Competition law in times of crisis: an overview of challenges for competition policy and authorities
– by Dolores Utrilla –
In times of economic disruption, an adequate competition policy – as well as its efficient enforcement – is key to strike a fair balance between the need to allow certain flexibility to operators engaged in economic stability and recovery, on the one hand, and the necessary preservation of a competitive market structure in the long term, on the other. The flexibility needed in times of economic crises is for both the vertical dimension of competition law (mainly the issue of public support to companies experiencing temporary liquidity problems) and the horizontal side thereof (in particular the mechanisms for reinforced cooperation between economic actors, including competitors).
The challenges implied in this task were addressed yesterday, on 8 September, by representatives of the European Commission and of the national competition authorities of Germany and Spain in the framework of the European Competition Day, organised in Berlin under the auspices of the German Presidency of the Council.
The Commission’s Director-General for the Directorate General of Competition, Mr Olivier Guersent, noted the crucial role of competition law not only in the initial phase of reaction to economic crises, but also in the stage of recovery and economic consolidation. Director-General Guersent stressed the Commission’s view of competition as a long-term imperative which must prevail over short-term interests and needs. According to the Commission’s approach to the COVID-19 crisis, a reinforced level of vigilance – by opposition to a more lenient design and application of competition rules – is needed to ensure that the economic recession is overcome and that the subsequent economic recovery is as fast and sustained as possible. However, the Commission is trying to make compatible its rejection to relax the principles and objectives of competition law with the need to take into account the crisis conditions in the market and to ensure that dynamic effects are duly considered.
In the context of the COVID-19 crisis, this overarching ‘flexibility’ challenge involves several specific concerns from the perspective of competition law at the EU and the national level, as noted yesterday by the Director-General and by the Presidents of the German Federal Cartel Office, Andreas Mundt, and of the Spanish Competition Authority, Cani Fernández. Such specific challenges include: (i) the need to adapt it to emergency procurement; (ii) the extraordinary need for public support by companies that would be viable in the absence of the crisis; (iii) the continued relevance of merger control and the difficulties posed to it by lockdowns and other measures of containment of the virus; and (iv) the particularly intense need for public guidance regarding cooperation between competitors in the area of antitrust.
The Commission and the national competition authorities have so far faced these concerns in a coordinated way, through fast, focused and temporary measures. The following paragraphs give an overview of the main problems posed by the COVID-19 crisis in the area of competition law, as well as of the responses adopted thereto.
(i) Emergency procurement
While the measures adopted at the national level to contain the spread of the pandemic have caused severe disruptions in the supply and distribution chain of goods, works and services, public buyers have been in urgent need to acquire some goods – such as health care material – in increased volumes. The problem thus arose that the acquisition of such goods through the normal procurement procedures of competitive tendering (established in Directive 2014/24) was prima facie inadequate to face the urgent needs for such material, as explained in this Op-Ed by Stéphane de la Rosa and in this Analysis by Piotr Bogdanowicz.
In this context, on 1 April 2020 the European Commission issued Guidance on using the public procurement framework, which provided contracting authorities with guidance on the flexibility clauses contained in the EU public procurement framework that could be used to purchase goods and services directly linked to the pandemic as quickly as possible. The Guidance explains how ‘urgency’ grounds can be invoked in order to substantially reduce the deadlines to accelerate open or restricted procedures, as well as how ‘extreme urgency’ grounds can be used to award public contracts by a negotiated procedure without publication. Some Member States (such as France) have also issued guidelines on the award and execution of public contracts in the health crisis.
Moreover, the European Commission has launched several joint procurement procedures for medical equipment and supplies. These initiatives, which have been joined also by certain EEA countries, are based on Article 5 of Decision 1082/2013 for joint procurement of medical countermeasures, and they involve a coordinating role by the Commission, while the Member States purchase the necessary goods and services.
(ii) State aid
Both the 2008 financial crisis and the ongoing coronavirus pandemic prove that State aid rules are called on to play a crucial role in the fight against economic crises. The relevance of State support measures to ensure continuity of companies and therefore to prevent or alleviate situations of massive bailout is indisputable. However, as explained here and here, tailored safeguards are necessary to avoid massive capital injections being made by only certain Member States, and to prevent that they lead to massive distortions of competition in the internal market.
Well aware of the need to achieve a compromise between flexibility and control, the Commission reacted through the issuance of a set of soft law instruments purporting to allow Member States the maximum discretion to act under the TFEU State aid rules while preventing disproportionate distortions of competition within the single market. On 19 March 2020, the Commission adopted the State aid Temporary Framework on the basis of Article 107(3)(b) TFEU, which allows Member States to grant support to remedy a serious disturbance to their economy. This framework was subsequently amended and extended on 3 April 2020 and on 8 May 2020.
