TAKING COUNSEL: Free meals of 'European champions'

  • 2007-08-08
  • by Indrek Teder [Teder, Glikman & Partnerid]
At the end of June, the European Council reached an agreement concerning reform of the EU Constitutional Treaty. The agreement also meant an unexpected "loss" 's the phrase "a single market where competition is free and undistorted" was removed from the objectives of the European Union. Since the principle of free and undistorted competition has been preserved in other texts and legislation, the exact legal consequences of the turnaround cannot be described as yet. But there is no doubt that such a fundamental change will shake the foundations of the entire EU competition law and might in the future seriously damage the protection of Estonian entrepreneurs -  as they are quite small on the European scale - against unfair competition and a distorted market.

The suggestion to scrap the protection of free and undistorted competition phrase was made by French President Nicolas Sarkozy, who, as his predecessor Jacques Chirac, speaks of the need to foster the growth and development of Europe's economic "champions" who can compete with large corporations from the United States. In the opinion of France, this could entail state interference, market protection measures, sanctions or other kind of state aid, and the implementation of relevant measures must be supported by a suitable legal space 's a great step toward which has been taken with this agreement of the European Council.
The change has provoked criticism from competition law specialists all over Europe, and Estonia, with its properly harmonized legislation, is no exception here.

Such a change of course would be wrong both in legal and economic terms. From the legal perspective, the change favors the emergence of super cartels although increasingly harsher sentences are still used to fight cartels. Also, companies would be treated unequally. For the economy this would mean hindering free competition and spoiling the market. Moreover, this could further increase Europe's lack of competitiveness in comparison with the rest of the world, because the attempt is to replace genuine economic competition with an administrative greenhouse climate for a few companies.

Estonian entrepreneurs can hope that one of two possible development scenarios emerge. The first is that they could become European champions. Seeing how the French leaders, for example, tend to lay the blame for the mediocre state of the country's economy on the "unfair" competition offered to French companies by "cheaper" countries in the last 10 to 15 years, it is reasonable to presume that in fighting for the "European champion" status, France primarily has in mind some company from France itself and not necessarily the best possible candidate in the whole of the EU.

Needless to say, a changed definition of the internal market would in no way stop Estonia from supporting Estonian companies in a similar manner: There is no reason why one of them could not become a European champion. However, if one considers the differences between countries with an established business tradition and countries which have just made a transition to a market economy, it seems likely that innovativeness, hard work and the location of headquarters in a country with an economic climate which supports low taxes and limited regulation will not be enough to compete for the title of the European champion in the new context of the EU.

Thus, the entrepreneurs in Estonia can only hope that the Intergovernmental Conference  will include in the draft a sufficient number of clauses which will sufficiently protect all companies, even in situations where the EU will offer "its citizens an area of freedom, security and justice without internal borders and an [sic!] internal market." Otherwise, the EU may find it much more difficult to fight for the opening of markets and against cartel agreements in several countries where Estonian companies, among others, are increasingly venturing to export. What is more, we might experience the negative impact in the domestic market as well, where foreign companies that enjoy disproportionate benefits may start to distort the market with subsidised export production.

The delegates to the Intergovernmental Conference will definitely have one more chance to save what they can of the principle of free and undistorted competition 's and thereby help guarantee that the free internal market without boundaries, which has been one of the main accomplishments of the EU, would indeed not become the price to pay for the political compromise agreed on in order to boost the Constitutional Treaty. This gift to the "champions" will otherwise turn out to cost much more and is also likely to speed up the continuing decline of Europe.

Indrek Teder is attorney-at-law and partner at Teder, Glikman & Partnerid, a member firm of the Baltic Legal Solutions, a pan-Baltic integrated network of law firms, including Kronbergs & Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.