Competition Policy [print sheet]
Last updated: 14/08/08

Controlling competition between companies is an area where the EU is particularly powerful and where its decisions are clearly felt by European citizens. The EU's control over competition policy gives it the power to rule on mergers, takeovers, cartels and the use of state aid. The EU has been able to develop competition regulation into a key area of EU leadership. It has had wide success in imposing its vision of open market competition on member states and has a direct effect on European citizens' daily lives, with actions being taken against big names like Microsoft. Yet, it has also been criticised for going beyond its accepted remit and for pursuing a free market policy that might undermine parts of the social market model that has operated in many European countries.

The EU's role in competition policy was set out in the Treaty of Rome (1957), which gave it wide-ranging powers to oversee and prevent activities that it judges likely to stop competition between firms. During the 1990s, the EU became much more active in its pursuit of breaches of competition law, increasing the number of prosecutions it brought. It also began to act against cases that are not strictly within the EU jurisdiction, such as the 1997 merger of two large US aircraft manufacturers, Boeing and McDonnell-Douglas. In May 2004, the EU's powers were reformed following criticism that the EU was too unaccountable in its pursuit of breaches of competition law. The new rules passed the power over managing competition back to national authorities and set stricter deadlines for decisions to be reached.

Under the Treaty of Rome, the Commission is empowered to investigate price fixing, the abuse of market position by dominant companies and agreements that fix market share, limit production or technical development. Significantly, it is also allowed to intervene against governments who attempt to prop-up uncompetitive companies with state aid. Competition policy is run by a part of the EU Commission called the Directorate-General for Competition. Along with the European Court of Justice (ECJ), they investigate potential breaches of competition law and prosecute companies that fail to reach the standard. This involves not only court cases but also active investigation, with the EU conducting dawn raids on businesses that it suspects of engaging in illegal practices. Its main sanction is to impose fines on those who do not comply. Its far reaching power has brought it into conflict with some governments, particularly the French, who believe that they have a right to protect so-called 'national champions' - companies that are seen to be strategically important.

• In 2001, the EU imposed €1.8 billion of fines, more than all the fines for unfair practices previously imposed by the Commission.
• In February 2008 the EU fined Microsoft €899 million for abusing its dominance of the market.
• Between 1990 and 2005 the EU prevented 18 mergers.
• Italy is the major member state that gives the most money to businesses in state aid - equivalent to €236 per head of the population.

For

• Competition is vital to promoting economic growth because it forces companies to become more efficient.
• Competition is central to a properly functioning free market economy.
• Because competition policy is a cross-border issue, it makes most sense to run it at a European level.

Against

• Competition is not always a good thing - some industries, for example defence, healthcare or nuclear power, are so sensitive that they should be protected from market forces.
• The Commission has taken its remit too far in pursuing cases outside its jurisdiction. This dilutes the authority of the EU.
• The EU has been too activist in hunting out problems, thus creating extra costs for taxpayers and businesses.

‘'Effective competition is the best and strongest means to create natural incentives for companies to come up with new ideas and new products.' - Neelie Kroes, EU Competition Commissioner, 2004-2009

'Competition is also beginning to impact those areas in which Italy traditionally has been out in the forefront… leadership is beginning to flee to California, and sometimes to Germany, and even to France.' - Romano Prodi, EU Commission President 1999-2004