Handout 3

Seminar 3: Convergence Between Competition Law and Internal Market Law  (18 October 2012)

 The next two seminars are linked, so there is likely to be some overlap in the concepts and ideas, as it is not easy to divide the topic up in a tidy manner. There are three general legal issues for consideration:

  • First, how far the approach to (a) identifying the application of competition law or of the internal market rules (e.g. free movement of goods) and (b) justifying a restriction on competition or on the free movement of goods differs between the approach taken in internal market law and competition law.
  • Second, to what extent are the EU’s internal market rules, which are addressed to states, also applicable to firms or associations of firms. (This is the so-called horizontal effect of internal market law.)
  • Third, how far the do the EU’s competition rules also apply to anticompetitive state action?

 As you might have noted, the second and the third issue are mirror images of each other: the former asks how far rules addressed to states bind private parties; the latter asks how rules addressed to private parties bind states. In this seminar we look at the first and second issue, in the next one we turn to the third and the first again.

 There is also some overlap with some later seminars, for example Prechal and de Vries speak of Viking Line, which we will look at later on when considering labour law.

 Reading

 K. Mortelmans ‘Towards Convergence in the Application of the Rules on Free Movement and Competition?’ (2001) 38 Common Market Law Review 613

 S. Prechal and S. de Vries ‘Seamless web of judicial protection in the internal market?’ (2009) 34 European Law Review 5

 Case C-281/98 Angonese v Cassa di Risparmio di Bolzano SpA [2000] ECR I-4139               

 Case C-519/04 P Meca-Medina and Majcen v Commission [2006] ECR I-6991 (time permitting, have a look at the judgment of the Court of First instance as well: Case T-313/02 Meca-Medina and Majcen v Commission [2004] ECR II-3291)

 Case C-171/11 Fra.bo SpA v Deutsche Vereinigung des Gas- und Wasserfaches eV (DVGW), judgment of 12 July 2012. (Please read also the Advocate General’s Opinion!)

 For discussion

 Is there any good reason for aligning the approaches under the internal market rules and the competition rules? Any good reasons for keeping them separate?

 What lesson, if any, does Meca-Medina hold for the application of the internal market and the competition rules? Do you understand what the restriction of competition was in this case?

 Why is the horizontal effect of the internal market provisions so contested? Is the answer in Angonese wider than the one in Fra.bo, and if so, is it for good reason?

 Why did the ECJ in Fra.bo decline to answer the competition law question? Or, putting it another way, is there any reason why the court should have chosen to tackle the internal market question before the competition question? How would you answer the competition question? And how does your answer compare to the assessment made by the ECJ under the free movement of goods provisions?

 Further Reading

 An EUI thesis was written that looks over the issues in these two seminars: J. Baquero Cruz Between Competition and Free Movement (Hart Publishing, 2002)

 S. Weatherill, ‘Anti-doping revisited – the demise of the rule of ‘purely sporting interest’?’ [2006] European Competition Law Review 645

 Case C-309/99 Wouters [2002] ECR I-1577

 If you are new to this stuff:

The Prechal and de Vries paper is probably an easy place to start, the Mortelmans is a bit less clear.

On general internal market law issues, have a look at any European Union textbook, for example Wyatt and Dashwood’s European Union Law chapter 14, sections I- VII have an accessible introduction to the internal market rules.

6 comments on “Handout 3

  1. Jotte says:

    The EU rules relating to the establishment of the internal market are set up with a simple idea. Free movement rules address trade restrictive actions of Member States and competition rules the potential anticompetitive behavior of undertakings. Combined, they provide the mechanisms for the EU to achieve an internal market where competition is not distorted. It is clear that the competition and internal market rules overlap to some extend but essentially address different aims and actors. Perhaps most importantly, free movement rules give individuals certain fundamental economic rights within the EU area whereas the competition rules ‘only’ pursue the aims of market liberalization and economic efficiency (Gallo 2011, p.25). Hence, this gives a reason for and probably explains some diverging approaches between the competition and free movement rules.

    Such diverging approaches do need to be based on a clear rationality because of the fading public-private distinction. Increasing forms of (regulated) self-regulation, the impact of collective labor agreements, the State acting on the market and standardization by private associations are examples of developments that put increasing strains on the traditional division between the free movement and competition rules. This brings about a lot of interesting problems, as we read in the seminar materials, such as the horizontal application of free movement rules (e.g. Prechal & de Vries 2009) and the application of the competition rules on State (induced) action. Importantly, the competition and free movement rules need to be, increasingly and consciously, operating as communicating vessels. This does not mean that the rules need to be completely aligned but it does require a coherent approach to some fundamental concepts that are shared in both sets of rules.

