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Competition policy

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The EU is particularly powerful in controlling competition between businesses. It has the power to rule on business activity that could harm competition. This includes investigating mergers (when two companies join together), takeovers (when one company buys control of another), monopolies (when one company dominates the sale of a good or service), cartels (where established firms work together to control prices or exclude new businesses) and the use of state aid (when a government gives one business advantages over others such as tax reliefs or grants).

Competition policy has had some success recently in improving open market competition in member states by taking action against big companies. It has a direct effect on European citizens’ daily lives by helping to reduce prices, improve products and give more choice. However, it has also been criticised for going beyond its accepted remit, for restricting the competitiveness of European companies on the global stage by preventing mergers, and for being seen as deliberately anti-American.

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 make competition between firms unfair. 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 in 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 competition powers were reformed following criticism that the EU was too unaccountable. The new rules passed some power over managing competition back to national authorities and set stricter deadlines for decisions to be reached. They also empowered the Commission to investigate more cross-European competition violations, as seen in its action against Microsoft in 2004, 2006 and 2008.

How does EU competition policy work?

Under the Treaty of Rome, the Commission is empowered to investigate price fixing, companies’ abuse of their dominant market position such as agreements that fix market share, limit production or technical development. Significantly, it is also allowed to intervene against governments who attempt to support companies with state aid. This is the responsibility of the Commissioner for Competition, currently Margrethe Vestager.

Along with the European Court of Justice, Commission staff investigate potential breaches of competition law and prosecute companies that fail to reach the required 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 businesses which do not comply. The Commission’s far-reaching power has brought it into conflict with some governments, particularly the French, who believe that they have a right to protect national companies seen to be strategically important.

Recently the EU has been active in competition investigations following the scandal known as ‘LuxLeaks’, in which many secret documents that suggested Luxembourg gave state aid to various companies were leaked. There is also action against Google for its dominant position as the leading search engine, and companies that may be avoiding paying their full taxes. In 2015 Fiat and Starbucks, were ordered to pay €30 million each in unpaid taxes to Luxembourg and the Netherlands due to unfair tax breaks in those countries.