EU Shipping Law

Vincent Power

Document

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CHAPTER 16 European Union merger control: shipping, ports and shipbuilding

A. Introduction

16.001 The European Union (“EU”) needs to be able to control, on competition grounds, the merger or acquisition1 of businesses2 in all sectors of the economy including the shipping, port and shipbuilding sectors. The EU has therefore adopted the Merger Control Regulation (often abbreviated as “MCR”, “EUMR” or “ECMR”), which is Council Regulation 139/2004 of 20 January 2004,3 so as to enable the European Commission4 to adjudicate on whether or not such transactions (i.e. “concentrations”) should be: (a) prohibited (i.e. not permitted to proceed at all);5 (b) allowed to proceed conditionally;6 or (c) permitted unconditionally.7 Of the three options, the unconditional approval is the

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most common outcome. This chapter considers the MCR as it relates to shipping, ports and shipbuilding.8 The chapter begins with an overview of the MCR and then analyses its application to the three sectors.9 16.002 In some ways, it would be possible to control concentrations by using Articles 10110 and 10211 of the Treaty on the Functioning of the European Union (“TFEU”) but it would be very unsatisfactory12 to apply these provisions to concentrations because those general provisions in the TFEU were not designed to deal with concentrations. For example, in the case of Article 101 of the TFEU,13 there would now (after the “modernisation” of EU competition law)14 be no notification process for clearance by reference to Articles 101 and 102 of the TFEU so merging parties would have to make their own assessment as to whether the transaction could proceed and, if an exemption were relevant to the concentration then what would happen if the conditions for the exemption were no longer satisfied?15 Similarly, in regard to Article 102 of the TFEU, that Article controls only those concentrations which involve the abuse of an existing dominant position so there could be other problematical concentrations which would not involve an abuse of existing dominance and therefore could not be controlled by EU law if it had to rely on Article 102 alone. Therefore, a specific concentration control measure was required. Despite the long16 resistance of some Member States, eventually the EU adopted

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a regulation to deal with the competition law aspects of concentrations.17 This was Regulation 4064/8918 which was subsequently amended by Regulation 1310/97.19 However, since 1 May 2004,20 the EU has operated under Regulation 139/2004 which repealed21 and replaced Regulations 4064/8922 and 1310/97.23 Despite the doubts and difficulties involved in adopting a regime, there are few today who would advocate the repeal of the MCR and thereby a reversion to different tests and timetables in different Member States. 16.003 In operating Regulation 139/2004, the Commission appears to take a generally positive view towards concentrations because the vast majority of transactions notified to the Commission are approved unconditionally by the Commission but there is no presumption in the regulation either in favour of, or against, a proposed concentration. 16.004 Transactions falling within the scope of the MCR have an important role to play in the EU and internal market project:24 concentrations help to ensure consolidation of industry and they often result in the achievement of efficiencies which might not be otherwise possible.25 16.005 Regulation 139/2004 is only concerned with transactions which are cross-border in nature and does not deal with transactions which are largely (or entirely) domestic in nature (i.e. largely within the confines of a single Member State) so the regulation seeks to control only those concentrations with, what is described in the text of the regulation, a “Community dimension”. However since the abolition of the European “Community” and its replacement by the European “Union”, this term is now “Union dimension” but the text in the MCR still refers to the “Community dimension”.26 16.006 One of the principal advantages of Regulation 139/2004 is that it provides a “one-stop shop” for concentration control within the EU (and, indeed, the whole of the

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European Economic Area (“EEA”)) for a particular type and size of transaction.27 If a transaction falls within the scope of the MCR then it does not have to be notified to, and approved by, Member State competition authorities; notification to, and approval by, the European Commission suffices. This avoids as many as 32 notifications (i.e. notifications to each of the 28 EU Member States and three EEA Member States and, possibly, the Commission itself if it still received notifications) (as it did before 1 May 2004) which would otherwise have to occur. This one-stop shop under the MCR is not always guaranteed28 but it is a useful way of expediting transactions and making their approval as efficient as possible within the EEA – obviously, merger notifications would still have to be made in various other jurisdictions around the world (e.g. Canada, China and the USA) but the MCR’s one-stop shop reduces the number of notifications within the EU and EEA. 16.007 The now expired European Coal and Steel Community Treaty (the “ECSC” Treaty or Treaty of Paris) had a provision relating to merger or concentration control29 but the European Economic Community (“EEC”) (later the European Community (“EC”)) Treaty and now the TFEU had (and still has) no comparable provision to the ECSC provision. Consolidation and concentration in the coal and steel sectors were recognised as being real issues in the early 1950s hence a provision was inserted in the ECSC Treaty30 but concentration in other sectors of the economy (e.g. in shipping or shipbuilding as well as in other sectors generally) was not such a pressing issue at that time and many Member States did not adopt national legislation on merger control until the 1970s, 1980s or later. As mentioned above, Articles 101 and 102 of the TFEU could be used to control concentrations but they are neither ideal nor efficient instruments of concentration control because there are no time limits, no certainty and no practical mechanisms to allow for conditions to be imposed so Regulation 139/2004 instead provides the mechanism to deal with these (and other) issues. 16.008 Staying with these introductory remarks on the EU’s merger control regime, it is useful to touch briefly on the economic, as opposed to the legal, dimension to concentrations. First, in the last few years, the economic dimension to concentrations has become more pronounced in concentration control analysis. This means that concentration control is now less formalistic and more intent on determining the real economic effects of a proposed transaction on competition internationally. However, the review of transactions is not entirely confined to economic analysis. Second, tests such as “consumer welfare”, “substantially lessening competition” and “significant impediment of effective competition” (this latter test is the one used in Regulation 139/2004) have been uppermost in the mind of competition agencies worldwide. Such agencies are usually oblivious to issues

