Whether or not the EC regulation is a limit on the ability of large companies in EU to become globally competitive ultimately depends on how EC competition rules are handle and executed.
The foundation of the EC legal framework of competition rules lies in the articles 81, 82, 87, and 89 of the EC treaty. These articles mentioned above prohibits all practices that restrict competition in a manner contrary to the law.
EU COMPETITION LAWS
EU competition laws focus on four main areas. These are; Restrictive agreements and concerted practices, Abuse of dominant position, Mergers or concentration and State aid (government support for particular industries or enterprises.
Restrictive agreement and concerted practices
Are prohibited under Article 81 of the EC treaty. These are defined as agreement between firms, which may affect trade between the member states and which have as their object or effect the prevention, restriction or distortion of competition. A restrictive agreement is a formal agreement between firms, whereas a concerted practices involves coordination between firms but without a formal agreement. The prohibition on these types of agreements applies to both horizontal (firms competing at the same stage of production and vertical (firms involved in different stages of production of the same goods) agreement.
The range of agreements that are prohibited is quite broad, and includes price fixing, market segmentation, production quotas, agreement to establish joint sales offices and voluntary restraint agreement between firms.
Impact of restrictive agreement and concerted practices
In relation to article 81, Atria is prohibited from fixing prices in the markets. If Atria have agreements with other companies in Germany for instance, they are prohibited from fixing prices to their competitive advantage over their competitors. Article 81 will be violated and the company will be charged from the commission.
As regards coordination between firms in the light of concerted practices, Atria can coordinate with other companies in the EU without any formal agreement to have a greater control of the markets through production quotas, establishing joint sales offices and, deliberately restraining other competitors.
Abuse of a dominant position
Is prohibited by Article 82 of the EC treaty. Abuse is defined as conduct by a dominant firm that influences the structure of the relevant market or the degree of competition in that market. It includes,
- Directly or indirectly imposing unfair prices or trading conditions,
- Limiting production or technical development to the detriment of consumers,
- Applying dissimilar conditions to equivalent transaction, and
- Incorporating unrelated supplementary obligations into contract.
Impact on abuse of dominant position
This Article prohibits the abuse of dominant position by companies doing business within the European Union. Atria Oyj for instance, may abuse its dominant position in several ways for instance charging exorbitant prices that undermines competition. Also Atria may abuse its dominant position by limiting production, market or technical developments to the prejudice of consumers. Unjustified refusal to supply meat products to the markets is also considered as abuse of dominant position (Mercado et al, 169, 2001). Limiting the supply of meat products to the markets in an attempt to push prices will have an enormous impact on competition in the markets.
In case of any abuse of the dominant position, the commission is responsible for applying the rules specified in article 81 and 82. An obligation to act commences when a third party through a national authority makes a compliant. Only when their complaint falls within the jurisdiction of the commission, before an action is taken.
If Atria are in breach of the competition law, it may not be forced to allow investigators to get information about the matter. However, it may be charge a daily fine between €50 to €1000 daily for failure to allow the commission investigators. The fines imposed by the
Commission ranges from €1000 to €20,000,000. An example of abuse of dominant position is when OAL accused Deutsche Telekom of fixing prices in 1999 (Mercado et al, 19
Mergers and acquisition
Mergers, which create or strengthen position as a result of which effective competition is significantly impeded are incompatible with the common market and therefore prohibited under EU regulations. The EC has the power to examine mergers before they take place to determine whether they should be allowed to proceed. The examination includes; defining the relevant product market, defining the relevant geographic market, and assessing the merger impact based on the principle of dominant position.
Impact on mergers and acquisition
Atria may merge with any of its competitors for example a Danish company called Danisco, which is one of the leading meat companies in EU. But if this two companies abuses their dominant position in the market through mergers and acquisitions they will be required to pay a financial penalty. It is worth noting that before the merger takes place, the commission must have the notification and application. The commission may also decide whether the concentration falls within the scope of the regulation or out side. The proposed merger cannot go ahead until the commission makes a decision on the issue (Mercado et al, 2001, p. 177)
The rules of state aid
However the EU has developed a system to support certain industries and regions by financial assistance, the Commission has a further responsibility to prohibit state aid if they affect the EU Competition in any way. Articles 87-89 state that, the role of the Commission is to ensure that national governments do not favor their own national businesses over the other EU members’, by any form of aid, which is incompatible in the common market (prohibited aid instruments listed below). The State aid control is not about prohibition of aid but about attenuating actions, which unduly distorts competition in the EU.
Types of aid instrument:
- Direct Payments
- Grants
- Interest subsidies received directly by recipient
- Tax credits and other tax measures
- Tax allowances, exemptions and rate relief
- Reductions in social security contributions
- Sale or rental of public land or property at prices below market value
- Equity participation (including debt conversions)
- Soft and Participatory loans
We can assume that if Atria will receive any type of aid instrument listed above from any of EU national governments, it will receive infringements from the ECJ. On the other hand, Atria can receive the aid benefits from the national governments, but it should fit the types of aid, which are permissible by Article 87(2), 87(3).
CONCLUSION
So far Atria has been abiding EC Competition law. Therefore, to sustain their success in the future, the company should continue operating within the EC Competition regulations. Even though, according to own view the EC Law is quite strong. For example, under the restrictive agreement provisions all such agreements are declared illegal unless they are authorized by the EC. Hence, if Atria wants to perceive such agreement, they need to convince the Commission of merits of their proposals.
SOURCES
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Mercado Simon et al, European Business, 4th edition, Prentice Hall, 2001
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Eurorean Commision Competition,
- J. Reynolds, Business in Europe, 1996
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EC Competition Law,
