‘Reason is sovereign of the World; that the history of the world, therefore, presents us with a rational process’.Footnote 1
I. INTRODUCTION
The purpose of this article is quite straightforward: it is to understand the reasons and intention of the legislator when drafting EU competition rules and, by undertaking a holistic rather than exhaustive review of these rules, to answer a number of problematic contemporary questions from a historical-legal perspective. These questions are: Is economic efficiency the primary goal of EU competition law? What is the distinction between object and effect under Article 101 TFEU? How does discrimination relate to EU unfair competition? Is there really a gap under Article 102 TFEU? What is the true meaning of a competitive distortion? What lessons can we learn from history for future amendments?
Some of the above questions have been extensively and controversially debated in the literature, but the results have not been entirely satisfactory. By revisiting the genesis of EU competition rules and looking again at the original political statements, declarations and negotiations, this article will shed some light on present misunderstandings and offer a historical understanding of EU competition law.
There is a blurred distinction between historical truth and reality. Law is not an exact science, and neither is history because there may always be something new to be revealed. There will always be a sense of evolutionary relativism, ie what is true today may be false tomorrow. In considering the question of what the goals of competition law actually are, European courts have been wise to follow a teleological interpretation in line with the objective of safeguarding ‘undistorted’ competition.
EU competition law is well known for its use of soft-law guidelines. Therefore, taking inspiration from Hegel's Philosophy of History,Footnote 2 it seems useful to set out the methodology that will be used here when addressing the questions which are to be considered. Current understandings and misunderstandings will be reviewed in the light of the historical narrative concerning the drafting of EU competition rules—that is, a reflective historical interpretative approach will be adopted. During the discussion a pragmatic orientation will be maintained because of the need to be alert for contradictions in previous historical findings and to verify their plausibility. Next, a conceptual analysis based on historical findings will help us understand the current reality, even if these origins raise some troubling questions. In providing this historical review the aim is to challenge future enforcement and reveal possible legislative gaps that are the result of a lack of detail or precision in the legal provisions. Standing on the edge between history and contemporary reality, it falls to European courts to fill the gaps which currently exist and, with reason and wisdom, to reshape the future enforcement of EU competition law.
A. What Is the Primary Goal of EU Competition Law?
Seemingly simple questions—such as ‘what is the primary goal of EU competition law’—are often the most difficult to answer. Recently, a comprehensive study of the goals of competition law has demonstrated the plurality of goals, depending on jurisdictions and normative values, their intersection and political dimension.Footnote 3
Misunderstandings among lawyers and economists are only one side of the coin. It has been said that jurisdictional ideologies do not always allow for similar goals to be pursued; for example, within the spirit of German ordo-liberalism, some previous writers have claimed a clash between economic freedom and consumer welfare.Footnote 4 In contrast, a leading representative of German ordo-liberalism contradicts the widespread belief that economic freedom cannot coexist with welfare.Footnote 5 The origin of the clash lies in the fact that the ordo-liberal school of thought has been mostly linked to the early 1930s, rather than the 1980s' social market economy and neo-liberalism.Footnote 6
Economic freedoms are mostly embedded in a ‘constitutional’ dimension,Footnote 7 which forms the public law foundation of competition law. Once economic freedom to compete is institutionally established at a constitutional level it needs its own private law foundation, namely the freedom of contract, the objective of which is to achieve welfare and prosperity. Economic efficiency obviously serves this purpose and there is nothing to prevent both objectives from coexisting in unity. However, misunderstandings between ‘ends’ and ‘means’ create endless conflicts.
One commentator has suggested that productive efficiency is the original goal of EU competition law,Footnote 8 based on the Spaak Report of Foreign Ministers. In sharp contrast, but based on the same historical archive in Florence, Forrester had previously identified many other goals alongside that of efficiency, such as market integration and consumer welfare (2000).Footnote 9 Thus, two opinions based on the same archive do not really converge on the same issue and this suggests that something must have been overlookedFootnote 10 or misinterpreted; or as one leading authorFootnote 11 put it, the conflict of goals is mirrored by the development of a new agenda, namely the ‘more economic approach’, which aims to match previous legal objectives with economic ones. Previously, the same author suggested that ordo-ideology had influenced EU competition law.
What previous historical studies have missed is that legal historians had already published a three-volume collection of the historical archives on EU law (1999 and 2000), showing that the Treaty of Rome cannot be judged on the basis of the Spaak report only, which is a small piece of the preparatory work (travaux préparatoires). Furthermore, the Treaty of Rome has to be analysed through the lens of its predecessor, the Founding Treaty establishing the European Community of Steel and Coal (ECSC),Footnote 12 famously inspired by Robert Schuman and Jean Monnet.Footnote 13 Elsewhere, Freyer mentions that two treaty Articles were drafted by Robert Bowie (formerly professor at Harvard Law School and legal counsel to the High Commission in Germany).Footnote 14 The edited collection published in BerlinFootnote 15 provides an opportunity to consult these documents. In addition, the collection covers the documents found in the European institutions' archives, as well as those found in the national archives of the founding member states and, most importantly, of the Foundation Jean Monnet in Lausanne.Footnote 16
The present understanding is that the founding treaties were generated by European ideas of economic integration and that they were designed to serve European citizens.Footnote 17 Any modelling of Europe based on one particular national influence is said to be dangerousFootnote 18 and counter-productive for European integration.
