost airlines have been able introduced?
telecommunications have to start operating and developing
not always been as open In the EU Member States, services in Europe thanks to the European e approach of the European
to competition as they like these have previously been Commission opening up the airline Commission has evolved over the
are today. The European provided by national organisations industry to competition. The wider years. In 1993, when requiring
Commission has been with exclusive rights to provide and more affordable range of Denmark to end the monopoly
a given service. By opening up services now available are enjoyed rights of the State-owned railway
instrumental in opening
these markets to international by many European consumers. company DSB on the port
up these markets to
competition, consumers can now facilities at Rødby, the European
competition (also known
LIBERALISATION

choose from a number of alternative GAS Commission left the Danish

as liberalisation).
ation) service providers and products. In 2004, the European Commission government the choice to allow
intervened when the French and competitors to use the same facilities
Opening up these markets to German gas companies Gaz de or, alternatively, to construct new
competition has also allowed France and Ruhrgas allegedly facilities near the existing port.
consumers to benefit from lower refused to allow the Norwegian However, it soon became apparent
prices and new services which gas producer Marathon access that establishing competing
are usually more efficient and to their gas networks. Both the facilities, especially in the case of
consumer-friendly than before. French and the German companies nationwide networks, requires a
is helps to make our economy subsequently offered to improve great deal of investment and is
more competitive. access to their respective usually inefficient. So the European
networks, allowing customers in Commission developed the concept
France and Germany to benefit of legally separating the provision of
more effectively in future from the network from the commercial
the opening of the gas markets to services using the network.
competition.
In the railway, electricity and gas
industries, the network operators are

Page 12
 .

on consumers?
THE COST OF CALLS FROM
FIXED TELEPHONES
The European Commission opened
the telecommunications sector
completely to competition on
1 January 1998. This allowed
residential and business users in
Europe to save 13 % and 23 %
respectively on their telephone
bills for domestic calls from fixed
90
80
70
60
50
40
30
20
Average monthly phone bill for national calls (EUR)

78.5

34.0
70.3

31.5

Residential, incl. VAT

64.0

29.8
62.7

30.0
61.0

29.5
60.7

29.4

LIBERALISATION
In the two markets which were telephones between August 1998 10 Business, excl. VAT
opened up to competition first (air and August 2003. 0
transport and telecommunications), The savings were even more 1998 1999 2000 2001 2002 2003
(Source: Ninth report on the implementation of the telecommunications regulatory package, COM(2003) 715 final).
average prices have dropped dramatic for international calls,
substantially is is not the case for where the average cost of calls to
Average cost for 10-minute international calls (EUR)
markets which were opened up to all OECD countries fell by 41 % for
2.0
competition later or not at all (such residential users and by 45 % for 1.68
1.8
as electricity, gas, rail transport and business users.
postal services), where prices have 1.6 1.43
1.31
remained unchanged or have even 1.4 1.22
1.2 1.08 1.03
increased. Although this may be 1.03 0.98
0.93
due to sector-specific factors — for 1.0
0.73 0.70
instance, gas prices are closely 0.8 0.67
related to oil prices — it seems 0.6 Residential, incl. VAT
that consumers have been able to 0.4 Business, excl. VAT
benefit more easily from lower prices 0.2
in sectors which are more open to 0.0
competition. 1998 1999 2000 2001 2002 2003
(Source: Ninth report on the implementation of the telecommunications regulatory package, COM(2003) 715 final).

Page 13
 ’.

Legislation: If EU Member States do not
Article 86 of the EC Treaty comply with directives, the
European Commission initiates
The EC Treaty states that the an infringement procedure under
‘activities of the Community shall Article 226 of the EC Treaty.
include a system ensuring that
competition in the internal market The decisions taken by the European
© European Communities, 2004

is not distorted’. The European Commission under Article 86

Commission opens up markets to also contributed significantly to
competition through the use of the opening up of markets to
different legal instruments, including competition. By 2004, decisions
Articles 81 and 82 of the EC Treaty. had been adopted in most of
Article 86 of the EC Treaty gives the the areas where Member States
European Commission a specific granted special and exclusive
duty to monitor public undertakings rights (for further details see http:
and undertakings to which Member //europa.eu.int/comm/competition/
LIBERALISATION

