On June 2, 2019, the Inspection générale des finances and the Conseil général de l’économie published a report on the EU competition policy and industrial strategy (the “Report”). The Report was commissioned by the Ministry of Economy and Finance in December 2018 and aimed at assessing EU competition policy in the context of the 2019 European elections. The Report highlights the necessity to reshape the procedures and legal instruments used by the European Commission, in particular in merger control, to answer a number of criticisms raised by the French and German governments following the decision of the European Commission to prohibit the Alstom- Siemens merger on February 6, 2019.[1] The Report states that competition policy seems to be applied more strictly in Europe than elsewhere, including China, and that the European Union’s strategic and industrial interests should be given more consideration in competition decisions.

The Report does not challenge the overall functioning of the European merger control system but makes several recommendations as to (i) the threshold for review of mergers in the digital sector (ii) the assessment of merger remedies and market entry from Chinese competitors, and (iii) the decision-making process of the Commission.

Further regulation of digital actors

The Report first advances several propositions directed at the global players of the digital economy. The recent string of so-called “killer acquisitions”, i.e., acquisitions of innovative actors by dominant companies while their products are still under development or have not been monetized yet, has increased scrutiny of the potential failures of competition authorities. A leading example is the acquisition of WhatsApp by Facebook, which initially was not reportable to the Commission, although authorities realized that it raised serious competition concerns. Against the backdrop premise that current turnover thresholds for merger control fail to capture these killer acquisitions at the EU level, the Report introduces the three options that are generally mentioned among commentators: (i) lowering turnover thresholds to capture more transactions, (ii) introducing a transaction value threshold (as is already the case in Germany) or (iii) introducing an ex-post control power. Going further, the Report supports the creation of a supervisory committee of these “systemic digital actors” at the European level, with increased investigation powers. Targeted companies could potentially be subject to specific obligations, e.g., transparency and portability of their data, or a general obligation to notify whenever an acquisition is made. Their transactions could also be reviewed ex post within a short time frame, in the event that the ratio between their value and the turnover of the acquired company suggests a potential competition issue.

The Report further notes that the Commission rarely resorts to interim measures, although timely intervention could prevent the market exit of new companies, especially in fast-changing markets like the digital sector. Therefore, it proposes to facilitate the use of interim measures by amending the conditions for granting such measures.

Amendments to the Horizontal Mergers Guidelines

As part of the merger review process, the Commission currently assesses the likelihood of market entry within a two-year period. The Report claims that this approach fails to account for major developments, such as the impact of a digital revolution or the market entry of heavily subsidized companies. They recommend that the Commission focus its analysis on long-term considerations. In addition, they advocate for the revision of the Horizontal Mergers Guidelines,[2] through the removal of the two-year timeframe when examining potential entry to the market.[3] They further advise the regulator to use benchmarks to determine whether significant and long-term changes occurring in comparable sectors may guide its assessment of the competitive conditions of the relevant market in a particular transaction.

The Report further explains that the rise of online platforms — and their resulting dominant positions — particularly in China, combined with China’s aggressive industrial policy, require the EU to level the global playing field. Central to this fundamental evolution is the assessment of new market entries. Chinese competitors benefit from important subsidies and partly avoid the enforcement of EU legislation while still receiving full access to the internal market. The Report stresses that the award of subsidies should form an integral part of the Commission’s analysis and serve as an indication of the competitive pressure that new entrants exert on European companies. Although there is no set list of criteria to be considered in this assessment, the Report still recommends amending the existing Horizontal Mergers Guidelines to ensure that subsidies are given proper weight.

Towards more behavioral remedies

According to the Report, the rapid evolution of markets also warrants a change of the remedies used by the Commission. The EU regulator overwhelmingly favors structural remedies, which not only more significantly burden the parties but also lead to irreversible consequences. These remedies cannot be adapted in the event of unexpected circumstances. Due to this fact and the risk that such a result entails, the Report aims to promote a shift to behavioral remedies to align the European practice with that of its extra- European rivals. These behavioral remedies would include a revision clause to allow for a review in the course of their implementation, rather than review limited to exceptional circumstances, as is the case today.

More collegiality in the Directorate- General for Competition

The principle of collegiality between directorates is enshrined in the Commission’s Rules of Procedure but has proven difficult to apply. The Report notes that during consultations, the directorates may not have enough information to fully weigh against the opinions of the Directorate-General for Competition. The Report seeks to promote more collegiality by encouraging the Directorate-General to involve the other sectorial directorates more efficiently, in particular during the review of mergers, and to show more transparency when the college of commissioners is called upon to make a decision. The Report also found that the Commission does not rely on experts to design adequate remedies, and thus encourage the Commission to recruit experts on industrial or sectorial strategy that could adequately support competition case teams. Their know-how would be particularly helpful in identifying the feasibility of remedies from an industrial, financial, and commercial perspective, and in conducting ex post reviews.

[1]              The Franco-German Manifesto for a European industrial policy fit for the 21st Century, published on February 19, 2019.

[2]              Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ 2004 C 31/03.

[3]              Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ 2004 C 31/03, para. 74.