Competition and corona crisis in Spain

recession-2530812_1280

 by María Pilar Canedo Arrillaga, Professor of Law, University of Deusto

1. Spain is one of the countries that has been more seriously affected by the COVID19. In order to protect the health of citizens, the Spanish Government adopted some rules that radically limit the social and economic activity in Spain imposing the obligation to stay at home for citizens for a long period and ordering what has been called “the hibernation of the economic activity” for 15 days in all the non essential sectors (mostly health services, security and food)[i]. Those rules are having a dramatic effect in the economy especially in the labour market. This has implied the most relevant rise in the unemployment figures in Spain since the arrival of democracy in 1978[ii]. Also, they are having huge implications in the protection of legal certainty and social and personal rights of the citizens. Those consequences have a more relevant impact in the weaker actors in society both from the social and economic perspective and therefore the Government has decided to take measures with the aim of reducing the impact of the crisis in economy in general and, in particular to help those more harmed by the situation[iii].

2. It is evident that the most relevant overriding reason of general interest, which is human life, needs protection. That implies limits in the rights of the people that we could not foresee some months ago and those radical changes in social and economic behaviours will have impact in our business and industrial economy not only in the short term.

In these circumstances we can hear more radical voices claiming for a change in our economic model towards one in which the public sector controls different aspects of society, including company’s ownership[iv]. Others claim for public control of economic activity and/or business behaviour[v]. Others claim for higher protection to the companies so they can contribute to lower the destruction of employment[vi].

Also, we can witness some (infrequent) business behaviours that profit the situation of need and legal exception and maximize their benefits in abusive ways that fall under different prohibitions of the law. Some of them, with criminal implications, others, with labour, tax, social security or competition law[vii].

Dealing with the latter, there is an increasingly relevant movement that asks for a more lenient application of the competition law rules and principles in reference both with the administrative and legislative measures adopted to tackle with this situation and its application and with the enforcement activities conducted by the competition authorities.

3. It is relevant to remind society of the huge harm that competition infringements bring to social welfare and especially to the weakest[viii]. It is evident though, that the crisis implies a dramatic impact in the value chain of certain products not only because there has been a sudden change in the needs of citizens that entails shortages but also because the problems of distribution are inherent to confinement measures[ix].

Also, the crisis has implied that in several products and services the equation price/choice/quality is not so relevant to consumers. The access to some basic products becomes crucial.

This has pushed several agencies to remind that traditional antitrust tools that deal with business behaviours are crucial in these moments[x]. Especially relevant are the matters of cooperation among companies that can be analysed under art. 101.3 of the TFEU. The agencies are underlying that the measures taken need to have a clear link to the declared aim, be specific, temporary and transparent in order to be accepted[xi].

Behaviours of increase in prices or undue imposition of commercial conditions (apart from the traditional agreements or abuses of dominance) have emerged in the crisis[xii]. Lobbies were successful in asking the administration to fix some prices[xiii]. In Spain there was a big controversy around the administration fixing maximum price for some sanitary products and prices of reference for funeral services[xiv]. Also, there was big pressure for the competition agencies to allow certain behaviours[xv].

Some abusive conducts could require revisiting of concepts like the one of abuse of market power or other types of exploitation. Those situations do not always fall under the traditional competition rules but need efficient -sometimes imaginative- answers[xvi].

In the short (but regrettably not only) run the crisis will affect the economy with large risk of bankruptcies and the already mentioned increase in unemployment which already shows an impact in tax measures or other forms of state aid (which are not covered by this short article) in order to ensure economic growth and stimulate employment[xvii].

4. Some agencies are underlying the existence of traditional limits in some commercial activities that now prove to create not only unjustifiable burdens to the market but also a harm in economic welfare and an increase in the health risks for the citizens and workers[xviii]. For example, in Spain, the Catalonian Competition Agency has published a very short report that reminds that the ban to the on-line sale of certain products such as medicines (with or without prescription) or tobacco cannot be considered necessary and creates a special harm in this crisis for companies, workers and citizens[xix]. The same could be said about other limits in competition such as banns in commercial hours or other commercial conditions that are included in several national and especially regional regulations or the several bureaucratic burdens in the economy such as the formalities to create companies. Some of those measures are being adopted by the administration opening the market by the reduction of burdens that could prove not to be necessary or proportionate[xx].

5. In this crisis (so different to the recently lived), we need to consider whether the traditional principles of competition law are still useful or need to be redefined or revisited both for enforcement and advocacy approaches.

6. The principles of better regulation imply that the public power can (and should have to) intervene -and perhaps limit competition- if there is a market failure or an overriding reason of general interest that merits and requires protection (principle of necessity). In those cases, it is also relevant to guarantee that the measure does not create discrimination and that, among all the options that serve to the same interest, the one chosen is the less harmful for competition and the market.

