EUROPEAN COMMISSION Brussels, 22.3.2017 SWD(2017) 114 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a



DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market {COM(2017) 142 final}

{SWD(2017) 115 final}

{SWD(2017) 116 final}



Table of Contents 1CONTEXT 1.1Why enforcement of the EU competition rules matters 1.2The role played by the national competition authorities 2What is the problem and why is it a problem? 2.1Untapped potential for more effective enforcement of the EU competition rules 2.2Underlying problem drivers 2.2.1Problem driver 1: Lack of effective competition tools 2.2.2Problem driver 2: Lack of powers to impose deterrent fines 2.2.3Problem driver 3: Divergences between leniency programmes in terms of summary applications, core principles, protection of self-incriminating material and interplay with individual sanctions can lead to less effective competition enforcement against cartels 2.2.4Problem driver 4: Lack of safeguards NCAs can act independently when enforcing the EU competition rules and have the resources they need to carry out their work. 2.3Who is affected by the problem? 2.4What is the EU dimension of the problem? 2.5How would the problem evolve, all things being equal? 3Why should the EU act? 4What should be achieved? 5What are the various options to achieve the objectives? 5.1Option 1: no EU action (baseline scenario)

5.2Option 2: further soft action 5.2.1Specific objective 1: ensuring all NCAs have an effective competition toolbox 5.2.2Specific objective 2: ensuring deterrent fines can be imposed 5.2.3Specific objective 3: making leniency programmes and their interplay more attractive to encourage companies to cooperate with the authorities in their fight against cartels 5.2.4Specific objective 4: ensuring all NCA have safeguards they can act independently when enforcing the EU competition rules and have the resources they need to carry out their work. 5.3Option 3: EU legislative action to provide NCAs with minimum means and instruments to be effective enforcers, complemented by both soft action and detailed rules where appropriate 5.3.1Specific objective 1: ensuring all NCAs have an effective competition toolbox 5.3.2Specific objective 2: ensuring deterrent fines can be imposed 5.3.3Specific objective 3: making leniency programmes and their interplay more attractive to encourage companies to cooperate with the authorities in their fight against cartels 5.3.4Specific objective 4: ensuring all NCA have safeguards they can act independently when enforcing the EU competition rules and have the resources they need to carry out their work. 5.4Option 4: EU legislative action to provide NCAs with detailed and uniform means and instruments to be effective enforcers 5.4.1Specific objective 1: ensuring all NCAs have an effective competition toolbox 5.4.2Specific objective 2: ensuring deterrent fines can be imposed 5.4.3Specific objective 3: making leniency programmes and their interplay more attractive to encourage companies to cooperate with the authorities in their fight against cartels 5.4.4Specific objective 4: ensuring all NCA have safeguards they can act independently when enforcing the EU competition rules and have the resources they need to carry out their work. 5.5Discarded option 6What are the impacts of the different policy options and who will be affected? 6.1Option 1: no EU action (baseline scenario) 6.2Option 2: further soft action 6.3Option 3: EU legislative action to provide NCAs with minimum means and instruments to be effective enforcers, complemented by soft action/detailed rules where appropriate

6.4Option 4: EU legislative action to provide NCAs with detailed and uniform means and instruments 7How do the options compare? 7.1Comparison of the options 7.1.1Option 1: no EU action (baseline scenario) 7.1.2Option 2: further soft action 7.1.3Option 3: EU legislative action to provide NCAs with minimum means and instruments to be effective enforcers, complemented by soft action/detailed rules where appropriate 7.1.4Option 4: EU legislative action to provide NCAs with detailed and uniform means and instruments 7.1.5Overview of how the options compare 7.2Preferred policy option 7.2.1All NCAs would have an effective enforcement toolbox 7.2.2All NCAs would be able to impose (or seek) deterrent fines 7.2.3All NCAs would have effective leniency programmes which would encourage companies to come clean across the EU 7.2.4All NCAs would have guarantees of independence and resources 7.2.5Nature of the instrument and legal basis 8Monitoring and evaluation

1CONTEXT 1.1Why enforcement of the EU competition rules matters The EU competition rules seek to provide everyone in Europe with better quality goods and services at lower prices by ensuring that firms compete solely on their merits. In a competitive market, the simplest way for a company to gain more market share is to offer a better price than its competitors. This is not only good for consumers - when more people can afford to buy products, it encourages businesses to produce and boosts the economy in general.

Competition also encourages businesses to improve the quality of goods and services they sell to attract more customers and expand market share. Quality can mean various things: products that last longer or work better, better after-sales or technical support or friendlier and better service. In a competitive market, businesses will try to make their products different from the rest so they are more attractive. This results in greater choice: consumers can select the product that offers the right balance between price and quality. To deliver this choice, and produce better products, businesses need to be innovative in their product concepts, design, production techniques, services, etc. Competition within the EU also helps make European companies stronger outside the EU and able to hold their own against global competitors. Effective enforcement of the EU competition rules is therefore indispensable for the Union to both meet the challenges, and seize the opportunities, of globalisation. The Treaty on the Functioning of the European Union (TFEU) recognises the importance of fair competition in the internal market. Article 101 TFEU prohibits agreements between two or more companies which restrict competition. The most flagrant example of illegal conduct infringing Article 101 TFEU is the creation of a cartel between competitors to fix prices, to limit production or to share markets or customers between them. Instead of competing with each other, cartel members rely on an agreed course of action, which reduces their incentives to provide new or better products and services at competitive prices. As a consequence, their clients (consumers or other businesses) end up paying more for less quality. Prohibiting a cartel therefore has a direct positive effect on consumers, business and competition as a whole. Article 102 TFEU prohibits firms that hold a dominant position on a given market from abusing that position, for example by charging unfair prices, by limiting production, or by refusing to innovate, all of which is to the detriment of consumers' interests and may lead to the exclusion of competitors from the market by other means than competing on the merits of the products or services provided. Stopping companies from abusing their dominant position allows other companies a chance to compete fairly and to grow. Competition enforcement is about applying rules to make sure companies compete fairly with each other. This means that businesses benefit from a level playing field, allowing them to compete on their merits and capitalise on any competitive advantage they may have. Greater competition encourages enterprise and efficiency, which in turn benefits consumers. Competition enforcement in Europe is a vital part of the single market . The single market is recognised as Europe’s best asset in times of increasing globalisation. The Commission is determined to build on the strength of the single market by making it fairer and deeper. The European competition rules are one of the defining features of the single market: if competition is distorted, Europe cannot deliver on its full potential. Competition is not an end in itself. It is an indispensable element of a functioning internal market guaranteeing a level playing field. It contributes to an efficient use of society's scarce resources, technological development and innovation, a better choice of products and services, lower prices, higher quality and greater productivity in the economy as a whole. 1.2The role played by the national competition authorities The EU Member States are essential partners of the European Commission for enforcing the EU competition rules. Since 2004, the national competition authorities of the EU Member States (NCAs) are empowered by Regulation 1/2003 to apply the EU competition rules alongside the Commission. Indeed, the NCAs are obliged to apply the EU competition rules to agreements or practices that are capable of having an effect on trade between Member States. For more than a decade both the Commission and the NCAs have enforced the EU competition rules in close cooperation in the European Competition Network (ECN). The ECN was created in 2004 expressly for this purpose. The ECN is recognised as a successful and innovative model of governance for the complementary implementation of EU law at both European and national levels. Enforcement of the EU competition rules by both the Commission and the NCAs is an essential building block for the creation of an open, competitive and innovative single market and is crucial for creating jobs and growth in important sectors of the economy, in particular, the energy, telecoms, digital and transport sectors. Enforcement of the EU competition rules is now taking place on a scale which the Commission could never have achieved on its own. Since 2004, the Commission and the NCAs took over 1000 enforcement decisions, with the NCAs being responsible for 85%. Action by a multiplicity of enforcers is a much stronger, more effective and better deterrent for companies that may be tempted to breach the EU competition rules. The Commission typically investigates anticompetitive practices or agreements that have effects on competition in three or more Member States or where it is useful to set a Europe-wide precedent. The NCAs are usually well placed to act where competition is substantially affected in their territory. NCAs have the expertise on how markets work in their own Member State. That knowledge is of great value when enforcing the competition rules. Action at national level promotes grass root support for competition enforcement. The NCAs have tackled many anticompetitive practices with a direct impact on consumers and citizens/tax payers. For example, at the end of 2014, the French NCA fined manufacturers of home care and personal care products nearly €1 billion for having coordinated their commercial policy towards supermarkets, which allowed them to maintain artificially high prices for the end consumers. The level of the fines is linked to the significance of the concerned markets, namely around €4.7 billion for home care products and €7 billion for personal care products. The practices also had an important impact on consumers as these products account for a significant share of household spending as at the time of these practices consumers in France spent an average of €190 per year for personal care products alone. NCAs have also uncovered and sanctioned a significant number of cartels in the food sector. For example, in 2014, the Greek NCA fined poultry meat producers a total of €39.9 million for fixing prices of fresh and frozen poultry meat and for allocating customers. Enforcement by the NCAs also benefits citizens/tax payers more generally where they uncover and bring practices to an end which are at the expense of public bodies, such as municipalities or the social security system. In 2011, the German NCA imposed fines totaling €20.5 million on manufacturers of fire-fighting vehicles for having fixed the prices and carved up the German market for fire-fighting vehicles among themselves. The infringement covered more than 80% of the market and caused many municipalities considerable financial harm. In 2014, the Italian NCA imposed fines of more than €180 million on two pharmaceutical companies for having hindered the use of an inexpensive drug for treating common eye diseases among elderly people, meaning that patients were forced to buy a more expensive product. The agreement resulted in an additional expense for the national health service estimated at more than €45 million in 2012 and incurring possible future costs of more than €600 million per year. The NCAs thus play a key role in making sure that the single market works well and fairly. This benefits both businesses which can compete more fairly on more open markets throughout Europe, as well as consumers who get a better choice of goods at lower prices. However, there is potential for the NCAs to do more. 2What is the problem and why is it a problem? 2.1Untapped potential for more effective enforcement of the EU competition rules A key goal of the decentralised system for the enforcement of the EU competition rules that was put in place in 2004 was to ensure greater, more effective enforcement by a multiplicity of authorities through-out the EU. The European Commission estimated the annual customer benefits of only its decisions prohibiting cartels (e.g. excluding other enforcement action under Articles 101 and 102 TFEU) for the period 2010-2015. This varied between €1 billion up to €10.8 billion, depending on the year considered: Estimates of customer benefits resulting from cartel prohibition decisions at EU level 2010 2011 2012 2013 2014 2015 EUR billion 7.2-10.8 1.8-2.7 1.35-2.0 4.89-5.66 1.78-2.64 0.99-1.49 Model simulations show that the European Commission's cartel decisions and merger interventions have a sizeable impact on growth and jobs: GDP increases by 0.4% after five years and by 0.7% in the long run, and after ten years around 650 000 cumulated new jobs are created (the relevant simulations are based on a chain of assumptions which, however, do not undermine the usefulness of the analysis in getting a better understanding of the role of competition policy in society ). At national level, the Dutch competition authority estimated that the outcome of its actions in terms of the expected future benefits for consumers who will pay less for products and services at €260 million for 2014 (the relevant assessment appears to cover also merger control, and the relevant calculation method leads to results that might vary from one year to the next, however, it provides a useful proxy for the impact of the authority's enforcement activity ).

