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The Difficult Path to an Economic Rule of Law: European Competition Policy, 1950–91

Published online by Cambridge University Press:  13 June 2012

LAURENT WARLOUZET and
TOBIAS WITSCHKE
LAURENT WARLOUZET
Affiliation:
University of Artois-CREHS; 24 avenue des fleurs, F-59110 La Madeleine, France; laurent.warlouzet@univ-artois.fr
TOBIAS WITSCHKE
Affiliation:
Rue Rollebeek 24a, 1000 Bruxelles, Belgium; Tobias.witschke@eui.eu
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Abstract

A historical retelling of European competition policy is crucial to understanding the discrepancy between the rules in the treaties and their implementation. The historian must navigate treacherous waters between contrasting treaty stipulations in the ECSC and in the EEC Treaties, initial attempts at rigorous implementation but with limited effect on the ground, and a complicated relationship between the supranational institutions. Only in the 1980s did the Commission enjoy the benefits of the ECJ's supportive case law. These benefits came due to a fortunate conjuncture of political, economical and administrative factors.

Le difficile chemin vers un droit économique européen: la politique de la concurrence communautaire, 1950–91

L'histoire de la politique de la concurrence est marquée par un décalage entre les règles des traités et leur application. L'historien doit dépasser des contradictions entre des dispositions très différentes dans les deux traités CECA et CEE, une tentative d'application rigoureuse mais avec des effets limités au début, et une relation complexe entre les institutions supranationales. Il faut attendre les années 1980 pour que la Commission bénéficie pleinement de la jurisprudence de la Cour de Justice. Cette situation est liée à une conjonction de facteurs politiques, économiques et administratifs très spécifique et exceptionnelle.

Der schwierige weg zu einem wirtschaftlichen ‘rechtsstaat’: die europäische wettbewerbspolititk, 1950–1991

Eine historische Analyse der Wettbewerbspolitik verdeutlicht die Unterschiede zwischen den formellen Regeln und der Rechtswirklichkeit. Der Historiker muss die Unterschiede und Widersprüche der verschiedenen Regeln im EGKS- und EWG Vertrag herausarbeiten: anfangs der Versuch einer entschlossenen Anwendung, mit noch begrenzten Ergebnissen und komplexen Beziehungen zwischen supranationalen Institutionen. Erst in den achtziger Jahren wird die Kommission vom Europäischen Gerichtshof voll unterstützt. Diese Situation erklärt sich auch aufgrund günstiger politischer und wirtschaftlicher Rahmenbedingungen.

Information

Type
Articles
Information
Contemporary European History , Volume 21 , Issue 3: Towards a New History of European Law , August 2012, pp. 437 - 455
Copyright
Copyright © Cambridge University Press 2012

The internal market of the European Union (EU) today constitutes the world's largest domestic market. The European Commission leads competition policy, one of the most important regulatory policies of this huge market.Footnote 1 This policy is in many ways a prime example of how a European rule of law has been established in the EU. It is especially interesting because of its institutional framework. European competition policy empowers the Commission to monitor the behaviour of economic actors in the EU market to ensure that they all respect the same rules. Its decisions have a direct effect on economic actors and can only be contested by appealing to the European Court of Justice (ECJ). As a result, within the EEC/EU framework a genuinely supranational regime exists in this area, as competition policy decisions from a formal legal point of view are immune to the political horse-trading between member states. In this regard, competition policy is more ‘supranational’ than the Common Agricultural Policy (CAP), another Community policy with a long history, in which the member states have a greater impact on the orientation of the policy, notably through price-setting in the Council of Ministers.

However, the path to an effective policy has been far from linear. European authorities suffered a number of failures in their attempts to strengthen the domain between the 1950s and the 1980s.Footnote 2 A particular problem was the long delay between rule-setting and implementation. Indeed, there is a historical paradox in that the formal treaty rules regarding competition were forthright and ambitious in the European Coal and Steel Community (ECSC), yet they had very little impact on policy development. In contrast, the treaty on European Economic Community (EEC) had only very vague provisions, yet these ultimately – after a thirty-year delay – became the basis of today's powerful policy.

To get to the bottom of this paradox and to chart accurately the development of European competition policy, this article will analyse the establishment and development of European competition policy, looking primarily at cartel policy and merger control. Unlike existing historical and social science research which has focused on the interaction between member states and the Commission,Footnote 3 the institutional culture of the Commission,Footnote 4 and the role of ordoliberalism, a theory of economic regulation developed in post-war Germany,Footnote 5 this article will systematically explore the role played by law and the ECJ in the development of a European competition policy. Indeed, existing legal scholarship tends to argue that the ECJ has played an important role as an agenda setter in the development of competition policy in the 1970s and 1980s, prompting the Commission to proceed with legislative action finally to implement merger control.Footnote 6 Based on extensive archival research, this article will argue that there is a strong discrepancy between treaty rules and their implementation, and between the ECJ rulings and their influence in terms of public policies. How this gap arose will be established by zooming in on a number of crucial moments during the 1950 to 1991 period and examining the attempts by the ECSC High Authority and the EEC Commission to develop competition policy. The article will be subdivided into four parts, chronologically charting the difficult rise of European competition policy.