An adequate motivation of the fulfilment of those principles is needed. Only this motivation makes it possible to control that there is a causal link between the protection of the general interest and the limitation imposed.

This motivation allows not only the ex post assessment of the measures adopted (in order to check if they were adequate to protect the general interest), but also permits a control by the third parties. This not only reduces arbitrary decisions but also increases the credibility of those taking the decisions in front of society.

7. Opening of the markets to competition generally brings advantages to society because it pushes in favour of innovation and increase in quality and choice. Competition is a fundamental mechanism of fair allocation of resources to citizens.

Times of crises create fear and it is easy to hear (and listen to) syrens songs claiming for more protectionism in the macro and micro aspect what would lead to a reduction in the level of competition. Former crisis have proved that trying to come out of them by reducing the level of competition slows the procedure and benefits a reduced number of entities that unduly increase their profits because of the barriers and against the interest of other companies and especially against the interest of the citizens.

8.This does not imply that competition is an end in itself. Competition has to be considered as one of the tools to increase social welfare.

Certain contexts can imply that ex post mechanisms are not the most efficient tool to fight harmful behaviours. A health crisis can stress some markets in a way that requires ex ante responses and those can be adopted by the creation of regulation. It is relevant to underline that those rules need to respect the principle of minimum distortion and non-discrimination.

9. Therefore, it is clear that the traditional principles of competition need to inspire the creation of rules and their application. Principles of necessity, non-discrimination and proportionality with causal relation to a particular overriding reason of general interest duly motivated (what permits assessment and control) are still the most powerful tool to fight this very particular situation we are facing. The crisis should have to make us reconsider some of the previous legal burdens to some economic activities that do not contribute to increase consumers welfare (limits to the distribution of medicines, limits to on-line sales, bureaucratic requirements for the entry in the markets of some products….). The situation of crisis is perhaps showing (we could say amplifying) that some of those limits are outdated or irrational and should have to be reconsidered.

The traditional tools of competition law both in enforcement and advocacy will be also crucial to get out of the economic crisis that we are already suffering after this health crisis.

[i] Royal Decree 463/2020 of 14 March, which declares the state of alarm for the management of the health crisis situation caused by COVID-19 and by Royal Decree 476/2020, of 27 March, which enlarges the state of alarm declared by the Royal Decree 463/2020.  Both can be found in Spanish at https://www.hacienda.gob.es/es-ES/RSC/Paginas/RSC.aspx.

[ii] MINISTERIO DE TRABAJO, MIGRACIONES Y SEGURIDAD SOCIAL, “La Seguridad Social registra 18.445.436 afiliados en el último día de marzo” en http://prensa.mitramiss.gob.es/WebPrensa/noticias/seguridadsocial/detalle/3769.

[iii] They deal with issues such as enabling the Government to fix prices of medicines, issues dealing with children’s basic right to food, postponement of payment of credits, provisions dealing with public procurement or support to the industry of tourism (Royal Decree-Law 7/2020, de 12 March, that contains urgent measures to answer to the economic impact of COVID19); promote teleworking, postponement of mortgage debts, suspension of mobile portability, issues on consumer protection, tax law insolvency or employment protection (Royal Decree-Law 8/2020 of 17 March on urgent extraordinary measures to deal with the economic and social impact of COVID-19.) Deal with the dire situation of residences for elder people and labour law (Royal Decree-Law 9/2020, of 27 March, with complementary labour measures to deal with the impact of COVID-19). Define the application of Temporal Files of Regulation of Employment (ERTE with the Spanish wording) that determines that in this case of force majeure the companies can temporary stop the labour relation with some compromises (from the social security side, the company and the worker) Royal Decree Law that defines the system of determining payment in those cases. Royal Decree-Law 10/2020, of 29 March. The last one is the Royal Decree Law 20/2020, 29th May that stablishes a minimum vital income.

[iv] See for example BECNACH, J. https://www.sinpermiso.info/textos/hay-que-aprovechar-esta-pandemia-para-hacer-un-cambio-social-radical-entrevista-a-joan-benach or “Iglesias quiere nacionalizar y socializar ahorros” en https://www.eleconomista.es/empresas-finanzas/noticias/10454485/03/20/Iglesias-quiere-nacionalizaciones-y-socializar-ahorros-como-Venezuela.html.

[v] See “El Gobierno vigila ya posibles subidas de precios en el súper” in https://www.elmundo.es/economia/ahorro-y-consumo/2020/03/16/5e6a337f21efa0aa138b45fd.html.

[vi] “La hibernación es necesaria pero hay que proteger a las empresas” https://www.elespanol.com/invertia/economia/20200401/economistas-hibernacion-necesaria-ayudar-empresas/478953535_0.html.