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such as the impact of a transaction on levels of employment, regional development and conditions of employment.31 Third, how the market is defined (i.e. the issue of “market definition”)32 is often key to merger control. There are circumstances where a competition authority (e.g. the Commission in the case of Regulation 139/2004) does not have to define the market in a particular case because no matter how the market is defined, there is no competition concern. On the other hand, there are cases where the definition of the market is of crucial importance to the point of whether the proposed concentration would be permitted, prohibited or permitted only on certain conditions. Much can depend on how the market is defined (e.g. in a “narrow” market, the transaction could be prohibited but if the market were defined more broadly, the transaction could be permitted because there would be adequate alternative competition even after the concentration). Finally, competition law is not concerned with the very fact that a concentration will lead to one competitor fewer (if it were concerned simply about maintaining the number of competitors then there could be no concentrations at all) but is more concerned with the level or intensity of actual or potential competition which remains in the market post-transaction.33 Competition agencies are interested to see how likely entry would be into the market post-transaction (i.e. “potential competition”) as well as actual competition: if entry by others was likely, timely and substantial then the transaction is less likely to be anti-competitive because the merged entity could not raise its prices significantly or behave anti-competitively (e.g. raise prices or upgrade service beyond what the market would otherwise bear) because it could not exploit its position as alternative competitors would enter the market or incumbents would expand operations to counter such anti-competitive behaviour. 16.009 There is a connection between arrangements and concentrations (within the meaning of Regulation 139/2004). Concentrations can provide an attractive alternative to shipping companies who want legal certainty by virtue of having a more permanent arrangement34 approved under Regulation 139/2004 rather than having a less permanent structure which would involve having to do self-assessment with the risk that changing competitive conditions may mean that a less permanent arrangement may be compatible or not compatible with competition law at different times. It may be that undertakings would prefer, instead of having a loose arrangement which may or may not be lawful, to have a concentration35 (i.e. a more permanent arrangement) which would be approved by the Commission and would be in permanent form.36 Any arrangement which constitutes a concentration and is approved under the EU concentration regime cannot be prohibited by the Commission (within the meaning of Regulation 139/2004) under the EU prohibitions on anti-competitive arrangements or abuse of dominance.37

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16.010 After these introductory remarks, the chapter commences with an overview of the type of transactions which are subject to the EU’s merger control regime and it does this by examining the concept of concentrations (in part B), the concept of a concentration with a “Union Dimension” (in part C), the process of notification (in part D), an examination of how the Commission assesses a proposed concentration (in part E), remedies to deal with any anti-competitive concentration so as to permit it to proceed (in part F), the issue of market definition (in part G) and the role of the Member States in the process (in part H), ancillary restrictions (in part I), minority stakes (in part J), the rules of the Courts of Justice of the European Union (in part K), the MCR in the shipping sector (in part L) and the MCR in the shipbuilding section (in part M). In the interests of space, it is not possible to deal with every case.

B. Concept of concentrations

16.011 Regulation 139/2004 applies to “concentrations”.38 There are three types of transaction which amount to “concentrations” and are therefore potentially covered by Regulation 139/2004: (a) mergers; (b) acquisitions; and (c) certain types of joint ventures. 16.012 Article 3 of Regulation 139/2004 defines what is, and what is not, a concentration with some precision. 16.013 Article 3(1) of Regulation 139/2004 states that a

“concentration shall be deemed to arise where a change of control on a lasting basis results from: (a) the merger of two or more previously independent undertakings or parts of undertakings, or (b) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings”.

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