The European Union (EU) is currently grappling with a multifaceted policy dilemma that has ignited intense debate among policymakers, business leaders, and economists alikeThe central question at hand is whether the EU should relax its competition enforcement mechanisms to bolster industrial policies that support so-called "national champions," or if it should maintain robust enforcement to ensure market competition remains fierce and unimpeded.

Recently appointed European Commissioner for Competition, Teresa Ribera, made headlines with her inaugural policy address, signaling a potential shift in the EU's long-standing approach to competition policyShe proposed adjustments to antitrust regulations to facilitate mergers among innovative companies and suggested relaxing state aid restrictions in order to expedite the green transitionThis stance indicates a significant reorientation of EU competition policy, steering it towards an environment more conducive to fostering innovation and competitiveness.

Ribera emphasized the need for the EU's merger and antitrust regulations to account for innovation and future competition

In her vision, the traditional reliance on market mechanisms alone is insufficient in today's global competitive landscapeShe stated that government subsidies will play a pivotal role in incentivizing corporate investmentsThis narrative has garnered mixed responses across the spectrum of stakeholders, reflecting the complexity of the EU's policy environment.

In an interview with a journalist, Yin Ranran, a partner in the antitrust practice at Sharp & Keen law firm, expressed a nuanced perspective on Ribera's commentsWhile she acknowledged the new leadership's focus on safeguarding European competitiveness, Yin cautioned against interpreting it as a relaxation of antitrust enforcementInstead, she posited that the EU appears poised to adopt a more flexible approach, aimed at nurturing European companies while simultaneously ensuring a fair business environment within the unionYin noted that while the EU may indeed relax certain policies to support domestic businesses, antitrust enforcement—especially concerning major tech companies—might remain intact or even intensify.

The dilemma surrounding competitiveness poses a significant test for the balance of EU policy

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Voices advocating for a "national champion" policy have echoed for years within EuropeA landmark case occurred in 2019 when then-Commissioner Margrethe Vestager blocked the merger proposal between French multinational Alstom and German engineering behemoth Siemens, both key players in rail manufacturingThis move highlighted the ongoing tension between fostering European champions and maintaining stringent competition regulationsDuring the same period, Germany’s then Minister of Economic Affairs, Peter Altmaier, called for protective measures for "European national champions," while French President Emmanuel Macron pledged to reshape competition policy to avoid mistakes like the Alstom-Siemens merger blockage.

In September of this year, a report submitted to the EU Commission by former Italian Prime Minister Mario Draghi contended that strict competition enforcement could hinder innovation

He criticized the EU's competition department for having a short-sighted focusDraghi advocated for mergers across various sectors, ranging from defense to telecommunications, as long as they promote innovationHe drew attention to the fragmented landscape of European telecommunications, where there are at least 34 mobile network operators, as opposed to just three in the United StatesAccording to him, without integrating smaller companies, European telecom providers lack the profitability needed to innovate and compete globally.

Draghi also emphasized the need to utilize state aid as an industrial policy tool for enhancing efficiencyHistorically, the EU has imposed strict limitations on state aid due to concerns over distorting competition among member statesHowever, in the context of intensifying global industrial competitiveness, this position is now being re-evaluatedDraghi suggested that national aid policies should align more closely with overarching EU policy objectives, considering the support necessary for green and digital transitions.

In her letter of appointment to Ribera, European Commission President Ursula von der Leyen has asked her to adopt several innovative ideas put forward in Draghi's report, clearly stating that "Europe requires a new approach to competition policy." This signals an intention to recalibrate the EU's regulatory framework in light of emerging challenges.

Signs indicate that Ribera has interpreted von der Leyen’s guidance, as she articulated her commitment during a hearing at the European Parliament in November to transform competition policy into a tool for fostering innovation and competitiveness among European enterprises

This week, she announced that the European Commission would revise state aid rules under the "Clean Industry Deal," set to be unveiled in March 2025. This "new state aid framework" aims to accelerate the realization of renewable energy projects and afford greater policy space to European firms in areas like industrial decarbonization and clean tech manufacturing capacityAnalysts believe this move represents a strategic response to the U.SInflation Reduction Act.

Ken Daly, managing partner at Sidley Austin’s Brussels office, remarked that Ribera's approach signifies strong support for the "European champion" strategy, contrasting sharply with the policies of her predecessor, VestagerHowever, he noted the critical question remains whether this is merely a political response to concerns raised by the European Parliament and member states, or if it will lead to substantive changes in merger review practices

The complexity and difficulty of the latter should not be underestimated.

Notably, a report released this year by the EU's Competition Directorate and the OECD indicated that market concentration, price mark-ups, and profits within the EU are on the rise, while "business dynamism" is decliningThis statistic raises further eyebrows about the long-term competitiveness of the EU's market.

However, the support for European businesses does not suggest an equal leniency towards tech giants, particularly those based outside of EuropeRibera stressed the importance of enhancing regulatory oversight of the digital market, pinpointing two urgent issues: establishing a regulatory mechanism for "kill acquisitions" by large tech firms and securing adequate resources for enforcing the Digital Markets Act (DMA). The term "kill acquisition" is used to describe instances when large tech companies acquire promising start-ups merely to eliminate competitive threats.

The implementation of the DMA has provided the EU’s Competition Directorate with greater enforcement authority

The European Commission has designated six tech giants as dominant "gatekeepers," requiring them to rectify operations within six months to comply with the act's regulationsAmong these six "gatekeepers," five are American tech firms: Microsoft, Meta, Amazon, Apple, and Alphabet (Google's parent company).

Yin Ranran informed the press that Ribera has committed to rigorously enforcing the DMA, aiming to create real results for European firms and end-users through her policy frameworkThis indicates that, under her leadership, the European Commission will continue to impose stringent regulations on tech giants.

Ribera also cited the case of Illumina, a U.S.-based leader in gene sequencing technology, which attempted to acquire the start-up GRAILAlthough the European Commission rejected the acquisition in 2022, a ruling from the EU's highest court in September 2023 indicated that the Commission had overstepped its bounds