Competition policy is essential for the completion of the internal market. The raison d'être of the internal market is to allow firms to compete on a level playing field in all the Member States. Competition policy seeks to encourage economic efficiency by creating a climate favourable to innovation and technical progress. It protects the interests of consumers by allowing them to buy goods and services under the best conditions. It also ensures that any anti-competitive practices by companies or national authorities do not hinder healthy competition.
A series of Articles and Regulations lay down the basis of effective competition within the common market.
Articles 81(1) and 82 of the EC Treaty prohibit practices of firms, which may lead to the prevention, restriction, or distortion of competition. Article 87 of the Treaty prevents the favourable treatment of firms by Member states. The ban includes a large number of aid measures, whether direct or indirect. An absolute ban on state aid, however, is not desirable. Article 2 of the Treaty states that one of the Community's tasks is to ‘promote throughout the Community a harmonious and balanced development of economic activities’ and, given the economic differences among Member States or among regions, this task may require specific government intervention.
The following exceptions are therefore compatible with the internal market:
- state aid having a social character, granted to individual consumers, provided that it is granted without discrimination related to the origin of the products concerned;
- aid, in the event of damage caused by natural disasters or exceptional occurrences;
- aid, granted to areas of Germany affected by the division of the country.
The Commission may also declare the following to be compatible with the internal market:
- aid to promote the development of certain activities or regions;
- aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;
- aid to promote culture and heritage conservation;
- other categories of aid specified by the Council.
Competition policy aims to ensure the unity of the internal market and uproot any monopolising tendencies within it. This involves:
- preventing firms from sharing the market via protective agreements
- preventing one or more firms from improperly exploiting their economic power over weaker firms (abuse of a dominant position)
- preventing Member States’ governments from distorting the rules, by discriminating in favour of public enterprises or by granting aid to private-sector companies (State aid).
The European Commission has the task of ensuring that the EU competition rules are respected. It may act:
- on its own initiative
- following complaints from Member States, firms or individuals
- following notifications of agreements by firms
- following notifications of state aid planned by a Member State.
The firms and Member States concerned, have the opportunity to explain their position at specially organised hearings of the Commission.
Firms or Member States, subject of a Commission decision, may challenge the decision before the Court of First Instance and the Court of Justice in Luxembourg.
It is also possible for individuals or firms that believe they are the victims of anti-competitive behaviour to take their case before the national courts.
The internal market was envisaged in the Treaty of Rome, which provided for the creation of a ‘common market’ based on the free movement of goods, persons, services and capital. Reflecting the construction of Europe in the broadest sense of the term, the idea of unifying the pre-existing national markets is connected to the objective of economic and political integration.
With the Treaty of Rome the six founding states of the European Economic Community (EEC) agreed to create between them a customs union and to launch a programme for the approximation of their national legislation. This process was taken further with the adoption of the Single European Act in 1986. The Single Act encompassed measures for the short-term establishment of the internal market defined as ‘an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of this Treaty’. Despite the fact that a number of provisions were still to be adopted and/or transposed, the internal market had largely been set up within the Community by 1 January 1993.
The internal market rests on the application of the principles of non-discrimination and mutual recognition. Article 12 of the EC Treaty prohibits any ‘discrimination on grounds of nationality’, whilst new criteria, such as gender, were also included at a later stage. ‘Mutual recognition’ was laid down by the Court of Justice in 1979, meaning that legislation of another Member State is equivalent in its effects to domestic legislation. These two principles embody the foundations of free movement (of goods, people, capital, services) within the internal market.
The advent of the internal market does not imply a static situation. On the contrary, the completion of the internal market is a dynamic process within which the Community is regularly required to intervene to overcome new obstacles thrown up by national legislation. Moreover, the development of the market (new technologies, new constraints, new challenges etc.) often necessitates adjustments to the body of the Community law on the part of the European institutions.
The European internal market is today the largest market in the world. It makes a significant contribution to European prosperity by stimulating intra-Community trade, reducing its costs (elimination of customs formalities, fall in prices as a result of greater competition etc.) and increasing productivity.
The internal market is constantly developing and will continue to face numerous challenges. These include the directives which have not been completely transposed in the Member States yet (e.g. in the fields of public procurement and intellectual property), slow progress on the field of taxation, or the obstacles still encountered by persons wishing to exercise their right to freedom of movement.
The unhindered function of the internal market is handled chiefly by regulation. As a guardian of the Treaties, the European Commission plays a central role in managing the rules of the internal market, particularly in regard to their performance, updating and technical harmonisation. It is generally the Commission's responsibility to update existing rules in close cooperation with Member State representatives meeting within committees. The measures adopted have the same legal status as the primary act, which has been amended and must, where appropriate, be transposed in to the national legislation of the Member States.
Monitoring the application of Community legislation on the internal market falls in the first instance to national authorities. The Commission and the Court of Justice of the European Communities also ensure that Community law is adhered to and that directives are actually transposed. The Commission's monitoring methods are based on complaints lodged by private individuals, businesses or Member States. If the Commission notes an infringement, it begins an infringement procedure. If the State in question does not comply with the Commission's recommendations following this procedure, the Commission may bring the action before the Court of Justice, which gives a ruling as a last resort. Since the Treaty on European Union came into force in 1993, the Court has been able to impose sanctions in the form of penalty payments.