The history of competition law must briefly look at the Robert Schuman Declaration of 9 May 1950. The proposal that the production of coal and steel in both France and Germany be placed under a High Authority, with the participation of other European countries, has served as a basis for economic development and as a first step in a ‘European political federation’.Footnote 19 In particular, the declaration advanced the future implementation of a plan of production and investments with a price mechanism and the creation of a reconversion fund to help facilitate the rationalization of production.Footnote 20 The future European community (ECSC) was devised to counter an ‘international cartel aimed to divide and exploit national markets through restrictive practices and to maintain high profits’, thereby ensuring the integration of marketsFootnote 21 and increasing production of coal and steel.Footnote 22 It was believed that conditions would gradually emerge which would ensure ‘the most rational distribution of production and the highest level of productivity’ by means of the ‘pooling of resources’.Footnote 23
Competition goals were integrated into an international dimension of the fight against pernicious cartels. In a subsequent note, the objectives of the community, namely, the expansion of marketsFootnote 24 and rationalization of production,Footnote 25 are further detailed, together with the means of action to be taken against cartels. It is in this particular context that the word ‘competition’ is first mentioned, as a means to counteract price-fixing, the attribution of production quotas and the division of markets. Cartels were associated with a ‘permanent elimination of competition resulting in the exploitation of markets by a particular profession’ and essentially secret agreements serving professional rather than the public interest.Footnote 26 In the fight against cartels, the High Authority was called to ensure that the same market conditions which existed under perfect competition would prevail, without which the establishment of competition would face an insurmountable hurdle.Footnote 27
It suffices to say here that the same great fight against international cartels was at the heart of the negotiation behind the Treaty of Rome.Footnote 28 The tone was slightly different in that the context was the free global trading of goods, where not only did inter-state trade barriers have to be eliminated, but private restraints on competition also had to be controlled internationally through the establishment of an international trade organization with provisions on competition.Footnote 29 Obviously, this served the very ambitious goal of the World Trade Organization (WTO) of international cartels being controlled by an international trade chamber.Footnote 30 Over the years since the Havana Charter, such an international agreement on competition rules has become a ‘dead letter’.Footnote 31 Additionally, the Spaak Report at the Messina conference in 1955 acknowledged that the Common Market should benefit consumers through both quality and price competition due to different production costs being borne by undertakings.Footnote 32
Greater similarities with a general catalogue of goals in future treaties, but significantly specialized to serve competition goals, are revealed by the role of the High Authority in the pricing of coal and steel.Footnote 33 A factor underlying the shaping of competition policy was the lack of price elasticity in the production of coal. Briefly, competition law was called upon to:
(a) safeguard the normal ‘game’ (jeu) of competition
(b) ensure the stable supply of both coal and steel within the Common Market
(c) identify optimal conditions for growth and expansion
(d) maintain a competitive industry in order to benefit consumers with regard to both price and quality
(e) ensure that pricing conditions within the Common Market did not discriminate against buyers, especially in a country other than that of the provider, while maintaining free choice for consumers in respect of suppliers or place of delivery
(f) ensure that export prices remained within equitable limits for both buyers and producers
(g) protect producers against practices of unfair or artificial competitionFootnote 34
(h) ensure that the normal mechanism of competition was not distorted by discriminatory practices against producers by certain buyers or groups of buyersFootnote 35
(i) possibly consider a policy of rational exploitation and conservation of the natural resources of the Common Market.
This brief account of the huge role of the High Authority clearly demonstrates that some of the emerging goals of competition law were rooted in economics: competition as a game of supply and demand servicing consumers and their freedom of choice. With unfair competition, including the protection afforded to producers, this image reflects a total welfare standard. Even the meaning of distortion receives modest recognition.
This historical review of goals highlights the methods of intervention by the Authority.Footnote 36 Indirect production methods demand combined action involving both natural resources and consumption, eventually followed by direct governmental intervention to align prices with demand.Footnote 37 The latter was by no means excluded as a means of price control, though experts warned it would not be possible to determine price levels due to a lack of (economic) criteria.Footnote 38 Within the context of industrial concentrations, we are reminded that the primary goal of the Schuman Plan was to establish a Common Market and to create the conditions capable of attaining the highest possible level of productivity and the lowest price for two relevant products.Footnote 39 The future Article 60 was intended to prevent price-fixing, and the control of production, technical development and the division of markets by agreements between producers.Footnote 40 This explains why market integration has been at the heart of EU competition policy and how the drafting of the treaty reflected the secondary goal of productive efficiency.
The essential economic goal of the Schuman Plan (1950) was to satisfy the needs of the community by creating a market within which undertakings are stimulated to increase their productivity.Footnote 41 The way to achieve this ambitious objective was thought to be to develop competition.Footnote 42 This finally explains the endless debate over ends and means and why competition policy (the Schuman Plan) had to be the means to an end.
An original draft working paper on the Treaty of Rome (1955) reveals that competition was again the means ‘to the establishing and the normal functioning of the Common Market’ insofar as ‘it requires the elimination of those measures and practices which alter competition or which are unfair’.Footnote 43 The way forward during its progressive establishment was the natural ‘game of competition’; in special cases, however, a rational specialization of production could be sought.Footnote 44 The prohibition of horizontal concentrations which threatened to create monopolies was a fundamental condition for attaining the objectives of the Schuman Plan.Footnote 45
An extremely interesting revelation concerns the risk of market domination, probably in the spirit of the US monopolization of markets,Footnote 46 and the fact that this should not be predetermined by absolute criteria, nor placed under any rigid rule determining the total market percentage of a product (1950).Footnote 47 The US influence of restraints in trade is supported by Article 66(6) ECSC, points 1 to 4 of which concern fining economic concentrations, referring to any natural person, ie individuals. Distortions of competition were thought possible within coal and steel or their consumer industries.Footnote 48 The Spaak Report (1955) mentioned that monopolization through the absorption or domination of the product market by one single undertaking takes away the benefits of technical advance.Footnote 49
A draft working paper of the Common Market Commission argues that the establishment of ‘expanding’ competition throughout the Common Market is necessary in order to attain the ‘most rational distribution of production at the highest possible level of productivity’.Footnote 50 It states that this cannot be achieved solely through the elimination of exchange barriers such as custom rights, quantitative restrictions and measures having equivalent effect; it also requires the introduction of provisions which will ensure that ‘the game of competition would not be distorted’.Footnote 51
What does this review of thinking between 1950 and 1955 tell us about the present? In recent years, productive efficiency has moved to a strategy of making the Union one of the most dynamic and competitive ‘knowledge-based’ economiesFootnote 52 and, as a result, dynamic efficiency receives greater recognition.Footnote 53 One of the goals of the Treaty of Paris was to achieve productive efficiency to better serve coal and steel consumers, but this prevalent factor in the development of society in the 1950s did not impede a shift to dynamic efficiency, capturing high technology markets and dynamic competition, thus further progressing towards achieving all the envisaged fundamental freedoms of the internal market found in the Treaty of Rome and beyond.
Recently, the Commissioner for Competition, Joaquin Almunia, placed a highly competitive ‘social market economy’ at the heart of competition policy and, more recently, contemplated the potential of competition law as a means of supporting innovation policy regarding renewable energies.Footnote 54 His mandate regards competition policy ‘as a means of strengthening our social market economy, and enhancing its efficiency and fairness’.Footnote 55 Competition policy is once again being seen as a means of delivering some policy aims other than efficiency and is emphasizing that, putting aside competition jargon, capitalistic competition and the social market economy should sit easily alongside each other. Therefore, it is clear that in the Lisbon Treaty a new goal of EU competition policy is to be highly competitive ‘outside’ the EU, while being ‘social’ within it.Footnote 56
