The Forgotten Constitutional Identity in EU Competition Law
Over recent months, there have been many discussions and debates about the future of EU competition policy. Draghi’s report, which calls for a revamp of the EU’s competiveness and a new industrial strategy, was at the center of these discussions. Some of these discussions have been described as reviving an “old Europe” mentality, and proposing policies that reinforce the gap of Western and Central-Eastern Europe. It is not just about a balanced growth in the EU and a policy puzzle to improve the EU’s innovativeness and global competitiveness. The challenges are more complex and broader than the narrow economic confines that the current debates suggest. The challenges go deep into the changing relationship between markets and the state. The challenges call for complex assessments of the “boundaries” of economic power, and the role of the competition law in controlling such power imbalances. Our analysis can redirect the discussion to a more inclusive debate on the role of states in markets and a more deeply grounded analysis of Europe’s challenges in its competition policy by focusing on disruptive economic policies governments in CEE engaged in, and the effects it had on competition law enforcement over the past decade. We argue that the lessons from the CEE countries’ economic policies and their effects on competition law enforcement in the past decade are still relevant and important for any future vision of EU Competition Policy. If these insights in Europe remain sidelined, no future reforms of the EU’s internal governance processes are likely to succeed and its economic power on the global stage will be limited.
We provide a number of directions that must be considered in order to make the EU’ future competition policy more inclusive, and more aligned with its original “constitutional identity”.
What is the constitutional identity of EU competition law?
Constitutional identity has emerged as an important device of constitutional law with which to describe the multilevel space in Europe from both the perspective of the EU and its Member States. We use “constitutional identity” as an analytical concept
that frames the way competition law emerged in Europe, the way it developed in Europe, the way it influences the emergence of national competition laws and the principles, values and legal rules it entails today.
Against such a backdrop,
the “constitutional identity
” of EU competition law is grounded on the EU’s legal and economic order/constitutional framework, in which competition law plays a central role in safeguarding a pluralistic competitive process, functioning market economies and upholding democratic societies.Indeed, competition law has emerged in Europe as a key component of public policy-building and developed as a quasi-constitutional foundation of liberal democracy, and over the past seven decades, it has become a powerful institution to defend markets across and beyond Europe, to safeguard European undertakings’ freedom of economic activity and to support consumers’ choice.
Even though competition law in the EU (and globally) has mainly been interpreted along economic rationales, its historical roots clearly show that it was drafted to promote democracy and understood as a fundamental constitutional value.Importantly, competition law in the EU is “atypical”, as it not merely addresses anti-competitive practices of private undertakings but protects the process of competition from excessive and arbitrary interventions by the EU Member States. EU competition law contains specific and unique provisions that impose prohibitions not only with respect to private undertakings but also states.
Accordingly, the CJEU has interpreted Articles 101 and 102 TFEU in combination with the principle of sincere cooperation in Article 4(3) TEU, to lay down a duty on Member States not to introduce or maintain in force measures, even of a legislative or regulatory nature, which may render ineffective the competition rules applicable to undertakings. Articles 101 TFEU, 4(3) TEU, and Article 102 TFEU are also infringed
when a member state requires or encourages the implementation of agreements, decisions, or concerted practice that are contrary to Article 101 TFEU, or reinforces their effect, or when it divests itself of its own rules by delegating responsibility for decisions affecting economic sphere to private economic operators. In this context, the rules protecting competitive neutrality within the EU Internal Market will be relevant. Article 106(1) TFEU, which requires EU Member States to adhere to the treaty rules in relation to public undertakings as well as undertakings with exclusive or special rights, plays a crucial role. They both prohibit Member States from granting unjustified and distortive state subsidies to selected undertakings, and address distortions caused by foreign subsidies in order to ensure a level playing field for all companies operating in the Single Market. They respectively prohibit Member States from granting unjustified and distortive state subsidies to selected undertakings, and address distortions caused by foreign subsidies to ensure a level playing field for all companies operating in the Single Market.Finally, under Article 37 TFEU Member States are obliged to adjust any state monopolies of a commercial character so as to ensure that no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Member States.