Questions of industrial policy are considered mainly in the context of the function of the internal market and the preservation of effective competition. References were already made to the European industrial sector in the Coal and Steel Treaty, without forming a distinct Community industrial policy. The decision to introduce the internal market generated a focus on conditions for the European business sector. In the 1980s action programs for small and medium-size enterprises (SMEs) were initiated and subsequently followed up by action plans concerning innovation and enterprise creation. At present, work is in progress to modernise EU competition rules with a view to adapting them to new challenges, such as the approaching enlargement.
The legal basis of EU enterprise policy is Article 157 of the EC Treaty. The Treaty sets out rules about competition and state aid. Extensive EU regulations thus exist concerning competition. EU enterprise policy shifts the emphasis from direct action to new methods of coordinating national policies to support enterprises and competitiveness. The open method of coordination, as introduced in Lisbon, has also penetrated industrial policy-making, where the Member States are urged to exchange experiences and learn from each other by utilising various benchmarking tools. The new BEST procedure, which supplements the open coordination method with statistical activity, research and analysis, is also employed.
The European Council held in Lisbon in March 2000 changed the course of industrial policy when establishing a new strategic objective for the EU: ‘to become an economy based on a more competitive and dynamic knowledge of the world, capable of sustainable economic growth, with more and better jobs and with greater social cohesion’.
Emphasis on the European Union industrial policy has progressed from direct action to new forms of co-ordination of national policies, as well as to initiatives that support companies and evaluate their impact. In Lisbon, the following lines of action in this area were articulated:
- Sponsoring industries, rewarding and supporting corporate risk, improving access to financing and establishing mechanisms, networks and services to assist companies. In addition, this requires reform of education and training systems to develop skills and knowledge in this area.
- Encouragement of an innovative corporate environment that will favour technological development and will sponsor innovation in the economy.
- Maximising the benefits of the internal market, eliminating some of the barriers that still exist, and guaranteeing fast access to the market, liberalising sectors such as transport and telecommunications, and simplifying legislation in force.
Industrial policy is financed from various Community sources. The main one is the multi-annual programme on Enterprise and Entrepreneurship for 2001-2005. Innovation-related activities are to a large extent supported by the Innovation programme. Other sources of finance, more directly targeted to industries, include the Structural Funds and the European Investment Bank (EIB). The EIB supports projects and provides loans through financial intermediaries working at national, regional and local level. The schemes funded include training programmes, promoting access to new markets, improving quality, protecting the environment, fostering co-operation etc.
Scientific Research and Technological Development (RTD) is playing an increasingly larger role in the process of economic development. EU policy concentrates on efforts to combine research resources in certain key areas and priority technologies in order to enhance the competitiveness of European companies and their employment capabilities.
RTD policies emanate from a defence and strategic context with the establishment of the European Atomic Energy Community (EURATOM) during the Cold War. The Single European Act and the Maastricht Treaty deepened and widened the role of RTD in the EU framework and highlighted its importance. The recent frantic pace of technological progress has resulted in the increasing of the significance of EU RTD policy culminating in its current prominent position in European summits.
Title XVIII of the EC Treaty covers all Community activities in the field of research and technological development and sets out the objectives, rules and procedures of the implementation of RTD activities.
Article 163 stipulates the main aim of these activities that 'The Community shall have the objective of strengthening the scientific and technological bases of Community industry and encouraging it to become more competitive at international level, while promoting all the research activities deemed necessary’. Articles 164 to 173 determine the specific measures to be carried out in this respect and the scope and implementation of the multi-annual framework programme.
The aims of the Union’s RTP policy are laid out in the current 5-year Framework Program and include three main areas of action:
This process will incorporate activities that will concentrate on a limited number of priority fields of research and will promote links between the Community research effort and national and regional research policies. Substantial resources might also be allocated to support integrated projects involving public and private partners, with clearly stated scientific and technological objectives and with a view to generating new knowledge and/or applications in the priority fields.
Structuring the European Research Area
ERA was launched to tackle existing structural weaknesses or deficiencies. The new framework programme will support the coherent development of research infrastructures, in the form of integrated actions facilitating their networking and ability to deliver scientific services at a European level. It also wishes to supply the necessary deepening of the Union's democratic foundations, in strengthening relations between ‘science’ and ‘governance’ and improvements in the quality of scientific and technological education of the general public.
Strengthening the foundations of the European Research Area
The new programme finally aims at the application of scientific and technological research in all the fields where EU responsibilities are growing, such as agriculture, fisheries, health and consumer protection, environment, transport and information society. Another aspect involves the better coordination and coherence of research activities, at national and European level. This search for better co-ordination, which embodies the very spirit of the ERA, will aim to create opportunities for the mutual opening up of national programmes and cooperation between existing European scientific and technological frameworks.
New research and technology policies require co-operation at different levels: the co-ordination of national and European policies, the encouragement of networking among research teams and the increasing mobility of individuals and ideas.
Taking up this challenge, the European Commission, Member States and the European Parliament, the scientific community and industry committed to work together, towards the creation of a ‘European Research Area’ (ERA). ERA is to be realised by means of initiatives at national, regional and European level, and it is to function as a common forum for all questions of research policy in Europe.
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