Illiberal influences defang competition law – academic

The rule-of-law crisis in the EU has played out in competition law, because the proper functioning of the internal market  is key to the European project, a DCU Brexit Institute seminar has heard (27 January).

Author of ‘Populism and Anti-Trust’ Maciej Bernatt (University of Warsaw Faculty of Management) said that competition law could be used as a political tool.

Misapplication of law

Proceedings might not have a basis in facts, and might involve misinterpretation or misapplication of the law, he said.

Protecting competition brought benefits, and a lack of enforcement against practices of a potentially anti-competitive nature meant market goals were not being served, he added.

The academic told the DCU seminar that competition law promoted a consumer-friendly economy, but competition agencies – and the courts that oversaw them – must enforce it both effectively and impartially.

Illiberal influences could derail the push towards consumer-friendly low prices, high quality, choice, and innovation, he said. 

Competition law can also impose limits on the rise of economic power, and serve to keep markets open, thus having a positive impact on the democratic legal order.

If the rule-of-law crisis were to affect this role of competition law, its fundamental importance for the EU would be endangered, Bernatt said.

State competition agencies’ independence, expertise, and mandate, and the judicial review of its actions, together with enforcement priorities, were crucial, the legal academic stated.

Some studies suggested that illiberal changes related to the dismantling of the rule of law might translate into politically motivated enforcement against selected firms and practices, and restraint in relation to firms linked to the ruling government, Bernatt added. 

Political motivations

Competition agencies enjoy flexibility in setting their enforcement priorities, and deciding which investigations to open.

However, it is problematic when enforcement has political motivations, and is no longer based on the impartial application of competition law.

Bernatt pointed to a high-profile anti-trust case in Hungary – against banks offering loans denominated in foreign currencies – that had clear political backing.

The Hungarian Competition Authority (HCA) instituted the proceedings in November 2011, after a call for action by one of ruling party Fidesz’s most important politicians.

The context was popular disillusion with the banking sector after 2009, and in particular the solvency crisis of borrowers of mortgage loans denominated in foreign currencies after exchange rates went up.

In November 2013, the agency found that banks violated competition law by co-ordinating strategies to reduce the full pre-payment of mortgage loans denominated in foreign currencies under the fixed exchange rates imposed in 2011.

A record post-2010 fine, amounting to €31.6 million, was imposed.

Despite some controversies related to the classification of banks’ practices, the case had a legal basis and was upheld on the merits by courts, Bernatt said.

However, he suggested that the HCA was  ready to open high-profile cases only once it had political backing. 

In Poland in 2017, when the Polish government was considering capping foreign capital in the media, the head of the Polish Competition Authority (PCA) expressed supportive views.

The agency head hinted that he was unsatisfied with the content of TV and press materials in  media owned by German capital, and suggested the need for administrative control, Bernatt said.

Protectionism favoured

Bernatt pointed to cases in Hungary  where competition law was not enforced in the interests of economic patriotism – a policy to favour protectionism and government intervention.

The broader effects in the agriculture sector meant it became practically impossible to impose sanctions on cartels, with a chilling effect on investigations.

Similarly, a lack of enforcement followed against bid-rigging in the construction sector after 2010.

There was little rigid scrutiny by either Polish or Hungarian competition agencies in high-profile concentrations involving state capital, Bernatt added, with many transactions waved through – particularly in the energy sector.

Processes

Strategic non-enforcement by administrative agencies was another example of the rule-of-law crisis, Bernatt concluded.

The weakening of the rule of law should be seen jointly with processes which posit the state, and firms controlled by the state or linked to the ruling government, at the centre of the economy.

Hostile environment

Competition agencies may operate in an environment which is hostile to their mission, and in which their independence is low.

Bernatt argued that, when this happened, the agency, while formally existing, lost much of its relevance – at the expense of consumers and society at large.