Can public services be delivered POSTAL SERVICES States grant special or exclusive liberalization/decisions/):
properly in a competitive market? The State-funded German rights. It gives the European p postal services (5),
postal service, Deutsche Post, is Commission the power to address p mobile telecommunications (2),
Opening up new markets requires obliged to maintain an expensive, appropriate directives or decisions p airports (3),
additional regulation to ensure nationwide network of post to Member States which enact or p ports and maritime transport (4),
that public services continue to be offices and therefore has higher maintain measures contrary to the p insurance (1) and
provided and that the consumer is costs than its competitors. In rules contained in the Treaty. p broadcasting (1).
not adversely affected. When applying March 2001, when the European
The European Commission has The European Commission also
competition law, the European Commission asked Deutsche Post
adopted directives under examined complaints in other
Commission always takes account to provide its parcel services at a
Article 86: sectors, such as energy, but solutions
of the special obligations placed on fair price, it recognised that part
p to ensure that financial favourable to consumers were
any organisation benefiting from of Deutsche Post’s costs came found without the need for formal
‘monopoly rights is approach from this obligation. As a result, relations between the
Member States and their decisions. In addition, the European
ensures that there is fair competition it only asked Deutsche Post to set Commission has proposed
public companies are
without handicapping the State- its prices to cover the extra cost of measures to the European
transparent; and
funded provider, which is obliged to providing parcel services, over and Parliament and the Council to
p to open up the electronic
provide services in the public interest above the cost of maintaining this communications markets to open up some of these markets
even where this is not profitable. network (i.e. the incremental cost). competition. to competition.

Page 14
Monitoring State aid
It is of fundamental
importance that competitors
operate on an equal basis.
Faced with free trade
between EU Member States
and the opening of public
services to competition,
national authorities
sometimes want to use
public resources to promote
certain economic activities
or to protect national
industries. The granting of
these resources is known as
State aid.
etirs.

co
m
p
What is State aid?

A company which receives

government support obtains
an unfair advantage over its
erefore, the EC
Treaty generally prohibits State aid
unless it is justified by reasons of
general economic development.
To ensure that this prohibition
is respected and exemptions are
applied equally across the European
Union, the European Commission
is in charge of watching over the
compliance of State aid with EU
rules.

As a first step, it has to determine

or part of a company, or the
provision of goods and services
on preferential terms, etc.),

2. the intervention is likely to affect

trade between Member States,

3. the intervention confers an

advantage to the recipient on a
selective basis, for example to
specific companies or sectors of
the industry, or to companies
located in specific regions,

4. competition has been or may be

distorted.

By contrast, general measures are

STATE AID TO GERMAN, AUSTRIAN
AND FRENCH PUBLIC BANKS
The German and Austrian
Landesbanken obtained
State guarantees from their
governments protecting them
from bankruptcy. These guarantees
allowed the public banks to
grant loans on more favourable
conditions than their commercial
competitors.
After an investigation of the
guarantees, the European
Commission concluded that the
guarantees constituted illegal State
aid and negotiated their phasing
out with the German and Austrian
governments.
A similar decision was taken with
regard to a guarantee by the
French government to the public
financial institution Caisse des
Dépôts et Consignations ( CDC ) to

STATE AID
State aid can distort fair if a company has received State not regarded as State support the commercial banking
and effective competition aid, which is the case if the support aid because they are not activities of CDC. The Commission
between companies in meets the following criteria: selective and apply to also demanded the phasing out
Member States and harm all companies regardless of the guarantee, allowing CDC
the economy, which is why 1. there has been an intervention of their size, location or to adjust its operational and legal
the European Commission by the State or through State sector. Examples include environment to operate under the
monitors State aid. resources which can take a variety general taxation measures same conditions as its competitors.
of forms (e.g. grants, interest or employment legislation. These decisions of the Commission
and tax reliefs, guarantees, contributed to restoring fair
government holdings of all competition in the banking sector.

