COVID-19 - Adjustments of Antitrust and State Aid Rules to Major Disruptions of EU Economy
- 23 March 2020
- Janson News
The outbreak of Covid-19 causes a severe public health emergency that must have public authorities’ primary focus. Still, the measures adopted to stop the propagation of the virus have adverse consequences on the good functioning of our market economy, causing major disruption to industries, companies and their employees.
Governments in the EU are called to support companies and employees to go through this crisis. Number of these measures benefiting certain companies or a specific sector constitute state aids that need to be authorized in advance by the EU Commission. The current situation calls for swift assessment.
Antitrust rules that police our market economies are also being adjusted to address essential needs.
Flexibility may also be required in other areas of EU law, such as Internal Market and Foreign Direct Investment rules.
This crisis will undoubtedly have a substantial impact on the implementation of competition rules, and EU law in general. It may also contribute to question the existing regulatory regime to better focus on the essence of competition rules in the EU and not get lost in rubber stamp.
State Aid Rules: New Temporary Framework is Adopted
State aid rules are being adapted to authorize supporting measures from national governments.
Like in the financial crisis of 2008, but more rapidly, the Commission just adopted a Temporary Framework to support the economy in the COVID-19 outbreak.
The Commission allowed five type of aides to remedy the serious disturbance experienced by the EU economy:
- Direct grants, selective tax advantages and advance payments up to €800,000 to address company's urgent liquidity needs;
- State guarantees for loans taken by companies from banks;
- Subsidized public loans to companies with favorable interest rates to companies;
- Safeguards for banks that channel State aid to the real economy;
- Short-term export credit insurance.
Since then a number of Member States have announced various support schemes.
Prior to this scheme, on 12 March 2020, the Commission had authorized – within 24 hours! – a Danish aid scheme (€12 million) to compensate organizers of events with more than 1,000 participants or targeted at designated risk groups, such as the elderly or vulnerable people, irrespective of the number of participants, which had to be cancelled or postponed due to the COVID-19 outbreak. The Commission assessed the measure under Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid measures granted by Member States to compensate specific companies or specific sectors (in the form of schemes) for the damages directly caused by exceptional occurrences.
Emergence of Crisis Cartels? Not Really
The current situation is leading to some relaxation of the rules. Such flexibility should be carefully thought and parsimonious to avoid unnecessary restrictions of competition.
On 23 March 2020, the European Competition Network (ECN) issued a joint statement indicating that, in these extraordinary circumstances, companies may need to cooperate in order to ensure the supply and fair distribution of scarce products to all consumers. Hence, the ECN states that it will not “actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply”. In doubts, companies may contact the Commission, the EFTA Surveillance Authority or the relevant national competition authorities about their cooperation initiatives.
On 19 March 2020, Norway has granted a three months exemption from the Competition Act to the transportation sector. The objective is to maintain the transportation of passengers and goods in Norway in order to secure the population access to necessary goods and services. In the same vein on 18 March 2020, the Norwegian Minister for industry announced that SAS and Norwegian are exempted from antitrust rules for a period of three months to coordinate their schedules to maintain minimum services for citizens during the Covid-19 coronavirus crisis.
On 19 March 2020, the UK has announced the authorization of some form of coordination for supermarkets to maintain an orderly supply of food and other products of first necessity. Yet, the Competition and Market Authority (CMA) expressly stated that it was attentive to any exploitation of the crisis through, for instance, excessive pricing or exchange of information on long term business strategies.
Similarly, the ECN stated that it will “not hesitate to take action against companies taking advantage of the current situation by cartelizing or abusing their dominant position”. The CMA warned the pharmaceutical, and food and drink industry against “charging unjustifiably high prices for essential goods or marking misleading claims around their efficacy”.
In practice, several competition authorities have already taken initiatives. For instance, the Italian Competition Authority has launched two separate investigations into Amazon and Ebay for price increases and misleading reviews for products such as hand sanitizers, face masks and other sanitary products. In Greece, the Hellenic Competition Commission has launched an investigation into price increases and output restrictions in healthcare materials (including face masks, gloves and antiseptics).
Companies and consumers should report any unusual commercial conduct that may reveal illicit attempts to take advantage of the crisis.
The merger control regime in the EU is put on hold: “DG COMP has put in place a number of measures to ensure business continuity in the enforcement of the EU Merger Regulation. However, due to the complexities and disruptions caused by the Coronavirus, companies are encouraged to delay merger notifications originally planned until further notice, where possible.”
What happens at EU level is likely to affect similarly Member States’ ex ante control regimes at a time where at least some concentrations may be critical to resist the crisis.
Will the impact of this crisis on the organization of ex antemerger control question the functioning of the current system? Why do we need a systematic notification of concentrations when neither the regulator nor market operators complain about a particular concentration? Shouldn’t we benefit from a more mature merger control system that only focuses on problematic concentrations?
Nationalization and Foreign Direct Investments
Last week, the French Minister for Economy, Bruno Lemaire said they would take any measure to address this crisis situation, including nationalizing companies.
Last week-end, the German Finance Minister stated that he does not exclude nationalization either. In parallel, the German government announced that it will exercise a strict control over foreign acquisitions of German companies.
If applied, such measures will need to comply with EU law (including State aid law, FDI and internal market rules), and be enforced carefully and reasonably to avoid discrimination, discretion and segmentation of the EU single market.
State aids will go ahead full speed and may cause some concerns between operators. For example, rail operators have already questioned a possible unconditional support to airlines while rail transport much better sustains the green deal policy of the EU Commission.
Surveillance of market practices should be a priority as some companies may try to exploit this situation to extract better commercial conditions from their clients. At the same time, cooperation between competitors may be needed and justified to address essential needs from clients and citizens.
On merger control, it may be the right time to question the systematic notification of concentrations, the definition of thresholds and other features that often render merger control quite complex, costly and not always as efficient as one could expect.
Regulators and companies ought to show common sense when enforcing derogations to existing rules; still, this unusual time may also give the opportunity to question the existing controls and make better use of regulators’ scare resources in the future. Regulation: yes. Rubber stamp: no.