[vii] “Detenido un empresario por el robo de casi 2 millones de mascarillas en Santiago” in https://www.lavanguardia.com/sucesos/20200406/48338088725/detenido-empresario-santiago-robo-mascarillas-coronavirus.html or “Alerta: Falsos test de coronavirus a domicilio para entrar en casa a robar o violar” in https://www.levante-emv.com/sucesos/2020/03/26/estafa-coronavirus-robo-falso-test/1994293.html.

[viii] Competition Agencies like the Russian, Italian, Peruvian, Canadian, American, South African, Dutch or Brazilian have made it public that they will prioritize cases in the markets more closely affected by the health crisis.

[ix] See ECN Antitrust: Joint statement by the European Competition Network (ECN) on application of competition law during the Corona crisis. https://ec.europa.eu/competition/ecn/202003_joint-statement_ecn_corona-crisis.pdf

[x] An overview of those answers can be found in CENTRO COMPETENCIA, Universidad Adolfo Ibáñez, https://centrocompetencia.com/reacciones-comparadas-de-agencias-de-competencia-a-raiz-de-la-crisis-del-coronavirus/ in Spanish. Another one in English here https://www.clearygottlieb.com/news-and-insights/publication-listing/covid-19-status-of-antitrust-and-competition-agencies.

[xi] See the Temporary framework communication of the EC for COVID period that can be found here https://ec.europa.eu/info/sites/info/files/framework_communication_antitrust_issues_related_to_cooperation_between_competitors_in_covid-19.pdf.

[xii] A reference to the cases that are being investigated during this crisis, referring to funeral services, sanitary products and financial practices can be found here. https://www.cnmc.es/sites/default/files/editor_contenidos/Notas%20de%20prensa/2020/20200407%20NP%20Balance%20Buz%C3%B3n%20Covid_20200407_eng.pdf.

[xiii] “La farmacia pide al Ejecutivo que fije el precio de las mascarillas” in El Economista, 4th April 2020 where the professional association of pharmacy offices claims that offerors “that do not usually operate in this market are abusing with high prices” or JIMENEZ LAIGLESIA, J.M., “Competencia en tiempos del coronavirus” in https://cincodias.elpais.com/cincodias/2020/04/03/legal/1585911638_526094.html asking the Competition Authority to publicly accept certain types of agreements.

[xiv] ACCO L’ACCO alerta que la fixació d’un preu màxim en certs productes (per exemple, de les mascaretes) pot generar un efecte contraproduent de desproveïment. En http://acco.gencat.cat/ca/detall/article/20200429_ndp_posicionament_acco_preu_maxim-00001

[xv] CNMC. COVID-19 Más de 500 quejas y consultas recibidas, en https://www.cnmc.es/novedad/medidas-covid.

[xvi] JENNY, F., Economic resilience, economic globalization in times of COVID, en https://youtu.be/UR7x_ZxteUg?t=15.

[xvii] Spain is planning to offer a program of State aid considering differences depending on the origin of the funds (European or others) and the recipients (SMEs or autonomous workers) “State aid: Commission approves Spanish “umbrella” scheme to support economy in coronavirus outbreak” in https://ec.europa.eu/commission/presscorner/detail/en/IP_20_581 or Commission approves Maltese, Swedish, Spanish, and German State aid schemes to support the economy in the context of COVID-19 outbreak in https://eulawlive.com/commission-approves-maltese-swedish-spanish-and-german-state-aid-schemes-to-support-the-economy-in-the-context-of-covid-19-outbreak/.

See also EC “State aid rules and COVID-19” in https://ec.europa.eu/competition/state_aid/what_is_new/news.html.

[xviii] CNMC, Study on the retail medicine distribution market in Spain E/CNMC/003/15 Madrid, 15th October 2015, in https://www.cnmc.es/sites/default/files/1185462_8.pdf.

[xix] CATALAN COMPETITION AGENCY (ACCO) “La ACCO destaca que en la actual situación de crisis de la Covidien-19 la prohibición de la venta ‘on-line’ de medicamentos con receta limita el bienestar de farmacéuticos y consumidores” in  http://acco.gencat.cat/ca/detall/article/20200330_posicionament_acco_farmacies_covid_19-00001.

[xx] Order SND/326/2020, 6 April, that reduces the requirements to obtain licences for producing sanitary products due to COVID-19. The same about accelerating procedures of recognition of foreign degrees “Acelerón para agilizar la homologación de títulos a sanitarios extranjeros” in https://www.consalud.es/profesionales/aceleron-para-agilizar-la-homologacion-de-titulos-a-sanitarios-extranjeros_60676_102.html or “España acelera contratación de personal sanitario de otros países” in https://cnnespanol.cnn.com/2020/03/27/alerta-espana-200-nuevos-medics-extranjeros-para-combatir-covid19/.

Pictures credits: Recession by needpix.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s