This “constitutional identity” of competition law is especially relevant in the decentralised enforcement system of EU competition rules, which entails close cooperation between Member States’ competition authorities (NCAs) and the Commission in the enforcement of Articles 101 – 102 TFEU within the European Competition Network
(ECN), and is based on mutual trust, i.e. This “constitutional identity” of competition law is especially relevant in the decentralised enforcement system of EU competition rules, which involves close cooperation between Member States’ Competition Authorities (NCAs) and the Commission in the enforcement of Articles 101 – 102 TFEU within European Competition Network (ECN), and is based on mutual trust, i.e. The empowerment of NCAs in order to apply Articles 102 and 101 TFEU is intended to promote effective and uniform enforcement both of Articles 102 and 101 TFEU, as the ultimate objectives of Regulation 1 2003 and Directive 2019/1 (the ECN+ Directive). In other words, EU Member States must use their sovereign powers to maximise the effectiveness of Articles 101 and 102 TFEU enforcement.
The principle of effectiveness also forms a legal basis to adopt independence requirements
in EU law concerning competition authorities, as illustrated by the ECN+ Directive. The ability of competition authorities to challenge conduct that is deemed hostile to the competition, especially when it can be linked with market actors who have distinct economic and political ties to ruling governments, represents an essential measure for their political standing. Consequently, even if competition authorities’ formal independence is guaranteed, Member States should be barred from adopting legislative or other measures that undermine NCAs’ de facto independence. The courts have repeatedly emphasized the obligations that the Member States have based on the principle of effectiveness. This “requires the availability
of sufficiently robust domestic enforcement structures so Member States can discharge the overarching obligation of ensuring the meaningful application of EU Law within the domestic system”. (emphasis in original). In its Sped-Pro judgement the General Court confirmed that the Article 2 TEU fundamental values apply to the enforcement mechanisms under Articles 101 and102 TFEU. This judgment was interpreted as anchoring NCAs independence directly in the EU primary law (Article 19 TEU) and is an important reminder of the interconnection between EU fundamental values (rule of law and democracy) not only with respect to its objectives but also institutional and procedural organization of its enforcement.With this “constitutional identity” in mind, EU competition law was created and enforced in order to facilitate a social order extending beyond price and output of specific products and services: to curb overarching economic power that threatens the basic idea of a democratic society. Decentralizing economic power is a mechanism that facilitates accountability for markets, promotes integrity and impartiality in political institutions, and reduces the likelihood of interest capture. Similar to the EU values outlined in Article 2 of TEU, EU Competition Rules seek to control the arbitrary use power. By ensuring a level playing field in the internal markets, it protects the “market equivalent of separation of power” and guarantees rule of law. The “constitutional character” of EU competition legislation is therefore its pro-democratic role. Competition law reinforces civil and economic rights that are inherent in democratic societies. The lessons CEE countries have to teach about the constitutional identity of EU Competition Law
Over recent decades, discussions on the core tenets of EU Competition Law seem to be taking a back seat. For example, this is evidenced by the Draghi report, which addresses the long-standing conflict between public interventions and free market competition but in a rather controversial
manner.This is surprising as a growing body of political scientists show how several CEE countries turned to economic nationalism and political illiberalism, after their accession to the EU and the financial crisis, and how their economic policies have disrupted core principles of EU economic policies and internal markets rules
. They contested the economic model of liberal democracies, which was based on free competition. They undermined market mechanisms by increasing state ownership and intervention in markets. The illiberal policies
also raised concerns about re-nationalising EU Competition Law by certain Member States, implementing their national strategic interests within EU legal frameworks, for example, through selective exemptions for certain sectors and certain undertakings, with tangible effects, for example, in public procurement markets. Despite taking different economic paths following the political changes in 1989, all CEE countries share a historical legacy of socialist political systems and centrally-planned economies. CEECs are a group of countries that have been discussed mainly by political scientists and less by lawyers. They also share a common heritage, the Eastern Enlargement Process, which was characterized as’returning to Europe’ by these countries, according to the EU’s unprecedented power to influence the legal, political, and economic development. The CEECs’ adoption of EU rules was governed by strong EU conditionality
, which acted as a crucial incentive for implementing the necessary legal, political and economic changes. The CEEs’ desire for a transition towards an ideal model of liberal democracy and market economy in accordance with Western standards accompanied their market, constitution and institutional reforms. These legacies continue to define not only trajectories inside the CEE but also those in the EU’s neighbouring countries, and have a relevant impact on the current status of the EU Integration Project. In its enlargement policy accession conditionality acts as a governance mode with intended positive effects on democracy, governance capacity and economic transformation, and to soften the process of integrating transition economies into the EU’s single market.
