Communication from the Commission - A pro-active Competition Policy for a Competitive Europe .
Date: 2004-04-20
Institutions: European Commission
Subjects: competition policy, competitiveness, domestic market, economic growth, innovation, research and development

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.4.2004 
COM(2004) 293 final 

 . 

COMMUNICATION FROM THE COMMISSION 

A pro-active Competition Policy for a Competitive Europe  

. 

EN 

   EN 

 
 
 
COMMUNICATION FROM THE COMMISSION 

A pro-active Competition Policy for a Competitive Europe  

INTRODUCTION 

A  competitive  and  open  internal  market  provides  the  best  guarantee  for  European 
companies 
innovative  potential.  Vigorous 
their  efficiency  and 
competition is thus a key driver for competitiveness and economic growth.  

increase 

to 

Competition  policy  is  one  of  a  number  of  Community  policies  impacting  upon  the 
economic  performance  of  Europe.  It  is  a  key  element  of  a  coherent  and  integrated 
policy to foster the competitiveness of Europe’s industries and to attain the goals of 
the Lisbon strategy. The new competition regulatory framework entering into force 
on the day when 10 new Member States join the European Union, i.e. 1 May 2004, 
enhances the basis for a pro-active competition policy.  

This is a fitting occasion for the Commission to set out how it intends to take the new 
pro-active  approach  to  competition  policy  forward.  At  the  same  time  the 
Communication  responds  to  the  Council  which  has  in  its  conclusions  of  11  March 
2004 called upon the Commission to report on its new approach.  

The EU Heads of Government in their Spring European Council of 26 March 2004, 
wishing  to  reinvigorate  the  Lisbon  Strategy,  have  rightly  placed  enhanced 
competition through better functioning markets as well as innovation and R&D to the 
forefront.  

A pro-active competition policy is characterised by: 

–  improvement  of  the  regulatory  framework  for  competition  which  facilitates 
vibrant  business  activity,  wide  dissemination  of  knowledge,  a  better  deal  for 
consumers,  and  efficient  economic  restructuring  throughout  the  internal  market; 
and 

–  enforcement practice which actively removes barriers to entry and impediments to 
effective competition that most seriously harm competition in the internal market 
and imperil the competitiveness of European enterprises. 

Competition  policy  complements  and  reinforces  other  Community  policies 
contributing to the Lisbon Strategy1. In this context, particular attention is drawn to 
the  Communication  from  the  Commission  on  Industrial  Policy2  for  an  enlarged 
Europe, adopted on the same date as this Communication. 

1  

2 

Some Key Issues in Europe's Competitiveness - Towards an Integrated Approach, Communication by 
the Commission, COM(2003) 704 final. 
COM(2004) 274 final.  

2 

 
 
  
 
                                                 
2. 

COMPETITION  POLICY  CONTRIBUTES  TO  COMPETITIVENESS  AND  ECONOMIC 
GROWTH 

The EU’s system of economic governance and indeed the EC Treaty is based on the 
“principle of an open market economy with free competition”. In 2000 in Lisbon, the 
Member States signed up to a programme of economic reforms designed to make the 
EU “the world’s most competitive and dynamic knowledge-based economy” by 2010.  

Strong  competition,  encouraged  and  protected  by  EU  competition  policy,  is  rightly 
regarded as instrumental for achieving the competitiveness objective of the European 
Union and the Lisbon Strategy. 

2.1. 

Competition drives productivity growth and delivers tangible benefits  

Competitiveness is a measure of an economy’s ability to create valuable goods and 
services productively in a globalising world so as to raise the standard of living and 
secure high employment. Vigorous competition in a supportive business environment 
is a key driver of productivity growth and competitiveness. However, competition is 
not an end in itself. It is a vital market process which rewards firms offering lower 
prices, better quality, new products, and greater choice.  

Whilst governments and the public sector have a crucial and legitimate role to play in 
many  spheres  of  economic  activity,  competitive  markets  ensure  that  the  desired 
range and quantity of goods and services which responds in the best possible way to 
consumer needs are produced at the lowest possible cost to society. A system of well 
functioning  markets  –  both  in  upstream  and  downstream  markets  -  is  an  effective 
mechanism  for  achieving  an  efficient  allocation  of  resources.  The  liberalised 
telecommunication  sector  in  the  EU  illustrates  the  benefits  of  competitive  forces  at 
work3.  Also  in  other  sectors,  like  energy,  transport  or  postal  services,  the 
Commission  has  actively  pursued  a  policy  of  opening  the  markets  to  more 
competition. Furthermore, the horizontal evaluation of Services of General Economic 
Interest4  has  shown  that  carefully  opening  these  markets  to  competition,  respecting 
the public service obligations as independently defined by the responsible authorities, 
has delivered significant economic benefits to users.  

Competition also puts pressure on firms to innovate and to reorganise their business 
activities in order to continuously improve their cost structure and reap productivity 
gains.  Over  time,  competition  leads  to  the  introduction  of  improved  products  and 
processes, weeding out inefficient firms and reallocating productive resources  from 
retreating or failing firms to new entrants or more efficient competitors. Provided it 
is  underpinned  by  appropriate  mechanisms  to  promote  adaptability  of  workers  and 
enterprises,  this  continuous  structural  adaptation  process  is  beneficial  for  long-term 
prosperity. 

3 

4 

The cost of intra-European and long-distance calls has fallen dramatically and the choice of available 
services has widened significantly since liberalisation. At the same time, the restructuring of the sector 
has  brought  new  job  opportunities  and  resulted  in  an  increase  in  employment.  Furthermore, 
liberalisation  in  this  sector  has  also  created  a  competitive  edge  for  European  manufacturers  of 
telecommunication equipment that have thrived in global competition. 
Commission Staff Working Paper, SEC(2002) 1420. 

3 

 
 
  
 
                                                 
Research  and  innovation  are  indispensable  conditions  for  productivity  growth. 
Compared  to  its  major  trading  partners,  Europe  is  lagging  behind  in  terms  of 
innovation  performance,  as  well  as  research  and  development  (R&D).  Lack  of 
competition  curbs  innovation  and  can  hinder  research  efforts.  Dominant  firms  may 
be  less  inclined  to  pursue  new  products  and  services  which  merely  displace  the 
profits from their existing products. In contrast, firms in a competitive marketplace 
relentlessly seek innovations to challenge existing companies in high profit markets 
and  better  respond  to  emerging  market  demands.  Moreover,  the  emergence  of  new 
competitors threatens the temporary monopoly profits from innovation and increases 
the incentive of the firms presently in the market to shorten the innovation cycle. A 
competitive  environment  ensures  that  there  is  more  than  one  potential  innovator  in 
the ‘race’ to produce a superior product or find a superior process5.  