B. What Is the Distinction between ‘Object’ and ‘Effect’ under Article 101 TFEU?
Recently, the distinction between object and effect has been extensively discussed in the European literature.Footnote 57 However, this question needs a deeper historical review in order to identify how it was shaped in the early 1950s. In this context ‘object’ is a synonym for ‘purpose’. The Schuman Plan envisaged that agreements between undertakings ‘having as an object’ the limitation of the production of coal and steel, the division of markets or the fixing of prices should be prohibited.Footnote 58 Monnet, however, argued that such agreements should be permitted where they encouraged production and the most efficient use of existing tools. In such cases the High Authority could have authorized agreements between undertakings which had as their object (ie purpose) their merging or specialization.Footnote 59
1. The original drafting proposals (ECSC)
Except for Article 101(1)(e), Article 101 refers generally to ‘agreements’, not to legally enforceable contracts.Footnote 60 The original German proposal used the term ‘contracts’ instead of ‘agreements’, in particular ‘contracts that undertakings conclude in pursuit of a common purpose and which influence production or market relations for trade in goods in restraint of competition’.Footnote 61
The High Authority had to authorize ‘only those contracts and decisions which are likely to increase the performance and efficiencyFootnote 62 of the undertakings involved as regards their technical, business administrationFootnote 63 and organizational relations, thereby improving the meeting of demand without any unjustified modification of prices and terms and conditions in dealings with the respective goods and commercial services'.Footnote 64 Therefore, the High Authority was stipulating that contracts ought not to be prohibited per se where there is the likelihood of increasing economic efficiency as regards existing technology, business administration and the organization of the undertakings concerned. This means that the micro-economics of industrial organization are at the core of this drafting proposal. However, undertakings were not required to contribute to technological and economic advance. Rather, the draft suggested meeting the demand of customers of coal and steel without any unjustified modification of trading terms and conditions, including pricing.
In the original draft there is also no mention of consumers sharing the benefits resulting from any resulting enhancement in economic performance or efficiency. A French proposal had suggested that the rules envisaged by the Schuman Plan should stimulate undertakings to increase their productivity steadily so as to benefit consumers of coal and steel. The proposal suggested prohibiting those practices, namely, commercial deals and ‘any’ agreements, which had as their purposeFootnote 65 or had the direct or indirect ‘result’Footnote 66 of preventing,Footnote 67 restraining or altering free competition and, in particular, of fixing prices, limiting or controlling production in any manner, or of dividing markets, production, customers or sources of supply.Footnote 68 This change from the initial German proposal concerning contracts to the French proposal concerning agreements resulted in Article 101 becoming more restrictive.
It appears that the German proposal came to be influenced by the French terminology of legal acts,Footnote 69 according to which, in order to be legally enforceable, agreements had to have a valid object and a legitimate cause in order to have legal effect.Footnote 70 Similarly, under English contract law, agreements that are unsupported by the intention to create legal relations might not be legally enforceable, even if they are supported by economic consideration, ie economic value.Footnote 71 However, in the context of commercial agreements, a strong legal presumption operates whereby the courts presume that the parties to the agreement do indeed intend to create legal relations.Footnote 72 The onus of rebutting the presumption lies with the undertaking seeking to do so.
2. The French distinction between cause/effect and object
In order to understand the legal implications of the sudden shift from the use of the term ‘contract’ to ‘agreement’, which subsequently triggered the shift from the German term ‘result’ (Ergebnis) to the French term ‘effect’ (effet), it is necessary to examine the distinction between the ‘cause’ and ‘object’ of legal acts under French civil law. The distinction between legitimate cause and valid object concerns issues of illegality and public policy. Thus the purpose of the contract must exist, be determined or determinable and be lawful.Footnote 73 The cause of a contract includes both an objective aspect (the cause of the obligation to pay, similar to consideration under English law, which is derived from Roman law) and a subjective aspect (concerning its morality, and, which is derived from canon law).Footnote 74
Basically, object and cause are the classical civil law criteria which determine if an agreement is legitimate or not. If it is illegitimate or illicit, then the agreement is either null or void. Obviously, competition agreements do not exist in a vacuum and may be entered into in a commercial context without fulfilling certain legal formalities such as the exchange of written contracts. Briefly, the form of such agreements is irrelevant as long as there is an illegal cause (purpose or aim) which falls under Article 101(a)–(e). Otherwise, any discrete agreements such as arrangements, exchanges or collaborations—even if concluded orally—would be strictly prohibited as a sort of illegality or ‘conspiracy’ to it.
Initially, the ‘object’ of an agreement was to be identified by having a specialization or merger as its subject-matter. Thus, the current distinction between the same ‘object’ as purpose and ‘effect’, ie legal effect of an agreement, namely, civil or criminal sanctions, can only be properly understood on the basis of the French proposal, which embraces a broader range of legal acts. By contrast, an earlier German proposal referred only to contracts,Footnote 75 instead of agreements. This is one of the reasons why Article 101 is so broad in scope, since in addition to formal contracts it covers those agreements which might have the same effect as legally enforceable contracts. Otherwise, loose agreements, informal quasi-contracts such as cartels, gentlemen's agreements, inter-firm collaborations,Footnote 76 exchanges of confidential informationFootnote 77 or disclosures would have remained outside its scope. What really matters is whether there are restrictive practices as described under Article 101(1).
In conclusion, the distinction between object and effect needs to be placed in its general civilian context, whereas the restrictive practices in (a)–(e) relate to the special economic/commercial context. Current controversies are due to the different legal traditions which influenced the drafting of the founding treaties.
3. A refined French proposal
Another French draftFootnote 78 prohibits any undertaking from taking concerted action with another undertaking to conclude ‘any agreement whose purposeFootnote 79 or direct or indirect result within the Common Market was: a) to prevent, restrain or alter, in any manner, the natural game of competition and in particular the price; b) to restrict or control production in any way; and c) to divide markets, products, clients or sources of supply’.
This proposal focuses on coordinated behaviour, irrespective of the existence of any agreements. It distinguishes clearly between purpose and particular consequences, following the German proposal, except for a subtle change, resulting from translation challenges, to the effect that the German expression ‘free competition’ was replaced by the French ‘game of competition’. The German proposal strongly encouraged free competition for both coal and steel, according to which it stated that market participants should not act in ways which run counter to the principle of competition based on performance, which it can logically be concluded refers to efficiency.Footnote 80 Therefore, restrictive practices are prohibited in order to prevent the creation and exploitation of a dominant economic position to the disadvantage of producers or consumers.Footnote 81
In contrast, the German proposal refers to the decisions of associations of undertakings and contracts which would be prohibited if capable of influencing production and market conditions for free trade with coal and steel. The exception to this prohibition envisages the authorization of those agreements that are capable of improving the functionality of the Common Market or of contributing to the increase in economic performance and efficiency of the undertakings involved as regards their technology, business administration and organization, and thereby helping to meet demand (for coal and steel).Footnote 82 The same balancing of economic advantages against the resulting disadvantages following the restriction of competition is required to prove the agreement falls under this exception.