Similarly the UK competition authority estimated that the average direct financial benefit to consumers of only its antitrust enforcement activities was £73 million averaged over a three year period. These figures only take into account the direct price effect of competition interventions for consumers and the total benefits extend beyond prices and include effects on quality, choice and innovation. The UK competition authority also estimated that for the period 2013 to 2016 the ratio of direct benefits to cost was £10.6 for every pound of relevant cost to the taxpayer.. Despite these positive outcomes, there is untapped potential for more effective enforcement of the EU competition rules by the NCAs. While it is difficult to determine the effects on economic growth from a lack of effective competition law enforcement, it has been estimated that each year losses of €181-320 billion – approximately 3% of EU GDP – accrue owing to the existence of undiscovered cartels. It is difficult to assess how many anti-competitive cartels are undetected in Europe because companies inevitably try to keep them secret. However, a study indicates that less than 20% of cartels in the EU between 1985 and 2010 were detected. Given that there is only limited knowledge available about the rate at which cartels are discovered, this study relies on methods frequently used only to make inferences in another discipline so its conclusiveness might be considered questionable by some. Nevertheless, its results provide very useful indications about the levels of undetected cartels in Europe. If one takes 15% as the rate of detection of cartels and assumes that detected cartels are not too dissimilar to undiscovered cartels, the total value drained from the European economy by such collusion could be in the range of more than 3% of 2012 euro-area GDP. Cartels typically increase prices: the empirical evidence in academic literature suggests that the median cartel overcharge lies between 17 and 30%. When cartels are not detected, consumers have to bear the price of this overcharge. A primary goal of competition policy enforcement is to deter anticompetitive behaviour by companies thereby maintaining a level playing field in product markets to the benefit of the end consumer. The deterrent effect of a cartel prohibition, for example, depends on the impact of the decision by the competition authority on the existing and future cartelists' perceived likelihood of getting caught and on the size of the expected fines. Attempts have been made to get rough estimates of the deterrent effects of inter alia prohibiting and sanctioning cartels. Surveys of competition lawyers and companies in the UK and the Netherlands indicate that the number of cartels deterred per cartel detected varies between 5 and 28. Keeping in mind the caveats and uncertainties in measuring deterrence (the difficultly in knowing how many undetected cartels exist), there is survey evidence suggesting that the impact of deterrence in terms of avoided consumer harm is significant. For example, one study – basing itself on the existing literature and the European Commission's competition enforcement in 2012-2014 – uses lower and upper bounds (boundary) assumptions as to the amount of avoided consumer harm which is deterred resulting from each cartel detected and sanctioned. The lower bound of the total avoided consumer harm is estimated to be between 10 and 30 times the harm caused to the customers of each detected cartel. While not possible to determine precisely, there are thus indications that the untapped potential of making competition enforcement more effective is considerable. Experience shows that equipping a competition authority with additional tools significantly contributes to untapping the potential of its enforcement activities. For example, in the 20-year period spanning from 1990 until 2010, the Spanish Competition Authority uncovered and fined a total of only around 10 cartels. The introduction in February 2008 of a Leniency Programme, as well as bestowing the Authority with increased powers with which to carry out inspections, completely changed the picture. In the 6 year period between 2010 and 2015 this figure has increased five-fold with a total of 57 cartels being fined a combined total of 1,200 million euros. The potential for more effective competition enforcement is also directly experienced by consumers and companies. According to a recent survey, over two-thirds (68%) of EU citizens have experienced a lack of competition in at least one sector that resulted in problems such as higher prices, less product or supplier choice, or lower quality. EU citizens point to a range of sectors in Europe where they have experienced a problem resulting from a lack of competition, notably, the energy sector (gas, electricity etc-28%), transport services (railways, airlines -23%), and pharmaceutical products (21%). In addition, the Consumer Markets Scoreboard regularly identifies markets in Europe which are not functioning well for consumers, in particular in terms of choice and problems experienced by consumers. In the context of the European Semester, the European Commission has also identified a number of sectors where there is still scope for improving competition. For example, a limited degree of competition in the retail sector resulting in high prices for consumer goods can be observed in Belgium, Denmark and Finland. The business services sector in Austria and Malta is also experiencing low competition. Similarly, a lack of competition in the telecom and broadband sectors results in higher prices in Croatia and Cyprus. The transport sector in Croatia, Czech Republic, Denmark, Finland, Germany, and Slovenia could also benefit from increased competition. The lack of competition on markets is tackled in two main ways: (1) by removing anti-competitive regulatory barriers and (2) through effective enforcement of competition rules. Accordingly, the European Semester focuses not just on the elimination of regulatory barriers, but also on the establishment of an efficient competition framework in all Member States enabling NCAs to tackle anticompetitive conduct by companies. For example, the achievement of the EU Energy Union strategy is dependent both on removing regulatory barriers and on effective enforcement of the EU competition rules by the Commission and the NCAs. To have secure, affordable, low-carbon energy for all EU consumers and businesses, energy must flow easily between EU countries. The European Commission is currently investigating contractual restrictions which may prevent the supply of gas into other countries. However, in the gas and electricity businesses there are many complex relationships which the Commission cannot solve on its own. At some levels of the market, NCAs are very well placed to investigative anti-competitive restrictions. Some NCAs are focusing on these issues, but more could be done. There is a clearly established link between the role and the ability of NCAs to act and fully enforce the EU competition rules and ensuring competition on markets. According to the OECD, there is solid evidence in support of each of the relationships shown below:

