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Modernizing EU Competition Policy: Will the EU’s Angst with Chinese State-Owned Companies Help U.S. Tech Firms off the European Commission’s Hook?

During her five-year term as European commissioner for competition, Margrethe Vestager has earned a reputation for going hard after U.S. tech companies. This position had traction in certain European political circles and, with the support of the French government, meant she was a leading candidate for the position of commission president. Nevertheless, it was the German Ursula von der Leyen who was confirmed by the European Parliament on July 16, 2019 as new president of the commission, taking office on November 1.
This change raises many questions as to the stance of the commission towards “big tech”. At first glance, the appointment of von der Leyen, an avowed Atlanticist who lived in Stanford, California for four years, could indicate a rapprochement in Euro-American relations. Her opening statement before the European Parliament was, however, ambiguous as to the future direction of competition policy. While asking for “fairer” (which presumably means heavier) taxation of multinational digital businesses, she also clarified that “when the tech giants are making huge profits in Europe, this is fine because we are an open market and we like competition.”
One possible signpost as to the future course of the commission is offered by a recent paper on “Modernizing EU Competition Policy,” published jointly by the ministries of economics of Germany, France, and Poland on July 4, 2019, only two days after the nomination of von der Leyen by the European Council. The joint paper does not just glibly call for more action against GAFA (Google, Amazon, Facebook, and Apple) but instead turns the spotlight on a discussion that has been smoldering on the “old continent” since the beginning of 2019: namely the member states’ lack of direct influence over competition decisions of the commission and a perceived under-protection of “European champions” against distortions of competition by governments and government-controlled firms in the rest of the world.
Modernization or Politicization of EU Competition Policy?
What constitutes “modernization” is no doubt in the eye of the beholder—and many of the points listed in the Franco-German-Polish paper could certainly also be portrayed as the “politicization” of EU competition policy. It is remarkable therefore that—without shying away from the inherent contradiction—the paper calls unashamedly for the protection of “national champions” through the use of European competition rules. While for the French government, building and protecting national champions has a certain pedigree, Germany has until now resisted the temptation to meddle with the independence of the commission. However, in a single day in January 2019, the commission issued two of its, normally rare, merger prohibition decisions: one against the railway merger between Germany’s Siemens and France’s Alstom, and the other against a concentration involving two German copper manufacturers, Wieland and Aurubis. Indignation expressed over these decisions seems to have persuaded the German Ministry to come down on the side of France.
In both of these mergers, an important argument put forward by the merging parties was the need to consolidate in order to withstand increasing competition from Chinese actors. While this argument was well heard by the national governments, the commission held firm and applied its traditional toolbox of instruments to the deals. Following a broad technical analysis, it concluded that there was insufficient evidence of immediate competitive pressure being exerted on the parties by Chinese companies—which was perceived by some as seriously under-estimating the ability of Chinese state-backed companies to defy the laws of competition through their access to quasi-unlimited financial firepower. All of this seems to have re-awakened a subconscious German angst that its “industry 4.0” companies could fall under Chinese control, as happened to German robot manufacturer Kuka in 2016.
The joint paper makes two important requests: First, it calls on the commission to give proper weight to the special status of state-backed and subsidized non-EU companies when calculating turnover as well as when assessing their market power and ability to enter markets despite existing economic barriers to entry. However, many questions are left open, such as when and how “state-backing” should be taken into account, or how the commission might justify different treatment of EU state-owned companies. Secondly, the three governments call for a strengthening of their own influence over the decision-making processes of the European Commission, advocating an enhanced role for the EU Council. In this regard, it is interesting to mention what is not contained in the joint French-German-Polish statement, namely the power for the EU Council to overrule commission prohibition decisions (as was discussed after Siemens/Alstom).
Shift of Focus Away from Big U.S. Tech Firms?
All this indicates a shift in political focus on to Chinese and other government-controlled firms. But does it also shift the focus of the European competition authority away from U.S. tech companies?
If Vestager’s tenure as commissioner for competition is renewed—and this is a possibility—then little might change. If a new appointee takes the role, that candidate may find it politically appealing to develop his or her own profile and not just continue the course set by Vestager. However, while the paper articulates the French, German, and Polish wish for greater influence over the decisions and agenda of the European Commission, it certainly does not take GAFA off the agenda. Indeed, the three ministries expressly call for action “tackling excessive market power of big tech firms.” Besides simplifying interim measures to prevent the tipping of digital markets, the paper suggests special scrutiny of “killer acquisitions,” systemic actors, and digital platforms; they ask for rules on data access, data portability, platform interoperability, unbundling, and auditability; and they make a broad-brush call for accountability for the use of algorithms. They do not however identify the instruments to be used by the commission to give effect to these concepts without risking severe over-enforcement.
So What Are the Consequences from a U.S. Perspective?
“Modernizing EU Competition Policy” is a policy paper published by the governments of three of the EU’s 28 member states, and there are several other EU countries that disagree with some (or many) of the points put forward in this Franco-German-Polish initiative. However, the possible impact of this paper on the course of the von der Leyen commission should not be underestimated—not only because it is signed by ministers from some of the larger and more influential EU states, but also because it reflects a broader policy debate in Europe. In the end, leaving aside the political infight between the member states and other EU institutions as to who defines the political agenda, there seem to be two takeaways from a U.S. perspective in practical terms:
First, the paper advocates a set of specific rules for state-backed companies which, if implemented into European merger rules, might provide an angle for U.S. companies seeking to take on state-backed competitors’ global mergers. The paper poses the interesting question whether the “China defense”, i.e., the argument that (Chinese) state-backed companies are often particularly well placed to offer potential competition, might also be exploited as a defense by U.S. companies in EU-notified merger cases.
Second, while Germany, France, and Poland implicitly ask the commission to sharpen its focus on China, they do not encourage or invite the commission to take a new direction in its dealings with U.S. tech companies. This is in line with the recent investigations of their own national competition authorities. The French authority, for instance, announced on July 9, 2019 that it might follow the German FCO’s example and prosecute privacy law infringements by Facebook as a violation of competition law. In other European countries, such as Italy and the Netherlands, large U.S. tech companies such as Amazon and Apple face scrutiny, too. The new wave of investigations that is being rolled out against GAFA from Brussels is unlikely therefore to encounter member state opposition.
For further information, contact Paul McGeown or Gorka Navea in our Brussels office, or any other member of the antitrust team.
Compliments of Wilson Sonsini Goodrich & Rosati, a member of the EACCNY