The European Commission’s White Paper on Foreign Subsidies comes amidst an ongoing ambitious revision of the EC’s own antitrust rulebook on market definition, vertical restraints, as well as the exploration of new regulatory solutions to address structural competition issues. Will the proposals put forward in the White Paper complement the EC’s antitrust enforcement toolkit, or do they risk becoming an imperfect substitute?

Impact of the White Paper on antitrust

The White Paper contains proposals aimed at complementing existing EU antitrust rules to address distortions arising from subsidies granted by non-EU authorities. To do this the proposed system:

• tables the concept of having rules against “aggressive market conduct” facilitated by subsidies – avoiding the use of the well-established EU antitrust prohibitions on “collusive conduct” or “abusive conduct”;
• focuses on the geopolitical incentives of foreign subsidized operators, instead of their profit-maximizing strategies; and
• openly discusses divestiture of assets and the reduction of market presence as possible redressive measures where EU antitrust policy has previously been to remain largely inactive.

Aggressive market conduct: addressing distortions on the EU internal market

The White Paper does not define “aggressive market conduct” but suggests that this concept aims to cast a wider net than anticompetitive conduct. It pivots on the larger objective of addressing distortions caused by foreign subsidies on the EU internal market. In particular, the White Paper:

• suggests that foreign subsidies could be used to price lower than competitors - but does not propose pricing be below any specific measure of costs for it to be problematic (unlike with predatory pricing);
• considers that inefficient growth fuelled by foreign subsidies might be a call for action (going beyond abusive conduct); and
• proposes taking into account the “size” of the beneficiary, and whether the beneficiary enjoys special or exclusive rights in its domestic market when assessing whether subsidies facilitate aggressive market conduct – but does not mention a requirement to find market power (as with coordination) or dominance / economic dependence (as with unilateral conduct).

Unanswered questions on the concept of aggressive market conduct

By proposing the concept of aggressive market conduct, the White Paper raises several questions: without below-cost measures, where will the line be drawn as between benign and problematic pricing for companies receiving foreign subsidies? How would efficiency (or inefficiency) of growth be assessed? Would there be a causal nexus between the receipt of public funding and market power – or will receiving foreign public funding equate to a “blanket” finding of dominance for large entities?

Of these questions, perhaps the most pressing one is in relation to nexus. The foreign subsidies rulebook will need to explain whether the existence of foreign public funding would be sufficient in itself for a finding of aggressive market conduct, or whether there would be a secondary requirement (for example, a requirement that subsidies be “used” to distort the internal market, or a requirement that subsidies be granted in order to provide cheaper financing for the company in question to compete in the EU). Answering this question will not just be essential for providing businesses with legal certainty, but to ascertain the extent of what constitutes aggressive market conduct, and whether it complements or (partially) substitutes EU rules on anticompetitive behaviour.

Implications of introducing the concept of aggressive market conduct

At these early stages, the concept of aggressive market conduct remains vague at best. It is not rooted in economics, and it is not used in other legislative texts. And while it seems to depart from the well-established antitrust concept of anticompetitive conduct, it still seeks to complement antitrust enforcement. This risks creating inconsistencies with antitrust rules in the absence of clear guidelines and cases. But while we wait, the lack of clarity may begin to dissipate when the concept of aggressive market conduct is examined further and evolves as the Commission receives comments and proposals on the White Paper.

Essentially, the foreign subsidies rulebook will need to first determine what constitutes “aggressive market conduct” and what this looks like in practice before it can turn to other aspects of dealing with aggressive market conduct, such as designing and adopting effective remedies, or considering whether and how to take into account what the non-commercial incentives of subsidized firms are.