The Implementation of the ECN+ Directive in Hungary and Lessons Beyond

In order to facilitate NCAs in their application of EU competition rules, the EU legislator adopted Directive 2019/1/EU. The Directive’s aim is to empower the competition authorities of the Member States to be more effective enforcers of competition law and to ensure the proper functioning of the internal market. The so-called ECN+ Directive introduces minimum harmonisation rules allowing competition authorities to have common investigative, decision-making (notably fining decisions) and enforcement powers. This paper will analyze the legal and policy developments that paved the way for the adoption of this Directive and critically assess these processes. Furthermore, it will examine the way the Hungarian legislator will likely implement the Directive in the current Hungarian legal and policy of competition law. The focus of the paper’s assessment is on the institutional aspects of the Directive and the enforcement of Articles 101 and 102 TFEU, in particular independence and accountability mechanisms. Through the assessment of the Hungarian implementation it aims to shed light on a broader context of the Directive and the enforcement of EU competition law. It shows that the simple implementation of the Directive may fail to translate into (more) effective enforcement. It requires more de facto effective institutional capacity on the side of the NCAs and in the broader legal and constitutional context of competition law and its enforcement.


Introduction
In order to facilitate NCAs in their application of EU competition rules, the EU legislator adopted Directive 2019/1/EU. The Directive's aim is to empower the competition authorities of the Member States to be more effective enforcers of competition law and to ensure the proper functioning of the internal market. 2 The so-called ECN+ Directive introduces minimum harmonisation rules allowing competition authorities to have common investigative, decision-making (notably fining decisions) and enforcement powers. The Directive, furthermore, sets minimum safeguards for NCAs' independence, accountability and resources, harmonizes leniency programs including the coordination of national leniency programs with each other and with that of the European Commission, mutual assistance among NCAs and the role of NCAs before national courts. The Directive seeks to strengthen the cooperation between national competition authorities and the Commission within the framework of the European Competition Network (ECN). The Directive envisages to give national competition authorities enforcement powers similar to those enjoyed by the Commission. This paper will analyze the legal and policy developments that paved the way for the adoption of this Directive and critically assess these processes. Furthermore, it will examine the way the Hungarian legislator will likely implement the Directive in the current Hungarian legal and policy of competition law. The focus of the paper's assessment is on the institutional aspects of the Directive and the enforcement of Articles 101 and 102 TFEU, in particular independence and accountability mechanisms. Through the assessment of the Hungarian implementation it aims to shed light on a broader context of the Directive and the enforcement of EU competition law. It shows that the simple implementation of the Directive may fail to translate into (more) effective enforcement. It requires more de facto effective institutional capacity on the side of the NCAs and in the broader legal and constitutional context of competition law and its enforcement.
The paper is structured into five sections. The first section analyzes the way enforcement of EU competition law has been shaped by Regulation 1/2003 and which challenges the multilevel system posed to enforcement and how the system developed and eventually led to the adoption of the Directive. The second section critically analyzes the way convergence of procedural and institutional issues among the Member States has taken place before the adoption of the Directive and it shows that the Commission played a dominant role in this process. Section three turns to the possible implementation of the Directive in Hungary and which changes might be necessary to comply with its provisions.
Section four analyzes the way provisions on independence and accountability of the Directive may fall short of achieving a really effective enforcement of competition law in the Member States. Hungary's example shows that independence of NCAs need to be realized de facto and not only de iure and that both effective and real mechanisms of political and judicial accountability need to be present in a legal and political system in order to guarantee effective (competition) law enforcement. The paper closes with conclusions.