    With respect to the notion of economic activity, for example, one could say on first sight that it should be treated similarly in both the internal market rules and the competition rules. However, in practice, this concept is applied differently when applied in either the competition or free movement rules. Within the free movement rules the question of remuneration is the constitutive element of the notion of economic activity whereas in the competition rules it is a remuneration + test whereby there also must exist a market where undertakings can operate. As such the free movement rules ‘catch’ more situations than the competition rules. The reason for this is not expresly provided in the case law of the Court of Justice. But AG Maduro suggests a clarifying reason for a diverging approach in his opinion to the FENIN case (Case C-205/03). He claims that legitimation for different understandings of economic activity lies in the fact that the scope of freedom of competition and that of the freedom of movement (of services in this case) are not identical. In concreto, he means that there is nothing to prevent a transaction involving an exchange being classified as the provision of services, even where the parties to the exchange are not undertakings for the purposes of competition law. Member States can withdraw certain activities from the field of competition law if they organise it in such a way that the principle of solidarity is predominant, with the result that competition law does not apply. But the way in which an activity is organised at the national level has no bearing on the application of the principle of the freedom to provide services. As such the notion of economic activity for the purposes of the free movement rules and for the purpose of the competition rules can differ (AG Maduro opinon FENIN case para. 53). Here the concept of an economic activity therefore provides a good example of the need for a ‘communicating vessels approach’ that can merit different approaches on the basis of the specific aims of the in the competition and free movement rules, that together strive towards the common goal of the internal market.

  2. Karin Floistad says:

    -Reasons for aligning the approaches/for keeping separate
    With the development in the jurisprudence of the Court whereby not only states are responsible for the internal market rules and not only private entities for the competition rules it seems logical that the internal market and the competition rules approach each other. If the same party is responsible under the two sets of rules and the objectives of the rules are more or less the same they should also be applied in correspondence.
    But since the objectives of the two sets of rules are not entirely overlapping, one being more purely economic and the other much broader, taking into account more general political objectives, this is a good reason to still keep them apart.

    -Meca Medina
    When the Court does not want the rules to apply they find a way to avoid it.

    -Horizontal effect
    Horizontal effect is contested because it creates great uncertainty for private parties. As is pointed out in the reading materials this may no longer be true for discriminatory behavior since it has become widely known throughout the Community that this is not tolerated. But for the always evolving jurisprudence of the Court on what constitutes a restriction, horizontal effect would create great uncertainty. Given also that EU law takes precedence one can imagine a private party acting in accordance with national rules but still be caught by the rules on illegal restrictions.

    -Fra.bo
    The Court interpreted the questions from the national court in a way where the competition question was only to be answered if the question on free movement was answered in the negative.

  3. Emma says:

    Structurally we can see alignment in the provisions- the ‘effect on trade’ criteria is similar, there are ‘black lists’, de minimis and both allow for exceptions. However substantively the provisions still differ, importantly in their addressees and the scope of their exceptions (which reflect the purpose of each provision : free movement exceptions are public policy focussed, competition exceptions are economic-based). Further, the conduct addressed is not the same: a measure could be problematic for free movement but not under Art. 101.
    I see the main purpose of convergence as filling a gap, to create a ‘seamless web’. However, I think the provisions should complement not replace one another through alignment. I don’t think full convergence is necessary since the Courts have gone a long way to providing coherence – for example Art. 10 can achieve this the duty of community loyalty ex. by ensuring that the competition provisions are respected by Member States (who are not the addressees).

    In Meca-Medina, I think the lesson is that the ECJ uses non-economic objectives to decide that Art.101 does not apply. Such objectives are not easily within Art. 101(3), but are closer to Art. 36 public policy justifications. To be honest I’m not entirely sure that the court found a restriction of competition in the sense of Art. 101. In para 45 it says that the appellants freedom of action is limited but applies a Wouters-like balancing test, concluding that if there is a legitimate objective then the limitation is not necessarily within Art. 101.

    Horizontal effect is contested because of the public-private power divide. In Angonese, Art.45 (prohibition of discrimination) was extended to apply to private contracts. In Fra.Bo, Art. 34 (free movement of goods) was applicable to a private law association with a delegated power. Although applying the internal market provisions to wholly private situations may seem wider, I actually think Fra.Bo goes further because it involves free movement of goods. As De Vries and Prechal point out, there is a close nexus between fundamental freedoms and fundamental rights. So, it makes more sense to give horizontal effect to a treaty right protecting individuals from non-discrimination rather than an economic provision which was designed for internal market purposes.