Page 15
STATE AID



d

e
.

i
t
a
n
.
When is State aid allowed?

e EC Treaty contains a list of

possible circumstances in which
State aid may be granted. Over the
years, the European Commission
has developed a clear framework for
State aid measures which are in the
common interest of the European
Union and thus allow ese
include developing disadvantaged
regions, promoting small and
medium-sized enterprises (SMEs),
research and development (R & D),
the protection of the environment,
training, employment and culture.

e most controversial types of

State aid, which are subject to
an in-depth investigation by the
European Commission, are rescue
and restructuring aid, financial
transactions between the State and its
public companies resulting in aid and
aid to companies in certain sensitive
sectors such as steel, shipbuilding
and motor vehicles. In particular,
aid for the rescue and restructuring
business, usually at the expense of
competitors and their employees.
Even the jobs maintained at the
company which receives the
State aid are often uncer
Commission has adopted guidelines

new guidelines introduce stricter

rules concerning the efforts big
e

reflecting an increased focus on large

companies that trade across the EU.
ese companies usually have large
market shares and State support
in their favour affects competition
and trade more significantly. e

beneficiaries have to make to finance

their own survival. For example,
large companies should in the
future carry around 50 % of the
restructuring cost themselves.

Aid which does not contribute to

any of the commonly accepted
objectives of the European Union
cannot be allowed. Examples of such
unlawful aid are general investment
aid for large companies outside
well-defined disadvantaged regions,
export aid and operating aid (which
TRAINING AID TO FIAT
The European Commission
approved training aid amounting
to EUR 38 million for the Italian car
manufacturer Fiat to improve the
knowledge of workers whose jobs
were at risk due to rationalisation
measures and who needed training
to adapt to changes in production
processes and demands. The
European Commission is generally
favourable towards training aid
measures. Several European
Councils have declared that training
is an important factor to make
the European economy more
competitive on world markets.

RESEARCH AND DEVELOPMENT

AID TO MOTOROLA, PHILIPS
AND ST MICROELECTRONICS
In 2003, the Commission
approved aid in the amount of
EUR 293 million for a joint research
project of the three companies to
develop new technology for first
prototypes of integrated circuits
with nano-metric dimensions.
research. One of the positive
elements of the project was the
substantial increase of research
personnel as well as the increase
in R & D expenditure, thereby
contributing to European Council
targets to increase R & D spending
by industry and Member States
to foster the competitiveness of
European industry.

STATE AID TO ALSTOM

The European Commission
approved restructuring aid by the
French government to Alstom,
a group with a wide range of
production activities mainly in the
transport and energy sectors. The
aid was approved on the condition
that the company adopts so-called
compensatory measures, such as
selling off businesses in various
sectors of the group’s activities.
These compensatory measures
were necessary to ensure that the
restructuring aid would not cause
substantial harm to competitors
operating without State aid and
of companies in financial difficulties is aid to cover the running costs of The aid was approved for research to restore fair competition in the
may allow a company on the companies). in all stages, i.e. fundamental, transport and energy sectors.
verge of bankruptcy to stay in pre-competitive and industrial

Page 16
How does the European
Commission monitor State aid?

Generally, EU Member States are

obliged to inform the European
Commission about State aid plans
by means of a notification prior
to their implementation. It is only
after the approval of the aid that the
Member State is allowed to put it
into effect.

In some cases, however, a

notification is not required and an
information sheet shortly after the
aid has been granted is sufficient.
is simplification applies to
areas where the Commission
has considerable experience
with certain types of State aid,
which contribute to the overall
development of the European
economy. Among these are aid to
encourage training, employment,
SMEs and R & D activities,
particularly when carried out
by SMEs.

Aid of up to EUR 100 000 given to

companies over a three-year period
is not considered to be State aid as it
stae_id/).on
is not large enough to have an effect
on trade between Member States.
is simplification also allows the
Commission to focus on more
important cases.

e Commission approves
around 85 % of all notified State
aid measures after a preliminary
assessment. It only makes a formal
investigation in contentious cases
and publishes its decision to do
so in the Official Journal and on
the competition homepage (http:
//europa.eu.int/comm/competition/
e procedure gives
interested parties the opportunity to
comment on the aid and enables the
Commission to consider all aspects
before reaching a final decision.

e European Commission also

investigates aid granted by EU
Member States which has not been
notified in advance (known as
unlawful aid). It might find out
about unlawful aid from complaints
by companies or individuals, or
through reports in the media. In
addition to informing the
Commission, third parties, usually
competitors, can challenge State aid
measures directly before national
courts.

