The year 2004 continues to unfold as a truly watershed year for the European Union. In governance, competition policy and trade there have been significant, - indeed, some would say revolutionary - developments that will affect the business and regulatory climate for years to come, particularly for U.S. companies doing business in Europe.
Perhaps most significantly, on May 1, 2004, European Union grew from fifteen to twenty-five Member States and there by increasing dramatically trading opportunities in an enlarged European common market of over 450 million inhabitants. As has been the case since the European common market was first formed in 1957, the enlarged European Union ― now stretching from Ireland in the West to Crete in the East, from Finland/the Baltic in the North to Malta in the South ― will provide even greater opportunities to do business in a borderless environment that will increase efficiencies and economies of scale.
Such trading opportunities are of particular significance for U.S. firms since the EU enlargement should only serve further to enhance the growing resilience of trans-Atlantic trade. As has long been the case, U.S./European trade is the most significant international trade and investment relationship in the world. According to the AmCham EU (of which Foley & Lardner LLP is a member) this trading relationship accounts for approximately 40% of world economic activity and represents about $2.5 trillion in annual commerce. U.S./EU trade and investment flows equals roughly $1 billion per day.
Despite the headlines suggesting major obstacles to trade and investment, the European/U.S. economic relationship grows dramatically larger and more significant each year. U.S. foreign direct investment, for example, in Europe during 2003 grew dramatically ― 30.5% - over 2002. U.S. exports to the European Union grew almost 5% and, even more impressive, European exports to the United States increased by 8.5%, despite a 20% increase in the value of the euro vs. the dollar. This colossal trade bridge accounts for millions of jobs, whether measured by direct or indirect employment.
The picture is equally dramatic if one focuses on the trade relationships between the United States and the respective members of the European Union. For seventeen of the twenty-five members of the European Union, the United States is the #1 non-European investor. For two ― Crete and Malta - the United States is one of each countries top trading partners. However, most significantly, given the size of the trade flows, the United States is the #1 foreign investor in Denmark, France, Germany, Ireland, Netherlands and the United Kingdom. Thus, what happens in the European Union has a vital impact on U.S. interests and opportunities.
Thus, the reform of the European system for competition compliance that became effective on May 1, 2004 will increase substantially the burden and risk of competition compliance on companies and their corporate counsel to assure that their arrangements comply with EC competition law. While the substantive content of the basic EC competition laws remains unchanged, new competition rules and procedures abandon the centralized European Commission-focused pre-notification system of competition regulation in favor of a de-centralized system in which the locus of competition regulatory power will be much more focused in and exercised by Member State competition enforcement authorities, national courts as well as private enforcement.
It is clear that this significant transfer of power to the national authorities is intended to satisfy important political as well as competition policy goals of the European Union and its Member States. Nevertheless, EC competition reform contains the seeds of much greater legal uncertainty for companies operating in the European Community. First, following enlargement, the European Union consists of twenty-five very diverse members whose history, culture, experience and commitment to competition as an important public policy goal, vary radically. On the one hand, there are countries, like Germany and the United Kingdom, that have long held competition enforcement to be a central tenant of economic welfare. On the other hand, new members of the European Union include countries such as the former East European members of the Soviet Bloc whose history and culture have, until very recently, been focused on state-dominated central planning and ownership. Inevitably, there will be increased private litigation on competition matters in the national courts. Moreover, there are serious potential risks of forum shopping among the many Member State courts and authorities as well as an equally serious risk of divergent substantive interpretation of the Community.s antitrust principles.
Overlaying these important regulatory changes, 2004 is witnessing significant political changes as well. First, elections to the European Parliament last Spring witnessed greatly increased voter absentees and an unsettling number of seats won by extremist parties, despite the relatively continued (albeit somewhat weakened) strength of the traditional "centrist parties" in the European political spectrum. The results suggest both that the European Union institutions will be relatively weaker as the regulatory process becomes more politicized and that national member state governments will seek to advance their own respective national interests whether through the European Council or through unilateral action, as countries like France and Germany have done on budget issues.
Second, affected by the increasing shift to greater member state prerogatives and away from the strong central executive that had controlled regulatory policy, the new European Commission that will take office on November 1, 2004 will operate in a much more difficult enforcement environment with increased political scrutiny from the European Parliament, the member states and the media as well as diminished resources. In this context, it will be important to gauge how the new proposed Competition Commissioner ― Neelie Kroes-Smit, a Dutch businesswoman with "blue chip" business credentials and a very tough, no nonsense reputation, and who is to take over Mario Monti's portfolio . will succeed in this difficult environment. As an example of this highly charged atmosphere, Ms. Kroes-Smit pledged during her "confirmation" hearings before the European Parliament that that she would never take a job in business after leaving the Commission - even selling flowers on the street - to satisfy suspicions in the Parliament that her business background and experience might prejudice her.
For companies with significant interest in the European Community, events in 2004 strongly suggest that, while growing opportunities exist, there is need for a thoughtful, eyes-wide open approach.