However, after accession, which created ample socio-economic, institutional and political uncertainties, economic nationalism and political illiberalism has been taking hold in some CEE that previously had been most eager to return to the West and embrace its values. In some CEE, corruption and oligarchic capture of state power are examples, while in Western Balkans, some countries have not yet broken away from their authoritarian past which has facilitated the transition to hybrid regimes. In all countries, since the financial crisis, an important transformation in the relationship between states and markets has been taking place, one where states assume a more active role.Power differentials between new and old EU members (manifest in absolute income and the one-directional foreign direct investment) increasingly turned the CEE Member States to anti-liberal ideas contesting Western models of liberal democracy. Uneven economic positions and economic subordination led to a contestation of liberal democracy’s economic models with free competition as its core. After political changes and EU accession, several CEEs were characterized by “capitalist variety on Europe’s Periphery
“, which increased state intervention in markets and ownership and undermined the market mechanisms. While economic inequality and dependence were not the only decisive factors that contributed to the rise of authoritarian governments and illiberal policies in CEE, economic dissatisfaction has been an aggravating factor.
For example, economic policies in Hungary and Poland under Fidesz and PiS-led governments took on a decisively interventionist and nationalist turn having reshaped these countries’ economic policies in fundamental ways. These governments, supported by business elites who were disappointed by global neoliberalism and wishing to consolidate their political power, adopted policies that legitimized a stronger state role in the economy
and favoured domestic economic actors over foreign market players in certain sectors. They also politicized media. Another issue is the willingness to rely on SOEs to influence the democratic process. Examples include the takeover of local media outlets in Poland by the state-controlled oil refiner, Orlen and the manipulation of petrol prices by this firm before the 2023 elections.Overlooking these trajectories and the paradoxical link between increasing levels of economic prosperity and the rejection of democratic rule and liberal values in Central-Eastern Europe, can also undermine the EU’s integration capacity
, and transformative power in EU enlargement policy, which is closely intertwined both with the role competition law plays in accession criteria (see Copenhagen criteria), and the role of the current CEE Member States in enlargement actions. The CEE’s trajectories are an important pathway for many candidate countries in the Western Balkans, where law, politics and markets develop in a hierarchical relationship with external actors and top-down governance mode (conditionality) driven by the EU and its laws, and policies.
ConclusionThe current debate on the EU’s global competitiveness and the need to adapt EU competition law and policy to new challenges is undisputed. However, by one-sidedly focusing on threats to the competitive process by private undertakings (mostly Big tech companies), current discussions overlook crucial challenges to competitive markets in the EU well illustrated by the discussed developments in the CEE countries.Therefore, we advocate for a more comprehensive vision of EU competition law for the years to come. We advocate for a vision that takes into account the social and economic reality of the CEE region, and acknowledges the prodemocratic function of EU Competition Law in line with its constitution identity. It is important to focus on the role played by states, in conjunction with the effectiveness of the enforcement of competition laws and merger reviews, especially when it comes to state-owned companies (SOEs) or crony firms. According to this vision, enforcement in sectors that are vital for a thriving democracy, such as the food, public utility, and media markets, should be prioritized. This perspective on competition policy and law is not exclusive to CEE; it offers us a lens through, which we can understand and guide the EU’s further enlargement.
