East Midlands Liberal Democrats

An Antitrust Double Whammy on Enlargement Day

The 1st May brings an antitrust double whammy to the EU. Enlargement day will see ten new antitrust agencies entering the EU and the reach of EU antitrust law extending eastwards across the continent. On the same day, businesses across the EU face the most radical reform to the EU's antitrust rules since 1962. The reforms will reduce legal certainty for some deals; decentralise the application of EU antitrust law to the Member States, and will see the investigation and enforcement powers of the European Commission increased. This antitrust double whammy is likely to have profound implications for business operations across the continent.

In previous EU enlargements, joining the EU meant a significant antitrust shock for business. On entering the EU, and for several years thereafter, the new accession state would not have had any effective antitrust regime. The Commission would therefore have taken action, against the most blatant antitrust practices in the new Member State. The result would be that on accession to the EU executives in the new Member State could be found scrabbling around for advice, compliance programmes and legal security. Not this time. Unlike the previous accessions, the 10 new Member States have been required to set up EU compatible antitrust agencies and antitrust rules well before entering the EU. Hence some of the new Member States, such as Hungary, the Czech Republic and Poland, have been applying EU style antitrust law, longer than some of the Western Member States, such as Great Britain and the Netherlands. Consequently, many of the Eastern NCAs are in a much better position than previous accessions, and some of the Western NCAs today, to cope with the new decentralised antitrust regime that comes into force on EU enlargement day.

Firms operating in the eight new Member States from Central and Eastern Europe are however finding some difficulties in working with the local antitrust agencies. One major problem is that the Eastern agencies tended to be over-burdened with work, which can mean that response times are significantly slower than in some Western states. This is understandable as the Eastern agencies have in many ways a unique burden of work, not shared by their Western counterparts. For instance, the Eastern NCAs tend to be burdened with more monopolisation work stemming from the after-effects of once having belonging to an over-concentrated communist economy, than would be usual in the West. Equally, the opportunities in the Eastern states have led to a boom in FDI, generating a very significant merger case load for many NCAs. In addition, there is often a heavy case load of draft legislation assessment, which falls on the NCAs as there is often a shortage of market sensitive officials in other state departments. This burden is compounded by the fact that all the states save Poland, are small and find it difficult to devote significant resources to antitrust regulation.

Another consequence of this burden is that some of the new Member States have found it difficult to focus on one of the major priorities for any antitrust agency: cartel busting. However, in the last couple of years, the Czech NCA has begun to tackle cartels, particularly in the construction sector, and the Polish NCA is planning to roll-out an anti-cartel strategy post enlargement. In addition, with the application of EU antitrust law to the new states on 1st May, the European Commission will itself launch investigations against the most blatant large scale cross-border antitrust offences. Hence following enlargement cross-border cartels operating in Central and Eastern Europe are likely to be subject to antitrust surveillance and investigation, followed up by tough enforcement measures.

A further problem for the NCAs in the new Member States is their inability to keep staff. It is not just private sector law firms and consulting economists firms who draw the most capable staff from state agencies at several times their former salaries. The Commission itself has made it more difficult for the NCAs to keep or hire staff. Currently, the Commission is taking on just short of 4000 new staff, many of whom would have made ideal antitrust officials in the Polish, Hungarian or Czech NCAs. This loss of quality staff may explain why there is some criticism from executives and counsel as to the quality of decisions coming out of some of the NCAs. Sometimes basic antitrust principles are not applied or an unfortunately anachronistic formalistic approach to antitrust law is applied.

For firms across the whole EU, enlargement day will bring major change, which will require rapid adjustments to business practice by executives and their advisers. Firms will no longer be able to obtain the legal security of direct clearance from the Commission for deals involving major capital investments. Instead firms will have to switch to relying on US style self-assessment and regular antitrust audits. Industry will also have to face a Commission with more powers and resources to tackle cartels. In particular, from 1st May the Commission gets the power to raid the homes of executives employed by firms it believes are involved in price-fixing or bid-rigging cartels. Executives will also have to get use to the idea of antitrust decentralisation. The Commission will only be involved in the biggest cases. In most smaller cases, firms will find the local NCAs handling the case. The upside is that under the EU's new antitrust regulations, in most cases, the NCAs will only be able to apply EU law. Business will in future be faced with only one antitrust law, EU antitrust law, across the whole continent, albeit applied by 26 antitrust agencies.

The antitrust double whammy of enlargement of the EU, with 10 new antitrust agencies entering the Union and radical reform of the EU's antitrust rules is going to provide a major challenge for both regulators and industry. Regulators in both old and new states have to ensure that they can provide accurate and timely decisions for industry. Firms meanwhile have to adjust to a new world in which the first port of call in an antitrust case is not Brussels, but Prague, Lisbon, Tallin or Berlin.

Dr Alan Riley, Senior Lecturer in European Competition Law, Nottingham Law School, Nottingham, UK and Associate Research Fellow, Centre for European Policy Studies, Brussels, Belgium.

This first appeared in the Wall Street Journal on Monday May 3rd 2004.