26 June 2007

Europolitics: The trouble with competition

Amongst the UK 'red lines' and arguments over voting rights, there was much hue and cry at the EU summit on 21-22 June over the status of competition' in the new 'reform treaty'. A suggestion by French President Nicolas Sarkozy that free competition' should be demoted from its status as an objective of the Union to a secondary place as a mere tool by which other more fundamental objectives should be pursued, met with much concern. Headlines implied that Sarkozy was attacking the pivotal role of competition in the internal market and undermining well-established European economic theory, if not Western capitalism as a whole. However, what has resulted is a slight shift of emphasis.

First, the outcome
What ministers in the end agreed was a slight change to the wording suggested in the 2004 draft Constitutional Treaty. Note that this is not a change to the current treaty: free competition is not at present a primary objective of the Union. The draft Constitution, however, pledged that 'the Union shall offer its citizens an area of freedom, security and justice without internal frontiers, and a single market where competition is free and undistorted'. It put competition right up there amongst the prime objectives of the Union, just after the promotion of peace and well-being and just before sustainable development, economic growth, a social market economy, full employment and protection of the environment. Sarkozy proposed the deletion of the last phrase referring to free and undistorted competition. This is what has been agreed. In addition, two separate paragraphs have been joined together to create one, more extensive paragraph:
'The Union shall offer its citizens an area of freedom, security and justice without internal frontiers, in which the free movement of persons is ensured in conjunction with appropriate measures with respect to external border controls, asylum, immigration and the prevention and combating of crime.'

The Footnote
But the story does not end there. Delegations learned of Sarkozy's suggested alteration on 20 June, the day before the summit itself began. Lawyers looked at it carefully. It would make no substantive difference to competition provisions themselves, it was decided, and it would take no enforcement powers away from the Commission. Indeed, there were thirteen other references to competition being at the heart of the internal market. On 22 June, UK Prime Minister Tony Blair, who politically could have been expected to object, met with Sarkozy and an initially doubtful Commission President Barroso. However, they agreed to accept the alteration: the difference would be semantic.
But the lawyers then saw a snag. Article 308 of the current Treaty gives a general power to take action. It reads: 'If action by the Community should prove necessary to attain [...] one of the objectives of the Community, and this Treaty has not provided the necessary powers, the Council shall [...] take the appropriate measures'.
So, if free competition were removed as one of the objectives' of the Community, Article 308 would not apply to competition issues. This would not do. So it was agreed that a footnote, a protocol, would be added, essentially replacing what Sarkozy had taken out. Such a protocol carries as much legal force as any other provision. It reads:
'The High Contracting Parties, considering that the internal market as set out in Article 3 of the Treaty on European Union includes a system ensuring that competition is not distorted, have agreed that, to this end, the Union shall, if necessary, take action under the provisions of the Treaties, including under Article 308 of the Treaty on the Functioning of the Union.'
President Barroso saw the solution as perfect'. He agreed to the word change, he said, because 'competition per se is not an objective: it is a means towards prosperity, social and economic well-being'. The protocol, he continued, was a clarifying provision, which 'from a legal point of view reinforces the principle of competition' and makes it clear that 'competition was not at all enfeebled'. For Competition Commissioner Neelie Kroes, it was business as usual: 'The protocol,' she said, 'clearly repeats that competition policy is fundamental to the internal market'.

A political magic trick?
As matters have turned out, some commentators see the machinations over these few words not as an attempt to substantively change the Union's basis, but more as political sleight of hand.
EU ministers at this summit were faced with a difficult task. They had to concoct a new version of the constitution which delivered the changes needed to allow the EU to function following enlargement while winning acceptance from a European public, far from keen the last time round. The first thing to do was to change the name: there would no longer be a constitution' but a reform treaty'. But Sarkozy had an added problem - the resounding rejection by the French public in the May 2005 referendum, which had dealt the death blow to the draft constitution. A major minus point then was the constitution's perceived emphasis on Anglo-economic' values to the detriment of social protection. Many French voters feared that their social values and the ability of their government to pursue social equality strategies were being undermined by a UK-led reliance on the free market delivering parity for all.
Therefore, Sarkozy needed to persuade the French people to accept that the 'reform treaty' currently proposed is new and different. He had to give them a sop. And the sop was the change to the preliminary rhetoric on objectives. In substance, nothing has been altered, but Sarkozy can sell it at home as if it had been. Already, he is making the most of it. Speaking over the weekend, Sarkozy claimed that his changes would mean an 'end of competition as an ideology and a dogma' in Europe. Indeed, there may be knock-on effects of Sarkozy's move. The liberalisation of energy markets will provoke huge debate over the coming months and Neelie Kroes has talked of forced unbundling of incumbent energy companies. France, which largely owns electricity giant EDF, opposes this and the apparent demotion of competition as an aim may play a useful political role. If this is the case, Sarkozy will indeed have pulled off a coup. That is the trick: that is politics.

By Ruth Milligan

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