If the European Commission finds

unlawful aid to be incompatible
with the principle of fair
competition on the internal market
and in violation of EU law, it
requires the Member State to abolish
the measure and to recover the aid
from the beneficiary to restore the
situation which existed before the
aid was granted.

State aid scoreboard

e European Commission is also

in charge of monitoring the overall
amount and nature of State aid
granted by each EU Member State.
Its analysis shows that Member
States have reduced the level of
State aid considerably in recent
years and redirected most State
aid to stimulate activities in the
common interest of the European
Un is positive development
contributes to make the European
economy more competitive and
improves national markets as well

Page 17
as Europe’s position on the global
market. Details of this analysis are
published at:

http://europa.eu.int/comm/
competition/state_aid/scoreboard/
analytical_section.html

SCI SYSTEMS
In the late 1990s, the Dutch
authorities granted SCI Systems
a generous aid package to build
a factory for the assembly of PCs
for Hewlett-Packard in Friesland.
In February 2001, the European
Commission found that this
aid broke the rules on regional
investment aid. These rules
prevent authorities from having an
expensive subsidy race to attract
mobile investment projects and
the jobs they could bring to their
region. Such races would be costly
for taxpayers and undermine
cohesion objectives because richer
authorities could continuously
outbid poorer ones. In August
2002, the company paid back
NGL 3.8 million (EUR 1.7 million) to
the Dutch authorities.

STATE AID
STATE AID

. 
monitrg.
What measures has the European
Commission taken to improve its
State aid control system?

On several occasions, the European

Council has underlined the need to
grant less but better targeted State
aid in order to boost the European
economy e Commission has
reacted to this demand by adopting
a number of new instruments to
accelerate and facilitate the granting
of State aid where it would conform
to EU objectives.

For example, formalities have

been reduced in cases where the
aid is likely to be in conformity
with European law and generally
does not pose problems (see above
under ‘How does the European
Commission monitor State aid?’ ).
In these cases, Member States need
to inform the Commission after
granting the aid as a procedure in
the interest of transparency.

Another improvement is that the

Commission now provides forms
for notification and information.
e forms have the clear advantage
of providing the Commission with
the information it needs and of
clarifying the required content for
the Member States.

Furthermore, enforcement of
Commission decisions ordering the
recovery of unlawful aid has been
improved through the creation of
a specialised unit to ensure strict
e effective recovery
is a necessary complement to the
Commission’s power to control State
aid, and Member States now have
an increased incentive to implement
recovery decisions.

Why is particular attention paid

to public services which have
been opened up to competition?

Public services (also known as

services of general economic
interest) are crucial to the proper
functioning of the economy as
well as our society erefore,
it has to be guaranteed that
public services are available on a
continuous and sufficient basis.
As mentioned in the previous
section on ‘Opening up markets
to competition’, many of them
like postal and transport services,
electricity and telecommunications
have experienced a radical overhaul
through their liberalisation and
face difficult situations on the
competitive market.

us, to ensure the uninterrupted

provision of public services,
companies in these sectors have to
be compensated for costs incurred
by assuming this responsibility.
However, the possibility that
companies use the compensation
for activities which should
be performed under normal
competitive conditions means that
this has to be watched closely under
State aid rules.