From Regulation 1/2003 to Directive 2019/1
Regulation 1/2003 introduced fundamental changes to the enforcement of Articles 101 and 102 TFEU 3 in order to ensure effective enforcement on the one hand, and to simplify its administration to the greatest possible extent on the other. 4 Regulation 1/2003 delegated enforcement powers to national competition authorities and national courts to relieve the Commission of its increasing administrative burden and make the enforcement of EU rules more effective. Regulation 1/2003 created a system of parallel competences between the Commission and national competition authorities (NCAs) and national courts and obliged the national enforcers to apply EU and national competition laws simultaneously. This transformation of EU competition law enforcement 5 resulted in a multilevel governance system, where a mix of substantive EU provisions and national procedural laws and institutional designs are applied and enforcement is shared by the Commission and 28 national competition authorities. Accordingly, decentralised enforcement of EU competition law became subject to problems of multilevel governance similar to other fields of EU law.
This system created an enforcement gap between substantive and procedural rules and the raised the problem of accountability for acts which are the result of this mixed enforcement system. 6

1.2.Multi-level governance under Regulation 1/2003
Accordingly, Regulation 1/2003 posed a challenge to the uniform application of EU law.
When NCAs apply Articles 101 and 102 TFEU, they make use of their national procedural rules and impose remedies and sanctions that are available in their respective legal systems.
Thus, the enforcement of EU competition rules has come to rely on the effective administrative enforcement of EU competition rules through national administrative procedures. This multilevel enforcement system challenged the uniform and consistent application of EU competition law and created uncertainty for national enforcers how to apply and not to apply Treaty provisions. In order to remedy this problem various legal provisions were laid down in Regulation 1/2003 and cooperation mechanisms between the Commission and the NCAs were introduced in the framework of the European Competition Network. 7 While these mechanisms accelerated a remarkable Europeanisation 8 of competition rules, 9 much of the effectiveness of the decentralised enforcement now depends on the success of the coordination mechanisms between centrifugal pulls from the Member States towards their national legal systems and centripetal pushes from the Commission to safeguard uniform and consistent application. 14 Albeit their competences were very roughly set out in Articles 5 and 6 of Regulation 1/2003. Although national procedural rules had to provide for the admission of the Commission as amicus curiae in national procedures, NCAs will have to be empowered to conduct examinations in accordance with Regulation 1/2003, and Member States will have to report to the Commission. The Commission retains broad supervisory powers that allows it to intervene in proceedings before national authorities and which in fact enables it to act as "primus inter pares". See Article 11(6). 15  However, there has also been serious criticism questioning the success of this enforcement model. 22 In fact, the Commission has also acknowledged that NCAs encounter difficulties in carrying out their work. Accordingly, late in 2015 the Commission started a public consultation on how to empower NCAs to be more effective enforcers. 23 The next section will analyse how the Commission and the NCAs tried to deal with these difficulties and the way convergence among national procedural and institutional frameworks has developed until the legislative process of the Directive started.