    I think by not mentioning Art. 106(2) affects the scope under which the free movement provisions can be applied to a private association. Fra.Bo had delegated powers, but if the Court had said there was only horizontal direct effect if it was entrusted with a SGEI then this would be an additional legal test to be met before the free movement provisions could be applied to its actions. I am not so familiar with Art. 106, but if the application of the treaty rules impeded the fulfilment of the service and the development of trade was not affected ‘to such an extent as would be contrary to the interests of the Union’ then it need not be subject to the Treaty rules. So, this could provide a ‘get-around’ to the application of the free movement of goods. The second question on competition law was not answered by the Court because they are not obliged to take a total approach to preliminary references. I can’t really explain why the A-G didn’t consider it either though…

  4. Argyri says:

    1. Aligning the approaches under the internal market rules and the competition rules

    I understand that the convergence of the two sets of rules becomes greater as the convergence between private and public action becomes more and more apparent. The convergence becomes more frequent, as the examples where rule-making comes from semi-private/semi-public entities increase.
    I do not see any inherent problem with this aligning. Internal market rules and competition rules, both ultimately relate to the attainment of a Common Market (Mortelmans p. 621.) Indeed, from the perspective of the market, barriers to trade may arise both from acts by public authorities and from the behavior of private undertakings (Mortelmans p. 624). Doctrinally, I understand that the problem is the uncertainty caused given the traditional distinction between the two sets of rules.

    2. Meca-Medina: What was the competition restriction in this case?

    If I understand correctly, the competition in the case arises because of the excluding effect of the anti-doping rules at issue, as the Court explains it in para. 47. The magnitude of the penalties applicable is capable of producing adverse effects on competition and in order not to be covered by the prohibition laid down in Article 81(1) EC, the restrictions thus imposed by those rules must be limited to what is necessary to ensure the proper conduct of competitive sport (proportionality).

    3. Angonese and FRA.BO: Horizontal effect
    Horizontal effect in cases like Angonese (2000) seem more justifiable following a legal doctrine of horizontal effect of rights when privates regulate labor or economic activities in general.
    Paragraphs 30 and 32 of the case give the reasons why the Court accepts horizontal effect here: para. 30 gives a textual argument (the principle of non-discrimination set out in Article 48 is drafted in general terms and is not specifically addressed to the Member States) and para. 32 a teleological (The Court has held that the abolition, as between Member States, of obstacles to freedom of movement for persons would be compromised if the abolition of State barriers could be neutralised by obstacles resulting from the exercise of their legal autonomy by associations or organisations not governed by public law).

    Although I understand the rationale and in general find the outcome of this decision justifiable, I think that there is uncertainty created when the Court tries to develop the doctrine further under para. 42 stating that a requirement, such as the one at issue in the main proceedings…could be justified only if it were based on objective factors unrelated to the nationality of the persons concerned and if it were in proportion to the aim legitimately pursued.
    Which are the objective factors that the Court implies here?

    In FRA.BO (2012), the Advocate General revisits the Court’s case-law on the horizontal effect of the fundamental freedoms and their application (para 28 et. seq.) and regards the application of the doctrine as settled case-law (para.29). Indeed, the Advocate General refers to the said para.42 of Angonese (para. 39). However, I still find that point unclear.
    With regard to the scope of the doctrine’s applicability, I think that Advocate General has a point when, under para. 44, he questions that the possibility of the direct applicability of the freedom of movement for workers, the freedom of establishment and the freedom to provide services with respect to collective rules of a non-public-law nature should be acceptable under certain conditions, while that direct applicability should be categorically excluded in respect of the free movement of goods and capital.

    Because the division between public and private action used to be quite strict in the civil law world, horizontal effect can be seen as bridging the gaps created in situations like Angonese. At the community level this was a situation where a discriminatory measure had an impact on the free movement of a worker. Even if there were no Community dimension in such a case (see Italian government’s objection in para.17), then horizontal effect would probably rise as a matter of domestic law anyway, with the result probably being the same (if the doctrine of horizontal effect in rights was applied by Italian courts at that time, as was in other jurisdictions).

  5. Chloé says:

    As a preliminary point, I think that the primary objective of the internal market rules and the competition rules is the same, namely the protection of trade between member States. The two fields of law are aimed at assessing the effect on trade between Member States and at prohibiting a practice, a measure, an obstacle etc., restricting and/or distorting trade within the internal market.