The origins of Europe's first merger control law

There is no doubt that the ECSC merger control provisions found in Article 66 of the Treaty of Paris had a very limited impact on subsequent anti-trust legislation or political and academic debate.Footnote 7 Article 66 was primarily intended to hinder potential mergers that might give the merged entity increased capacity to control prices, thereby endangering the common market for coal and steel.Footnote 8 The ECSC has recently been called a ‘paper tiger’ and this is certainly true in the area of competition policy.Footnote 9 While the transfer of national sovereign powers to the High Authority was revolutionary at the time, it has been noted that the High Authority used these capabilities ‘to a very limited extent’.Footnote 10 General accounts of the history of European competition policy now either dismiss or ignore the ECSC experience entirely.Footnote 11 Other accounts mention the merger control article but their story stops once the treaty was enforced. Very little or nothing is said about treaty implementation.Footnote 12 This lack of interest can be explained by the fact that the High Authority never refused a merger request in its first ten years of existence. But is this a sign that the anti-trust rules were not widely used?Footnote 13 The mergers examined may simply have been compatible with the treaty provisions.Footnote 14 Is it then correct to accuse the High Authority of ‘lax enforcement’ of the rules?Footnote 15 It will be argued here that Article 66 of the treaty turned out to be less an instrument to ensure price competition – although this corresponded to its legal mandate – and more a tool for informal, supranational monitoring of the market structure of the steel industry – particularly in Germany.

Article 66 of the ECSC Treaty clearly stipulated that a merger would not be allowed if firms would thereby acquire the power

to influence prices, to control or restrain production or marketing, or to impair the maintenance of effective competition in a substantial part of the market for such products, or to evade the rules of competition (of the treaty), particularly by establishing an artificially privileged position involving a material advantage in access to suppliers or markets.Footnote 16

The clarity of the article should not conceal the complex ‘negotiation history’, which has been the subject of detailed research. The pioneering work of Volker Berghahn has documented the common interest between U.S. government officials and Jean Monnet, the chief French negotiator, to introduce strong anti-trust rules in Europe.Footnote 17

In parallel to the Schuman Plan negotiations, the Allies finalised plans for the ‘deconcentration’ of the German steel industry by creating more than twenty-five steel companies out of six large wartime groups – the infamous Konzerne.Footnote 18 Only when a common understanding on ‘deconcentration’ was reached with the Allies in March 1951 did the German government agree to the merger article in the ECSC treaty. By granting the High Authority the right to reject future mergers, the ECSC became the forum for future revisions or even the ‘reconcentration’ of the industry.Footnote 19 The final text of Article 66, the merger control, contained a ‘non-discrimination’ clause, introduced at the request of the German delegation in order to preserve the possibility of ‘revising’ the ‘deconcentrated’ industry structure. The clause required the High Authority to ‘take account of the size of like undertakings in the Community, to the extent it considers justified avoiding or correcting disadvantages resulting from unequal conditions.’Footnote 20

Unsurprisingly, competition policy, and in particular merger control, was subject to completely different interpretations during the ECSC ratification debates in the French and German parliaments. Monnet argued that article 66 was a ‘shield’ to preserve the deconcentration of the German steel industry achieved under Allied occupation.Footnote 21 This seems to have had a symbolic, psychological aim: to allay widespread fears of future economic dominance by the German state of the new Community. The French government feared the re-establishment of ownership ties between the German steel companies and the coal mines in the Ruhr, from where its own steel industry in the Lorraine obtained its coke. Konrad Adenauer, the German Chancellor, on the other hand, saw the clause as a legal guarantee of the possible ‘reconcentration’ of the German steel industry. The task of the High Authority to implement Europe's first anti-trust law was therefore a difficult one from the outset. The two biggest member states had already publicly announced contradictory expectations concerning policy outcomes that were at the very core of national interest and touched upon still very raw post-war nerves.

