Independence daze

As the UK prepares to remove Government ministers from competition decisions, Jeremy Robinson and Carol Swaffer ask: how independent is an independent regulator?

Followers of UK competition law will by now be familiar with the heralded withdrawal of UK Government ministers from active involvement in the merger control process. The Secretary of State does not refer a merger to the Competition Commission against the advice of the Director General of Fair Trading unless in exceptional circumstances. Fittingly, the traditional public interest test for prohibiting mergers in the UK is – even before the enactment of the Enterprise Bill – being replaced by the 'substantial lessening of competition' test that is employed in the US. The message is clear: block the merger for competition reasons alone.
Such followers of UK merger control may, then, be surprised to note the controversy surrounding a recent decision by the German Economics Ministry to overturn a prohibition decision by the Federal Cartel Office (FCO), the German antitrust regulator. The FCO had blocked the acquisition by Eon, Germany's largest energy company, of Ruhrgas, Germany's largest gas supplier. The deal would have strengthened the parties' already dominant positions in the distribution of gas and electricity in Germany. The Economics Ministry can overturn an FCO prohibition decision if a merger's anticompetitive effects are either outweighed by advantages to the economy as a whole or if the merger is justified by the overriding public interest. By contrast, the Enterprise Bill, as currently drafted, would allow a UK Government minister to intervene only if national security were at stake.
The Economics Ministry's decision to clear the merger (subject to conditions) has engendered ever-growing opposition from competitors, the German Association of Consumer Rights Organisations and other EU member states, including the UK. Several competitors obtained an injunction preventing completion, arguing that the basis for ministerial approval was procedurally unsound. They alleged that the Economics Ministry did not adequately check whether the European Commission (EC) had jurisdiction under the EC Merger Regulation, and that it was biased in favour of the merger.
Notable already for political meddling, this case is also interesting because it involves intervention in the energy sector. Energy liberalisation in Europe has been a slow and hard-fought process, intended to promote EU-wide competition in the production and supply of energy. By allowing Eon and Ruhrgas to reinforce their alleged dominant positions, the Economics Ministry is, according to opponents, sabotaging energy liberalisation in Germany in favour of creating a “national champion”.
If true, Germany would not be alone. France has long been under fire for its failure to liberalise its electricity sector: French energy giant EdF has expanded into numerous other member states, but the French market is largely closed to EdF's rivals. Moreover, the Minister for the Economy is central to the merger control system – that person makes the ultimate decision in merger cases and only involves the independent regulator, the Competition Council, if they open a Phase II merger investigation. The Competition Council's advice does not bind the minister, nor is the advice always followed.
In July, the Competition Council for the first time requested that the minister order the modification, completion or termination of those agreements that created a merger where that merger had led to abuses, although the merger had not previously been challenged under the merger control regime. The Competition Council had found that Compagnie Générale des Eaux (CGE) and Lyonnaise des Eaux (SLDE) had abused their collective dominant position on the French water distribution and purification markets. This was despite the creation of joint ventures between these two companies not being challenged under the merger rules and despite the absence of any anticompetitive behaviour by these joint ventures. Theoretically, the minister could require the unwinding of CGE and SLDE's joint subsidiaries. Practically, the minister would be likely to consider the needs of the water authorities in deciding on remedies.
Belgium is similarly interventionist in mergers. The Belgian Competition Service is part of the Ministry of Economic Affairs, which means that the government can initiate an investigation and influence the investigators (the reporter on the investigation is more independent). While the government has no direct influence over the decisions taken by an administrative court, it can decide on appeals against a decision prohibiting a merger, although this procedure has never been used. Further appeals lie before the Raad van State/Conseil d'Etat, the highest administrative court in Belgium.
From the interventionist to the non-interventionist state: an amendment to the Dutch Competition Act is due to be passed on 10 September, under which the Dutch Competition Authority will become an independent administrative body. Its effect will be to remove from the Minister of Economic Affairs the power to issue policy instructions governing the Dutch Competition Authority's conduct in individual competition cases, although the minister will continue to issue general instructions on policy. Such a change has not gone unopposed: some argue that the minister should continue to be able to issue instructions in individual cases where important non-commercial interests are at stake.
Some regulators are already independent. The Italian government has no power to intervene in, or to review, decisions of the Antitrust Authority, although there remains one hitherto unused power: the government can waive a prohibition decision when major national economic interests are involved; it can prohibit a merger if it is against essential national economic interests or where a merger involves undertakings from countries that do not provide the same rights as Italian law or which discriminate against acquisitions by Italian undertakings.
In the US, merger control is undertaken by independent bodies, principally the Department of Justice (DoJ) and the Federal Trade Commission (FTC), but on occasion also other federal agencies (for certain industries) or interested state attorneys general. While politicians themselves have no express authority to intervene directly in DoJ/FTC merger reviews, high-profile deals can provoke strong public or private political comment from the White House and Congress.
Such political comment has increased in recent years, especially in connection with mergers in the energy, communications and media sectors. Yet while such political input can clearly complicate and lengthen an inquiry, the agencies, at least nominally, have the final say about whether to challenge a transaction. Once that decision is made, it is effectively subject to veto only in the courts.
Perhaps with the exceptions of Belgium and France, most competition regulators act independently, but subject to ministerial intervention only in exceptional cases. It is nevertheless worth remembering that different countries may have very different views about what circumstances are exceptional.
Senior associate Jeremy Robinson and professional support lawyer Carol Swaffer are members of Allen & Overy's European antitrust group