If competition authorities are not in a position to be effective enforcers, undistorted competition in markets is not ensured and the ensuing benefits in terms of higher productivity growth, which in turn generates economic growth, are not fully realised. Studies have shown that the inability of competition authorities to apply the competition rules can have a negative impact on growth. For example, the US National Industry Recovery Act, which selectively suspended anti-trust laws in the 1930s and authorised companies to establish cartels, brought a 10% reduction in manufacturing output. 76% of stakeholders in the public consultation launched by the Commission in November 2015 on how to empower the national competition authorities to be more effective enforcers said that the NCAs could do more to enforce the EU competition rules. The NCAs themselves repeatedly call on the Commission to help them to be more effective enforcers, because they do not always have the means and instruments they need. The level of enforcement of the EU competition rules is very unevenly spread in the EU. Some NCAs have adopted very few decisions applying the EU competition rules since 2004. For example, between 2004 and 2015, the Irish (2), Maltese (3), Estonian (4), Latvian (5), Luxembourgish (5), Cypriot (6), Bulgarian (7), Czech (10), Finnish (14) and Polish (14) NCAs adopted less than 15 decisions, whereas the French (119), German (113), Italian (112) and Spanish (101) NCAs took more than 100 decisions in the same period. Although the number of enforcement decisions depends on a number of variable factors, for example authorities may invest much more time in complex cases or cases that involve a significant number of market players, the above data demonstrate that there is clear scope for more effective enforcement. Even those NCAs with a high number of enforcement decisions face issues such as their inability to impose effective fines (see section 2.2.2 below). Companies have little incentive to comply with competition law when they see that infringements are not sanctioned. The inability of NCAs to realise their full potential to be effective enforcers of the EU competition rules undermines the enforcement of one of the key chapters of the EU Treaty on the functioning of the European Union and the decentralised system set up by Regulation 1/2003. It also impairs one of the main facets of the single market, which is ensuring that competition is not distorted in Europe. A lack of effective enforcement by the NCAs means that the framework conditions for efficiently functioning markets and improved competition conditions in the internal market are not ensured. For consumers, the lack of capacity of NCAs to un-leash their full potential to enforce the EU competition rules means that they miss out on the benefits of competition enforcement, namely lower prices, better quality, wider choice and product innovation. Stronger application of the EU competition law principles across Europe would contribute to the achievement of the overall objectives of EU economic policy. This "benefits consumers, workers and entrepreneurs, and promotes innovation and growth, by controlling and restricting unfair market practices resulting from monopolies and dominant market positions, so that every individual has a fair chance of success". 2.2Underlying problem drivers Assessments of the effectiveness of competition enforcement show that this is dependent on key aspects of competition policy design. This includes not only the content and scope of the substantive competition rules themselves, but also the independence of the competition authority when it takes enforcement decisions, the powers the authority has to detect, investigate, remedy and sanction competition infringements and the enforcement capacity of the authority in terms of its resources and budget. In particular, the Buccirossi study which found a positive and significant effect of competition policy on productivity, established that the strength of this effect was found to be particularly marked for specific aspects of competition policy, including the degree of independence of the competition authority with respect to political or economic interests, the scope of the authority's investigative and fining powers and the quality of the human and financial resources a competition authority can rely on when performing its tasks.

Regulation 1/2003 focused on giving the NCAs the power to co-enforce the EU competition rules. It did not address the means and instruments of NCAs to apply these rules. This means that although the NCAs apply the same substantive rules, i.e., the EU competition rules, the means and instruments they have to enforce depends on what is available under national law. In 2013-2014, the Commission carried out an assessment of the functioning of Regulation 1/2003. Based on the results of this analysis, the 2014 Commission Communication on Ten Years on Antitrust Enforcement under Regulation 1/2003 found that the new system has considerably increased the enforcement of the EU competition rules, with NCAs now as key pillar of the system. However, it found that there is scope for the NCAs to be more effective enforcers and identified a number of areas for action to boost effective enforcement by the NCAs. It concluded that action should be taken to guarantee that NCAs: (1)have an effective enforcement toolbox to detect infringements and bring them to an end; (2)can impose deterrent fines on companies; (3)have leniency programmes which work effectively across Europe; and (4)have adequate resources and can act independently when applying the EU competition rules. The 2014 Communication built on the Report of Five Years of Regulation 1/2003, which found that empowering the NCAs to co-enforce the EU competition rules has positively contributed to stronger enforcement. However, it concluded that there is room for improvement, in particular, to ensure that NCAs have effective enforcement powers and fining tools. By way of follow-up to the 2014 Communication, extensive data collection was carried out by the European Commission in cooperation with all NCAs on the identified areas of action to have a detailed picture of the status quo. Although there has been a good degree of voluntary action at Member State level in the direction of giving NCAs the means and instruments they need to be effective enforcers, supported by extensive soft action (see section 6.1), there are four underlying problem drivers that undermine the ability of NCAs to be more effective enforcers and the decentralized system put in place by Regulation 1/2003. Annex IV contains a problem tree outlining the problem drivers and their consequences. 2.2.1Problem driver 1: Lack of effective competition tools It is widely accepted that to be effective enforcers, competition authorities should be equipped with operational, well-designed tools to detect infringements and to bring them to an end. Investigation and decision-making powers and procedures are the main working tools of competition authorities. In this context, the core investigation powers are the power to inspect business and non-business premises, the power to issue requests for information, the power to gather digital evidence, and the power to conduct interviews. The core decision-making powers are the power to adopt prohibition decisions, the power to issue interim measures, and the power to adopt commitment decisions. Competition authorities should have the power to impose effective penalties for non-compliance with the investigation and decision-making tools and the power to set their priorities in full. Lack of effective investigation and decision-making tools The fact-finding done as follow-up to the 2014 Communication has shown that there is a patchwork of powers across Europe, with many NCAs not having the powers they need. The scope of NCAs' investigative and decision-making powers varies considerably, which can significantly impact on their effectiveness. For example: With respect to the relevant investigation powers, some NCAs (Bulgaria, Denmark and Italy) lack the fundamental power to inspect the homes of business people for evidence of infringements. This is a key gap in authorities' powers, as it is all too easy for cartelists to hide evidence at home. Indeed, nowadays this tool is becoming increasingly important as the distinction between work and home becomes more blurred with modern ways of working, for example, teleworking. If a NCA is unable to obtain evidence, infringements may not be pursued in full or can even remain unaddressed. Example: Problems to gather evidence from laptop and phones The power to effectively collect digital evidence from laptops and mobile phones is increasingly important nowadays where the storage and circulation of information is largely digital. In some cases, the evidence necessary to prove that e.g. companies engaged in a price-fixing cartel only exists in a digital form. However, several authorities face key limitations: 6 NCAs cannot access data stored on clouds or servers located in other countries even though many companies routinely keep data there. Competition authorities need to be able to access the same data as the company being inspected. 5 NCAs cannot access mobile phones in inspections to check if company employees have any information about the alleged infringement, even though this is an obvious means for cartelists to communicate. Nowadays there is an increasing amount of digital data to be searched when authorities carry out inspections. This fact, combined with the need to minimise the disruption caused by inspections, makes it ever more important for NCAs to have the power to continue making searches of the data gathered after the inspection is finished, e.g. at the premises of the authority (the so-called continued inspection procedure); see also the ECN Recommendation on the Power to collect Digital Evidence, including by Forensic Means. However, 7 authorities do not have effective powers to do so. It is impossible to assess what and how much information those NCAs have missed without these powers, but it has led them to drop or partially drop cases, stop investigating individual companies because of a lack of evidence and it has been a factor in their decisions being over-turned in court. For example, the ability of one NCA to use the continued inspection procedure has recently been overturned by a court, meaning not only that it is prevented from exercising this power in future cases but the evidence it has collected via this procedure in other cases is open to challenge, undermining the operations of the authority. Similarly, at least 2 NCAs have recently been unable to collect evidence which was located on servers in other Member States, even though it was accessible to the companies being inspected. This loophole in NCAs' powers provides cartelists with means to collude which are safe from detection. With respect to the relevant decision-making powers, 11 NCAs cannot impose structural remedies to restore competition on markets. Major structural problems on markets may call for structural solutions to ensure that competition works effectively. For example, if vertically integrated energy incumbents foreclose the downstream supply markets by refusing indispensable access to transmission capacity, the abusive conduct stems from the very structure of the companies that can leverage their control of the network to maintain their dominance downstream. In such a case the divestiture of the transmission grid ensures that the abuse could never be repeated and it creates the conditions for undistorted competition downstream. Stakeholders, particularly businesses, highlight that the lack of NCAs' power to impose such remedies is particularly a problem for companies damaged by the anticompetitive behaviour of the infringer. Access to key infrastructure can be essential for companies which have been excluded from a market. If NCAs cannot impose effective remedies, they cannot ensure competition on these markets. The infringer continues to reap the benefits of a past violation to the detriment of consumers. NCAs also face gaps or limitations if companies do not comply with their decisions, e.g. some NCAs do not have the power to impose deterrent fines in case of non-compliance with a commitment decision. Under a commitment decision, parties make voluntary commitments to address competition concerns and the competition authority by decision makes the commitments legally binding. However, 11 NCAs either cannot fine failure to comply with such a commitment decision at all or the fines are set at a level which is too low to compel compliance. This means that authorities' powers lack teeth, e.g. companies easily enter into commitments which cannot be enforced and therefore no market change ensues. Finally, 15 NCAs do not have the full power to set their priorities and decide which cases to dedicate their (often scarce) resources. Stakeholders, notably businesses, report that the lack of the power of NCAs to set their priorities in full prevents them from focusing on infringements that cause the most harm to competition. Most NCAs (22) lack the power to collect fines from companies that are located in other Member States, when these companies do not have a legal presence on the territory of the NCA concerned. For example, one NCA has not been able to collect fines from companies based elsewhere in the EU in eight cases. This gives such companies a safe haven from fines. This is a growing issue of concern given that many companies sell over the internet to potentially numerous countries, but only have a legal presence in e.g. one Member State.