Furthermore,  in  many  sectors  of  the  EU  economy,  competition  produces  positive 
effects  that  can  boost  the  efficiency  of  an  entire  industry,  including  related  and 
supporting  industries  in  the  surrounding  region.  A  group  of  competing  local  rivals 
tends  to  spawn  a  base  of  local  suppliers  and  providers  of  specialized  support 
services.  

The  benefits  of  competition  also  demonstrate  the  danger  in  arguments  about  the 
creation of "national champions". There is nothing improper in companies growing 
into a sufficient scale to compete globally. However, this has to come about within a 
competitive  environment  and  in  full  compliance  with  the  competition  rules. 
Competition at home enhances a firms ability to compete abroad. 

BOX 1. Evidence linking competition and productivity6  

Empirical reports on the effects of various kinds of competition-enhancing policies 
(e.g.,  regulatory  reforms  in  different  sectors,  increased  openness  to  global 
competition  or  introduction  of  competition  into  service  sectors)  indicate  that 
competition  brings  about  productivity  gains,  consumer  welfare  gains,  and  long-
term economic growth. 

Evidence on the relationship between competition and productive efficiency comes 
from the comparison of the economic performance of countries with efficient vis-à-
vis  restricted  competitive  market  systems.  For  instance,  measures  of  competition 
intensity  at  the  economy-wide  level  are  positively  associated  with  economic 
development.  Furthermore,  market  competition  has  been  found  to  significantly 
raise  productivity  growth  rates.  There  is  also  ample  evidence  that  vigorous 
domestic competition promotes success in international markets. 

Comparative  case  studies  in  single  industries  in  the  United  States,  Japan  and 
Europe  also  show  that  competition  (especially  global  competition  with  best-
practice producers) enhances productivity. Firms with higher market power tend to 

5 

6 

The system of intellectual property rights ensures strong competition to innovate by granting successful 
innovators with temporary market power over their inventions. When such temporary protection expires 
intense  competition  will  ensure  a  rapid  adoption  of  innovations  by  competitors.  Competition  also 
encourages an effective diffusion of successful innovations. 
These findings are based on a large number of studies on the link between competition and productivity. 
For 
at 
list 
http://europa.eu.int/comm/competition/proactive_competition_policy.  

see  DG  Competition’s  website 

comprehensive 

studies 

these 

of 

a 

4 

 
 
  
 
                                                 
be  less  productive  in  relative  terms  and  significant  increases  in  concentration  are 
generally associated with reductions in efficiency and the level of productivity. 

Empirical  findings  do  not  give  conclusive  support  to  the  idea  that  market 
concentration  and  reduced  competition  is  conducive  to  innovation.  Evidence 
suggests  that  the  likelihood  of  innovation  is  higher  among  firms  in  competitive 
industries . Fewer competitors and higher average profits are also associated with 
lower productivity growth. 

Anti-competitive regulatory settings in the product market have a negative bearing 
on  productivity.  Empirical  studies  confirm  that  industrial  deregulation  and  trade 
liberalisation  have  positive  effects  on  firm-level  productivity.  At  the  level  of  the 
economy, results consistently point to a negative correlation between the degree of 
regulation  of  market  activity  and  economic  growth.  Gains  from  competition-
enhancing regulatory reform are also likely to exceed static gains observed in the 
short run since firms will continue to innovate in ways they would not have under 
regulation. Some studies have also used simulation exercises to gauge the impact of 
regulatory  environments  on  growth.  Most  of  these  simulations  tend  to  report 
significant  and  positive  effects  of  product  market  liberalisation  on  the  levels  and 
growth rates of the gross domestic product (GDP) 

2.2. 

Sound competition policy supports competitiveness  

Competition policy promotes and protects competition. By guaranteeing that firms in 
the  EU  internal  market  compete  on  the  merits,  competition  policy  contributes  to 
creating a level playing field and thereby also encourages new entry into markets. 

The  recent  Report  to  the  Spring  European  Council7,  in  which  the  Commission 
criticised  the  Member  States  for  the  lack  of  progress  in  achieving  the  goals  of  the 
Lisbon  Strategy,  cites  weakening  productivity  growth  as  the  main  cause  of  poor 
economic  performance  in  Europe.  The  weak  productivity  growth  in  the  EU15 
(especially  when  compared  to  the  US  performance)  has  significantly  hampered 
higher  rates  of  economic  growth.  Whilst  important  progress  has  been  achieved  in 
terms of market integration since the creation of the internal market, many economic 
sectors in Europe remain fragmented and are characterised by weak competition and 
persistently high prices that harm industries and consumers alike.  

As  a  principal  factor  behind  increased  innovation  and  growth  in  productivity, 
effective competition between firms in the enlarged internal market must be seen as 
one of the key elements of a successful strategy to build up a competitive Europe and 
reinvigorate the Lisbon Strategy.  

The goal of a pro-active competition policy is to support the competitive process in 
the  internal  market  and  to  induce  firms  to  engage  in  competitive  and  dynamically 
efficiency-enhancing behavior. This implies identifying sectors whose  development 
is held back by lack of competition and which, as a result, do not perform efficiently. 
The  instruments  of  competition  policy  prohibit,  penalize  and  deter  anti-competitive 
behavior such as market sharing cartels and help to remove obstacles to competition. 

7 

Report from the Commission to the Spring European Council: Delivering Lisbon – Reform for the 
Enlarged Union (COM(2004) 29 final/2 (available at 
http://europa.eu.int/comm/lisbon_strategy/pdf/COM2004_029_en.pdf ). 

5 

 
 
  
 
                                                 
Furthermore,  while  competition  rules  do  not  question  the  mere  existence  of 
monopolies,  be  they  natural  or  not,  they  prohibit  the  abuse  of  a  dominant  or 
monopoly position or the creation of such a position by a merger. They also ensure 
that  State  measures  do  not  distort  or  otherwise  impede  competition  e.g.  by  way  of 
granting State aid. 

The primary target of the antitrust rules is to make certain that companies compete 
rather than collude. Cartels and other similar restrictive agreements distort resource 
allocation and encourage inefficiency. Antitrust enforcement also prevents dominant 
firms from abusing their position by engaging in anti-competitive business practices 
(e.g.  exclusion  of  competitors)  so  as  to  maintain  or  enhance  their  position  in  the 
marketplace. At the same time, these rules need to take into account the distinction 
between agreements and practices that are overall anti-competitive and those where 
anti-competitive concerns are offset by pro-competitive effects. 

Mergers  may  allow  the  newly  created  entity  to  exercise  market  power  or  more 
generally  harm  competition.  However,  mergers  may  also  make  companies  more 
efficient, strengthen their competitiveness and result in cost-savings that are passed 
on to consumers. Hence, merger control focuses on the small number of mergers that 
impede the maintenance of effective competition, securing remedies where they are 
needed to safeguard the competitive process.  