Merger control policy in operation

By 1958, the High Authority had dealt with about one hundred merger applications, nearly half of them coming from German companies attempting to revise ‘deconcentration’ measures. None of these were rejected as the High Authority found no grounds to forbid them in terms of the criteria laid out in Article 66. None of the merged companies in Germany would become the biggest entity in the ECSC steel market.Footnote 22 As a result, the ECJ of the ECSC had no appeals to deal with. In its sixth general report from 1958, the High Authority provided concrete figures regarding the mergers in Germany for the first time: none of the merged entities controlled more than 3% of Community-wide coal production; the steel companies which acquired control over the mines did not account for more than 5% of Community steel production.Footnote 23 Although the High Authority did not state this explicitly, it apparently believed that these market shares were too small for the mergers to meet the important criteria of Article 66: the determination of prices and privileged access to raw materials. In short, for the High Authority such low market shares did not pose any problem regarding market power.

In fact, the situation was far more complicated than the High Authority let on. In order to decide on the legality of a merger, the High Authority had to assess whether the capacity to raise prices of the merged companies would increase. This assumed price competition between companies, which was, however, undermined by several factors. First, national governments and producer associations continued – formally and informally – to co-ordinate or control steel prices, especially in France and Germany.Footnote 24 To complicate the matter further, Article 60 dealt with the publication of prices in the ECSC Treaty. According to this, companies were obliged to publish their prices, which encouraged collusion and uniform pricing within the industry.Footnote 25 Such practices were forbidden under US anti-trust law.Footnote 26 The origins of this article lay in the work of a group of experts in the Schuman Plan negotiations, which included representatives from national steel-producer associations.Footnote 27 The Treaty itself was a barrier against open price competition between companies – and the High Authority was well aware of this.Footnote 28 When companies lowered their prices without changing the price lists after the end of the steel boom caused by the Korean War in 1952–3, the High Authority decided partly to allow such behaviour, meaning sales at prices within a fixed margin below the official published ones, in order to increase effective price competition. This decision was challenged by the governments of Italy and France at the ECJ as a matter of principle, each country fearing price discrimination on the grounds of nationality – so French importers would have to pay higher prices for Ruhr coke than German companies. The ECJ, in the first case of its history, declared the High Authority's decision illegal and consequently closed the window of opportunity to introduce more transparency and openness in terms of price competition. There is evidence of secret price cuts and rebates introducing a degree of price competition to which the High Authority turned a blind eye.Footnote 29 In any case, taking into account this complex and contradictory legal framework, it was much more convenient for the High Authority to justify its decision under Article 66 referring to general ‘market shares’ rather than to investigate in detail the capacity of companies to determine prices.

There was another area where the High Authority's willingness to engage in deeper investigation was limited. When the Mannesmann AG wanted to instigate a merger, the first steel company from Germany to make such a request, the internal competition services of the High Authority came to the conclusion that in several cases, despite the deconcentration policy, important ownership ties and common control mechanisms companies had remained in place.Footnote 30 However, the High Authority refused to look into this matter in depth and never made a public pronouncement about the effectiveness of the ‘deconcentration measures’. This was not a legal question, but a deeply political question, as the minutes of the High Authority make clear.Footnote 31 The High Authority did not want to raise public doubts about the effectiveness of the Allied deconcentration policy in Germany. Instead of investigating the ownership ties which had survived deconcentration, the High Authority tacitly legitimised the reconcentration process by taking a decision on a case-by-case basis grounded in a rather superficial investigation.

Furthermore, the political and economic position of the French government had changed since the Schuman Plan negotiations. In May 1954, a consortium of French companies from Lorraine bought one of the biggest mines in Germany, the Harpener Bergbau AG, which could now directly supply the required coke for the French steel industry.Footnote 32 Harpener Bergbau AG was also one of the central sales agencies of the Ruhr coal industry, which the High Authority never managed to dissolve effectively despite strong misgivings about their cartel-like nature. One of the biggest quarrels between France and Germany, the access to Ruhr coke, was thus practically resolved before the merger policy of the High Authority became operational.Footnote 33 The ‘economic’ reasons for the continuity of the ‘deconcentration measures’, from a French point of view, were therefore much less compelling than before. In addition to this, mergers were also taking place in France – for example the foundation of the tube producer Lorraine Escaut in 1953 – so that an overly strict implementation of Article 66 was not in French interests either.Footnote 34

That said, the decisions of the High Authority on German industry were still subject to criticism in the French Assemblée Nationale during the ratification of the Treaties of Rome in 1957. The High Authority had to answer several questions on this point in the ECSC Common Assembly, especially from future French Gaullist Prime Minister, Michel Debré.Footnote 35 The High Authority repeatedly replied that it took its decisions on ‘legal grounds’ only and did not have to consider notions such as ‘de- or reconcentration’ which were not mentioned in the Treaty. While this explanation was accepted during a debate on the merger policy of the High Authority in the Common Assembly, the High Authority was asked to look carefully at further ‘economic concentration’ on the ECSC market and not hesitate to forbid mergers or to combine approvals with conditions.Footnote 36