Problems for cross-border cooperation to find evidence Gaps and limitations in NCAs' powers also present a problem for cooperation within the ECN. One of the main elements of Regulation 1/2003 is that it provides for cooperation mechanisms that allow NCAs to investigate alleged infringements beyond the borders of their Member State. One NCA can ask another NCA to carry out investigative measures on its behalf. This means that NCAs are not prevented from gathering evidence simply because it is located in another jurisdiction. However, this mechanism does not work well if not all NCAs have effective powers to carry out inspections or to request information. Example: How a lack of effective powers can impede cooperation within the ECN The Dutch NCA was investigating a cartel involving Dutch and German companies and asked the German NCA to issue requests for information to the companies based in Germany to find information about this infringement. However, under German law the German NCA generally does not have the power to issue compulsory requests for information to companies in cases that can result in the imposition of a fine. It can only issue non-binding requests. This meant that when the German companies did not comply, the German NCA had no means of recourse and the Dutch NCA did not receive the information it asked for. Divergences in NCAs' powers, such as differences in rules on when a case becomes time-barred meaning that one authority may be able to act, but another could not, can also pose a problem for businesses operating cross-border. They want legal certainty as to whether proceedings can be brought against them. In the public consultation, stakeholders indicated which tools they consider NCAs need (Annex V). There was also a clear demand from lawyers, business and business organisations for improvements in NCAs’ enforcement powers to be counter-balanced by increased procedural guarantees at national level, including ensuring that rights of defence can be effectively exercised (companies should receive a Statement of Objections and have effective rights of access to file) and effective judicial review. 2.2.2Problem driver 2: Lack of powers to impose deterrent fines The ability of competition authorities to fine companies which breach competition law is a central enforcement tool. The purpose of fines is to punish companies which have infringed competition rules and to deter the same and other companies from engaging in or continuing illegal behaviour. EU law does not regulate fines imposed by NCAs on companies for breaches of the EU competition rules. Each Member State has its own legal framework for imposing fines. However, in 2009, the European Court of Justice ruled that "the effectiveness of the penalties imposed by NCAs and the Commission is a condition for the coherent application of the EU competition rules". The fact-finding carried out has shown that there are a number of issues that affect the level of enforcement of Articles 101 and 102 TFEU and mean that companies can face very low or no fines at all depending on which authority acts, undermining deterrence and the level-playing field. These issues are of two main types: (1) fines may not reflect the harm caused to competition, and (2) the nature of the fines imposed (criminal, civil or administrative). Fines should reflect the harm caused to competition There are differences in the methodologies for calculating fines that can have a significant impact on the level of fines imposed by NCAs. These differences mainly concern: (1) the maximum fine that can be set (the legal maximum) and (2) the parameters for calculating the fine (see Annex VI). For example, the legal maximum is calculated as a percentage of a given turnover in most Member States. There are however significant differences between Member States in the way the legal maximum is calculated in terms of the percentages applied, and the turnover to which such percentages are applied. Most NCAs when calculating the legal maximum use the worldwide turnover of the corporate group that has been held liable for the infringement, but some base it solely on the national turnover or the turnover of the direct infringer. The entities for which the turnover is considered (the undertaking or the direct infringer) and whether the geographic scope of such turnover is worldwide or national make a big difference to the maximum level of the fine (depending on the size of the corporate group it can be significantly lower). In one Member State, only the direct turnover of the infringer is used and fines are limited to €16 million. For breaches of Article 102 TFEU, maximum fines of only €400 000 can be imposed. Such low legal maximums are highly unlikely to reflect the harm caused to competition and fines are likely to be under-deterrent, particularly for large multinational groups. Such differences mean that fines vary by up to 25 times depending on which authority acts. Very low fines may be imposed for the same infringement, meaning that the deterrent effect of fines differs widely across Europe. The fines imposed may not reflect the harm caused to competition by the anti-competitive behaviour. Example: Impact of divergences for calculating fines To assess the impact of divergences in fining methodologies, the NCAs calculated the fine that they would impose in a hypothetical case. The case was a simple cartel with several types of scenarios (small single companies which are not part of a group/large groups, sales at national level/worldwide level, single companies /multiproduct companies) and a range of different durations. Annex VII shows the results for a cartel that lasted 3.75 years. The differences between NCAs in the fines that would have been imposed for the same infringement are significant. For example, for large groups, differences can be up to 25 times between the smallest and the highest fine, for the same type of company and infringement. Even for smaller groups, fines levels can differ substantially. Another aspect which may lead to a situation in which fines do not reflect the harm to competition, is limitations regarding who can be held liable for paying the fine. The concept of "undertaking" in EU competition law is established by the case law of the European Court of Justice. It means that different legal entities belonging to one "undertaking" can be held jointly and severally liable for any fines imposed on such "undertaking". This sends a clear signal to the entire corporate group that the absence of good corporate governance and compliance with competition law will not remain unpunished. It also allows the fine to reflect the overall strength of the corporate group and not only that of the subsidiary, making it more meaningful and deterrent. However, 5 NCAs cannot hold parent companies liable for infringements committed by subsidiaries under their control. Also, several NCAs cannot hold legal successors of an infringer (2 NCAs) and economic successors (8 NCAs) of an infringer liable for fines or there is uncertainty about whether national courts would uphold the application of these principles, despite the long established case law of the European Court of Justice. This means that companies can escape fines simply by merging with other companies or through corporate restructuring. Example: Corporate restructuring to evade a fine In Germany, an infringer can escape fines by transferring its assets to another entity of the group and becoming an empty shell that is not able to pay. The German weekly Wirtschaftswoche published in February 2015 a vivid article on the loopholes available in Germany to escape from competition fines. The German NCA has been unable to collect €128 million in fines from companies which took part in a cartel to fix the price of sausages. Two companies have escaped paying the fines simply by changing their corporate identity (see Annex VIII). Companies have also avoided fines after restructuring in other Member States, e.g. in Estonia a company active in the food retail sector avoided charges in a horizontal retail price fixing infringement after merging with another entity. Moreover, some NCAs cannot effectively fine associations of undertakings, such as trade associations, either because national legislation prevents this possibility or because NCAs cannot impose fines that take into account the turnover of its members. This is a problem because trade associations of e.g. lawyers, dentists etc. regularly participate in competition infringements (e.g. illegal agreements to fix the fees charged by their members) but typically have very little turnover compared to their members. NCAs need to be able to also fine the members of the association involved in the infringement to deter them. The fines imposed by NCAs without this power often have little deterrent effect and do not reflect the harm to competition. Nature of the fines imposed can result in under-enforcement