Over the past months, this Temporary Framework has allowed the Commission to act swiftly, authorising hundreds of national measures to support the economy in the context of the pandemic. At the same time, the increased need of companies for public support is easing the use of State aid mechanisms to foster certain policy objectives, shared by the EU and the Member States, such as the fight against tax avoidance.
According to Director-General Guersent, while the Temporary Framework has proved to be an useful tool for quickly adapting the pre-existing State aid framework to the extraordinary and urgent needs for liquidity of companies in the Member States, the evolution of the crisis is making it increasingly difficult to distinguish between liquidity support and longer term investment needs, which may make it necessary to adopt new rules to cover hybrid forms of aid.
(iii) Merger control
In times of acute crisis competition authorities in charge of reviewing mergers face a number of challenges, including the issues of how to conduct a competitive assessment of mergers in the face of significant and rapid changes in market circumstances; how to implement remedies in such a severe crisis; how to evaluate the failing firm defence; and how to manage increased derogation requests for jurisdictions that have standstill obligations. Challenges may also arise in relation to the eventual increase in the number of mergers, as well as the invocation of public interest considerations by governments to promote or undertake such operations. On top of that, the COVID-19 crisis specifically poses the need to adapt existing procedures and rules for in-depth investigations to a landscape governed by restrictions of movement and social distancing measures.
From a procedural perspective, from the very beginning of the COVID-19 pandemic, the OECD made a recommendation to competition authorities, in view of the containment measures limiting movement of people and the need to adjust to crisis-related priorities, to explore the use of flexibility within procedures for merger review, being mindful of due process rights. In this vein, the Commission has advised the deferral of merger notifications, while maintaining in general the pre-existing merger regulation, which has shown to be fit for purpose in even the most adverse conditions. In a similar vein, some European jurisdictions have adjusted legal deadlines for merger filings (as happened in Spain) or allowed for electronic filing of merger notifications and for the use of telephone or video conferences to communicate with merging parties and market participants (for example in Germany).
(iv) Antitrust and exploitative prices
One of the main consequences of economic crises is the weakening of the economic position of many companies, which are thus in need of cooperation with competitors to undertake certain investments and activities. The guiding and supervisory role of competition enforcement authorities is key in this regard. As pointed out by Director-General Guersent, the ongoing COVID-19 pandemic is clearly pointing to the need for increased soft law guidance regarding cooperation between companies. Such guiding function is expected to increase as the recovery and post-recovery phases advance, in particular in the context of the digital and green transitions, where high investments – and therefore enhanced horizontal cooperation – will be necessary.
At the same time, one specific feature of the COVID-19 crisis is the disruption of supply chains, which has led to shortages in a number of essential products. These shortages are influencing the behaviour of firms and may have led to potentially exploitative prices in some cases. Distinguishing legitimate from illegitimate pricing practices, as well as how best to deal with the latter, creates substantial challenges for competition authorities.
On 23 March 2020, the European Competition Network (ECN) – which includes the Commission, the European Surveillance Authority, and the national competition authorities of the EU and the EEA – addressed this concern by means of a joint statement on how to apply the European competition rules during the crisis. It made it clear that it will not actively intervene against necessary and temporary measures of cooperation among companies put in place in order to avoid a shortage of supply of scarce products to all consumers. However, and taking into account the importance of ensuring that products considered essential to protect the health of consumers in the current situation (such as face masks and sanitising gel) remain available at competitive prices, the ECN announced that it will not hesitate to take action against companies taking advantage of the current situation by forming cartels or abusing their dominant position.
In late March, the Commission launched a specific website with guidance to companies and associations concerning any uncertainty of how the EU competition rules apply to concrete cooperation initiatives with an EU dimension. Soon afterwards, it published further antitrust guidance in the form of a Temporary Framework Communication addressed to companies cooperating in response to urgent situations related to the current coronavirus outbreak, in particular shortages in medicines due to the increase in demand and simultaneous disruption of supply chains. The Communication explains how and when companies can obtain (1) (oral) guidance or (2) a ‘comfort letter’ issued by the Commission.
National Competition Authorities, as exemplified by Germany and Spain, have reinforced their services in order to provide a quick response to market operators seeking guidance on how to engage in cooperation agreements. At the same time, some enforcement authorities (such as the Spanish) are now looking into excessive pricing behaviour in sectors affected by the crisis, and have started investigations into anticompetitive practices in areas such as that of funeral services, hydro-alcoholic gels, and financial lending.
All in all, these developments represent an unprecedented testing ground for competition law in Europe. It remains to be seen whether the aftermath of the COVID-19 crisis will lead to further fine-tuning of the Commission’s upcoming review of antitrust policies, as well as of other pieces of its competition policy.
Dolores Utrilla is Associate Professor at the University of Castilla-La Mancha and Assistant Editor at EU Law Live.