These questions became very important when two groups – August Thyssen Hütte (ATH) and Phoenix Rheinrohr, both controlled by members of the Thyssen family – submitted a merger request in October 1958. Together the two firms held the largest crude steel capacity in the ECSC – this was therefore a merger of a new dimension and it was difficult to justify it with the ‘non-discrimination’ clause. A German steel company would again become the biggest producer in the ECSC. The case became the cause célèbre of ECSC merger policy.Footnote 37 After long negotiations with the High Authority, the companies withdrew their application due to the unacceptable conditions tabled by the High Authority, such as a far-reaching supranational control over investments. For the first time, the member states intervened informally in the merger authorisation process. Adenauer even asked Prime Minister Debré for his agreement to the merger, and he refused.Footnote 38 The members of the High Authority were deeply divided on how to handle this case. The opponents argued that the High Authority would lose any credibility if it were to approve the biggest ‘reconcentration’ merger so far without attaching any serious conditions to it, such as a control on the future investments of the merged company.Footnote 39 However, the Legal Service of the High Authority had expressed its strong doubts regarding the legality of investment control, seeing it as an unjustified extension of its powers. While the article on mergers provided the High Authority with the power ‘to make its authorisation subject to any conditions which it considers appropriate’ (Article 66), investment controls were foreseen only for cases where the High Authority had granted financial support (Article 54). The Legal Service argued that the High Authority was not allowed to set a condition for a merger approval in an area where its competences, such as investment controls, were clearly limited by the treaty. However, as one of the members of the High Authority, Albert Coppé, pointed out during the High Authority's discussions, the Thyssen group could still challenge the legality of the decision, including the investment control, in the ECJ. Were the Court to declare the decision incompatible with the treaty, the whole merger approval procedure would, he reckoned, have to start again from scratch. The Court was in other words used as a scapegoat for the High Authority's decision-making dilemma on a difficult merger case!Footnote 40

Nevertheless, the Thyssen group categorically refused the option of future investments controlled by the High Authority, saying it was an unacceptable interference in the commercial freedom of the company.Footnote 41 As a consequence, it withdrew the merger request. This development led to violent criticism of the High Authority in the German media.Footnote 42

When the ATH again asked to merge with Phoenix Rheinrohr in 1962,German competitors, such as Hoesch AG, held informal contacts with the French government to exchange information on possible concessions that might be required from the Thyssen group by the High Authority in exchange for approval of the merger.Footnote 43 It was finally approved under the condition that Thyssen would terminate a long-term supply contract with an important flat-steel producer, the Hüttenwerke Siegerland.Footnote 44 At first, ATH submitted a complaint against this decision to the ECJ. However, ATH then agreed to negotiate the termination of this contract, despite being fully aware that its competitor Hoeschwould now become the supplier of Siegerland. ATH withdrew the case at the ECJ fearing an overly burdensome complaint procedure – including an annulment of the High Authority's decision by the Court, in which the whole approval procedure had to be restarted – which could last for months or even years.Footnote 45

The implementation of the ECSC merger control, despite the clear legal language of Article 66, did not promote price competition in the ECSC market. By 1958, the High Authority had approved a number of mergers in Germany, which were relatively unimportant in terms of their market size. However, the High Authority did not rigorously investigate their possible impact on price-setting mechanisms and indirect ownership ties. This revealed the inconsistencies of the treaty in terms of price provisions, the only partial effectiveness of Allied ‘deconcentration’ measures and the continuing breaches of treaty provisions by member states. When the first really contentious merger had to be approved, the High Authority was divided and its members had serious difficulties in agreeing on a clear decision. Nevertheless, it is too simplistic to conclude that the ECSC experience with competition policy was an outright failure. In fact it offers important insights about the effects of a legal framework even where it is not fully functioning. By providing a set of potential rules on merger controls, the reconcentration of German steel industry became a European question, and not merely a potentially fraught bilateral one between France and Germany. So in practice, Article 66 turned out to provide a platform for informal supranational deliberation. The example of ECSC competition policy shows therefore the possible differences and relationships between formal rules, informal practices and final outcomes. It also demonstrates the ambiguity involved in combining laws and policies of differing origin and intent with a successful policy of implementation.