State  aid  measures  can  be  a  serious  barrier  to  competition.  When  employed  to  bail 
out failing firms, State aid may seriously disrupt competition and impede the creation 
of a level playing field in the internal market. There is ample evidence that Member 
States  often  subsidize  industries  in  an  inefficient  manner,  and  do  not  sufficiently 
address  market  failures  in  areas  such  as  R&D,  training,  innovation,  and  venture 
capital. An effective control of State aid, using sound economic criteria, ensures that 
such  measures  do  not  distort  competition  in  the  internal  market.  At  the  same  time, 
the  rules  allow  for  great  flexibility  for  aid  measures  that  are  designed  to  address 
genuine market failures. 

Competition  policy  further  contributes  to  the  process  of  opening-up  monopoly 
sectors (e.g.  telecoms, energy, transport) to competition leading to a better deal for 
consumers and increased investment and innovation. It encourages Member States to 
lower  barriers  to  entry  in  all  regulated  sectors  and  strengthens  the  power  of 
consumers  without  depriving  them  of  the  benefits  of  services  of  general  interest. 
However,  it  should  also  address  the  issue  of  legislated  protection,  such  as  the 
licensing of liberal professions, which weakens efforts to prop up competition.  

Competition policy – through its instruments of antitrust, merger control, the control 
of State aid and liberalisation measures – may not in all circumstances have a direct 
effect  on  competitiveness.  That  depends  on  the  firms’  own  ability  to  compete. 
However,  a  more  pro-active  enforcement  of  EU  competition  policy,  reinforcing 
emphasis on the economic analysis of market structures and behaviours, will help to 
concretely deliver on the goals of the Lisbon Strategy, by contributing to increased 
productivity  and  economic  growth,  and  ultimately  raising  the  standard  of  living  of 
the citizens of the enlarged European Union. 

6 

 
 
  
 
3. 

REGULATORY  FRAMEWORK  FOSTERING  COMPETITIVENESS  AND  ECONOMIC 
GROWTH  

3.1. 

Three common themes of the reform 

The instruments of EU Competition policy have undergone a review – this process is 
still on-going for the state-aid rules – and been amended in order to better meet the 
Treaty objectives as well as the goals of the Lisbon Strategy. Three common themes 
characterise  the  new  regulatory  framework  which  will  enter  into  force  on  1  May 
2004: 

–  competition  strategies  of  enterprises  should  to  the  largest  possible  extent  be 

submitted to a unified legal framework throughout the European Union; 

–  competition rules as well as their enforcement in individual cases will be based on 

a more economic effects based approach; 

–  competition  enforcement  procedures  will  become  more  transparent,  streamlined 

and simplified without loosing their effectiveness.  

The  introduction  of  a  unified  legal  framework  for  competition  strategies  in  the 
internal market has the benefits of creating a level playing field for enterprises while 
simultaneously  facilitating  the  conclusion  of  co-operation  agreements,  distribution 
and technology licensing agreements as well as merger transactions. 

Another common theme of the new regulatory competition framework is the stronger 
emphasis on economic analysis. Competition policy is adapting to recognize both the 
teachings of modern economics and the constantly evolving dynamics of markets and 
the  necessary  industrial  development  of  Europe.  Economic  analysis  is  central 
because  competition  policy  shapes  fundamental  economic  decisions  on  investment, 
consolidation, pricing, and thereby economic performance. It shifts the focus firmly 
to the economic effects of firm behaviour or of government measures. It helps more 
generally identify the circumstances in which characteristics such as high profits and 
substantial market shares are signs of market power8.  

The  third  common  theme  of  the  new  regulatory  framework  is  the  improvement  of 
enforcement procedures, whilst at the same time alleviating the regulatory burden on 
companies, in particular small and medium sized enterprises (SMEs). In the antitrust 
field,  this translates  into  the  abolition  of  the  authorization  system  requiring  the 
notification of restrictive agreements for administrative clearance and the setting up 
of a European Competition Network (ECN). The network in which the Commission 
and the national competition authorities are responsible for the efficient division of 
work,  allows  the  best-placed  authorities  to  tackle  competition  cases.  For  merger 
control,  this  implies  streamlined  referrals  to  and  from  the  Commission  of  merger 
notifications and a more flexible control procedure. Finally, for the control of State 
aid,  the  reforms  will  result  in  a  simplification  and  acceleration  of  notification 
procedures. 

8 

As  an  example,  economic  tools  allow  to  better  determine  whether  certain  practices  such  as  tying 
(a strategy where the sale of one product is made conditional on the purchase of an additional product), 
rebates or territorial restrictions hurt consumers or yield greater efficiency. 

7 

 
 
  
 
                                                 
A further element which will underpin the new EU competition regime is the better 
integration  of  consumers’  interests  in  the  competition  regulatory  structure.  To  this 
end, the Commission is also enhancing its dialogue with consumers9. 

9 

In  particular,  in  order  to  extend  the  dialogue  with  consumer  organisations  which  play  a  key  role  in 
advancing consumers’ interests in the internal market, the Commission, as a first step, has established 
within  DG  Competition  a  function  of  a  consumer  liaison  officer  intended  to  strengthen  the  interface 
between competition and consumer policies.  

8 

 
 
  
 
                                                 
3.2. 

Reforms recalled and in progress  

In the antitrust field, apart from the new procedural framework for antitrust policy, 
the rules on distribution as well as licensing agreements and the rules on horizontal 
co-operation  agreements  have  been  overhauled.  The  process  continued  with  the 
review of merger control which led to the Recast Merger Regulation and a series of 
guidelines and policy documents explaining how merger control will be carried out 
in the future. The reform of the control of State aid is in progress with the purpose of 
progressively refocusing State aid policy towards a more economic approach which 
aims at eliminating real distortions of competition resulting from State intervention, 
while leaving the Member States with more flexibility to adopt horizontal measures 
to support Community objectives. 

The new rules, notices and guidelines forming part of the new regulatory framework 
also  provide  guidance  for  enterprises  and  will  encourage  them  to  adopt  market 
strategies that are compatible with competition law.  

The  salient  features  of  the  reform  of  the  three  principal  instruments  of  competition 
policy are briefly elaborated below. 

3.2.1.  Antitrust 

The  new  framework  entering  into  force  1  May  200410  will  result  in  new  economic 
governance in the EU for antitrust policy. It introduces a single common framework 
for the assessment of restrictive agreements affecting businesses across borders in the 
EU11.  This  will  have  beneficial  effects  for  co-operation  agreements,  in  technology 
licensing,  distribution  and  other  agreements  concluded  within  the  whole  of  the 
enlarged  internal  market.  The  new  framework  will  enable  the  Member  States’ 
competition  authorities  and  courts,  alongside  the  Commission,  to  apply  all  EU 
antitrust  rules  in  their  entirety.  The  new  framework  is  a  good  example  of  reducing 
the regulatory uncertainty for European industry by replacing 25 national standards 
by one European rule.  

