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23 October 2017

The EU’s war on competition

by Bill Wirtz

Originally published by CapX.

This month, EU governments and the European Parliament signed off on substantial changes to the Union’s Common Agricultural Policy. In the so-called “Omnibus talks”, the EU’s three main institutions, together with representatives of producers agreed to grant essential privileges to farmers.

The initial proposal by the EU Commissioner for Agriculture, the Irish politician Phil Hogan, had merely been a budgetary adjustment of the CAP that would have barely been worth mentioning. But what has been agreed is a far more troubling development. Farmers have effectively been given the right to form cartels. Unsurprisingly, this aspect of the directive is highly controversial.

EU politicians claim that these cartels will be an effective counter to the bargaining power currently held by retailers. The new rules allow for the possibility of collectively negotiating value-sharing terms inside contracts. The result is likely to be higher prices for consumers.

Even the Commission is worried. As one spokesperson said, “the Commission is concerned about changes regarding competition law, agreed by the co-legislators, which are substantial in nature and included without an impact assessment.”

This stance is partly due to the fact that major policy changes rarely stem from the European Parliament instead of the Commission. But it is also because pro-competition advocates in Berlaymont see the policy as a violation of competition rules in the EU. According to the Commission’s website, “competition policy plays a key role in maintaining a level playing field in the food supply chain. This is why the Commission’s competition department and the National Competition Authorities in the European Competition Network (ECN) have been very active in food markets over the last decade.”

The European Union’s pro-competition stance certainly makes the policy a strange one. But keeping its farmers happy is less unusual. And European farmers will receive the largest opt-out of EU competition rules in its existence, substantially increasing their power as producers.

Christian Verschueren, a spokesperson for the retail industry, which had been consistently excluded from the law-making process in the Omnibus talks, says he “fears that this approach will artificially raise prices for consumers and reduce choice. It will also do nothing to help farmers become more competitive in global markets or strengthen their position in the supply chain.” Retailers are the wrong target. Less than 10 percent of retailer supply comes directly from farmers. Most of it is made by food producers such as Nestlé.

Proponents of the new rules has shown themselves to be unimpressed by the criticism: “With this agreement, the lines have finally moved,” said a key player in the talks, European People’s Party MEP Michel Dantin. “I have fought for a year and a half against the European Commission’s competition ‘ayatollahs’ and the status-quo eulogists in the member states.”

The creation of cartels on the European market would likely be detrimental for consumers: what is there to stop producers fixing prices between themselves, and, even worse, setting production quantities which furthers their own interests? This will give new powers to multinationals, whose production power will eventually extend over the farmers themselves. In other words, the exact rules that farmers are lobbying the parliament for will end up hurting them.

It remains to be seen how individual member states, especially Germany and the Nordic countries which have expressed scepticism towards the CAP changes, will respond to these developments.

Most damagingly of all, this cartel legislation is likely to lead to a dangerous, and for the consumer, costly bidding war in market regulations. As prices will artificially increase, the European market will become more interesting to foreign importers. This generally leads producers to demand new tariffs. Chinese bicycle manufacturing, for example, was hit with a 34.4 percent tariff by the European Commission early this year.

There is an inherent contradiction in the fact that the EU goes after large multinationals with one hand, yet offers sweeping now economic powers with the other.

Both the creation of cartels and the further imposition of tariffs makes the European Single Market less competitive, and, in an important way for all Europeans, less accommodating for consumers. As consumer prices are likely to rise, EU-leaders need to ask themselves whose interests they should be defending: the ones of the producers or that of low-income earners, which includes families in precarious situations, who will be particularly suffer thanks to these measures.

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