The nature of the fines imposed by NCAs for the infringement of the EU competition rules varies across Member States. Fines can be either administrative (imposed by the NCA), civil (imposed by civil courts) or criminal or quasi-criminal (imposed mainly by criminal courts or, in some cases, by the NCA but according to quasi-criminal (misdemeanour) procedures). In the majority of Members States fines are administrative. Civil fines are imposed in three Member States. Criminal or quasi-criminal fines are imposed in five Member States: Denmark, Estonia, Germany, Ireland and Slovenia (see Annex IX). Who imposes the fine Member States NCA (Administrative fines) BE, BG, CY, CZ, EL, ES, FR, HR, HU, IT, LT, LU, LV, MT, NL, PL, PT, RO, SK, UK Civil Courts AT, FI, SV Criminal Courts DK, IE, EE (Art. 101), DE (in case of appeal when the case is reassessed according to criminal standards) NCA but applying misdemeanour (quasi-criminal) standards EE (Art. 102), SI The fact finding has shown that for the period 2004-2013 in many of those Member States in which fines are primarily criminal, EU competition law is under-enforced or, even if enforced, sanctions are seldom imposed. Ireland and Estonia for example, have reported only 1 and 3 decisions respectively during this period under both Articles 101 and 102 TFEU, meaning that there is virtually no enforcement of the EU competition rules in these countries. For Article 101 cases, which include the most serious competition infringements, that is hard-core cartels (e.g. when competitors fix prices, divide up markets or allocate customers between them), a fine has never been imposed in Ireland and only once in Denmark during this period. Moreover, in (quasi) criminal systems, the data illustrate that it is much more difficult to bring cases against infringements which are not hard-core cartels. Finding competition infringements, such as whether a company abused its dominant position, involves more complex economic facts, theories and analysis and is more resource intensive. In (quasi) criminal systems during the period 2004-2013, fines for breach of Article 102 have only been imposed once in Denmark and never in Estonia, Germany and Ireland. This means companies in a dominant position in these countries have much less to deter them from abusing their dominant position and using illegal means to exclude competitors from their market. Most stakeholders stated in the public consultation that criminal systems, and to a lesser extent also civil systems, are less suited than administrative systems for the effective enforcement of the EU competition rules. The risk of under-enforcement imposed by systems that primarily apply (quasi) criminal sanctions was recognised, for example in a report of 2015 by the OECD reviewing the competition system in Denmark. This concludes that the imposition of criminal fines on undertakings has significant implications for the effective enforcement of EU competition law. The Irish Law Reform Commission has launched an issues paper for consultation in which it states that civil sanctions provide advantages over criminal prosecution. There are also calls for changing from civil to administrative models in several Member States to achieve more effective competition enforcement. The Swedish government commissioned an inquiry into this issue which was finalised in June 2016. The recommendation of the inquiry is that Sweden should change from its current civil system to an administrative system in which the NCA is given the power to impose sanctions directly. The inquiry mentions as the main reasons justifying this change the gains in terms of efficiency that would be obtained and the advantages in terms of better cooperation with other NCAs that would result from having a more harmonised system. The Swedish NCA also publicly advocates for the power to impose administrative fines directly. 2.2.3Problem driver 3: Divergences between leniency programmes in terms of summary applications, core principles, protection of self-incriminating material and interplay with individual sanctions can lead to less effective competition enforcement against cartels Since cartels are illegal, they are generally highly secretive and evidence of their existence is not easy to find. Cooperation by cartel members with competition authorities is therefore often crucial to uncover and punish these highly detrimental practices. Leniency programmes encourage companies to come clean about cartels in return for having no fines imposed (immunity) or a reduction in fines. They are therefore a key tool for the detection of cartels. The mere existence of a (successful) leniency programme can destabilise existing cartels. Currently the Commission and all Member States except Malta have leniency programmes in place. However, as shown in Annex XII, the number of (summary) leniency applications varies widely across NCAs. Some NCAs are much more successful in attracting such applications. A comparison between the absolute number of leniency applications and the overall level of enforcement activity per NCA shows that whilst some NCAs can rely to a significant extent on immunity applications to feed their enforcement work stream, in other Member States leniency programmes generate none or much less of the overall enforcement activity. These differences in the success of the leniency programmes may be due to problems related to the single leniency programmes or to their interplay, which undermine their (single and collective) effectiveness. To enable the NCAs and the Commission to uncover and sanction cartels, their individual leniency programmes have to provide companies with sufficient legal certainty about whether they will benefit from immunity, whether their employees are shielded from individual sanctions and whether self-incriminating material will be disclosed outside the context of the investigation. The efficient interplay between the different leniency programmes within the ECN is just as important for the effective enforcement of the competition rules within the ECN since cartels often extend beyond national borders and companies may have to file leniency applications to authorities in several jurisdictions. If the core principles of the different programmes are too divergent, companies do not have legal certainty about their immunity status under the leniency programme(s) of the authority/ies that will eventually deal with their case. Divergences and weaknesses exist mainly in the following areas: Divergences in the treatment of summary leniency applications and in core leniency features Despite some degree of convergence achieved by the non-binding ECN Model Leniency Programme (MLP) endorsed in 2006, important divergences remain. For example, summary applications are still not available before some NCAs. On core leniency features, divergences continue to exist regarding which companies can benefit from leniency and under which conditions. This leads to different outcomes when it comes to deciding which companies benefit from immunity, a reduction of fines or no reduction at all and in what order their applications are assessed as adding value for the case. Lack of protection of leniency and settlement material Companies that choose to cooperate under leniency programmes are required to disclose their participation in a secret cartel and provide self-incriminating leniency material. In case of formal settlements, parties to the investigation are required to acknowledge their participation in, and liability, for the infringement. The level of protection granted for such material varies significantly between Member States. For example, in 20 Member States leniency statements are accessible to public prosecutors and/or the police, who could use it for other purposes than for the enforcement of the EU competition rules. In 12 Member States, civil courts in proceedings other than actions for damages have access to such statements. Such access can expose the companies that choose to cooperate with the competition authorities to liability to other proceedings being brought against them. Lack of effective interplay between corporate leniency programmes with sanctions on individuals Many Member States foresee sanctions on individuals for their involvement in anticompetitive behaviour. However, most leniency programmes lack arrangements to protect employees of companies which make leniency applications to NCAs and/or the Commission from individual sanctions. Individuals who may be subject to criminal proceedings may be deterred from helping their employers to collect the evidence required for a successful leniency application.

All the above shortcomings may weaken incentives for potential leniency applicants to cooperate with authorities. This in turn can lead to less effective competition enforcement in the EU, as less secret cartels are uncovered. More undetected cartels activity leads to a welfare loss across the EU. For more detail on the existing divergences between leniency programmes in terms of summary applications, core principles, protection of self-incriminating material and interplay with individual sanctions as well as the feedback from the public consultation on these issues, see Annex XIII. 2.2.4Problem driver 4: Lack of safeguards NCAs can act independently when enforcing the EU competition rules and have the resources they need to carry out their work. Independence It is widely accepted by organisations such as the OECD and UNCTAD as well as academics and stakeholders that the independence of competition authorities is a prerequisite for effective competition enforcement. In the area of data protection, where EU law requires national data protection authorities to act with complete independence, the European Court of Justice has clarified that the independence of a public body normally means a status which ensures that it can act completely freely, without taking any instructions or being put under any pressure. The legitimacy and credibility of NCAs actions vis-à-vis stakeholders is inherently linked to their ability to act impartially, free from external influence both from the companies they supervise and from political bodies. In recent years, the European Parliament has regularly emphasised the importance of having independent NCAs. It called on the Member States to ensure sufficient human and financial resources and independence for all NCAs and on the Commission to monitor their independence. Regulation 1/2003 does not provide for specific requirements to safeguard the independence of NCAs. The degree of independence of NCAs from interference by public and private bodies when enforcing the EU competition rules is solely determined by national law and differs between Member States. However, when co-enforcing the EU competition rules together with the Commission, NCAs should, like the Commission, be able to carry out their enforcement tasks free from external influence. However, not all NCAs benefit from such safeguards. For example, NCAs in only 10 Member States are explicitly prohibited from seeking or taking instructions from any public or private body. In the absence of enforceable safeguards at EU level for NCAs to enforce the EU competition rules without taking instructions from anyone, a risk of direct or indirect influence from other public or private bodies exists, even where according to national law they are formally deemed to be independent. For example, a genuine risk of influence by other state bodies exists where state-owned companies or activities by state bodies are the subject of an investigation by the NCA or where its enforcement action would interfere with other public interests. The absence of independence, which is essential to ensure objective market supervision, can result in different treatment of anticompetitive practices according to the type of company or sector involved. The fact that NCAs lack safeguards of independence and may be subject to instructions can have a direct impact on legal certainty and predictability for companies regarding the application of the EU competition rules. It also affects the legitimacy of the application of the EU competition rules by NCAs and may compromise the willingness of companies to invest. Examples of interference with the independent functioning of NCAs In one Member State, the NCA was asked to attend a Parliamentary Committee which mainly discussed an ongoing investigation of the authority and its fining policy in the presence of representatives of the company under investigation. Afterwards, the Committee recommended the NCA to reconsider its fining policy and some members questioned the proportionality of the fine in the case under investigation. The Committee's chairperson tabled an amendment to significantly lower the maximum level of the fine for certain infringements. This amendment was approved by a majority in the Parliament. It was only because the President vetoed the amendment that the legislative change ultimately did not go through. In one Member State, an increase in vigilance by the NCA regarding the recovery of fines, which had been upheld in court, was criticised by the business community. Some companies exerted pressure on members of the parliament and the ministry to which the NCA is formally subordinated. As a result, the NCA had to discontinue the recovery of the largest fines it ever imposed. In one Member State, administrative investigations took place into the NCA's enforcement actions, even in relation to a decision which had been upheld in court. These investigations undermined its operations and its credibility. Resources In order to act independently and effectively when enforcing the EU competition rules, NCAs need expert staff and sufficient resources to assess cases impartially and to defend their assessment before the courts. The NCAs have to be able to deal with powerful companies that are assisted by specialised teams of lawyers and economists. This issue was also recognised in the context of the European Semester where several Member States have been encouraged to ensure their NCAs have adequate resources, so that they could better contribute to achieving growth through more effective competition enforcement. Respondents to the public consultation also highlighted the link between having the necessary resources and being independent/effective. They considered having a safeguard of adequate and stable human and financial resources to be the most important measure to ensure the independence of NCAs. In this context, stakeholders emphasise the need for specialised staff with proper expertise and measures enabling NCAs to attract and retain such people. Having insufficient resources is regarded as contributing to less effective enforcement and lower quality of enforcement decisions as authorities may not have the staff to invest in carrying out robust and detailed legal and economic analyses. For example, some NCAs do not have sufficient staff to conduct simultaneous inspections of all members of a suspected cartel but have to limit the search for evidence of anticompetitive conduct to key targets in the investigation with the risk of missing out on important evidence. One NCA had even to limit its inspection to one member of a cartel, which is not only ineffective but can also raise difficult issues such as claims of discrimination. More generally, significant differences can be observed in resources among the NCAs in Member States with a similar GDP. NCAs in certain Members States are faced with limited human or financial resources (see Annex XIV for a comparison of the budget and staff of NCAs in Member States with a similar GDP). The following table illustrates the impact that the level of the budget of NCAs from Member States with similar GDP has on their level of enforcement of the EU competition rules during the period from May 2004 until December 2014. The NCAs in this table come from Member States with a comparable level of GDP. The table indicates that NCAs which have more limited resources (MS1 and MS2) have a significantly lower level of enforcement decisions (14 and 13 decisions respectively) compared to the NCAs with a higher level of resources (MS3 and MS4: 28 and 48 decisions respectively) in the same time period. Similar results are obtained for other groups of NCAs from Member States with a similar GDP (see the additional tables in Annex XVI). All the relevant observations presented below and in the Annex together reliably suggest a strong link between the budget available to NCAs and their level of enforcement of the EU competition rules.