4. Eventual errors in legal translation
Interestingly, the French proposal prohibits all agreements or decisions by ‘associations of producers’ and all concerted practices aimed, directly or indirectly, at preventing, restricting or altering the natural game of competition.Footnote 83 It refers to the same particular practices, such as price-fixing, restriction or control of production or technology, but also introduces mention of investments. However, an exception to the prohibition is foreseen for those ‘agreements by undertakings having as an object the specialization of their production or the joint purchase or sale of the above products,Footnote 84 where:
(a) such specialization or joint purchase/sale increases substantially productive efficiency or product distribution (of coal and steel);Footnote 85
(b) the agreement in question is essential in order to achieve the above result and it does not restrict the undertakings' initiative more than is necessary for that purpose;
(c) the undertakings in question are not likely to be able to control or limit production or a substantial portion of the particular products within the Common Market;
(d) the agreement, specialization or joint purchase/sale does not prevent effective competition in the Common Market in respect of the products in question’.
This text makes far more sense than Article 101(3) itself, in particular in exempting specialization or joint agreements which increase productive efficiencyFootnote 86 or product distribution, but without requiring a ‘fair share of the resulting benefit’ to be passed on to consumers. On balance, commercial freedom or freedom of action is preserved and whilst the last two conditions are less restrictive than Article 101(3) (b), they do ‘afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question’.
On the whole, the proposal is less restrictive as it only places under scrutiny certain types of agreements the purpose (object) of which is specialization or joint purchase or sale, rather than all agreements which aim to restrict competition. As we have seen, when the proposal was translated into German,Footnote 87 it substituted the word ‘undertakings’ for that of ‘producers’, and changed the word ‘game’ to refer to normal competition,Footnote 88 while adding to price-fixing the alternative of ‘influencing’. Finally, it left out four cumulative conditions because it saw these as being identical.
Suetens's personal draft proposal (1950) maintains this subtle change of associations of producers to associations of undertakings.Footnote 89 It refers to concerted practices capable of influencing, through an unjustified restriction of competition, either the production or the functioning of the Common Market for coal and steel. This draft then firmly prohibits ‘any’ agreements, decisions or practices, which in an artificial or abusive manner would limit production or impede technical progress, maintain or lower prices, or reserve markets or sources of supply for certain producers.Footnote 90 In this draft too, and for the first time, technical advance is mentioned. However, it is unclear what kind of technical advance is envisaged. It was only during the negotiations of the Treaty of Rome (1956)Footnote 91 that elements of intellectual property (IP) become part of the balancing needed for a specialization agreement, namely, that the intellectual property creator proves that the agreement actually improves the production or distribution or that it promotes technological and economic advance.
5. Relative versus absolute nullity?
An important featureFootnote 92 of the prohibition in Article 101 worth highlighting is that agreements which have certain conditions ensuring that specialization and joint agreements will not have restrictive effects are not subject to absolute prohibition. Article 101(3) provides an exception to absolute nullity, in that restrictions by effect would need further consideration (ie they are a ‘relative nullity’) and are not automatically void. Bearing in mind the previous distinction between written contracts and loose agreements, Article 101(1) triggers absolute nullity for any restriction by object from Article 101 (a)–(e). Innumerable other changes are included in ECSC's Article 60.Footnote 93 Most notable is a sudden change of perspective concerning the authorization of specialized agreements or joint purchase/sale agreements by including as an alternative ‘other similar agreements’Footnote 94 if such agreements contribute to a ‘significant’Footnote 95 improvement of production or distribution.Footnote 96 In one of the four cumulative conditionsFootnote 97 the word ‘effects’ replaces ‘result’, which changes the previously moderated approach to one which covers the initiatives of all types of undertakings. This change reads as follows: ‘the agreement in question is essential to reach the above effects (namely, significant improvements), without being more restrictive than is demanded by its purpose’.Footnote 98 The next conditionFootnote 99 is the requirement not to impede effective competition within the Common Market.
However, thereafter, the situation became even more complicated. Article 60(3) requires the notification of any agreement or concerted practice among competing undertakings and of the decisions of associations of undertakings, irrespective of their purpose,Footnote 100 if not concluded in writing to be submitted for the approval of the High Authority.Footnote 101 Otherwise, they are to be declared contrary to the ECSC Treaty. Thus, if the High Authority were to find that certain agreements are very similar, based on their ‘nature (type) or effects’ as under Article 60(1)(a)–(c), they may only be authorized if the same conditions are met.Footnote 102 This means that specialization agreements are not the only agreements that can justify an exception to the above absolute prohibition under Article 101.
Another modifying proposal refers to those agreements likely to cause the effects mentioned under Article 60(1).Footnote 103 A notable change of approach concerns the last cumulative condition of Article 61(2)(d), where the wording requires that such agreements should not have as a ‘net effect’ the reduction of competition within the Common Market.Footnote 104 Finally, Article 60(1) prohibits by rendering an absolute nullity ‘all agreements between undertakings, decisions by associations of producers and concerted practices’ aimed at preventing, restricting or distorting the normal game of competition.Footnote 105 It even stipulates that undertakings granted an exemption on the basis of Article 61(3) by means of false or inaccurate information are to be fined with a maximum of double their annual revenues on the products that were the object of the agreement or decision contrary to Article 61, irrespective of whether their object appears to be solely to restrict production, technical development or investments.Footnote 106
6. Some preliminary remarks on the drafting history of the above distinction
Hopefully, the above overview of the development of ECSC provisions helps us to understand the text prior to the drafting of the Treaty of Rome and why the ECSC is indisputably its primary inspirational source.Footnote 107 For those who still doubt this, a historical document containing ECSC provisions provided the starting point for negotiations for the Treaty of Rome at the Messina conference.Footnote 108 Later, the French delegation presented an excerpt of their Pricing Regulation no 45/1483 of June 1945, as amended by the Decree of August 1953. This regulation prohibits concerted actions, all ‘understandings’ (a synonym for ‘agreements’)Footnote 109 and express or silent arrangements, including collusionFootnote 110 or concentrations (the latter being prohibited irrespective of form and purpose) having the purpose or result (effect) of preventing free competition so as to reduce production costs or sale prices or to allow artificial price increases.Footnote 111
A subsequent draft (1956) uses words even more economically, the wording being ‘all agreements between undertakings and all decisions by undertakings which have as an object or as an effect the prevention of competition, in particular by fixing prices or elements thereof; limiting production, distribution or investments; preventing technical or economic advance; dividing markets, products, clients or sources of supply’.Footnote 112 It states that such agreements or decisions may be authorized provided that the claimant is able to prove that they actually contribute to the improvement of production or distribution or the promotion of technical or economic advance. Here the claimant needs to prove that this will benefit consumers.