Laying the foundations of EEC competition policy (1957–66)

The ECSC experience did not prevent the EEC from developing an ambitious competition policy in the early 1960s. The development of this policy was considered essential to the setting up of a functioning Common Market. The Spaak Report of 1956, which laid the basis for the Rome Treaty of 1957, underlined the necessity of developing a control of ‘monopolies’ and of ‘discrimination’ (the latter being employed as a label for several types of cartel).Footnote 46 The most determined actors on this issue were the Germans, as they had adopted an ambitious national competition law in July 1957. It was based on a strict principle – the prohibition of cartels – and implemented and monitored by a powerful independent authority, the Bundeskartellamt.Footnote 47 The German law was influenced by ordoliberalism, a set of ideas based on the respect of individual freedom, guaranteed by public institutions both in the political arena and in the economic sector.Footnote 48 The weakest should be protected against the strongest, including the state, through the rule of law. An ‘order-based policy’ or Ordnungspolitik was established through the setting up of an ‘economic constitution’. This vision influenced many prominent German politicians, not least Economics Minister Ludwig Erhard, whose book Prosperity through Competition explicitly linked competition policy, the idea of an ‘economic constitution’ and political liberalism.Footnote 49 Ordoliberal thinking was influential in defining EEC competition policy before the adoption of the German law. Alfred Müller-Armack, the German representative on this issue during the Treaty of Rome negotiations, was known to be close to this set of ideas and its most ardent supporter during the talks.Footnote 50 Katja Seidel has also demonstrated how ordoliberal ideas influenced many prominent German European officials after the setting up of the European Commission in 1958, including Commissioner Hans von der Groeben, his chef de cabinet, Ernst Albrecht and the director for cartels, Hermann Schumacher.Footnote 51

In 1956, during the Treaty of Rome negotiation, the main debate occurred between the Germans and the French.Footnote 52 The latter were willing to compromise with the former in having an effective, albeit a less rigorous, competition policy. French officials feared the anti-competitive behaviour of their neighbours and remembered German opposition to the ECSC on this issue. However, it must be remembered that in 1956, competition policy was simply not a priority for Paris. The ECSC's failure had facilitated the strengthening of the EEC in this domain because it alleviated fears of supranational dirigisme.Footnote 53 In the Treaty of Rome, the wording of the articles was the result of this Franco–German compromiseFootnote 54 and the direct operational impact was rather vague. Private actors were directly concerned by Article 85 (on cartels) and Article 86 (on dominant positions). However, the question of legal doctrine and its institutional implementation was left open and subject to future regulation (Article 87 stipulated that the Council had to vote on a regulation proposed by the Commission on the implementation of Article 85 and 86 within a period of three years). Thus, the Commission and the ECJ became important players in the interpretation and the concrete operation of the competition policy.

The first area covered by competition policy was cartels, which were addressed by Regulation 17/62, adopted in 1962.Footnote 55 This established a centralised information and notification system, under which all companies were obliged to notify the Commission about their agreements. The Commission made its final decisions on mergers and cartels alone, without prior agreement from the member states or the European Parliament. It could rely on independent sources of information through the notification procedure and set the level of fines. As a result, a strong institutional basis was laid for the development of an ambitious rule-based public policy led by the Commission.Footnote 56 However, the actual implementation of the policy would prove problematic. As a result of Regulation 17/62's notification procedure, the Commission was swamped with information about thousands of agreements (more than 36,000 by 1963).Footnote 57 The task was enormous from both an intellectual and an administrative point of view, as Directorate General IV (DG IV), the part of the Commission responsible for competition policy, was still a new and small unit. Indeed, defining a doctrine of competition policy was a difficult endeavour even within a single European country in 1962, as this type of public policy was still very new. Doing so within the whole Common Market was a near-impossible task as the economic structure, the statistical data and the relationships between companies varied significantly from country to country and from sector to sector. It took more than two years for the Commission to make its first decision. This case would become the first test of the Commission and Court relationship in the competition policy arena.Footnote 58

The Commission had decided in 1964 to ban an agreement between the producer Grundig and the retailer Consten. This decision was immediately contested by both companies. They were supported by the Italian and the German governments, which also disputed the legal validity of the Commission's decision. The ECJ ruled on the case in 1966, broadly supporting the Commission's interpretation.Footnote 59 This was especially important as it definitively confirmed the central role of the Commission in the implementation of the provisions concerning cartels. In Grundig-Consten, the Court contradicted the advice of its Advocate General, Karl Roemer, who thought that the economic evidence presented by the Commission was too narrow and that the institutional consequences of the decision were too far-reaching. As a result, he had recommended the reversal of the decision, thus supporting the member states’ attempt to challenge the Commission.Footnote 60 Roemer was known for his caution in the debate over the assertiveness of the ECJ.Footnote 61 But the Court did overrule an important part of the Commission's decision, namely the annulment of the whole Grundig–Consten agreement (Article 1 of the Commission's decision). The ECJ confirmed only the condemnation of the agreement's excesses, in particular the exclusive territorial protection by the banning of parallel imports (Article 3 of the Commission's decision).