2.3Who is affected by the problem? NCAs are affected because gaps and limitations in their means and instruments undermine their ability to be effective enforcers. Many NCAs lack the necessary tools to find evidence of infringements, to fine companies which break the law, to act independently when enforcing the EU competition rules or to have the resources they need to perform their tasks. This can prevent them from taking action at all or result in them limiting their enforcement action. It also hinders them from cooperating effectively with their fellow competition enforcers in the European Competition Network. This is to the detriment of the European system of competition enforcement as a whole. The lack of operational means for many NCAs results in untapped potential for more effective competition enforcement in Europe and thus missed opportunities for removing barriers to market entry, reinforcing the single market and creating more open competitive markets on which companies compete fairly and on their merits. This affects all businesses, irrespective of their size, including SMEs and start-ups. Businesses and consumers may particularly suffer in those countries where NCAs are less well-equipped to be effective enforcers. For example, if NCAs lack resources to pursue infringements of the EU competition rules, these stakeholders cannot reap the benefits of effective competition in the Member States concerned. Companies cannot compete fairly on the merits when there are safe havens for anti-competitive practices, e.g. because the evidence of the practices cannot be collected or because companies are not sanctioned for illegal practices. This can, for instance, prevent start-up companies from entering new markets, discouraging enterprise and efficiency. Consumers are affected as there is scope for greater competition enforcement against anti-competitive practices which keep prices for goods and services artificially high. Greater competition also stimulates productivity meaning that there is also untapped potential for innovation and growth in Europe. Moreover, Regulation 1/2003 provides for a system of parallel competences where in principle any NCA or the European Commission is competent to take up a case to enforce the EU competition rules. The allocation of cases is done on a flexible basis within the ECN and means that enforcement is not hampered, e.g. because one authority lacks resources to investigate a particular case at a given moment in time. This system presupposes that for companies it does not matter which authority acts. However this is not the case when companies can have very different fines imposed on them depending on which authority takes up the case or when cases are time barred before some authorities but not others because of differences in rules on when NCAs can act. Gaps, limitations and divergences in NCAs’ means and instruments can thus result in different outcomes for companies. This can lead to costs and uncertainty for companies operating cross-border. For example, companies may think again about applying for leniency if they are not sure where they will come in the leniency queue, which can mean the difference between full immunity from fines to no reduction at all. 2.4What is the EU dimension of the problem? Under Regulation 1/2003, the European Union decided to share its competence to enforce the EU Treaty rules on competition with the NCAs. The EU competition rules are now applied through-out Europe in 29 jurisdictions: they are enforced in 28 Member States, complemented by enforcement at the European level by the European Commission. As explained in more detail in Section 3 below, the system of cooperation set up by Regulation 1/2003 has an obvious EU dimension with its cross-border cooperation mechanisms and enforcement actions and the inter-linkage of leniency programmes. Any gaps and limitations in the NCAs' means and instruments thus not only affect their individual capacity as effective enforcers, but that of the system as a whole. 2.5How would the problem evolve, all things being equal? Some Member States may provide the NCAs over time with additional means and instruments to be effective enforcers. However, most NCAs will continue to miss certain key tools to detect and sanction infringements or lack sufficient resources, affecting the decentralized system put in place by Regulation 1/2003. Soft action has been used extensively to prompt voluntary action at national level and after more than a decade, the changes needed to make the decentralised enforcement system of Regulation 1/2003 work better and empower the NCAs to be more effective enforcers, are unlikely to ensue. Section 5.2 lists the soft action that has been taken to try to support the NCAs having the means and instruments they need to enforce the EU competition rules. These measures serve as a soft framework of reference and show that there is considerable consensus within the ECN on the means and instruments authorities need to be effective enforcers. Efforts have also been made in the context of the European Semester process since 2011 and the Memoranda of Understanding of Specific Economic Conditionality with the so-called “programme” countries since 2010 to address shortcomings in several NCAs' enforcement and fining powers and their independence and resources. Both mechanisms have had mixed success, particularly in view of the fact that the EU lacks a clear legal basis to ensure the effective functioning of the NCAs. For example, the Council adopted Country Specific Recommendations addressing the degree of independence of NCAs or the level of their resources in certain Member States. However, even recurrent calls by the Council have not been effectively implemented. For example, since 2013 the Austrian government has been repeatedly called on to substantially strengthen the resources of the NCA. Eventually in 2016 the staff of the authority was nominally increased by 10 additional case handlers, but no additional budget was granted to actually employ extra staff. Similarly, the Slovenian government was asked to increase the institutional independence of the NCA and to ensure sufficient budgetary autonomy. However, the legal framework has not been amended to avoid administrative investigations into the decision-making of the NCA which undermine its independence. Another issue of concern is that achievements made to date are fragile. Even if NCAs have been granted effective means and instruments under national law, there is nothing to prevent a reversal of these changes. For example, one NCA lost the power to grant interim measures even though this tool is actively used by some NCAs to prevent anti-competitive action which could cause long-term damage to markets. In essence, gaps or limitations in the means and instruments of NCAs to effectively enforce the EU competition rules will continue to result in NCAs refraining from enforcing or taking more limited action because they do not have the tools they need. For example, some NCAs cannot search homes and cars of businessmen for evidence of infringements, giving cartelists an easy loophole to exploit. This will continue to result in less detection of anti-competitive practices.

Some NCAs will still suffer from a severe lack of the resources they need to perform their tasks meaning they cannot be effective enforcers. Divergences in NCAs' powers will continue to undermine the level playing field. For example, differences with respect to the main elements to be taken into account by all NCAs when calculating the fines means that companies can face very low fines for the same infringement depending on which NCA acts, undermining deterrence. Companies which are considering reporting cartel behaviour to a number of jurisdictions in return for more lenient treatment may refrain from doing so because they lack the legal certainty they need about whether and to what extent they will benefit from this. If companies do not report secret cartels to competition authorities, detection levels fall. A continued lack of safeguards for NCAs that they act only in the general interest of the EU without taking instructions from anyone when they enforce the EU competition rules will continue to undermine the legitimacy of competition enforcement. Finally, the European system of competition enforcement has been designed in a cohesive way so that authorities can rely on each other to do fact-finding measures on each other’s behalf. For example, if evidence of an infringement that authority A is looking into may be found on the territory of authority B, authority A can ask authority B to conduct inspections or issue requests for information to try to find this information. But this system cannot work well where there are still gaps or limitations in authority B’s fact-finding powers, e.g. they cannot effectively gather data from mobile phones or laptops, when experience shows that evidence is often found on such devices. This means that cooperation within the ECN will continue to be less effective than it would be if all NCAs had adequate powers. The above gaps, limitations and divergences in NCAs' means and instruments mean that the scope for more effective competition enforcement is untapped, to the detriment of the European system of enforcement as a whole. In sum, in the absence of further action at EU level, the existing national competition frameworks will not allow the NCAs to enforce the EU competition rules more effectively across the EU. It will also mean that issues will persist, such as the broad range in the level of fines depending on which authority acts and the lack of legal certainty for companies considering reporting cartel behavior to different jurisdictions. 3Why should the EU act? Regulation 1/2003, which enabled the NCAs to enforce the EU competition rules together with the Commission, is already in place for more than ten years. For the full potential of this decentralised system to be realised, NCAs need to be in a position to effectively enforce the EU competition rules. NCAs are applying rules with a cross-border dimension The EU should take action to address this, because the NCAs are applying rules which have a cross-border dimension. This means that there is an inter-linkage between enforcement action taken by a NCA in one Member State and the impact on competition in another Member State. The NCAs are obliged to apply the EU competition rules whenever trade between Member States may be affected. This criterion is easily fulfilled in the case of a cartel or an abuse of dominant position that covers two or more Member States. Action by one NCA to tackle predatory pricing engaged in by a dominant company in more than one Member State will benefit businesses present in all the Member States affected. Such anti-competitive behaviour has the aim of eliminating competitors and stopping it through enforcement action is in the interests of all affected competitors. The effect on trade criterion can also be fulfilled in the case of anticompetitive agreements or abuses of dominance in a single Member State. For example, if a supplier sells to an exporter in the same Member State and that supplier prohibits exports to another Member State, this may have an effect on trade. Without the agreement the exporter would have been free to engage in export sales. Similarly, if companies enter into a price-fixing cartel that covers the whole of a Member State, this is normally capable of affecting trade between Member States, because such cartels typically exclude competitors from other Member States and reinforce the partitioning of the single market. Enforcement action by a NCA against such "national" cartels can thus have a positive impact on businesses from other Member States seeking to enter new markets. Likewise, action taken by one NCA may have a positive impact on consumers in other Member States. For example, the Spanish competition authority imposed a fine on a cartel of Spanish producers of sherry destined for export under the trademarks of foreign distributors (so-called Buyers Own Brand market). The sherry producers reduced the supply of sherry for sale on this market to enable them to increase prices. These production limits were reinforced by additional anti-competitive measures, such as coordinated price increases. Because the sherry products concerned were intended for the export market, primarily to Germany, the Netherlands and the UK, it led to higher prices for sherry for consumers in these countries. The decentralised enforcement system works well provided all NCAs have the necessary means and instruments to enforce. However, where a NCA lacks the necessary instruments and means to tackle an infringement of the EU competition rules, this can have direct consequences for businesses and consumers in other Member States. The inability of one NCA in Member State A to tackle a national wide cartel, e.g. because it lacks sufficient resources, is a problem not just for businesses and consumers in that Member State but also those in e.g. Member State B and C. However, Member States B and C are not able to address the lack of insufficient resources of the NCA in Member State A. Ensuring that cross-border cooperation works effectively Another issue is that only action at EU level can ensure that the system of cooperation set up by Regulation 1/2003 works sufficiently. One of the main elements of Regulation 1/2003 is that it provides for cooperation mechanisms that allow NCAs to investigate alleged infringements beyond the borders of their Member State. One NCA can ask another NCA to carry out investigative measures on its behalf to gather evidence located in another jurisdiction. As noted above in section 2.5, this mechanism does not work well if not all NCAs have effective powers to carry out inspections or to request information. Again, it is difficult to tackle this issue at national level. For example, if the NCA in Member State A needs the NCA in Member State B to gather evidence from companies located in its territory, but the NCA in Member State B does not have effective powers to gather this evidence, there is little that Member State A can do about this. Interlinkage between competition authorities' leniency programmes in Europe Leniency programmes are interlinked because companies regularly file applications to a number of EU jurisdictions and need guarantees of cross-border legal certainty. The experience of the last decade has shown that such cross-border legal certainty cannot be sufficiently achieved by Member States individually. Divergences in leniency programmes still lead to different outcomes for leniency applicants in terms of whether they benefit from immunity from fines or even from fines reductions at all. Companies which are considering reporting cartel behaviour to a number of jurisdictions in return for more lenient treatment lack the certainty they need about whether and to what extent they will benefit from this. EU action is needed to ensure that a leniency system is available and applied in a similar way in all Member States. National laws can prevent NCAs from being more effective enforcers A further reason underlining why EU action is needed is that in some Member States, national law prevents NCAs from imposing effective fines on companies for infringements of the EU competition rules. Infringing companies present in Member States where NCAs lack effective fining powers are thus sheltered from sanctions and have little incentive to act in compliance with EU competition rules. This reinforces market distortions through-out Europe and may undermine the single market. Moreover, the differences between the NCAs in the core principles for imposing fines mean that companies may face very different levels of fines depending on which authority acts. Only action at EU level can ensure that there are common core principles for imposing fines, thus, providing a more level playing field for businesses.