Yet another innovation was made by a group of legal experts who added two further requirements to this Article 101(3).Footnote 113 As previously mentioned, a French proposal required the IP author to prove an actual improvement of production, distribution or the promotion of technical or economic progress,Footnote 114 including the consumers' fair share. In contrast, the German proposal changed the IP author to the neutral ‘claimant/applicant’, which diverts the intended scope of the application of IPRs.Footnote 115 The group of experts who drew up the final draft added the requirement that ‘such a contribution should not run counter to the objectives of the treaty’Footnote 116 as regards the improvement in question by imposing on the undertakings concerned limitations which are not indispensable for the attainment of these objectives. However, the original understanding of ‘objectives’ does not seem to have been solely the promotion of technical progress and so on, but was to be generally derived from the treaty's future goals. This allows a greater flexibility in balancing different types of efficiencies corresponding to other goals to be pursued in the name of competition, for example, social goals.Footnote 117
Finally, a clause referring to affecting trade between Member States was introduced (1954) for agreements, decisions and concerted practices ‘which are likely to have’ a harmful effectFootnote 118 on the Common Market.Footnote 119 The same wording is used twice, which proves that harmful ‘effects’ were not an alien concept in the 1950s. At the last minute, ‘categories’ of agreements were introduced under ex- Article 85(3) EC.Footnote 120 As the above discussion makes clear, in the absence of any discussion within the ECSC, the drafting of the Treaty of Rome alone reveals all too little regarding the distinction between object and effect. Since Article 101 incorporates this somewhat confusing distinction without ever mentioning contracts under Article 101(1), it is easy to confuse the enforceability of agreements that require an intention to produce legal effects with the restrictive effect required under Article 101(3). They are not necessarily the same thing. Without a doubt, the drafting process of adding, removing and translating provisions has made the final text of Article 85 EC somewhat inaccessible. This explains why the case law has been the subject of many controversies for competition commentators.
For example, GlaxoSmithKline Footnote 121 concerned a wholesalers' distribution agreement ‘General Sales Conditions’, which was sent for negative clearance (authorization) to the Commission. The agreement covered the cross-border (parallel) trade in medicines for which national price regulations already existed before it was drawn up. However, Spanish wholesalers had accepted the above sales conditions in writing, which meant that this agreement clearly fell under Article 101(1)(a), ie ‘fixing any other trading conditions’.Footnote 122 GSK claimed that it merely intended to market medicines, but not to restrict competition. The General Court found that the Commission erred in law when it found that the agreement had both the object and the effect of restricting competition.Footnote 123 It was claimed that the Commission should have established the ‘effects’ of the agreement, ie that GSK restricted competition to the detriment of the final consumer under Article 101(3).Footnote 124 This argument was subsequently rejected by the Court of Justice.Footnote 125 The court said that since the agreement was in writing it was therefore legally enforceable. Even if the agreement referred only to sale conditions, and did not intend to fix the price, under Article 101(a) both are alternative criteria,Footnote 126 it satisfied the ‘object’ restriction. The agreement was therefore capable of producing legal effects. The analysis of effects for ‘any’ agreements, followed by a heavy burden of proof, makes the granting of an exemption of this type highly unlikely.
More recently, the Commission found in MasterCard Footnote 127 that a multilateral interchange fee (MIF) between the issuing and the acquiring bank on the settlement of card transactions had restrictive effects on competition in the acquiring market.Footnote 128 The fee restricted competition between acquiring banks to the detriment of merchants and their customers as it operated both on the acquisition of cross-border transactions and on the acquisition of domestic transactions.Footnote 129 The MIFs could not be regarded as ‘ancillary’ restrictions because they were not objectively necessary for the operation of an open payment card scheme.Footnote 130 Debit cards generated important commercial benefits other than interchange feesFootnote 131 and these debit cards were not necessary for the economic viability of the banks in question.
The restriction was ‘directly related’ to the implementation of the main operation and subordinate to it.Footnote 132 The concept of ancillary restriction of competition has also been applied in a UK banking charges case,Footnote 133 when UK banks operated an overdraft facility ‘free-if-in credit’ for customers having their current accounts with the bank. In that case, the initial agreement was later varied by a separate credit service agreement, which was ancillary to the main operation and generated profits for the respective banks. Put simply, the overdraft facility subsidized the running of current accounts at zero costs.
Mastercard is another case where it is clear that there was a restriction by object which ‘by its very nature’ had the potential to fix prices indirectly, that is to say, at the intermediary level of the participating banks which would be passed on indirectly to final consumers.Footnote 134 The General Court limited its judicial review of ancillarity to procedural grounds. From an economic perspective, the ancillary nature of such a restriction entails complex economic assessments which were previously carried out by the Commission.Footnote 135
In conclusion, once the purpose of the commercial agreement falls clearly under Article 101(1) (a)–(e), a legal presumption of restriction of competition by ‘object’ operates against the concerned undertakings. It is for the undertakings concerned to rebut the presumption. The present historical review of the ‘object/effect’ distinction during the drafting of the founding Treaties demonstrates that as it stands the law mirrors a strong public enforcement mechanism against illegitimate restrictions of competition by ‘object’. Agreements having an unlawful purpose such as price-fixing are automatically void. The presumption of the application of this prohibition is difficult to rebut. Undertakings need to justify their own commercial interests within the scope of Article 101(3) by demonstrating that they are improving overall economic efficiency. The original proposals reveal some scope for more flexibility and differentiated approaches to technical and economic progress in the context of specialized agreements and IPRs. As we have seen, the German and French proposals reveal certain differentiated linguistic approaches that highlight the understanding of commercial agreements in the civil continental context of cause/object and effect/nullity under French and German civil law.
C. How Does Discrimination Relate to EU Unfair Competition?
For common-law competition lawyers, unfair competitionFootnote 136 does not belong to traditional competition policy and therefore its historical review is welcome. Nevertheless, the principle of ‘fair’ competition is included in the preamble to the Treaty on the Functioning of the European Union. Unfortunately the extent to which ‘some’ of the national laws against unfair competition should later be enacted at supranational level is left open.Footnote 137 The seeds of unfair competition law in the ECSC treaty are closely related to the prohibition of discrimination. A note on the deconcentration of the Ruhr region (1951) mentions that its reorganization was essential to create a common market by effectively enforcing the treaty's rules on fair competition and non-discrimination.Footnote 138
As has already been mentioned, at the start of the Messina conference, a historical document containing ECSC provisions became the inspiration for the negotiations of the Treaty of Rome.Footnote 139 Later, the French delegation presented an excerpt of their Pricing Regulation no 45/1483 of June 1945 as amended by the Decree of August 1953. The true meaning of this excerpt can only be fully understood in the context of price discrimination and unfair competition.