"Guided" convergence
Regulation reconciled the requirements of substantive coherence with the existing procedural diversity amongst NCAs. 24 25 Competition law and policy gained importance and the ineffective abuse systems, which in certain jurisdictions included criminal law enforcement were abandoned. Waarden and Drahos found that this convergence was due to a subtle top-down pressure from the Commission and the European courts combined with the emergence of strong epistemic community of competition lawyer. F van Waarden and M Drahos, 'Courts and (epistemic) communities in the convergence of competition policies' (2002) 9 Journal of European Public Policy 928.The new competition laws followed a prohibition system and enforcement was trusted to an administrative body with judicial like decision-making. Enforcement became primarily administrative law based, with administrative law sanctions. These new competition regimes worked more effectively than their predecessors and indeed their main achievement was to gain social and political support for the enforcement of competition law. Gerber 1998, p. 402-403. soft-law instruments most notably the leniency Notice. 26 Hungary has been one of the most active member States in this respect as will be shown below. This convergence took place through implementing similar procedural rules as those of the Commission's. The underlying reason for these legal transplants 27 could have been that once these rules and enforcement methods work effectively and efficiently in the hands of the Commission, they will prove successful in the hands of the NCAs as well.
Convergence has mostly been stimulated by the Commission. Accordingly, it was the  27 Convergence between different legal rules towards an efficient model may take place as a result of a legal transplant or as an outcome of a competitive process between different legal formants In the first case, legal transplants are implemented because they proved to be efficient in other legal systems. In the second case, convergence towards efficiency is the result of the interaction between different legal formants. So, while legal transplants are governed by hierarchy the second scenario is governed by competition among legal formants Mattei e.a. 2000, , p. 508-511) p. 510-511). 28  Despite these developments, national rules still differed on fundamental aspects of the procedures such as setting priorities, inspecting non-business premises, powers to inspect, to request information or to take commitment decisions, imposing behavioural or structural remedies, procedural rights of parties under investigation, e.g. different scope of the privilege against self-incrimination for undertakings, and the enforcement measures and sanctions related to non-compliance with decisions, e.g. some NCAs did not have the power to impose fines directly in case of non-compliance with a commitment decision. 33 These differences were seen to significantly affect the scope of investigative and decisionmaking powers of the NCAs. 34  NCAs did not enforce the transplanted rules due to constraints in administrative capacity and the enforcement tools have not always delivered the expected results. This is, for example, the case with regard to the power to investigate private The ECN Model Leniency Programme, 41 which has often been praised as a success story of the ECN's cooperation mechanism illustrates this in the CEECs. The first adopted programmes proved to be unproductive due to insufficient transparency or uncertainty about eligibility. Many programmes had to be revised. 42 While there has been a certain degree of 'voluntary' harmonization towards the Commission's procedural model, the above findings confirm the presence of top-down rather than bottom-up processes with hierarchical governance mechanisms. Accordingly, the public consultation initiated by the Commission in 2015 on how to empower NCAs to be more effective enforcers 43 was a natural consequence of this ongoing hierarchical governance mechanisms pushing towards more convergence among the national enforcement systems.
Ultimately the process resulted in the adoption of the ECN+ Directive in 2019.

Implementation in Hungary
This paper will analyse more in detail the rules of the Directive concerning institutional prerequsities independence, accountability and resources and thus will only briefly address the other core provisions of the Directive in this section.
It has been argued that Hungarian law currently is greatly in compliance with the new provisions of the Directive and only certain detailed rules need to be introduced in order to achieve full conformity with the Directive. 44 This means that the GVH already possesses all of the vital instruments and powers that are necessary to effectively enforce competition law.
More specifically, concerning Articles 6-12 on common investigative and decision-making powers the Hungarian legislator already complies with the Articles 6-9 on inspection of business premises and other premises, request for information and taking interviews. The Hungarian legislator will need to address specifically , however, the finding and termination  52 As regards the reasons for the relatively low number of leniency applications, the cultural aspect is deemed to be one of the most relevant: i/ cultural background, as an effect of the former planned economy system of Hungary (not to be seen as a traitor) and ii/ low level of competition law awareness (especially in the case of SMEs). In order to improve this situation the The next section will analyze the institutional aspects of the Directive and its implementation in Hungary

Institutional issues: independence and accountability
Regulation 1/2003 has not specified any sort of requirements on the formal independence of NCAs. 53 As a consequence of the principle of institutional autonomy, the Member States are free to design their own enforcement system. 54 The designated NCAs could, therefore, be administrative or judicial in nature. The Member States were obliged to set up a sanctioning  60 North distinguishes between formal rules such as laws and regulations and informal rules such as constraints on behavior derived from culture, tradition, custom and attitudes. Formal rules and informal constraints are interdependent and in constant interaction (North, 1995 The independence of regulatory agencies has been traditionally justified, by the technical complexity of the regulated markets and thus the need for expert decision making. An agency should be insulated from short-term political pressures in order to adopt public policies based on expertise -i.e. to bring expertise-driven independent decision-making to the administrative state. It was believed to yield better public policy over the long term. 62 Consequently, the concept of independence builds on the regulator's legal and functional separation from market parties and its independence from the legislative and executive powers. Independence is essential in order to avoid competition law being used to achieve political or industrial goals that have little to do with the broader goals of efficiency referenced above. These outcomes are significant features of a properly functioning democracy, governed by the rule of law. Independence from government politics "de-politicizes enforcement decisions, reduces the risk of perceived bias, and provides consistency from one political term to the next". Competition and Democracy, Contribution by BIAC, DAF/COMP/GF/WD(2017)1, p.6. 64 Landis, 1938 65 Hanretty, Larouche, Reindl, 2012 66 It was in 1988, in Directive 88/301 on competition in the markets in telecommunications terminal equipment that the Commission introduced in Article 6 an obligation on the Member States to entrust the regulation of terminal equipment to a body independent from market parties active in the provision of telecoms services or equipment. This requirement of independence has also been implemented in the second liberalization package in the energy and telecoms sector.