These elements of the decision were in line with a precedent established in the same year in which the Court had not hesitated to undermine the Commission's authority. In the STM vs. MBU case in June 1966, the Court developed a twofold doctrine on vertical agreements, which seemed to contradict the strong position taken by the Commission in Grundig-Consten (the cancellation of the whole contract).Footnote 62 Agreements between companies were not automatically voided if they contradicted Article 85 – only the parts incompatible with Article 85–1 were affected by this prohibition. This explains why in Grundig-Consten the ECJ stated that parts of the contract were still valid, but its harmful provisions had to be cancelled. Also, the ECJ recognised that distribution agreements were not harmful as such, but that both their causes and their effects would have to be studied. This could be interpreted as a pragmatic compromise, since the ECJ specified that agreements should be condemned for economic reasons only if they ‘distort competition to an appreciable extent’ (‘effects doctrine’).

A similar situation occurred in 1973 with regard to mergers, in which the Court again provided only lukewarm, partial support for the Commission.Footnote 63 The Commission blocked its first merger in 1971 in the Continental Can case in the packaging sector.Footnote 64 After this, the Commission began preparing to submit an actual regulation on mergers.Footnote 65 However in the meantime, the Commission's decision in the Continental Can case was contested and went to the Court. In February 1973, the ECJ confirmed the Commission's power to control mergers through Article 86.Footnote 66 However, the ECJ overturned the Commission's decision in this specific case, by stating that the Commission had not demonstrated the infringement of the treaty. Thus, in Grundig-Consten (1965) and Continental Can (1973), two cases that are usually remembered as supporting the Commission, the economic and judicial reasoning of the latter was contested by the ECJ. This only partial support was ultimately linked to the Commission's administrative weaknesses because the Court stated that ‘the decision has not, as a matter of law, sufficiently shown the facts and the assessments on which it is based’.Footnote 67 In particular, the definition of the relevant market was contested by the Court. So even the important institutional and judicial stepping-stones of the 1960s and the 1970s (Regulation 17/62, the cases of Grundig-Consten and of Continental Can) could not hide the Commission's practical limitations. Competition policy was based on a sound institutional and legal basis as early as the 1960s, but with limited economic and political consequences. This is confirmed by recent business history studies of the British firm Babcock and Wilcox and of the French firm Compagnie générale d'électricité (CGE) which demonstrate that these firms preferred not to declare their cartels to the Commission.Footnote 68 An exceptional conjunction of dynamics would have to occur to trigger a change. This watershed was reached in the late 1980s.

A new beginning (1987–91)

From the mid-1980s onwards, European competition policy dramatically strengthened. The most spectacular innovation was the adoption of the merger regulation in 1989, after sixteen years of protracted debate since Continental Can. This breakthrough at the European level appeared to happen somewhat contemporaneously with the strengthening of national competition polices. This was fuelled by the general development of market-oriented, neo-liberal policies in the West from the late 1970s and the globalisation process which increased international competition. This was also accompanied by the emergence of European and international networks of experts in competition policy.Footnote 69 However, this more favourable context does not fully explain the emergence of a newly powerful policy. There was no automatic causal link between the rise of free market economics at the national level and the strengthening of European competition policy. Even the bastion of European neo-liberalism, Margaret Thatcher's governments,Footnote 70 failed to improve the relatively weak British competition policy during her tenure. This only came about in 1998.Footnote 71 Similarly, Italian competition law was only enacted in 1990.

At a European level also, it was hard to explain the renaissance of competition policy as a simple product of the rise of the neo-liberal economic context. The support of prominent European leaders led to the ‘Single Market programme’ enshrined in the Single European Act (SEA) of 1986. Retrospectively, the strengthening of competition policy seems a logical consequence of this treaty: confronted with a quickly unifying market, member states had no choice other than quickly to develop a strong European competition policy. However, no serious strengthening of competition policy was mentioned either in the Cockfield Report of 1985, or in the SEA itself.Footnote 72 More generally, Thatcher had refused to support a strengthening of the Commission's power. In 1981, Thatcher refused to support a proposal of merger regulation because of her opposition to supranationalism.Footnote 73 In 1988, she was irritated by what she perceived as the excessive powers devolved to the Commission as a consequence of the SEA.Footnote 74 In Bonn, officials feared that a European merger policy would be less efficient than the German one. They estimated that the Commission was vulnerable to political meddling and was unable to decide on the basis of competition criteria alone.Footnote 75