Page 18
STATE AID TO TV2 DENMARK
In May 2004, the European
Commission ordered the Danish
public broadcaster TV2 to pay
back excess compensation for
public service tasks. It had initiated
this investigation following a
complaint from a commercial
broadcaster operating on the
Danish market, claiming that TV2
received State aid to finance its
public service tasks.
The investigation showed that
the total amount of State aid TV2
received exceeded the costs of
accomplishing its public service
mission by EUR 84.4 million.
TV2 could use the excess
compensation to finance its
commercial activities, unduly
favouring it over competitors that
did not receive State funding.
In order to restore competitive
conditions in its commercial
activities, the Commission
ordered TV2 to refund the excess
compensation plus interest.
What are the challenges for the Legislation: Articles 87, 88 and 89 for training, employment and SMEs.
new Member States? of the EC Treaty, regulations and To ensure transparency, however,
block exemptions Member States are obliged to
The 10 new Member States which send an information notice to the
joined the European Union on Article 87 contains the substantive Commission shortly after the aid is
1 May 2004 previously had different rules governing State aid, namely implemented.
traditions concerning State aid. the general principle that State
However, since joining, they have aid is incompatible with the Article 88 sets out the basic
had to comply fully with European common market, as well as a list procedural rules regarding
State aid provisions. This has of possible exemption clauses. the enforcement of Article 87,
resulted in a drive for less and better The Commission has adopted in particular the obligation
targeted aid, which also helps the a number of interpretative of Member States to notify
new Member States to integrate frameworks and guidelines any plans to grant aid to the
better into the internal market. As clarifying how it applies the Commission and to implement
regards State aid measures in the exemption clauses, thus ensuring aid only after the Commission’s
new Member States which already a coherent application of State aid approval. The Treaty provisions
existed before they joined the rules across all Member States and have been complemented by the
European Union, these measures sectors of the industry. Examples procedural regulation (Council
continue to be applied without the include the Community framework Regulation (EC) No 659/1999)
risk of recovery until they are, where for State aid for R & D and the and the implementing regulation
necessary, brought into line with EU Community guidelines on State (Commission Regulation (EC)

STATE AID
State aid rules. aid for environmental protection. No 794/2004).
In areas where the Commission
has gained sufficient experience, Article 89 is the legal basis for
it has adopted a number of legal Council regulations in the State
instruments known as block aid field, such as the procedural
exemption regulations, setting regulation and the enabling
out the conditions under which regulation (Council Regulation (EC)
Member States may implement No 994/98) which is the basis for
aid without notifying it to the block exemption regulations.
Commission. Examples include aid

Page 19
INTERNATIONAL
COOPERATION

International cooperation
With increasing
globalisation, more
and more companies,
mergers and cartels are
international. As a result,
the activities of companies
based outside the EU may
affect competition within
the EU. This has made
international cooperation
on competition policy
essential.
kouidhEUets.
Does the European Commission
examine mergers or cartels
involving non-EU companies?

Any company whose activities

affect the EU market is subject to
European competition law. It does
not matter whether the business has
its registered office, headquarters or
shareholders inside or outside the
EU.

is is why European competition

authorities may take action if a
cartel affects the EU market, even
if the companies involved are based
e same cartel may
also be examined by competition
authorities outside the EU.

Likewise, the European Commission

can intervene where a merger
affects competition in the EU,
whether or not the merging
companies are based within the
EU. Indeed, all mergers involving
companies with an aggregate
turnover within the EU exceeding
a certain level must be notified
to the European Commission for
clearance.

What gives the European

Commission authority to
decide whether the behaviour
of a non-EU company restricts
competition or not?

Many non-EU companies

sell their products globally,
including in the European Union,
which tends to be one of their
main mar ey must therefore
respect EU competition rules
in the same way that European
companies must respect the laws
of other countries when operating
outside the EU.

How are practices which restrict

competition dealt with outside
the EU?

Over 100 countries and regions,

including the most significant
trading partners of the EU, have

Page 20
competition policies.
e competition authorities
in these countries or regions
are increasingly called upon to
investigate the same international
mergers or take action against
international cartels. Almost all of
them are members of forums such
as the International Competition
Network (ICN), which is an
informal, worldwide network of
competition authorities.

International Competition
Network: see
www.internationalcompetition
network.org

e European Commission believes

that competition authorities
around the world can benefit
from pooling their experience and
this is why it has been playing a
leading role in the ICN since its
creation. Even though the ICN
was formed quite recently, it has
already delivered an impressive
series of recommendations within
a relatively short time. In time,
these recommendations should
lead to a more coherent approach
to competition policy around the
world.