At the Messina Conference (1955), the Committee for the Common Market (Investments and Social Issues) mentioned in its working paper the various factors that influence competition, noting that competition rules are needed to ensure free competition within the Common Market, in particular to protect against any form of national discrimination. It also makes reference to ‘fair competition’ through the control of dumping and cartels.Footnote 140 The recognition of fairness in the international trade context of dumping proves that at least the provisions against international cartels and discrimination belong to unfair trade, ie unfair competition. Historically, Messina is a turning point in terms of perspective: first, it represented the start of the Treaty of Rome negotiations and, secondly, recognized a subtle, positive function of fair competition.Footnote 141 Thus, it still refers to unfair competition in the context of approximation of national provisions.Footnote 142 The group of experts for the Common Market clearly decided to opt for a ‘positive style’ in drafting the prohibition of discrimination.Footnote 143 This explains why, in the final version of the treaty, unfair competition appears only in the preamble, disguised as fair competition.
In case it is unclear why discrimination has been central under Article 102, it is necessary to point out that in the 1954 document discrimination is dealt with in conjunction with the abusive exploitation of a dominant position, where the economic definition of discrimination is of ‘a differential treatment of similar categories of suppliers or buyers which is not justified by cost differences’.Footnote 144 The absolute prohibition on discrimination concerns only grounds of nationality.
However, as previously mentioned,Footnote 145 the protection afforded to producers against unfair competition practices is one of the roles given to the High Authority under the ECSC. In the original proposal, Article 56 ECSC prohibits unfair or artificial competition pricing practices, in particular, solely temporary or local price-cutting having as a purpose the attainment of a monopoly position within the Common Market.Footnote 146 Furthermore, it also prohibits discriminatory practices leading to different treatment amongst buyers, based on their nationality or the application by the same seller of different conditions to buyers in a similar position.Footnote 147 This proposal illuminates our understanding of Article 102(2)(a), which seems to have merged unfair pricing with other trading conditions, where the interpretation of unfair pricing is mostlyFootnote 148 obscure.Footnote 149 In other words, it is difficult to grasp the intention behind including the terms ‘directly or indirectly’ in the draft innovation, which were introduced by the expert group for the Common Market (1956) in both Article 101(1)(a) and Article 102(2)(a).Footnote 150 The origins of unfair pricing help us understand that the direct imposition of unfair pricing by a dominant undertaking might be traced to the first limb of Article 56, when the imposition of unfair trading conditions would indirectly amount to discriminatory treatment of buyers or suppliers regarding terms and conditions other than pricing. A previous ECSC draft (1951) refers to ‘measures or practices that lead to a discrimination among producers or sellers or consumers, in particular with regard to pricing, supply conditions or transportation fees, as well as those practices that impede the seller's free choice of his supplier’.Footnote 151 Here, temporary price-cutting at the expense of maintaining the production capacity is regarded as discrimination against customers.Footnote 152 In support of this idea is the positive definition of competition aimed at ‘ensuring access to production to all similar consumers’.Footnote 153 Hindering or impeding buyers' free choice and the application of dissimilar conditions to similar transactions by one and the same seller are considered to be particular forms of discrimination.Footnote 154 Interestingly, it is suggested that producers are interested in being safeguarded against unfair competition practices.
The High Authority later defined price as the producer's profits after taxation.Footnote 155 Dumping is defined as pricing below the published list-price or the price-matching of another supplier, irrespective of whether the supplier belongs to the Community or to a third country.Footnote 156 Furthermore, the draft clearly states that meeting the prices of competing suppliers should be allowed, even through rewards or rebates, as long as this information is published in the price list.Footnote 157
Under the ECSC, the principle of non-discrimination aims not to impose any disadvantages on undertakings that have not merged.Footnote 158 The High Authority was called upon to consider those disadvantages that could lead to an ‘inequality in the competitive conditions of the discriminated undertakings’.Footnote 159 Put differently, discrimination is said to mean the differential treatment of sellers or buyers through the application of dissimilar conditions to similar businesses, or refusals to supply.Footnote 160 This proposed definition, however, does not meet all expectationsFootnote 161 since charging the same price was considered questionable in the case of ‘fungible goods’, ie goods which are commercially interchangeable, where list prices or stock exchanges could be a better option.
The original draft of the Treaty of Rome maintains the substance of the ECSC treaty on the ‘differential treatment of sellers or buyers through the application of dissimilar conditions to similar business deals or through refusals to supply or receive in relation to the abuse of dominant positions or agreements between undertakings’ and which affect trade between the founding Member States.Footnote 162 The Common Market Committee (1955) referred to normal competitive conditions amongst producers, namely, ‘individuals or undertakings marketing the products for sale with the aim of gaining profits’.Footnote 163 The aim of this was no doubt to exclude from the ambit of competition any intervention of public authorities that do not pursue a profit-seeking activity, for example, social subventions granted directly to consumers, research institutes or subsidies granted for reasons of national security.Footnote 164
The same Committee then advanced price discrimination as a prominent discriminatory or restrictive practice among private commercial relations.Footnote 165 As mentioned previously, one form of price discrimination is dumping, which consists of the ‘application of more advantageous conditions than the sale conditions of a given supplier and in lieu of delivery those which result from meeting the sale conditions of another supplier’;Footnote 166 another form is double pricing,Footnote 167 that is, the application of more onerous sale conditions than those of a given supplier. These ban such practices among Member States' undertakings but the wording is mindful that once competition is functioning effectively among different national economies and following the elimination of exchange barriers, such practices will gradually disappear.Footnote 168 A clear purpose of dumping is offered in a footnote,Footnote 169 which states that the intention of predatory pricing is ‘to eliminate a competitor or to prevent the development of competition with the aim of ensuring certain monopoly positions on a given market’. However, price discrimination is maintained as a possible consequence of an abuse of a dominant position or concerted practice (entente) among undertakings. In this particular setting, it is clearly envisaged that price discrimination will exist among Member States and therefore be based on nationality. Other forms mentioned include refusals to supply or accept and, notably, disadvantageous delivery delays.Footnote 170 Price discrimination is closely related to restrictive trade measures which effectively amount to exchange barriers. The elimination of such barriers would run foul of the law if producers were to divide markets for their own profit gains.
The insightful discussion in this report culminates with the prohibition of:
(a) practices that might ‘restrict the game of competition’ caused by the abuse of monopoly positionsFootnote 171 or concerted practices among undertakings which might affect trade between Member States and
(b) discriminatory practices of suppliers or consumersFootnote 172 through the application of different conditions, in particular pricing applied to similar transactions or by a refusal to supply or accept as a result of an abuse of a dominant position or concerted practice, insofar as the discrimination is grounded on the basis of nationality.Footnote 173
This very final conclusion, while comparatively concise, offers no accurate description of discrimination. Therefore, it does not help us understand the wider context of why price discrimination was included in the treaty.
