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Competition in Coronavirus times: weekly update 27/04/20

27 April 2020
Another week and another competition update prepared by our Polish competition team.

The most recent update covers (i) guidance on cooperation – prepared by the Italian Competition Authority, (ii) further antitrust guidance for manufacturers, wholesalers under CMA scrutiny over price hikes during the COVID-19 crisis, (iii) business as usual – Merging companies won't get an easy ride due to COVID-19, (iv) Austrian call for suspension of State Aid rules.

Cooperation

Guidelines on cooperation – Italy

- The Italian authority outlined that the reaction to the emergency of COVID-19 may require different degrees of cooperation, more or less problematic from a competitive point of view.

In the medical sector (and possibly in the food sector), cooperation could, for example, be limited to assigning to trade associations or independent third parties the task of: 

  • coordinating the transport and distribution of materials;
  • identifying for which drugs or medical devices shortage problems may arise; 
  • providing aggregate information (not related to individual companies) on the production and available capacity or on any shortage in the offer.

The authority nevertheless recognised that cooperation may need to be further expanded and would require an exchange of disaggregated and sensitive information. 

In this particular context, the regulator announced that it would assess more flexibly temporary cooperation that:

  • is necessary in order to facilitate the production of essential goods, medicines or medical devices;
  • is proportionate;
  • lasts no longer than is necessary to address these critical issues.

The authority has also set up a dedicated mailbox through which companies may seek personalised guidelines: agreement-cooperation-COVID@agcm.it. The regulator stated that it may even grant a comfort letter on specific initiatives, provided they are sufficiently defined.

Enforcement

Manufacturers, wholesalers under CMA scrutiny over price hikes during the COVID-19 crisis

- The UK's Competition and Markets Authority announced that it  is collecting evidence whether manufacturers and wholesalers have/are unjustifiably increasing prices during the Covid-19 crisis or making misleading claims about their products or services.
The CMA also stated that it is concerned about businesses' cancellation and refund policies for consumers, such as for holiday and travel bookings, as they account for around four in five complaints the regulator has recently received. The CMA is especially concerned about the unnecessary complexity of the process of obtaining refunds, the charging of high administration or cancellation fees, and pressure on consumers to accept vouchers instead of cash refunds.

Mergers

Business as usual –  Merging companies won't get an easy ride due to COVID-19

- The competition authorities – the Commission and UK competition regulator CMA warned deal-makers not to expect a relaxation of  the standards by which deals are assessed as a result of market pressure from the coronavirus outbreak.

The CMA said that it is aware that the current market may lead to additional submissions that firms involved in mergers are failing financially and would have exited the market absent the merger in question. But these submissions have to be treated in a fair and transparent way that appropriately protects the interests of consumers. EU commissioner Margrethe Vestager said her staff would take failing firms' arguments into consideration, but the long-standing test would remain the same.

This argument may be relevant as the coronavirus crisis threatens to put some companies out of business, raising the prospect that enforcers should waive through such transactions, otherwise companies will go broke, and that will mean less competition. For example, last week the UK’s competition watchdog allowed Amazon.com to take a stake in Deliveroo because the delivery company would exit the market without the retail giant’s investment. This may also apply to the airline sector, where a struggling budget carrier could be snapped up by a larger operator. The incumbent carrier gets bigger, but that's less harmful than an entire airline going under.

The UK regulator also said it recognises that businesses may encounter difficulties in responding to its statutory requests for information in light of the crisis, and it is therefore unlikely to impose penalties where businesses are unable to comply.

State Aid

Broader compensation options under EU treaty clause for struggling airlines 

- EU commissioner Margrethe Vestager announced that airlines struggling in the COVID-19 crisis can benefit from an EU treaty clause allowing for emergency compensation, a measure which is separate from the bloc’s temporary state aid framework. 

Protecting the airline sector — one of the hardest-hit sectors of the economy so far — is a priority for the EU and for national governments. The Commissioner outlined that the airline industry is an industry with huge fixed costs. 

So far airlines can receive limited grants and loan support from national governments under the temporary state aid framework, and the EU is working on updating the framework to allow governments to buy shares in companies for a limited period of time.

A third option would be — 107(2)(b), which  allows for direct compensation of companies for damages incurred during extraordinary events, which means the aid can be focused on a specific company or sector.

This could be a convenient tool for crisis-stricken airlines, as with closed borders and cancelled flights they can foresee threats right away and also make quite a good prognosis as to what would be the potential losses in the next months and longer term.

The European Commission has already approved a Danish compensation programme for SAS, and a French tax-deferral program for airlines operating with a French license, under 107(2)(b).

Austria call for suspension of State Aid rules

- Austria is calling for EU state-aid rules to be suspended for the duration of the fight against the coronavirus pandemic to help national capitals react instantly and to provide immediate support for businesses, if and when the need arises.

The Austrian government views the requirements to notify instances of state aid, answer related questions by phone, e-mail and video conference and provide a number of necessary documents as a significant administrative burden. 
Among the proposals, Austria call for the Commission to "raise the ceiling for direct contributions to SMEs" and to "allow for a more flexible interpretation of the definition of who can receive help."

Approval of state aid schemes

- In recent days the European Commission has continued to approve national state aid schemes under the Temporary Framework aimed at supporting the national economy during the coronavirus outbreak:

  • € 550 million  state-guaranteed loan to the benefit of German charter airline Condor;
  • € 215 million Maltese scheme to subsidize employers to meet their wage bills amid the coronavirus outbreak;
  • € 3 billion Finnish program in the form of direct grants, equity injections, selective tax advantages and advance payments, as well as repayable advances, state guarantees and loans;
  • €7.8 billion  Polish scheme to support the economy;
  • €38 million Swedish scheme that compensates companies affected by the coronavirus outbreak for the loss of revenue or additional costs related to the cancellation or postponement of cultural events;
  • €110 million Polish aid scheme to support the economy;
  • € 200 million Belgian direct grant scheme to support agricultural and aquaculture sectors;
  • € 137 million Swedish public guarantee for Scandinavian flag carrier SAS;
  • €2 billion Slovak aid scheme for preserving employment and supporting self-employed individuals.

Further Reading