The EU Commission announces a major relaxation of the State aid rules via a new Temporary Framework during the COVID-19 outbreak

How will European Competition Enforcers Respond?

The COVID-19 pandemic presents an unprecedented challenge to the economy and competition enforcement is no exception. Authorities at EU and national level may need to consider novel solutions to respond to rapidly evolving problems and to protect consumers suffering at the heart of this crisis while upholding the basic objectives of competition law.

So far, the European Commission and other national authorities have:

  • announced a major relaxation of the State aid rules via a new Temporary Framework, similar—although more wide ranging and aggressive—to that used during the financial crisis. At a national level, Denmark will pay 75% of employees’ salaries for the next 6 months and the U.K. has announced GBP 330 billion of Government backed loans and guarantees to all businesses; and
  • continued scrutiny of companies that seek to exploit the pandemic for financial gain (e.g. through excessive pricing of key products).

Will the Commission also be more permissive with respect to collaboration between competitors in light of the crisis? Competitor cooperation can lead to massive consumer benefits—especially in a pandemic where disruption is not limited to a single sector, resources are constrained and security of supply is paramount. The line between acceptable and unacceptable conduct in this area of competition enforcement is already blurred (arguably too blurred) in the normal course of business, and the added factor of a global health crisis may prompt novel approaches to competition enforcement to address consumer welfare concerns.

The traditional aggressive approach to “crisis cartels” may need to be substantially relaxed. In Norway, airlines have already been given a three-month waiver from competition rules to allow them to coordinate and maintain critical services for the population.

The broader and widespread market impact of COVID-19 (compared to the 2008 economic crisis) demands a more innovative application of existing competition rules in order to protect consumers through product supply shortages for example. Potential options for the authorities to consider might include:

  • a temporary suspension of competition law rules in the most affected industries during the period of COVID-19, allowing for more extensive competitor collaboration to ensure consumers are protected (for example, market allocation to ensure deliveries of key supplies to consumers in rural areas where local shops are forced to close as a result of COVID-19). Clear guidance could be given to encourage collaboration by competitors joining research efforts to accelerate the search for vaccines. Grocery stores coordinating on logistics to ensure consumer home delivery services are operating at maximum capacity. This falls squarely within Commissioner Vestager’s proposal during a speech just a few weeks ago to “make it clear to businesses how they can cooperate, without harming competition” so as to “unlock new possibilities for cooperation.” In the same speech, Vestager also indicated the Commission would be “ready to give informal guidance when it’s needed—in new or unclear situations, for instance,” suggesting a possibility for guidance on cooperation agreements from the Commission in a novel scenario like that of COVID-19; or
  • alternatively, simply taking a more robust “back to basics” approach, i.e. allowing collaboration between private parties where this is justified in the round by the ultimate goal of competition enforcement—protecting consumers. Outside of the COVID-19 context, supporters of a “greener” approach to competition policy have already asked to consider collective societal benefits outweighing the justification for competition enforcement. Given that EU treaties have an underlying “social” policy that should be maintained by upholding vital societal concerns, the protection of consumer health and welfare across a society consumed by a pandemic clearly fits this scenario.

The above options also need to be seen in the context of the fundamental questions currently being asked about the function and purpose of competition law, brought about by the digital economy, trade wars and larger role of the nation state in the economy. The legacy of COVID-19 may prove to be a more far-reaching review of EU competition rules than might otherwise be the case, in particular as regards the Commission’s Horizontal Guidelines currently under review.

Equally, authorities may choose not to take a more flexible approach here. During the 2008 economic crisis, the Commission displayed its dismay against “encouraging cartelists” with former Commissioner for Competition Kroes stating that “today’s softness is tomorrow’s nightmare.” Even if that is the case, continuing an enforcement trend during COVID-19 may still allow scope for authorities to adopt more flexible remedies when sanctioning conduct, e.g. using commitments or interim measures, or considering COVID-19 as a factor in their analysis of alleged breaches (or when calculating any eventual fine).

Whilst the COVID-19 pandemic should not be seen as a “free pass” for blatant anti-competitive conduct, its significant magnitude and broad market ramifications demand a reassessment of competition law and policy and present an opportunity for potential amendments, all in the name of upholding consumer rights in a time of extraordinary global crisis. Whether this occurs and any potential lasting impact this may have on competition law in future is yet to be seen.

Version PDF

Auteurs

  • Shearman & Sterling (London)
  • Shearman & Sterling (London)
  • Shearman & Sterling (Brussels)
  • Shearman & Sterling (London)
  • Shearman & Sterling (Brussels)

Citation

James Webber, Ruba Noorali, Sara Ashall, Matthew Readings, Elvira Aliende Rodriguez, The EU Commission announces a major relaxation of the State aid rules via a new Temporary Framework during the COVID-19 outbreak, 19 mars 2020, e-Competitions March 2020, Art. N° 93813

Visites 209

Tous les numéros

  • Latest News issue 
  • Tous les News issues
  • Latest Special issue 
  • Tous les Special issues