Moreover,  the  new  procedural  Regulation  1/2003  removes  bureaucratic  procedures 
and simplifies the application of legal rules. Unlike in the past when companies had 
to  notify  their  agreements  to  the  Commission  for  regulatory  clearance,  the  new 
framework  renders  automatically  valid  all  agreements  which  on  balance  generate 
positive effects for the internal market. This is likely not only to bring down the cost 
of  compliance  with  competition  law  but  will  also  reduce  the  administrative  burden 
on business. 

10 

11 

Council  Regulation  (EC)  1/2003  on  the  implementation  of  the  rules  on  competition  laid  down  in 
Articles  81  and  82  of  the  Treaty,  which  replaces  Regulation  17/62  as  of  1  May  2004 
(OJ  L1, 
at 
on 
http://europa.eu.int/comm/competition/antitrust/legislation/.  
Article 81 of the EC Treaty. 

4.1.2003).  More 

information 

found 

these 

rules 

new 

can 

be 

9 

 
 
  
 
                                                 
Furthermore, the new framework opens the way for a more decentralised application 
of  the  EC  competition  rules  by  Member  States’  competition  authorities  and  courts. 
Also, the Commission and the Member States have created a European Competition 
Network  (ECN)  in  order  to  enhance  co-operation  and  ensure  coherence  in  the 
application of the EU competition rules. All members of the ECN will inform each 
other  about  their  formal  competition  procedures  and  consult  the  Commission  on 
envisaged decisions. The ECN also establishes a forum for information sharing and 
co-operation between the authorities. In this context, it is important that the members 
of the ECN are adequately resourced and have the capacity to effectively take part in 
the close collaboration within the Network.  

The new framework will also facilitate the direct enforcement of the EC competition 
rules, before national courts, by consumers and companies that have been harmed by 
restrictive practices. Companies and final consumers alike should feel encouraged to 
enforce  their  rights  before  national  courts,  as  this  can  contribute  to  more  intense 
competition  in  the  internal  market.  In  order  to  enhance  coherent  application  of  the 
rules across borders the new framework includes a system of co-operation between 
national  judiciaries  and  public  enforcement  bodies.  For  instance,  it  allows  for 
national  judges  to  ask  the  Commission  for  an  opinion  on  questions  of  EU 
competition  law  or  for  specific  factual  information.  It  also  empowers  the 
Commission  and  the  national  competition  authorities,  on  their  own  initiative,  to 
submit observations to national courts. 

Finally, a number of substantive rules guiding firms’ behaviour have been revised to 
render  them  more  economics-based.  In  this  context,  notions  of  "safe  harbours"  and 
“hard  core  restrictions”  have  been  developed.  The  process  started  in  1999  with  the 
adoption of a block exemption regulation and guidelines for distribution agreements, 
followed in 2000 with the adoption of a block exemption regulation and guidelines 
on horizontal co-operation agreements.  

Companies with little market power, in particular the vast majority of SMEs, are able 
to  act  within  "safe  harbours"  mostly  defined  by  market  shares.  To  the  extent  that 
enterprises  do  not  exceed  the  market  share  thresholds  they  do  not  have  to  worry 
about the compatibility of their agreements with EU competition law12. At the same 
time,  clearly  defined  “hardcore  restrictions”  which  produce  negative  effects  on  the 
market  are  normally  prohibited.  Under  EU  law,  the  most  prominent  examples  of 
detrimental horizontal restrictions without any economic benefit include agreements 
between  competitors  which  have  as  their  object  to  fix  prices,  limit  output,  or  share 
markets or customers13. 

12 

13 

For instance, Commission Regulation (EC) No 2658/2000 on the application of Art. 81(3) of the Treaty 
to categories of specialisation agreements, OJ L 304/3, 5.12.2000, 
http://europa.eu.int/comm/competition/antitrust/legislation. 
Guidelines on the applicability of Art. 81 of the EC Treaty to horizontal cooperation agreements, 
para. 25, OJ C 3, 6.1.2001, p.2, http://europa.eu.int/comm/competition/antitrust/legislation 

10 

 
 
  
 
                                                 
BOX 2. New approach to technology transfer agreements14 

Technology  transfer  agreements  and  the  licensing  of  new  technology  ensure 
dissemination  of successful innovations in the economy and enhance productivity 
and growth. The new Technology Transfer Block Exemption Regulation applies to 
licensing  of  patents,  know  how  and  software  copyright.  In  line  with  the  general 
competition policy of the Commission, the new Regulation strictly focuses on those 
restrictions  which  seriously  damage  competition  while  providing  more  legal 
certainty  for  neutral  or  pro-competitive  agreements.  This  approach  allowed  the 
Commission, firstly, to provide a clear and short list of hard core restrictions that 
are normally prohibited. This list is narrower in scope than the “black list” of the 
licensing 
previous  regulation.  Moreover, 
agreements  concluded  between  competitors,  which  are  potentially  more  likely  to 
distort competition, and agreements between non-competitors, which are less likely 
to  produce  such  negative  effects.  This  allowed  the  Commission  to  adopt  a  more 
lenient policy for a number of frequently used restrictions like output restrictions, 
customer  restrictions  and  field  of  use  restrictions.  On  the  other  hand,  the  new 
Regulation  offers  a  "safe  harbour"  below  certain  market  share  thresholds,  again 
distinguishing  between  licensing  agreements  between  competitors,  for  which  the 
threshold  is  lower,  and  agreements  between  non-competitors,  for  which  the 
threshold  is  higher.  For  those  cases  not  covered  by  the  safe  harbour,  a  set  of 
guidelines  explains,  mainly  on  the  basis  of  economic  considerations,  how  the 
competition rules will be applied to individual cases. 

it  distinguishes  clearly  between 

With  these  changes,  the  new  regulation  will  allow  for  wide  dissemination  of 
innovation and give companies greater scope and design freedom 

3.2.2.  Merger control 

The EU merger control rules have facilitated restructuring of the European industry 
since their inception in 1989. The EU merger control system is generally recognised 
as  a  very  efficient  and  streamlined  mechanism  which  supports  and  facilitates  the 
restructuring of European industry. Merger activity is part of industrial restructuring 
and necessary to respond to the challenges of a globalising economy.  

The  purpose  of  the  merger  control  rules  is  not  to  stand  in  way  of  necessary  and 
efficiency-enhancing  restructuring,  but  to  ensure  that  those  mergers  are  stopped  or 
modified  that  would  harm  competition.  The  application,  to  date,  of  the  merger 
control rules shows that it has not been an obstacle to creating European companies 
with sufficient dimension to compete in the global marketplace. In fact, since 1990, 
the system has resulted in blocking only a very small percentage of mergers - only 18 
out of more than 2400 notified mergers. Furthermore, of this total amount, the use of 
remedies  has  resolved  competition  problems  in  171  cases,  while  at  the  same  time 
having secured a go-ahead of the merger.  