    The two sets of rules remain, however, formally and in essence very different. On the one hand, internal market law prohibits a measure taken by a national authority which creates an obstacle, a restriction to free movement within the internal market due to a discrimination or a limitation to access to the market. In brief, the free movement provisions constitute the primary tool protecting market unification, economic integration and the completion of the internal market. On the other hand, EU competition law prohibits an action or a failure to act by undertakings which distorts competition in the EU. The primary aim of EU competition law is thus to ensure that competition is not distorted in the internal market.
    Moreover, the Court of Justice operated in a number of cases a balance between economic integration as guaranteed by the Treaty freedoms and the exercise of fundamental rights. Such non-economic elements are les present within the EU competition rules.
    Furthermore, the two sets of rules apply different concepts and principles: the internal market rules focus for example on the notion of discrimination; notion which is not used by competition law as a primary tool. EU competition law leaves room for a de minimis analysis, which is not the case of internal market law which has developed a very different test through the remoteness test. At last, the derogations from and justifications of the free movement provisions are very different from the exemptions to Article 101 TFEU.

    Yet, despite these differences, the two sets of rules have progressively converged. First, the Treaty freedoms do not concern anymore only measures but also decisions, decisions of professional organisations, conducts not legally binding, comments expressed in public and even de facto action (Prechal and de Vries). Secondly, the Court of Justice has progressively adopted a market access approach with regard to freedom of movement, focusing on whether a national rule prevents or hinders market access and hence focusing less on whether a given measure discriminates against other persons, services or capital. In that respect, internal market law, as competition law, is more economic-oriented, focusing on the effect of trade between Member States. Additionally, the strict separation between the free movement and competition rules and their addresses has become less clear. Finally, EU competition rules takes more and more into account non-economic-interests. Indeed, if “the exercise of fundamental rights does not escape the scope of the Treaty provisions” (Prechal and de Vries), I think that vice versa, the Treaty provisions does not escape the scope of the fundamental rights.

    As regards the reason(s) of this convergence, I think it represents a normal and logic process. As said earlier, the two sets of rules have the same primary objective and thus complement each other. Moreover, it is logic that the internal market and competition rules, being enshrined in the same Treaty and having the same goal, inspire from each other and borrow from each other the tools, principles and concepts they use.
    According to me, such a convergence is necessary and welcomed since this has led to an extension of both sets of rules and therefore to a stronger protection of trade between Member States. It is nevertheless important that both fields of law remain separate. First competition law is not internal market law and vice versa. Certainly, competition law may participate to the completion of the internal market but it will only participate to it in an indirect way by promoting competition and removing trade barriers between Member States. Moreover, such a separation is necessary for legal clarity in order for the actors at stake to understand to whom the different rules are addressed and which conduct could be considered unlawful and under which rules.

    One of the most prominent element of this convergence is the progressive recognition by the Court, although in a very cautious and limited way due to the legal confusion it may entail, of the horizontal effect of the internal market provisions, at least with respect to free movement of workers. The approach adopted in Angonese goes quite far and is, in my view, wider that the one in Fra-bo. In the Angonese case indeed, it is the private action in itself which is discriminatory and thus restricts the free movement of workers. On the contrary, in Fra-bo, Article 34 has been held applicable to a private body because, according to me, the private body holds a power of regulation which is a delegated power and which may be in the hand of national authorities on other Member States, In other words, in this case, a link remains between the private body and the Member State. Fra-bo remains nonetheless a very interesting case because it is applied to free movement of goods provisions; an area where the Court has constantly refused to admit horizontal effect. As regards the question on competition, it is to the discretion of the Court to choose to address all the different questions referred to it. Perhaps, the Court wanted to show here, as in Meca-Medina, that internal market and competition rules, still have different requirements and their own ‘modes d’application’ (Preches and de Vries) and that the application of one set of rules does not entail the automatic application of the other set of rules.

  6. giorgiomonti says:

    Very nice responses on the whole. Just a few quick points here:

    1) Sacha Prechal (co-author of the European Law Review article) is now a judge at the ECJ and was one of the judges in Fra.bo: note the similarity between her position in the article (page 18) and in the judgment

    2) more than one of you suggested Fra.bo is an instance where the private body had powers delegated from the state – not so I think. Instead there is legislation that provides that products certified by the defendant comply with national legislation. Interesting nevertheless to debate which case gives a wider ‘horizontal’ effect to the fundamental freedoms: Angonese or Fra.bo?

    3) Note horizontal effect is not the same thing as direct effect. Direct effect means that one has a right (arising from a Treaty provision) and they may invoke that right in a national court or the ECJ. In this seminar we might be speaking of ‘horizontal direct effect.’ That is to say the individual is asserting their right (arising from EU Law) against another individual who is infringing that right). The Commission appears to think this label is useful, see: http://europa.eu/legislation_summaries/institutional_affairs/decisionmaking_process/l14547_en.htm
    However, Cruz ‘Between Competition and Free Movement (Hart, 2002) pp.106 et seq is more circumspect.

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