Thus, the favourable ideological, economic and political context could not solely explain the important adoption of the 1989 merger regulation,Footnote 76 sixteen years after the Commission first failed to bring it to life. Instead, we must look at the improved relationship between the Commission and the Court in this period. This alliance overcame the resistance of member states to the development of a functioning policy. The process began when competitors of Philip Morris used Regulation 17/62 to contest its planned merger with Rothmans.Footnote 77 The European Commission cleared the agreement after Philip Morris agreed to have only limited control over Rothmans. The Commission's decision was then challenged in the ECJ. In November 1987 the ECJ decided not only to confirm the Commission's decision, but also to authorise the Commission directly to use Article 85 to ban certain types of mergers.Footnote 78 Article 85 had, until this point, been used only to deal with cartels, not mergers. But the expansive interpretation of the ECJ meant that the Commission no longer had to rely on Article 86, which was less practical as it dealt with abuse of dominant position for such decisions. As a result, Competition Commissioner Peter Sutherland, himself a lawyer and former attorney general of Ireland, multiplied the number of investigations into relevant cases. In 1988, he forced important European companies to modify their proposed mergers and he even succeeded in deterring one merger operation.Footnote 79 Thanks to better technical records (the implementation of Regulation 17/62 had been streamlined since the early 1980s), a better political environment (the dynamic of the Delors Commission), and a bold commissioner, the Commission was able to respond more productively to the ECJ's rulings than was the case in the 1970s. The internal evolution of the ECJ certainly played a role, although it cannot be documented at present, but the enhanced credibility of the Commission as enforcer of competition policy rules was certainly a crucial factor.

The Commission's prolific activity caused great uncertainty. Firms now began to lobby their national governments to adopt a merger regulation in order to secure a consistent legal environment. Some of them, clearly running scared, even notified their merger plans to the Commission although no regulation obliging them to do so existed.Footnote 80 In 1987–89, the European business organisation, the Union des industries de la Communauté européenne (UNICE), repeatedly called for the rapid creation of a ‘one-stop shop’ procedure in the merger area (that is, a policy implemented by only one actor, namely the Commission).Footnote 81 The aim was to avoid conflicting decisions taken by various national authorities through the creation of a single regulatory space at the European level. Thus, the member states governments had a strong incentive to accept the Commission's proposal. They agreed in 1989 on the merger regulation, which was modelled on Regulation 17/62: the Commission acquired a monopoly of information (notification of mergers above a ‘European’ threshold) and of decision (bar the consultative power of an institution composed of member states delegates). The Philip Morris ruling was the necessary catalyst. The Commission was able to use the ECJ's ruling to develop a bold strategy designed to overcome the member states’ opposition effectively.

The new vivacity of the Commission was confirmed by its implementation of the regulation. In 1991, it blocked the proposed ATR/De Havilland merger.Footnote 82 ATR was a Franco-Italian aircraft company that wanted to buy its Canadian competitor, De Havilland. The prohibition of this merger triggered indignant reactions from French officials, and the French Foreign Minister, Roland Dumas, even tried to bring the case before the Council to reverse the Commission's decisionFootnote 83 – although this was clearly inconsistent with the legal rules. More generally, this decision triggered controversy as its economic reasoning was criticised.Footnote 84 The Commission was accused of thwarting the development of a ‘European champion’ in a high-profile industrial sector. But the Commission stood firm. Thus, in contrast with regulation 17/62, the Commission rapidly demonstrated its ability and willingness to apply its new powers concretely. This politically controversial case demonstrated the new political and economic influence of its competition policy. It was also visible in famous cases of merger bans including non-European firms (the merger between General Electric and Honeywell was banned in 2001 although it had been approved by the US authorities),Footnote 85 and in the growing size of fines for cartels or for the abuse of dominant position.Footnote 86 Thanks to legal and institutional tools developed since the 1960s, which marginalised the role of member states in the decision-making process, the Commission had developed an efficient supranational policy to regulate companies’ activities across the Single Market in the 1980s.

Conclusion

Whereas competition policy is today a powerful tool for the Commission to regulate European markets, the supranational authorities have suffered a number of setbacks in reaching this stage since the 1950s. The role of law and of the ECJ in the High Authority's and the Commission's attempts to develop a strong anti-trust policy has been complicated. Three periods in this evolution, each highlighting particular roles played by European law and the ECJ, can be differentiated.

In the ECSC, the ambitious provisions of the Treaty did not materialise in a fully implemented competition policy or in substantive ECJ case law. Instead, the treaty and the complex legal framework provided the forum for informal deliberation on potential economic concentration in the German steel industry. This internationalised a politically difficult question, which otherwise would have seriously strained the bilateral Franco–German relationship in the 1950s.