The revised Merger Regulation which enters into force on 1 May 2004 will preserve 
the  proven  benefits  associated  with  a  European  one-stop  shop  providing  regulatory 
control for mergers and acquisitions with a Community dimension, i.e. those above 
certain worldwide and Community turnover thresholds.  

14 

http://europa.eu.int/comm/competition/antitrust/legislation/entente3_en.html#technology 

11 

 
 
  
 
                                                 
Together with the accompanying implementing regulation, notices and guidelines15, 
the new Regulation includes a number of substantive and procedural improvements. 
One  of  the  principal  improvements  relates  to  the  substantive  test  for  merger 
notifications.  The  new  Regulation  now  contains  a  clear  and  unambiguous,  effects-
based  competition  test  enhancing  the  capabilities  of  the  Commission  to  intervene 
against  the  small  number  of  mergers  that  impede  competition.  Any  significant 
impediment  to  effective  competition  likely  to  be  caused  by  a  merger  will  thus  be 
considered in the competitive appraisal. This ensures that different situations ranging 
from  single  dominance  to  oligopolistic  effects  (whether  co-ordinated  or  not)  which 
might harm competition in a market can be effectively dealt with.  

The new test will be applied on the basis of a comprehensive analytical framework 
for  the  assessment  of  the  impact  of  mergers  on  competition  based  on  sound 
economics.  To  that  effect,  the  Commission  has  issued  a  set  of  Guidelines  on  the 
assessment of horizontal mergers16. The Guidelines give interpretation and practical 
application  of  the  substantive  test  to  mergers  between  competitors,  thereby  also 
providing  full  transparency  for  merging  companies.  As  part  of  the  competitive 
assessment,  the  Commission  may  now  take  account  of  possible  efficiencies  arising 
from an envisaged merger (see Box 3).  

Box 3. Efficiencies in merger control 

As  a  result  of  its  recent  review  of  the  Merger  Regulation,  the  Commission 
concluded that there were compelling reasons to give more explicit consideration to 
efficiencies  in  merger  control  than  in  the  past.  Mergers  may  allow  companies  to 
reorganize their activities or bring together complementary capabilities in ways that 
induce  them  to  compete  harder  and  thereby  counteract  the  negative  effects  on 
competition and in particular the potential harm to consumers that a merger might 
otherwise have.  

The  Commission’s  new  Guidelines  on  the  assessment  of  horizontal  mergers 
therefore  specify  that  the  Commission  intends  to  carefully  consider  substantiated 
efficiency claims in the overall assessment of a merger, and that it may decide, as a 
consequence  of  the  efficiencies  that  the  merger  brings  about,  a  merger  does  not 
significantly impede effective competition. 

The Guidelines specify that various types of efficiencies can be taken into account, 
in particular cost savings in production and distribution but also efficiency gains in 
the  sphere  of  R  &  D  and  innovation,  which  could  lead  to  new  products  to  the 
benefit of consumers. 

The  Guidelines  outline  a  more  modern  economics  based  approach  to  efficiencies 
that allows the Commission to better distinguish the mergers that harm competition 
from those that bring more competition 

15 

16 

Council  Regulation  (EC)  No  139/2004  of  20  January  2004  on  the  control  of  concentrations  between 
undertakings  (the  EC  Merger  Regulation).  More  information  on  the  new  rules  can  be  found  at 
http://europa.eu.int/comm/competition/mergers/legislation/regulation/. 
Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of 
concentrations between undertakings N° C 31, 5. 2.2004, p. 3. OJ L 31, 5.2.2004 
(http://europa.eu.int/eur-lex/pri/en/oj/dat/2004/c_031/c_03120040205en00050018.pdf.). 

12 

 
 
  
 
                                                 
As  regards  procedural  improvements,  the  new  Regulation  fully  maintains  the  one 
stop  shop  control  system,  and  preserves  fixed  deadlines  for  the  assessment  of 
mergers by the Commission. In comparison with other merger control systems, these 
fixed  deadlines  are  highly  appreciated  by  European  industry.  In  order  to  further 
reduce  the  regulatory  burden  of  merger  control  on  business,  the  new  Merger 
Regulation includes a number of procedural improvements with consequent benefits 
for business.  

The  streamlining  of  the  system  of  merger  case  referrals  is  aimed  at  ensuring  that 
merger cases are normally handled by the competition authority best placed to deal 
with  them,  while  at  the  same  time  keeping  to  a  minimum  the  number  of  cases 
requiring  multiple  clearances  from  several  agencies.  In  particular,  the  new  rules 
include a possibility for the merging companies to request a referral to or from the 
Commission, prior to any formal notification being made.  

The  merger  control  rules  in  fact  have  helped  EU  companies  to  adapt  to  the 
challenges  of  the  internal  market  and  global  markets  alike.  Enlargement,  together 
with  the  further  evolution  of  the  internal  market,  will  further  contribute  to 
assimilation  and  de-fragmentation  of  European  product  markets,  helping  European 
companies  to  grow  more  competitive.  The  merger  rules  can  also  help  to  facilitate 
consolidation and cross-border mergers in sectors where national barriers persist.  

3.2.3. 

State aid - reforms in progress 

The reforms aim at refocusing State aid  policy  towards  a  more  economic  approach 
with the purpose of eliminating harmful State aid, while leaving the Member States 
with  more  flexibility  to  adopt  horizontal  measures  to  support,  in  particular,  the 
Lisbon  objectives.  Unlike  the  antitrust  and  mergers  field,  these  changes  are  being 
introduced  incrementally  by  the  end  of  2006,  before  the  new  structural  fund 
regulations  come  into  effect,  rather  than  as  part  of  a  single  reform  instrument. 
However, at the end of the process, their impact will be just as great.  

Continuing reform of the existing State aid instruments17 

In  2005-2006,  a  large  number  of  existing  State  aid  rules  come  up  for  renewal, 
including  all  the  State  aid  exemption  regulations,  the  regional  aid  guidelines,  the 
framework  for  research  and  development  aid  and  the  risk  capital  guidelines.  The 
environmental aid guidelines expire at the end of 2007. These factors, together with 
the beginning of a new programming period for the Community’s structural funds in 
2007, provide an unprecedented window of opportunity for a comprehensive review 
of  the  horizontal  State  aid  rules  to  take  account  of  the  horizontal,  and  particularly 
Lisbon, objectives, and the new cohesion policy set out in the forthcoming Structural 
Funds  regulations,  as  well  as  to  consolidate,  and  wherever  possible  simplify  the 
rules18.  

17 

18 

For information on previous State aid reforms, see the twice yearly State aid scoreboards available at 
http://europa.eu.int/comm/competition/state_aid/scoreboard/.  The  Spring  2004  scoreboard,  to  be 
published shortly, will describe State aid levels in 2002. 
A specific aspect of future practice concerns some existing employment and training measures which 
are primarily financed by the social partners themselves through collective agreements which impose a 
levy on all companies in a particular sector. The Commission will follow the future development of the 
case law in this field very carefully. 