Measures taken to undermine the independence of the NCAs or to limit their resources necessarily emanate from the Member States themselves. For example, restrictions on independence can be motivated by the desire to exercise greater control over decision-making by the authority. Therefore it is not realistic that safeguards to prevent this at national level will always suffice. A government's ability to apply influence or pressure on a NCA may result in political considerations prevailing over sound competition enforcement based on legal and economic arguments, to the detriment of companies operating in the single market. In sum, existing national competition frameworks will thus not by themselves allow the NCAs to enforce the EU competition rules more effectively across the EU. Moreover, the Commission cannot enforce any EU requirements regarding the investigation and sanctioning tools, resources and institutional structure of NCAs when enforcing the EU competition rules as long as such requirements do not exist. Accordingly, only an initiative at the EU level can empower the NCAs to be more effective enforcers by ensuring that they have more effective means and instruments to apply the EU competition rules. In the public consultation, 64% of stakeholders said they would like action to be taken at both EU and national level, with 19% preferring exclusive EU action and 8% opting for solely national measures. 4What should be achieved? Based on the problem and the four underlying problem drivers identified in section 2, the primary objective of this policy initiative is to make sure that the full potential of the decentralised system of enforcement put in place by Regulation 1/2003 is realised, by empowering the NCAs to be more effective enforcers. This would boost effective enforcement of the EU competition rules by the NCAs and the functioning of markets in Europe (general objective). This requires the achievement of the following specific objectives: 1. ensuring all NCAs have effective investigation and decision-making tools; 2. ensuring that all NCAs are able to impose effective deterrent fines; 3. ensuring that all NCAs have a well-designed leniency programme in place which facilitates applying for leniency in multiple jurisdictions; and 4. ensuring that NCAs have sufficient resources and can enforce the EU competition rules independently. 5What are the various options to achieve the objectives? The following policy options were considered to see if they achieve the above objectives and remedy the problem by tackling the underlying problem drivers identified in section 2: Option 1: no EU action at all (the baseline scenario) Option 2: further soft action. Option 3: EU legislative action to ensure NCAs have minimum means and instruments to effectively enforce the EU competition rules. This would be complemented by soft action to put meat on the bones of these provisions, where appropriate. For certain limited and targeted areas, more detailed and uniform provisions may be provided for to the extent that minimum rules would not suffice. Option 4: EU legislative action to provide NCAs with detailed and uniform means and instruments to be effective enforcers. These options were developed taking into account the views of stakeholders. In the public consultation, stakeholders considered that the following measures should be taken: Ensuring that NCAs have effective enforcement tools to investigate and take decisions (87%). Having in place effective leniency programmes which encourage companies to come clean across Europe (82%). Ensuring that NCAs have sufficient resources to perform their tasks (85%).

Ensuring that effective fines can be imposed (80%). Giving NCAs safeguards that they enforce the EU competition rules in the general interests of the EU and do not take instructions from anyone (76%). In the policy options identified, there was no need to provide for a differentiated scope, e.g. to exempt or to apply a lighter regime for SMEs, because empowering the NCAs to be more effective enforcers would benefit all consumers and companies, both large and small, by boosting effective competition enforcement and creating a more level playing field. It would not impact SMEs to a disproportionate extent compared to larger companies. In principle, all companies are subject to the EU competition rules provided there may be an effect on trade between Member States. Agreements between SMEs are not necessarily capable of affecting trade between Member States, because activities of SMEs are normally local or at most regional in nature. Agreements of minor importance that do not have an appreciable effect on inter-state trade and on competition are not caught by Article 101 TFEU, unless these agreements are hard-core infringements such as price-fixing cartels. For Article 102 TFEU to apply a company must have a dominant position, that is to say, substantial market power, which will not be the case for many SMEs. In sum, many agreements/behavior of SMEs fall outside the scope of the EU competition rules. The policy options for each of the specific objectives identified are as follows (see Annex X for a schematic overview). 5.1Option 1: no EU action (baseline scenario) This is the baseline scenario, entailing no action at all at EU level to make sure the full potential of the decentralised system put in place by Regulation 1/2003 is realised by empowering the NCAs to be more effective enforcers. This essentially means keeping the status quo, taking into account the extent to which it is likely to change in the absence of EU action. Some Member States may provide NCAs over time with some of the powers or resources they need or remove divergences in the national legal framework with regard to leniency or fines. However, this is unlikely to take place on the scale needed to make NCAs effective enforcers (see section 2.5). 5.2Option 2: further soft action Soft action could take the form of ECN Recommendations or ECN Resolutions. "ECN Recommendations" are documents setting out the position of all ECN members and can be used as advocacy tools to influence policymakers. "ECN Resolutions" by the heads of the NCAs set their joint position to the extent possible within their national legal frameworks. 5.2.1Specific objective 1: ensuring all NCAs have an effective competition toolbox In 2012/2013, the ECN endorsed a set of seven detailed Recommendations on key enforcement powers that NCAs need. Possible areas of soft action not covered by these Recommendations could include new ECN Recommendations on issues such as the use of behavioural remedies to ensure a return to competitive conditions on markets and formal settlement procedures. 5.2.2Specific objective 2: ensuring deterrent fines can be imposed The 2008 Key Principles for the Determination of Fines issued by the European Competition Authorities already provide general guidance on how fines should be calculated. Soft action could be taken to convince Member States to apply the EU concepts of undertaking, parental liability and succession in line with the case law of the European Court of Justice, to ensure that associations of undertakings can be effectively fined and, in the case of Member States that have a primarily criminal enforcement system, to allow the imposition of administrative fines or the imposition of fines by civil courts. 5.2.3Specific objective 3: making leniency programmes and their interplay more attractive to encourage companies to cooperate with the authorities in their fight against cartels The ECN MLP already set out the core principles of substance and procedure for effective leniency programmes, as well as on the protection of leniency materials. An extension of the ECN MLP or a separate ECN Recommendation could be envisaged to encourage the introduction of arrangements to protect employees of companies which apply for leniency from individual sanctions at national level. 5.2.4Specific objective 4: ensuring all NCA have safeguards they can act independently when enforcing the EU competition rules and have the resources they need to carry out their work. The ECN Resolution of 2010 on the continued need for effective institutions calls for the competition authorities to be “adequately equipped for their tasks and be able to act under suitable conditions for the execution of their task, in an impartial and independent manner”. Further soft action could provide for more detailed provisions on the independence and resources of NCAs. 5.3Option 3: EU legislative action to provide NCAs with minimum means and instruments to be effective enforcers, complemented by both soft action and detailed rules where appropriate 5.3.1Specific objective 1: ensuring all NCAs have an effective competition toolbox EU action could be taken to provide NCAs with:

