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AGENDA 2025: Distortions Of Competition From Third Countries: How Can Fair GLobal Competition Be Strengthened?

 |  July 1, 2022

By: Oliver Budzinski & Annika Stöhr (D’Kart)

1. Introduction

In international markets, companies from different countries compete with each other for the favour of buyers and consumers. These companies are direct competitors of each other, but are subject to different regulations and economic systems in their home markets depending on their country of origin. Even assuming free trade (the terms of which are subject to be established by (in our case European and German) trade policy), distortions of competition can occur due to different national regulatory and economic systems. Therefore, according to its competition policy agenda, the German government is committed to expanding and sharpening the toolbox of European competition policy to combat unfair competition practices by third countries. How this is to be done remains comparatively vague and imprecise. We first want to systematise such distortions of competition by third countries (section 2), then examine the suitability of competition policy as the right tool for combating the problems (section 3), before concluding with an outlook on possible measures (section 4).

2. Problem

What causes “distortions of competition from abroad”? Here are to be mentioned

  • company acquisitions financed by third-country taxpayers’ money,
  • competition-distorting subsidies by third countries, and
  • competition-distorting regulations in third countries.

a) Company acquisitions by third countries

Taxpayer-funded company acquisitions represent a serious systematic – and also often irreversible or at least difficult to reverse – market distortions by third countries. These can take the form of mergers with or acquisitions of private companies by foreign state-owned firms. Furthermore, foreign state funds, which (have to) invest part of their assets abroad, also use this possibility to implement industrial policy and strategic goals. This is clearly illustrated by the actions of the Chinese government, whose takeovers and investments in German companies have increased significantly since 2011. This approach has already been addressed in part by the German government, for example through the tightening of the Foreign Trade and Payments Ordinance or its own entry into companies at risk of takeover (for example, KfW’s entry into the grid operator 50Hertz in 2018, which was done to prevent a takeover by a Chinese state-owned company).

There are many reasons for this form of influence: the takeovers of innovative companies, which are often irreversible or difficult to reverse, can compensate for any existing competitive disadvantages and promote technology transfer. At the same time, the acquiring company benefits from relevant know-how concerning the respective national and EU internal market. It may also be possible to circumvent existing trade barriers…