13 

 
 
  
 
                                                 
A crucial component of the State aid reform is to redefine regional aid policy in an 
enlarged  Union,  reconciling  the  overall  reduction  of  State  aid  volumes  with  the 
Community objective of economic and social cohesion. The reform is inspired by the 
conclusions  of  the  European  Councils  of  Lisbon  and  Stockholm,  calling  upon  the 
Commission to give clear priority to the least developed regions in conformity with 
the exceptional nature of regional State aid, and takes full account of the conclusions 
of  the  3rd  Report  on  Cohesion  Policy.  The  underlying  economic  principle  of  the 
reform  is  that  the  best  way  to  address  regional  disparities  and  increase  regional 
growth  rates  is  by  creating  the  right  incentives  to  economic  operators  by  fostering 
higher  productivity  and  competitiveness  rather  than  subsidising  inefficient  firms  or 
causing serious distortions in the internal market. The new guidelines should reflect 
this  principle  and,  together  with  the  revised  horizontal  rules  will  allow  greater 
flexibility so that all Member States are able to address their internal disparities and 
the Commission will focus on aid measures that distort competition most.  

Many  of  the  other  guidelines  also  contain  a  regional  component,  allowing  higher 
rates of aid if it is granted to firms located in the areas eligible for regional aid. This 
is particularly the case of the SME, employment and training aid block exemptions. 
In  order  to  ensure  coherence,  a  review  of  these  regulations  will  be  conducted  in 
parallel with the regional aid review. As part of this review, the Commission intends 
to simplify all the existing block exemptions into a single regulation and consolidate 
them, including a new exemption for certain types of regional aid. 

Research, development and innovation 

The  Spring  European  Council19  has  emphasised  that  competitiveness,  innovation, 
and the promotion of an entrepreneurial culture are major drivers of growth. In this 
context,  it  has  raised  concerns  over  the  relative  weakness  of  the  European  private 
sector investment in research and development (R&D) and stressed the importance of 
increasing  R&D  within  the  Union.  The  Commission  recognises  that  in  this  area 
market  failures  may  exist  which  inhibit  private  investment  in  R&D  and  innovation 
giving  rise  to  slowdown  in  productivity  and  competitiveness.  The  Commission  has 
launched  a  study  to  prepare  the  review  of  the  research  and  development  aid 
guidelines. In essence, this study is focussing on the role of State aid as an instrument 
to  facilitate  the  achievement  of  the  Barcelona  objective  to  devote  3%  of  the  EU’s 
Gross Domestic Product  to  R&D spending.  More specifically it will focus on what 
types of activities should be considered eligible for support, and on appropriate levels 
of State aid.  

19 

Presidency Conclusions of the European Council 25- 26 March 2004.  

14 

 
 
  
 
                                                 
The  Communication  on  State  aid  and  risk  capital  will  also  come  up  for  renewal  in 
2005.  This  has  already  proven  a  useful  instrument  for  Member  States  to  provide 
equity to SMEs in partnership with private investors20. The purpose of the rules is to 
ensure  that  support  for  innovation  addresses  genuine  market  failures  and  can  be 
conducted  flexibly  in  particular  as  concerns  innovative  SMEs.  The  review  will, 
among other things, consider requests for greater flexibility  in  the  provision of this 
type  of  funding.  A  balance  has  to  be  struck  between  the  objective  to  focus  on  the 
initial market failure of the provision of relatively small amounts of capital to SMEs 
in their early and start-up phases as well as in SMEs as potential innovators and the 
risk that greater flexibility may lead to a greater focus on larger amounts of capital at 
later stages where private capital is more readily available without the need for State 
intervention. 

A  Communication  planned  for  2005  will  identify  market  failures  which  affect 
innovation  and,  to  the  extent  that  these  are  not  fully  covered,  adapt  the  prevailing 
State  aid  frameworks  and  rules.  This  will  in  particular  focus  on  support  for  SME 
investment  in  innovative  projects,  the  recruitment  of  qualified  personnel  and  the 
development  of 
incubators, 
that  provide 
technology  centres,  business  angels,  science  parks,  innovation  consultants,  IPR 
brokers and advisers and technology transfer units are examples. 

innovation  services: 

intermediaries 

Before  the  end  of  2004,  the  Commission  will  also  draw  up  a  Vade-mecum  or 
“Practitioner’s guide”. This document will provide guidance on measures in support 
of  innovation  which  can  be  adopted  within  the  existing  State  aid  regulations  and 
frameworks. On the basis of landmark decisions, the Vade-mecum will also illustrate 
the Commission’s approach to aid measures for innovation-related activities and aid 
provided through intermediary undertakings.  

As regards the procedural aspects of State aid control, the regulatory burden will be 
reduced. In particular, the adoption of a new implementing Regulation will lead to a 
general  simplification  and  acceleration  of  approval  procedures.  In  addition,  the 
Commission is progressively exempting aid from prior notification in areas covering 
aid for SMEs, training and employment aid or developing simplified procedures for 
cases of aids which, on the basis of experience would have no significant effects on 
competition. Thus, at the end of 2003, the Commission adopted a block exemption 
regulation  exempting  research  and  development  aid  for  SMEs  from  prior 
notification.  

3.3. 

International aspects of competition policy 

The  reformed  regulatory  framework  in  the  antirust  and  merger  fields  also  helps 
European  enterprises  to  stay  ahead  of  the  game  in  the  global  marketplace,  where 
there  are  mounting  pressures  for  the  establishment  of  common  standards  for 
competition  enforcement.  Owing 
international  co-operation  on 
competition policy, driven principally by the Commission’s efforts, there is growing 
convergence of enforcement standards and practices across the continents.  

to  extensive 

20 

The Commission Communication on the “Risk capital action plan” (COM(2003) 654 of 4.11.2003).  

15 

 
 
  
 
                                                 
The co-operation has flourished, in particular, in the bilateral collaboration between 
the  EU  and  its  major  trading  partners  where  the  Commission  together  with  its 
counterparts in the US, Japan and Canada have co-operated on questions relating to 
policy and investigations. In developing common standards in the global context, the 
Commission and other competition agencies around the world have made substantial 
progress  within 
the 
Commission  has  also  been  among  the  main  advocates  of  negotiations  within  the 
World Trade Organization ("WTO") on a framework agreement on competition.  

the  International  Competition  Network21.  In  addition, 

4. 

