Press coverage of the outcome of the European Council meeting on 21 and 22 June 2007 to map the EU’s future direction after the demise of the EU Constitution has focused on the EU scrapping its commitment to competition. Whilst this is far from the case, EU competition enforcement has suffered a blow. The impact was mitigated by the intervention of the UK Treasury that was to prove decisive; resulting in a Protocol emphasising the importance of competition. Noel Watson-Doig of Reed Smith Richards Butler’s Competition and EU group provided speedy advice to HM Treasury on this issue.

  • The European Council, the EU’s governing body, has reached agreement on the terms for an Intergovernmental Conference to draft a new Reform Treaty, which would amend both the Treaty on European Union and the EC Treaty. 
  • There will not be an express reference to “free competition” in the list of objectives of the EU (at the beginning of the Treaty on European Union), but a Protocol will confirm that the internal market includes a “system ensuring that competition is not distorted”. 
  • The provisions on competition in Article 3 of the EC Treaty will remain unchanged. 
  • This Treaty change appears to have downgraded the EU commitment to competition and may lead to less enforcement action against Member States, while actions against companies will continue.

The Reform Treaty

The Reform Treaty will amend the Treaty on the European Union (TEU) and the Treaty establishing the European Community (EC Treaty): 

  • The EC Treaty will be renamed the Treaty on the Functioning of the European Union. 
  • The two treaties will form the foundation of the European Union and will have the same legal value. 
  • The European Union will have a single legal personality and will replace and succeed the European Community.

In 2004, the European Council agreed the text of a European Constitutional Treaty. This proposal did not contain any significant amendments to the current competition provisions of the EC Treaty. However, it introduced a new list of “objectives” of the EU, one of which was stated to be “a single market where competition is free and undistorted”.

The Constitutional Treaty was abandoned after its defeat in referenda in France and the Netherlands.

Impact on Competition

The EU’s central powers for ensuring companies comply with competition rules, Articles 81 to 87 of the EC Treaty, are not altered by the proposed Reform Treaty.

A commitment to “a single market where competition is free and undistorted” has been removed from the “objectives” of the EU.

The draft objects are now that:

“The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance”.

In addition, it has been agreed that a Protocol on Internal Market and Competition will be annexed to the Treaties:

“The High Contracting Parties, considering that the internal market as set out in Article 3 of the Treaty on European Union includes a system ensuring that competition is not distorted, have agreed that, to this end, the Union shall, if necessary, take action under the provisions of the Treaties, including under Article 308 of the Treaty on the Functioning of the Union”.

Article 308 allows the EC to ensure the attainment of the objects of the EC Treaty, which includes competition, where the EC Treaty does not otherwise provide the necessary powers. Crucially, decisions made on the basis of Article 308 are taken by the Council acting unanimously after consulting the European Parliament.

Our View

The removal of the reference to competition from the list of the EU’s objectives has the potential to undermine the EC Commission’s ability to take on Member States in a range of disputes, including state aids and ‘national champions’ such as Edesa, Gaz de France and Suez.

The explicit reference to “full employment” and the lack of a reference to competition in the EU’s objectives are likely to be used by Member States as a defence before the European Court of Justice when defending aid to failing firms. These are arguments that the new competition Protocol is unlikely to fully rebut.

Neelie Kroes, Competition Commissioner stated in response to the draft Reform Treaty, “an Internal Market without competition rules would be an empty shell” and went onto say that the Protocol “repeats that competition policy is fundamental to the Internal Market. It retains the existing competition rules which have served us so well for 50 years. It re-confirms the European Commission’s duties as the independent competition enforcement authority for Europe”. Further, she states that it is in the interests of the internal market for the Commission to “continue to enforce Europe’s competition rules firmly and fairly: to bust cartels and monopolies, to vet mergers, to control state subsidies”.