The Report of the Foreign MinistersFootnote 174 which came next stresses discrimination over ‘pricing or other sale conditions in similar transactions or the refusal to deliver’. More clearly it articulated the discrimination of buyers/sellers within the context of the contract of sale in another draft proposal (1956), ie the ‘unjustified differential treatment of buyers or sellers at the conclusion of contracts’.Footnote 175 In oligopolistic structures, however, it seems that discrimination is often a primary step towards a general price alteration in order to maintain the elasticity of price.Footnote 176 Therefore, the draft states that only the intentional differential treatment of buyers or suppliers through cartels or monopolies should be prohibited.Footnote 177 This proves that the element of intention is essential for its future enforcement in relation to both monopolies and oligopolies.Footnote 178
Somewhat surprising is a late proposal (1956) that price increases or price-cutting in comparable deals, which may consolidate a dominant position, should not be dealt with under discrimination, but as unfair competition against competitors.Footnote 179 That is to say price-cutting that is temporary but is not locally limited, which benefits all buyers and aims to attain a dominant position, should not be exempted solely because it does not amount to discrimination among trading partners.Footnote 180 Finally, cartels and monopolies, which have as a purpose or effect the impediment of competition for a particular product by one undertaking or a group of undertakings, should also deal with any practices that eliminate competitors from the market.Footnote 181 Since discriminatory practices do not limit competition, but are subject to more stringent rules, there is the stipulation that they should be policed only in cases of unfair competition.Footnote 182
Regarding the previously advanced concept of monopolizationFootnote 183 some major institutional proposals in the late 1950s are insightful. First, they require that a consulting committee on concentrations and discriminations needs to be used for mediation and arbitration and, secondly, where no solution has been accepted, that a court with specialized chambers of mixed formation should be employed, ie a court which includes both lawyers (ie jurists) and experts in economics or experts with a technical background.Footnote 184 A somewhat similar requirement is included for the abuse prohibition where it is stipulated that a decisional ‘instance’ rather than a court should be set upFootnote 185 because competition rulings are politico-economic decisions rather than court judgments.Footnote 186 Nowadays, we may well be mindful of having such experts in courts, but we do not need more political influence for which we have already appointed a full College of Commissioners.
D. Is There Really a ‘Gap’ under Article 102 TFEU?
Another interesting question is whether there is a legislative gap under Article 102 which prohibits the abuse of a dominant position by one or more undertakings. The gap under Article 102 is confirmed by the existence of both oligopoliesFootnote 187 and stricter rules below the dominance threshold in many Member States on which the EU Commission (DG Competition) recently commissioned a study.Footnote 188 However, lawyers seldom blindly follow economists' views and require some proof or backing of their statements. There are several ways to prove the existence of this gap. One way would be to see how an industrial organization deals with the issue of monopoly and how oligopoly completes the overall picture.Footnote 189 Compared to the single model of monopoly that exists, there are many models of oligopoly. Under all of these, a firm must consider rival firms' behaviour in order to determine its own best policy and, therefore, interrelationships between firms are paramount.Footnote 190 The only problem is that oligopoly models rely on different assumptions about how firms behave whereas, although most economists agree about their basic characteristics, they do not necessarily agree on the best way to control oligopolistic markets.Footnote 191 A somewhat weaker and reluctantly applied jurisprudential recognition of the problems caused by oligopolies comes from collective dominance. The existence of collective dominance requires a certain degree of parallel behaviour amongst oligopolists, ie the ability to know how other members of the dominant oligopoly are behaving; to know that such a tacit coordination is sustainable over time; and to know that the foreseeable reaction of competitors and consumers will not jeopardize the results expected.Footnote 192
Another approach is to see how historical approaches show what Article 102 once was and, finally, to draw a clear conclusion on what Article 102 should be. One idea of which every competition lawyer has heard is that Article 102 is all about the abuse of a dominant position by one or more undertakings. However, the words ‘position’ or ‘abuse’ have no definition in the text of the treaty, which makes it really difficult, without any imagination, to examine whether the concept of dominance can also cover the difficult problem of oligopolies.
A memorandum on the elimination of anticompetitive practices (1954)Footnote 193 explains the background principles of the ECSC, namely, the idea that private parties may limit competition through the conclusion of contracts (similar to restraints in trade) and the development of market dominant ‘positions’. The original use of the plural for power or market positionsFootnote 194 is explained by reference to ‘contracts and decisions which influence the market’ (Article 60) and the creation of a powerful market position as result of a merger. The ‘Principles for the free game of competition’ also used three times on the same page to refer to ‘abuse of monopoly positions’. Similarly, the initial drafting of the treaty of Rome referred to the abuse of dominant market positions.Footnote 195 This is later confirmed in a Note on the Meeting of the Common Market Working Group (1956) by an oral German proposal that ‘monopolies and oligopolies should be formally separated from cartels and dealt with according to the abuse principle’.Footnote 196 Different from cartels, it is stated that monopolies ought to prohibit the abuse of such a ‘position’, not its creation, through acquisitions or takeovers.Footnote 197 From this previous note, there becomes apparent a sudden change of attitude on the part of the German delegation's leader, Professor Müller-Armack, who demanded more general principles in the future treaty instead of detailed competition rules, allegedly saying that ‘even comprehensive competition rules may not bring about more competition’.Footnote 198
We do not need to speculate any further on the invisible game of politics, which is obvious and fully confirmed by a clearly expressed German political worry over the emergence of ‘supra-national’ competition rules, especially where such rules contradicted the draft of the future Law against Restraints of Competition (GWB).Footnote 199 However the serious worry was that these Brussels drafts were less stringent; thus, they would eventually be able to replace national regulations. Later, regarding their procedural scope, Müller-Armack again expressed concerns over a possible ‘transplantation’ of a prohibition principle requiring authorization rather than a notification procedure, which would have found greater acceptance with German industry.Footnote 200 His complaining tone was further notable in respect of the previously exposed prohibition of discrimination, which he regarded as ‘completely useless’, as it had been designed by the group of experts, thereby introducing ‘rigid competition criteria’; for this reason, it had to be changed to prohibit practices that could have as an effect ‘placing commercial partners at a competitive disadvantage among themselves’.Footnote 201 This unfair competition rule later became part of Article 102(2)(c). Furthermore, Müller-Armack's worry over the above prohibition principle and authorization of exceptions was fuelled by conflicting approaches to GWB, causing him to propose the well-known text: ‘prohibited as incompatible with the Common Market’,Footnote 202 but his major concern still remained that EU regulations would conflict with Germany's more stringent national regulations.Footnote 203
Could it be that Müller-Armack was right after all? As mentioned from the outset, the Directorate General for Competition is currently fully aware of the existence, at national level of rules that are less stringent regarding the dominance threshold. However, the drafting history proves that it was wrong to exclude oligopolies; it was only later that the European courts established jurisprudential upper limits of dominance in terms of market share.