ENFORCEMENT PRACTICE SUPPORTING EFFECTIVE COMPETITION 

The  reformed  framework  translates  into  an  enhanced  pro-active  enforcement  of 
competition  law,  allowing  the  Commission  to  focus  its  investigations  on  sectors 
where there are only a few players, where cartel activity is recurrent or where abuses 
of  market  power  are  generic.  It  will  also  focus  on  State  aid  cases  that  inflict  most 
damage  on  competitors,  or  seriously  impede  and  delay  the  necessary  industrial 
restructuring.  This  necessitates  an  in-depth  analysis  of  the  factual  and  legal  or 
administrative  barriers  to  competition  that  most  seriously  harm  consumers  and 
competition  in  the  internal  market  and  imperil  the  competitiveness  of  European 
enterprises. 

4.1. 

Focussed enforcement practice – uncovering competition problems 

Pro-active  enforcement  will  be  founded  on  economic  analysis  of  market  structures 
and behaviour which will help in prioritising the enforcement efforts according to the 
nature  and  the  gravity  of  the  competition  problem  and  according  to  the  extent  a 
sector or an industry falls behind in performance. This will imply emphasis on “high 
impact” investigations while scaling down interventions in cases which have a very 
limited effect on the internal market or on consumers. 

Sectoral  studies,  market  investigations  and  sectoral  inquiries  will  be  increasingly 
employed  in  order  to  assess  the  evolution  of  key  industry  sectors  and  to  detect 
obstacles  to  competition.  Specific  tools  are  being  developed  for  achieving  an 
effective  prioritisation  of  investigations.  Obvious  criteria  to  evaluate  any  given 
market would be the degree of concentration and indications of collusion, but a range 
of other indicators such as price trends not connected with developments in cost or 
demand factors, irregular price differences, lack of innovations or entry, low rate in 
switching  of  suppliers  by  customers,  and  trends  of  development  in  capacity  also 
provide valuable information on the extent to which particular markets perform and 
deliver benefits for their customers. 

New entry into markets constitutes an important element for the competitive process. 
If  barriers  to  entry  are  high,  this  can  be  a  sign  of  a  competition  problem  in  a 
particular  market.  Conducting  market  investigations  or  sector  inquiries  will  be 
particularly  helpful  in  detecting  entry  barriers.  The  role  of  the  ECN  will  also  be 
important  in  this  respect.  The  Commission  intends  to  closely  co-operate  with  the 
Member  States’  competition  authorities  in  uncovering  sectoral  or  market-specific 
problems and addressing them in a pro-active way. 

21 

For further information see http://www.internationalcompetitionnetwork.org.  

16 

 
 
  
 
                                                 
The  new  Regulation  enables  the  Commission  to  generally  investigate  a  sector  and 
publish a report setting out conclusions and recommendations for enforcement action 
within the ECN. On the basis of such recommendations, the different instruments of 
competition  policy  can  then  be  employed  to  tackle  detected  problems  either  in  an 
integrated  fashion  or  by  employing  the  instrument  best  suited  for  the  particular 
problem.  

Moreover, the Commission intends to launch joint initiatives of competition and de-
regulation in sectors where the market analysis reveals that regulatory frameworks or 
private practices form a barrier to new market entry. In this context, an integrated use 
of  different  instruments  can  best  help  to  tackle  practices  that  deter  entry  such  as 
foreclosure  involving  exclusive  dealings  and  market  partitioning.  Furthermore, 
mergers  foreclosing  markets  as  well  as  State  aid  measures  used  to  discourage  or 
prevent entry will be looked at with particular vigilance.  

The fight against cartels 

input, 

thus  endangering 

the  cartelized  product  as  an 

Cartels  inflict  direct  and  serious  damage  on  consumers  as  well  as  industries 
purchasing 
their 
competitiveness22. Cartel fighting has immediate and positive effects – cuts in prices, 
as  well  as  more  competition  in  terms  of  increased  quality  and  a  wider  choice  of 
products  and  services.  Detecting  and  investigating  cartels  will  continue  to  be  a 
priority  action  for  the  Commission.  The  results  of  the  efforts  undertaken  over  the 
recent  years  have  been  significant.  A  number  of  important  global  price-fixing 
arrangements have been detected and record fines have been imposed. The high level 
of fines conveys the Commission’s determination to strike at cartel activity. The new 
regulatory framework will facilitate intensifying this activity. 

The  fight  against  cartels  can  only  be  successful  if  companies  are  deterred  from 
entering into such activity. Credible deterrence rests mainly on three pillars: leniency 
applications, unannounced on-the-spot investigations, and decisions imposing severe 
sanctions.  

Notably, the EU leniency programme23 is a crucial element for destabilising cartels, 
as it creates incentives to end and disclose this kind of secret and illegal behaviour. 
The  leniency  programme  will  therefore  be  maintained  and,  if  possible,  refined  in 
future with the objective of further increasing its effectiveness.  

The  Commission  aims  at  maintaining  and  further  developing  the  level  of  cartel 
fighting developed over the past years. 

22 

23 

The magnitude of harm from cartels is estimated at many billions of Euros annually. The average gain 
from price-fixing is 10 percent of the selling price but it can vary significantly across cases. A recent 
OECD  survey  shows  that  the  cartel  mark-up  can  be  very  large,  as  much  as  50%  or  more. 
(Source: OECD (2002)). 
Information on the leniency programme and guidance on how to launch an application for leniency can 
be obtained at http://europa.eu.int/comm/competition/antitrust/leniency 

17 

 
 
  
 
                                                 
Liberalised sectors 

Similarly  the  enforcement  of  the  competition  rules  in  the  liberalised  utility  sectors 
like  postal  services,  energy,  telecommunication  and  transport  will  be  further 
reinforced.  

Following  entry  into  force  of  the  legislative  measures  to  abolish  the  relevant  legal 
monopolies,  other  mostly  factual  barriers  need  to  be  addressed.  The  competition 
rules  contribute  to  this  exercise  by  removing  existing  impediments  to  effective 
liberalisation.  Moreover,  the  actual  liberalisation  process  needs  to  be  closely 
monitored  in  order  to  prevent  incumbents  from  raising  new  barriers  or  pursuing 
restrictive  strategies  to  protect  themselves  against  emerging  competition.  It  is  also 
important to ensure that they cannot abuse their position or cross-subsidize activities 
in the newly opened markets with the help of State aid obtained for the provision of 
services of general economic interest. Ensuring a competition prone market structure 
and  effective  access  to  markets  will  be  particularly  important  in  the  energy  sector. 
This will create increased price competition and incentives for new types of energy 
services and ensure that consumers can reap the benefits of liberalisation.  

A  pro-active  enforcement  practice  calls  for  an  integrated  approach  whereby  the 
competition  policy  instrument  best  suited  is  applied  in  order  to  create  the  optimal 
environment  for  competition  in  the  newly  liberalised  market.  Depending  on  the 
nature  of  the  competition  problem,  the  Commission  may  have  to  apply  antitrust 
rules, merger control and State-aid control.  