How does the European

Commission cooperate with
other competition authorities?

e European Commission
is frequently in contact with
competition authorities outside the
EU. For example, in Europe the
European Commission cooperates
with the EFTA Surveillance
Authority. Also, the European
Commission has coordinated with
the Canadian, Japanese and US
competition authorities to carry
out simultaneous inspections in six
EU Member States, Canada, Japan
and the US in connection with an
alleged international cartel.

e European Commission also

discusses technical approaches to
specific cases with other competition
examingthsc.
authorities which may also be

with apparently contradictory

e
European Commission believes that
this kind of direct cooperation is not
only efficient but is also welcomed
by the companies concerned,
which might otherwise be faced

remedies imposed by the different

competition authorities involved.

e EU has competition
cooperation arrangements with
several countries and regions.
All of these are published on the
website of the Directorate-General
for Competition of the European
Commission.

Cooperation between the EU and

other countries and regions: see
http://europa.eu.int/comm/
competition/international/bilateral/
bilateral.html
What are the advantages to EU
consumers and companies of
the cooperation between the
EU competition authorities and
other competition authorities?

e more close-knit the

international community of
competition authorities is, the more
likely it is to ensure that consumers
and companies get the best deal
in prices and quality by taking
uniform and decisive action against
companies which form cartels or
abuse their market power, affecting
different countries or regions. At
the same time, by cooperating with
competition authorities outside the
EU, the European Commission
aims to create the level playing field
necessary for companies of whatever
nationality to compete on their
merits even outside the EU.

International cooperation by the EU

on competition matters: see
http://europa.eu.int/comm/
competition/international/overview/

Page 21

© Digital Vision Ltd

INTERNATIONAL
COOPERATION
In practical terms …
p What can I do if I suspect that
a business practice restricts
competition?

In your daily life, you may come

across situations in which there are
signs of business practices which
may restrict competition, such as
those described in this brochure. For
instance, companies have sometimes
refused to accept orders from
consumers from other Member
States. Such a refusal may be a
sign of illegal, restrictive practices
and you may want to inform a
competition authority about them.


.

d


e
.

i
t
o
n
s
.
STEP 1: DECIDE WHICH
COMPETITION AUTHORITY
TO INFORM

If the situation you have encountered

is specific and limited to the country
or the area in which you live, or
involves no more than three Member
States you may in the first place want
to contact a national competition
authority e competition
authorities of all EU Member States
now apply the same competition
rules as the European Commission
and very often they are well placed
to deal with your problem. If you
think that a larger number of
Member States are concerned, you
may primarily choose to contact the
European Commission. Even if you
are unsure about the scope of the
problem, do not hesitate to contact
either the European Commission
or a national competition authority.
e authorities cooperate and
may allocate a case that could arise
from your report between them as
appropriate.
STEP 2A: IF YOU WISH TO
INFORM THE EUROPEAN
COMMISSION

Reporting your concerns to the

European Commission

You can report your concerns

to the European Commission
by e-mail to comp-market-
information@cec.eu.int. Alternatively,
you can write a letter to the European
Commission, Competition DG,
Antitrust Registry, B-1049 Brussels.
Please indicate your name and
address, identify the firms and
products concerned and describe
clearly the practice you have
observ is will help the European
Commission to detect problems in
the market and can be the starting
point for an investigation.

Making a formal complaint with

the European Commission

If you are directly affected by the

practice which you suspect restricts

Page 22
competition and able to provide
the European Commission with
specific information, you may
want to lodge a formal complaint
instead. In this case, you would
need to fulfil certain legal
requirements which are explained in
detail in the Commission Notice on
the handling of complaints
(for further information see
http://europa.eu.int/dgcomp/).
You can also send an e-mail to
comp-market-information@cec.eu.int
to ask for further information on the
lodging of a formal complaint.

Informing a consumer
association

As an individual consumer, you may

also inform a consumer association
of your observa e consumer
association can then decide to
pool information received from
different consumers and make a
formal complaint to the European
Commission.
INFORM A NATIONAL
COMPETITION AUTHORITY

At the end of this brochure you

will find a list with contact details
of national competition authorities
of all EU Member States. National
competition authorities in the
EU Member States can gather
information from the companies
concerned and take action to
remedy the problem if they find
that EU competition law has been
broken.