In order to complete the catalogue of anti-competitive practices, there was a need to address the problem of international restraints of competitionFootnote 204 by ‘market dominant undertakings (monopolies, oligopolies)’.Footnote 205 Interestingly, Chapter V of the Havana Charter establishing the World Trade Organization (1948) and GATT (1947) was an inspiration for the drafting of the non-exhaustive list of restrictive practices, which included hindering market access, sharing customers, setting contingencies, having discriminatory effects to the undertakings' disadvantage, limiting production, and preventing the improvement or the practical use of technical procedures, patents or non-patentable inventions.Footnote 206 However, market dominance was not prohibited per se; that is, mergers on technological or managerial grounds could still be allowed.Footnote 207 Finally, the reference to economic agents with considerable market share, as is the case with monopolies or oligopolies, was reiterated.Footnote 208 It stated that comparatively, smaller cartels should be free.Footnote 209 Different regulations were needed for oligopolies created by private or public undertakings that were in a dominant market position. In support of the initial proposals for the Treaty of Rome, previous experiences with the ECSC Treaty were recalled; for example, where public or private undertakings were able to misuse their position, the High Authority made recommendations; the restriction of competition under Article 4 (ECSC) was annexed for discussion.Footnote 210
The term ‘dominant positions’ changed only with von der Groeben's proposal, which advanced two forms of exploitative abuse: (i) unilateral conduct by an undertaking, where the undertaking was ‘not being exposed to any competition or to substantial competition for a particular type of product or service,’Footnote 211 and (ii) the merger of two or more undertakings that would create a dominant position. Both were later deleted in the Dutch delegation's draft proposal.Footnote 212 However, the German delegation's vision of control of abuse of a dominant position had to cover the ‘oligopoly position’ as well.Footnote 213
So where does the recognition of the oligopoly gap really lead us? We have seen that European history prevented us from having oligopolies under Article 102. Is this plainly a bad thing? Previously (1960), it seemed difficult to distinguish good from bad, ie to distinguish between oligopolistic behaviour, ancillary and non-ancillary or price-fixing agreements.Footnote 214 This emerged in the articulation of ‘modern’ competition standards (1960–2005), which ever since has seen formalistic legal analysis prevail over economic analysis. It was Commissioner Monti's ‘more economic approach’ (2005) that drew our attention back to oligopolies and similar challenges.
E. What is the True Meaning of Distortion?
This is a relatively simple question, since the meaning of distortion has already been addressed in the literature.Footnote 215 The Lisbon Treaty contains the general imperative that national laws and administrative provisions which might distort competition among Member States due to their existing differences should be adapted.Footnote 216 Nevertheless, history reveals a need for something new: the meaning of distortion cannot be properly understood without a look at the meaning of distortion at the macroeconomic level.Footnote 217 In other words, over- or underrated exchange rates need to be artificially maintained, a consequence of which is that a whole national economy is placed at a disadvantage in international competition.Footnote 218 This explains why the adoption of such economic and monetary policies has to be conducted in accordance with the principle of an open market economy with free competition under Article 119 TFEU, that is, without manipulated exchange rates. This notion was strengthened even further by Article 119(2), which referred specifically to the need for an exchange-rate policy to maintain price stability and to support general economic policies in accordance with the above principle, in the same way as for Article 127(1), which relates to monetary policies and competition. Unfortunately, over many years, there has been no recognition of this need in competition policy statements; in addition there has not been the ‘efficient allocation of resources’ which Article 120 recommends. We do not need to search in the historical archive for macroeconomic efficiency; sufficient reason is included in economic and monetary policies, namely, they must be conducted so as to enhance efficiency.
Specific distortions of competition mentioned in the 1955 document referred to taxation and social contributions, since both of these are cost elements.Footnote 219 It was proposed that exchange rates based on market rules would sort out the differences in taxation; however, ‘manipulated’ exchange rates would not. Previously, in this particular context, the ECSC had foreseen price-setting and social insurance provisions.Footnote 220 Different wages based on different productivity were not to be caught by competitive distortions. However, it was recommended that particularly higher or lower wages in specific sectors of the economy on the basis of agreements between employees and employers and which are contrary to the production rate should be considered as particular cases.Footnote 221 Thereafter, during the same negotiations it was acknowledged that there was a need to harmonize national policies with regard to wages, credits, discounts and exchange rates.Footnote 222
II. CONCLUDING REMARKS: WHAT LESSONS CAN WE LEARN FROM HISTORY FOR FUTURE AMENDMENTS?
The brief overview of the history of European competition law presented above suggests there was considerable inspiration in the ECSC Treaty for the Treaty of Rome, causing many competition rules to be adapted from the ECSC when drafting the Treaty of Rome. However, it is clear that there have been legal consequences as a result of this influence.
The Treaty of Rome was enacted with incomprehensible gaps that enforcers became aware of only gradually; as we have seen, these related to both mergers and oligopolies and also to terms and conditions of contracts. Many controversies about how certain competition rules ought to be interpreted have never been properly resolved and over many years lack of European consensus (perhaps based on differences in the use of key words) has fuelled heated debates about how to enforce EU competition rules. The crux of the argument has been some participants' reluctance to be overly literal when enforcing European law. Is it true that we are too keen to respect the letter rather than the spirit of the law, as Montesquieu has suggested? It is for the European courts to reflect on this very carefully. If the answer is in the affirmative, is this then attributable to the Commission or to the European courts? Who is to be blamed for what happened when EU competition rules were drawn up, and indeed ever since?
It appears that the negotiation process between the founding Member States—which involved a certain degree of political influence, mutual understanding, and acceptance of cultural differences and preferences—resulted in a kind of legal reconciliation, but not necessarily a successful outcome for the competition rules embedded in the Treaty of Rome. Many interesting and insightful original drafts were polished to the extent that their true meaning was lost. Empty of content, we were left to imagine the intent of the wording when it came to enforcement. This clearly suggests that creativity during a drafting process to make the text sound original might not be helpful. Both shifts in political emphasis and the reformulation of words have created problems for many competition lawyers.
A deeper understanding of the true nature of the drafting process has yet to reveal another reason why specific words had to be reduced. Initially, there were only two relevant product markets, coal and steel, which were to merge production to promote their common interests. The Treaty of Rome proposed a wider integration of national markets after the famous ‘all for one and one for all’ pronouncement; the six founding fathers must have perceived the ambition of a European political federation as too large a consortium for the benefit of their national interests. The unseen and seen game of politics interfered with law-making and certain polishing and cutting has been necessary. Competition rules were drawn up in a way which was not sufficiently detailed, perhaps in a futile attempt to make the realization of the Community less likely to consolidate itself, since the dynamics of competition would help the Community to accomplish its mission, ie the integration of European markets. Nevertheless, it is clear nowadays that competition has not only attained its mission, it has also gained its own legal status with a solid normative foundation in economics and has cemented the cultural traditions of the currently 28 Member States into one integrated European Union, ie market.