Building on the new antitrust framework, the Commission will be able to co-operate 
more  closely  with  the  national  competition  authorities.  Moreover,  it  will  work 
together with the national sectoral regulators, which have an important role in putting 
liberalisation  into  practice.  In  this  context,  enlargement  will  entail  a  particular 
challenge, and the Commission intends to liaise closely with the national competition 
authorities and regulators in order to ensure full implementation of the liberalisation 
in the energy, telecommunication and transport industries of the new Member States.  

Liberal professions and financial services 

Particular  attention  will  be  given  to  competition  in  areas  such  as  financial  services 
and liberal professions which are also subject to internal market legislation. 

The liberal professions are an example of a services sector with a tradition of often 
burdensome  regulation  and  restrictive  practices.  Whilst  some  regulation  of  these 
professions is probably required, this should be based on objective criteria of general 
interest that minimise the harm to competition and consumers. In its recent report24, 
the  Commission  has  invited  regulatory  authorities  in  the  Member  States  and 
professional  bodies  to  review  existing  rules  in  order  to  see  whether  those  rules  are 
necessary,  proportionate  and  whether  they  are  justified.  The  Commission  will  also 
carry out investigations against restrictive practices where appropriate. 

24 

http://europa.eu.int/comm/competition/liberal_professions/final_communication_en.pdf 

18 

 
 
  
 
                                                 
In  the  financial  services  sector,  pro-active  enforcement  is  crucial  for  creating  a 
competitive  financial  market  and  for  achieving  one  of  the  main  Lisbon  objectives. 
Obstacles to efficient cross-border clearing and settlement can come from exclusive 
arrangements  between  exchanges  and  clearing  and  settlement  providers.  A  recent 
study shows that exclusive arrangements in these areas are pervasive across Europe. 
Furthermore,  the  EU  market  for  consumer  banking  and  insurance  remains 
fragmented.  Finally,  competition  in  card  payments  is  still  taking  place  in  a 
fragmented manner within national markets, rather than at the internal market level.  

4.2. 

Development of State aid enforcement 

Future State aid policy will continue to focus on the important objective of reducing 
the  overall  amount  of  State  aid,  while  promoting  horizontal  aid  measures  of 
Community interest. In addition to its formal enforcement role, the Commission will 
further  develop  the  initiative  taken  in  2003  as  regards  the  identification  of  market 
failures  and  the  effectiveness  of  aid  measures.  Where  individual  or  sectoral  aid  is 
granted, an economic approach will be followed to evaluate the effects of such aid on 
competition,  and  allowing  to  draw  on  the  sectoral  know-how  of  the  anti-trust  and 
merger fields.  

In particular, the Commission will continue to ensure that State aid control will foster 
competition  and  competitive  markets  throughout  the  internal  market,  through  the 
creation of viable competitive structures, taking account of the benefit to consumers 
and the interest of taxpayers.  

In  an  EU  of  25  or  more,  it  will  be  impossible  for  the  Commission  to  assess  every 
single  distortion  of  competition  resulting  from  aid  awarded  at  national  level.  The 
State  aid  enforcement  will,  accordingly,  be  based  on  a  more  rigorous  economic 
analysis of the effects of aid measures on competition. Without prejudice to the full 
respect  of  EC  law,  a  distinction  may  be  envisaged  between  measures  which  are 
unlikely  to  have  a  significant  impact  on  competition  at  the  Community  level,  and 
measures  which  have  to  be  subject  to  a  detailed  and  rigorous  assessment  of  their 
effects on competition in the internal market.  

While experience to date suggests that the level of tradability of a particular activity 
may be a useful starting point, other factors are also relevant, such as the amount of 
aid, the competitive structure of the markets concerned, the possible market power of 
the beneficiaries, and the availability of the aid to different operators in the market. 
The  Commission  therefore  intends  to  deepen its analysis  with  a  view  to  translating 
these  concepts  into  a  general  guidance  to  facilitate  the  design  of  aid  that  would, 
nevertheless,  meet  the  requirements  for  compatibility  with  the  Treaty  rules  on 
State aid. 

19 

 
 
  
 
Furthermore,  a  test  will  be  devised  to  identify  aid  measures  which  are  unlikely  to 
produce  a  significant  impact  on  competition  in  the  internal  market,  based  on  the 
straightforward  principle  that  in  general  terms,  the  smaller  the  amount  of  aid,  the 
smaller the resultant distortion of competition. Thus provided the aid is used pursuant 
to  objectives  of  common  community  interest,  such  as  research,  development  and 
innovation, training, employment, and development of SMEs, it should normally be 
possible  to  allow  relatively  small  amounts  of  aid  without  the  need  for  a  detailed 
assessment.  A  new  framework  to  include  such  a  test  in  the  State  aid  rules  is  at  an 
advanced stage of consultation with a view to adoption in 2004. 

The  Commission  aims  to  achieve  a  reduction  in  the  more  distortive  types  of  aid 
through the adjustment of the applicable rules for certain types of aid as well as the 
assessment of individual cases. As regards the regional aid rules, the recent reduction 
of  the  levels  of  aid  allowed  for  large,  mobile  regional  investment  projects  in  the 
Multi-Sectoral Framework was adopted in response to strong concerns expressed by 
Member  States  about  the  distortive  effects  of  high  levels  of  this  type  of  aid. 
Similarly,  the  current  review  of  the  guidelines  on  State  aid  for  rescue  and 
restructuring of enterprises in difficulty is focused towards the major distortions and 
damage  that  these  types  of  aid  measures  inflict  on  competitors  and  the  internal 
market.  

In  dealing  with  individual  cases,  the  aim  has  been  to  identify  cases  where  aid  may 
give rise to serious distortions of competition in the internal market and, in so far as 
possible, to focus its resources on these. Examples include State aid, which take the 
form  of  fiscal  advantages,  unlimited  or  implicit  guarantees,  particularly  in  the 
financial services and energy sectors and the use of State aid in recently liberalised 
sectors. The Commission also seeks to ensure that State aid control forms part of an 
integrated  competition  policy,  so  that,  for  example,  when  considering  the  need  for 
compensatory measures from a company receiving restructuring aid, it takes account 
of the potential effects of different types of measures on the competitive structure of 
the markets concerned. 

As regards procedures, the Commission will review the need for further changes in 
the  light  of  the  experience  acquired  following  the  implementation  of  the  new 
regulation  which  is  currently  at  an  advanced  stage  of  elaboration.  It  will  also 
consider the possibility of further block exemptions for certain types of aid as well as 
a simplification of the procedures by which block exemptions are adopted.  

5. 

CONCLUSION 

Effective  competition  in  the  EU  internal  market  makes,  through  improved 
productivity  and  innovation,  a  decisive  contribution  to  the  competitiveness  of  the 
European industry. A pro-active competition policy will act as a catalyst unleashing 
more  competition  across  Europe  thereby  also  helping  to  better  achieve  the  Lisbon 
objectives.  

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