Please note that the procedures

followed by the national authorities
depend on their national laws and
may differ from one EU Member
State to another. So, before
contacting a national competition
authority, you may want to check its
website or seek guidance from the
authority on how best to report your
concerns.
ber:(32
)9458.
num
p What can I do if I think my
company may be involved
in a cartel or is restricting
competition in some way?

If your company decides to

take advantage of the European
Commission’s policy towards
companies in a cartel which
give inside information about
its existence, it may approach
the European Commission
either directly or through an
intermediary, such as a legal adviser.
An application for immunity or
reduced fines under this policy
should be sent to the dedicated fax
is
ensures that the precise time and
date of the contact is recorded and
that the information is treated
with the utmost confidentiality. If
necessary, initial contact can also
be made through the following
dedicated telephone numbers:
(32-2) 29-84190 or (32-2) 29-
84191. Under the policy, the first
company to submit evidence of a
cartel unknown to, or unproved
by, the European Commission
may receive total immunity from
fines. Companies submitting later
applications may benefit from
reduced fines.

If you are an employee or former

employee of a company which you
believe is restricting competition
in some way, you may approach
the European Commission using
the following dedicated telephone
numbers: (32-2) 29-84190 or
(32-2) 29-84191 to pass on any
information and evidence you may
have of this. Your identity will not
be disclosed without your consent.
Based on the information and
evidence you have provided, the
Commission may decide to open an
investigation.

Page 23
p How can I make a merger-
related complaint or
suggestion to the European
Commission?

In case you wish to make a

complaint or a suggestion relating
to a merger, you may contact the
European Commission by e-mail
at comp-mergers@cec.eu.int or by
writing to:

European Commission
Directorate-General for Competition
Merger Registry
B-1049 Brussels
 measure?

Lodge a formal complaint

You can lodge a complaint with

the European Commission if you

e.
p What can I do if competition is
distorted through a State aid

believe that competition is distorted

through a State aid measure. A
special form and further guidance
are available on the Internet at the
following address:
http://europa.eu.int/comm/
secretariat_general/sgb/droit_com/
index_en.htm#aides.

Inform the European Commission

during a formal investigation

You can also make your voice heard

when the Commission opens a
formal investigation procedur
Commission must always take this

Official Journal of the European

Union, explaining the difficulties
the Commission has approving
the aid and inviting interested
e

procedural step where it has doubts

that State aid can be accepted.
A letter will be published in the
parties to provide comments.
e published letters can also be
found on the Competition DG
website: http://europa.eu.int/comm/
competition/state_aid/oj/.

p Is there a contact point for

consumers on competition
issues?

e European Commissioner
responsible for competition
appointed a Consumer
Liaison Officer within the
Commission’s Competition DG
to ensure a permanent dialogue
with European consumers.
To contact him, you may send him
an e-mail to his mailbox:
comp-consumer-officer@cec.eu.int.
Where can I get more information?
From the European Commission

On the Internet

You can find more details about

the information contained in this
booklet as well as information on
mergers notified to the Commission,
the full text of competition decisions
in the antitrust, merger and State
aid areas, and the relevant legislation
on the website: http://europa.eu.int/
comm/competition/index_en.html.

In print

e following publications are on sale

in print form but can be downloaded
free of charge (unless otherwise
stated) from the above website:

• the annual Report on competition

policy;
• information on mergers notified to
the Commission, formal decisions
of the European Commission in
the antitrust, merger and State
aid areas, as well as the detailed
legislation on which they are
based, are published in the Official
Journal of the European Union;

Page 24
• The competition rules for supply and
distribution agreements and the
Competition policy newsletter are
available, free of charge, from the
European Commission’s representative
offices in the EU Member States and
from EU Info-Points;
• a review of the work of the European
Commission on competition matters
is included in the annual General
report on the activities of the European
Union, which can be consulted
online on the website
http://europa.eu.int/abc/doc/off/rg/
en/welcome.htm

By e-mail or letter

If you have any questions about the

contents of this booklet, you can send
an e-mail to infocomp@cec.eu.int or
write to the following address:

European Commission
Directorate-General for Competition
B-1049 Brussels
Tel. (32-2) 29-91111

Where can I get more information?

For contact points in the Member States È