A minimum core set of operational investigative tools (that is, effective powers to inspect business and non-business premises, to issue requests for information and to gather digital evidence) For example, giving NCAs effective powers to gather digital evidence would ensure this option is future proof, as it would enable NCAs to access the same data as the company being inspected irrespective of how it is stored, including data stored on clouds, laptops and mobile phones. It would also allow NCAs to continue searches of large amounts of (typically digital) data at their premises to minimise the disruption caused by an inspection. Decision-making tools (the power to adopt prohibition decisions - including the power to impose structural and behavioural remedies -, to issue interim measures and to adopt commitment decisions). Backing up these tools with effective sanctions for non-compliance with them, e.g. the payment of a fine for failure to comply with an inspection and the power of NCAs to set their priorities in full. Tools could also be put in place to address limitation periods and the inability of NCAs to enforce fining decisions cross-border. The increase in the powers of the NCAs would be counter-balanced by ensuring that key procedural guarantees are in place in line with the EU Charter on Fundamental Rights, such as the obligation of NCAs to notify companies of the objections against them and by providing for effective judicial review of enforcement decisions. 5.3.2Specific objective 2: ensuring deterrent fines can be imposed Action could be taken at EU level to provide for minimum rules to ensure that: (a) Fines are based on the key elements widely recognised as essential for calculating a fine: The gravity and duration of the infringement, and The potential application of aggravating and mitigating circumstances. This would ensure that fines are related to the infringement and to the harm caused to competition. It would be complemented by soft action on non-core aspects such as which aggravating and mitigating factors could be taken into account and how to assess the gravity of the infringement. (b) The legal maximum is set as a percentage of the total worldwide turnover of the undertaking. This would ensure that it is set at a level which ensures deterrence. (c) The concept of undertaking, parental liability and succession are applied in line with the case law of the European Court of Justice as explained in section 2.2.2 and that associations can be effectively fined. (d) There exists the possibility either to impose administrative fines or to apply to a civil court for the imposition of fines. This would mean that NCAs currently operating in a primarily criminal system would be given the option of deciding, depending on the facts and circumstances of the case, whether to follow an administrative track/seize a civil court or to follow the existing criminal route. (e) All NCAs have the power to defend their cases in court (most already can do so). 5.3.3Specific objective 3: making leniency programmes and their interplay more attractive to encourage companies to cooperate with the authorities in their fight against cartels EU action could be taken to ensure: The core principles of the ECN MLP are translated into law in light of experience with their application, thereby introducing binding minimum rules for leniency programmes. This would reduce the current divergences between national programmes and ensure, for example, that summary applications are available in all Member States and are applied in the same way. In particular, NCAs would have in place leniency programmes that enable them to grant immunity from fines and reduction of fines to undertakings and companies would have to satisfy core common conditions in order to qualify for leniency. Further, it would be ensured that applicants that have applied for leniency to the European Commission can file summary applications in relation to the same cartel with the NCAs and that NCAs accept summary applications with the same scope as the leniency application filed with the Commission. Minimum rules are in place to protect employees of leniency applicants with the Commission or other NCAs from sanctions. There are binding uniform rules for the full protection of leniency and settlement material against disclosure outside the context of civil damages actions (the latter already being addressed by the Damages Directive). EU legislative action to this end would expand the protection granted by the Damages Directive to other procedures.

5.3.4Specific objective 4: ensuring all NCA have safeguards they can act independently when enforcing the EU competition rules and have the resources they need to carry out their work. To ensure that NCAs are protected from external influence and they have sufficient resources when enforcing the EU competition rules, minimum rules would be introduced to ensure the independence of NCAs when they enforce the EU competition rules. This would cover the following requirements: NCAs perform their tasks and exercise their powers independently and are not subject to any instructions from any other public or private body when enforcing the EU competition rules. In particular, it would be ensured that NCAs can take decisions independently from any political and business influence and that the staff and the members of a NCAs' decision making body refrain from actions and occupations that are incompatible with the performance of their duties during their term of office and for a reasonable period thereafter. NCAs’ board/management cannot be dismissed for reasons related to the proper performance of their powers in the application of Articles 101 and 102 TFEU. NCAs have adequate human and financial resources to perform their tasks. This would simply provide that NCAs should have sufficient financial, human and technical resources to perform their tasks and would include a list of these tasks (e.g. conducting investigations, taking decisions. and cooperating with other authorities in the ECN). 5.4Option 4: EU legislative action to provide NCAs with detailed and uniform means and instruments to be effective enforcers 5.4.1Specific objective 1: ensuring all NCAs have an effective competition toolbox This would build on option 3 by providing NCAs with uniform (as opposed to minimum) investigation and decision-making powers, backed up by uniform sanctions for non-compliance. For example, when it comes to the power to adopt commitment decisions, it would regulate detailed issues such as having a mandatory market test for NCAs to get input from other market players on the suitability of commitments proposed by the parties under investigation to address competition concerns. This option would also provide for a more complete competition toolbox, for instance, by including the power of competition authorities to conduct sector inquiries. This is a useful tool to allow competition authorities to assess whether there are indications to suggest that competition on market sectors of the economy is being restricted or distorted in an economic sector of the common market. Sector enquiries often provide a useful basis for NCAs to carry out enforcement. A sector inquiry can in addition provide empirical evidence that may be useful in reviewing the regulatory framework governing a sector. It would also provide for detailed procedural guarantees, such as detailed and uniform rules on access to an authority's case file and rules on the ability of complainants and third parties to intervene in proceedings. 5.4.2Specific objective 2: ensuring deterrent fines can be imposed Option 4 would go further than option 3 by introducing a uniform fining model through EU legislation so that only administrative fines on undertakings can be imposed. It would also provide for a uniform and detailed methodology for setting fines, determining all the parameters that are to be taken into account and prescribing how fines should be calculated and who can be fined. 5.4.3Specific objective 3: making leniency programmes and their interplay more attractive to encourage companies to cooperate with the authorities in their fight against cartels On leniency, option 4 would involve introducing fully harmonized leniency programmes, with maximum requirements beyond the principles of the ECN MLP, to ensure that leniency applicants can file a single application with one authority that issues an immunity decision which is binding in all Member States and before the Commission (putting in place a so-called one-stop shop system). Similar to option 3, it would also include uniform and detailed rules to protect all leniency and settlement materials outside the context of civil damages actions and to protect employees of leniency applicants to either the Commission or NCAs from individual sanctions at national level. 5.4.4Specific objective 4: ensuring all NCA have safeguards they can act independently when enforcing the EU competition rules and have the resources they need to carry out their work. In addition to the safeguards foreseen under option 3, this option would involve the introduction of uniform and detailed rules to also ensure the institutional and financial autonomy of NCAs. This would include the following requirements: (1) NCAs would be legally distinct from any other public or private body (structural independence); (2) NCAs would have full authority over the recruitment and management of staff; (3) NCAs would have a separate annual budget with full budgetary autonomy; (4) appointment of NCAs' board/management through a transparent procedure on the basis of merit. 5.5Discarded option A further option would be for the Commission to take up cases where the NCAs are not able to act. While it is not excluded that the Commission could do so in a very limited number of cases, intervention by the Commission on a more systemic basis is not feasible as the Commission also has limited resources to enforce the EU competition rules. Such intervention by the Commission would also directly contradict the decentralisation logic of Regulation 1/2003. By the end of the 1990s it became evident that the Commission could not meet the challenges of enforcing the EU competition rules and ensuring integrated markets on its own. The context had changed dramatically, with an EU that had increased from 6 to 15 Member States, and the prospects of more countries joining the EU in the medium term. In this situation, the Commission could not bear the responsibility for enforcing alone the EU competition rules throughout the EU. Regulation 1/2003 therefore set up a system where the EU competition rules are meant to be applied effectively by a multiplicity of enforcers throughout the EU. To that end, Article 35 of Regulation 1/2003 stipulates that Member States must have NCAs in place that are empowered to apply the EU competition rules effectively. This option was therefore discarded. 6What are the impacts of the different policy options and who will be affected?

An assessment is made of the available options as described in section 5 in relation to the general and specific objectives identified in section 4. Given that all the specific objectives share the same general objective, that is, to realise the full potential of the decentralised enforcement system put in place by Regulation 1/2003, boosting effective competition enforcement by the NCAs and the functioning of markets in Europe, they are assessed together. The assessment of the impact of these options is to a large extent qualitative as a quantification of the effects of the proposed policy options is only partially feasible. For example, it is easy to determine that the costs and administrative burden of businesses of adapting to different procedural rules throughout the EU will be reduced, but they are very hard to quantify. This is even more true for effects on macro-economic variables like boosting economic growth and innovation and preventing harm to competition and consumers. An assessment is not made of environmental impacts, as no significant environmental impacts are expected. 6.1Option 1: no EU action (baseline scenario) Taking no action at EU level would mean that the problem and all four problem drivers identified in section 2 would largely persist (see section 2.5 on how the problem would evolve). Most NCAs will continue to miss out on effective tools to detect and sanction infringements. Some NCAs will still lack sufficient resources and safeguards of independence. Potential applicants for leniency will continue to be dis-incentivised to apply to authorities across Europe. Economic impact Functioning of the internal market and competition The baseline scenario would have no impact, as without legislation the NCAs would not become more effective enforcers, and thus effective competition enforcement would not increase. This would mean that the potential of NCAs to enforce more effectively would remain untapped and no additional action would be taken to ensure more competition on Europe's markets, includin