In the EEC, the economic and political context had evolved with the development of a strong national competition policy in Germany. However, while Regulation 17/62 in 1962 would furnish the European Commission with formal powers to address the question of cartels, the administrative difficulties experienced by a completely overburdened DG IV meant that the actual impact of the policy was modest in the 1960s and 1970s. During this period, the case law of the ECJ was important in providing the legal underpinning for a competition policy, but it was also often critical of the Commission. Moreover, it did not offer any major breakthroughs that might help the Commission handle the administrative burden.

It was only in the late 1980s that the Commission finally managed to construct a proper legislative basis for implementing merger control. This was caused mainly by an exceptionally favourable conjunction of economic actors using European law, an ECJ ruling that provided an extensive interpretation of the EEC Treaty, and a dynamic and efficient Commission, able to exploit this legal environment.

As a result, two main methodological findings can be drawn from this exploration. First, to analyse the role of European law, in particular when dealing with the development of the common market and competition policy, it is important to look beyond the ECJ and take into account companies and economic actors. Analysts of competition policy should consequently join forces with business historians to improve our understanding of the precise effects of competition law.Footnote 87 The mutual relationships between competition policy and economic actors have proved exceedingly complex during the history of European integration. European business has a strong tradition of establishing and running cartels, thwarting attempts to introduce increased market competition by the supranational institutions. When the member state governments still supported segmented national markets and cartels, the effect of European competition policy was very limited, despite a sound legal basis in the treaties and secondary legislation. However, companies would also use or adapt to the legal framework and judicial system at the same time, thereby contributing indirectly to an increasingly authoritative body of ECJ case law. Finally, companies would eventually lobby for a European competition policy in the late 1980s to ensure legal clarity in the crucial field of mergers, which in the run-up to the launch of the Single European Market in 1992 was absolutely crucial to business. The complexity of the decision-making process means that no party – be they private lobbyists, member states or supranational institutions – either controls the decision-making process or acts as a unitary actor. The ECJ has certainly not been the ‘motor of integration’ by itself in this story. We must add complexity to our understanding and retelling of European legal history if it is truly to reflect the historical dynamics.

Second, the case law of the ECJ only seriously impacted the overall development of competition policy when both a favourable context and efficient supranational institutions existed. Whereas the Commission was unable to take advantage of the 1973 Continental Can decision, it quickly seized the opportunity presented by the 1987 Philip Morris decision to support its merger regulation agenda. A better ideological and political environment certainly helped, but the decisive factor was the capacity of the Commission to take advantage of it. The experience gained from Regulation 17/62 and the boldness of Peter Sutherland were decisive in exploiting the ECJ's rulings.

Since 1991, the role played by the Commission in competition policy has been regularly contested and challenged, not least because fundamental changes have occurred both in the procedure and in the methodology of implementation.Footnote 88 The role of the law and of the court in competition policy has remained important and complex. The Court of First Instance, created in 1988, overturned two important Commission decisions to ban mergers in 2002 for example.Footnote 89 This shows that legal and economic integration have not always reinforced each other, but their coupling has certainly played an important role in the emergence of a genuinely supranational economic rule of law.

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52 See note 46; HAEU, CM3/Nego/236, note of 20 Nov. 1956; and a historical analysis in: Warlouzet, Le choix, 273–6; Warlouzet, The Rise, 7–8.

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56 The strong increase in the Commission's power – and the ‘rather revolutionary institutional machinery’ which was created – was recognised even by its staunchest opponents in this negotiation, the French government: French National Archives, 1979.0791, 265, note of Jean-Marc Boegner, 21 Dec. 1961.

57 William Vaughn, ‘Cartel Policy in the EEC. 1958–1970: The Growth of a Regulatory Network’, Ph.D thesis, University of Washington, 1973, 126–9.

58 Decision 64/566/CEE, 23 Sept. 1964.

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63 On this attempt in 1971–3, see an archival-based account in: Warlouzet, ‘The Rise’, 13–15.

64 Continental Can, case IV/26811, 9 Dec.1971, JO, 1971, L282/46.

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82 Commission decision of 2 Oct.1991 declaring the incompatibility with the common market of a concentration (Case No IV/M.053 – Aerospatiale-Alenia/de Havilland).

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87 See as an example: Pérez, Sigfrido M. Ramirez, ‘La politique de la concurrence de la Communauté Économique Européenne et l'industrie: l'exemple des accords sur la distribution automobile (1972–1985)’, in Bussière, Eric and Warlouzet, Laurent, eds, La politique de la concurrence communautaire: origines et développement, special issue of Histoire, économie & société (Paris: Armand Colin, 2008), 63–77Google Scholar.

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