Independence of the GVH
The Hungarian GVH is a budgetary institution and is independent from the Government: it cannot be given instructions by any governmental institution but only by law. 72 The President of the GVH is nominated by the Prime Minister, heard by the Hungarian Parliament and is appointed by the President of Hungary. The appointment lasts for six years (renewable) and this overlaps with the four-year period of the Government. The President of the GVH cannot be dismissed except in specific and very serious circumstances, such as for committing a crime or misusing information certified as top secret. The operation and financial management of the GVH is completely autonomous and constitutes a separate chapter in the central budget. The GVH is held accountable to the Hungarian Parliament. As mentioned above, its President is heard by the Parliament before his or her appointment. Moreover, the GVH submits its annual reports to the Parliament and, on request, to the competent parliamentary committee on the activities of the GVH. In addition, according to the or for the resolution of disputes between undertakings" (…) "shall act independently and shall not seek or take instructions from any other body in relation to the exercise of these tasks assigned to them under national law implementing Community law". Hungarian Competition Act, the GVH has to publish the non-confidential versions of all of its decisions and all of its final orders adopted at the conclusion of proceedings (the opening of which were made also public). Finally, the National Audit Office controls how the GVH uses its financial resources.
Accordingly, de iure the GVH is independent and complies with the provisions of the Directive. However, when examining its independence in the broader constitutional and political context of Hungary questions arise as to its de facto independence.
The perceived quality and effectiveness of legal and political institutions in Hungary has been weak. 73 In 2018 Hungary ranked 60th among 137 countries in the institutional component of the Global Competitiveness Index, however, its institutions scores much lower at 101th. 74 Besides administrative burdens, predictability and transparency in policymaking and the efficiency of the legal framework in enabling firms to challenge government regulations are seen as particularly problematic. 75 In 2019 European Semester Country Report testified that Hungary's institutional capacity needs to be improved as there are fast and unpredictable changes in regulations and transparency of policy making is limited. There are significant regulatory barriers and state involvement including new monopolies and ad hoc exemptions from competition scrutiny. 76 Public authorities continue to entrust certain services to state-owned or private firms specifically created for these purposes (e.g. textbook publishing, waste collection, mobile payments, tobacco wholesale and retail). The government can still exempt certain mergers and acquisitions from the competition scrutiny of the GVH, as it did last November concerning the creation of a media conglomerate with Government Decree 229/2018 77 of "national strategic importance in the public interest," and with the decree it called for exempting the merger affecting hundreds of broadcast, online and print publications from competition rules. Over the last five years, the government used this power more than 20 times in a wide range of sectors including energy, banking, broadcasting, tobacco and 73 A stable and efficient legal framework, grounded on the principles of separation of powers and judicial independence, is media. 78 Hungary's institutional governance is weak and is of declining quality that limits competition. 79 In this poorly performing institutional environment and where the low intensity of competition has been criticized for many years 80 one has to question whether the GVH has been entirely independent from the Hungarian government. Additionally, independence has to be investigated in relation to political and judicial accountability. This will be the subject of the next section.. In general, accountability has been weak in the past years in Hungary. The deterioration is particularly notable in Hungary concerning voice and accountability, control of corruption and regulatory quality. Corruption risks and weak accountability distort the allocation of resources as these are not necessarily channelled to the most productive firms. There are obstacles in access to public information and hinder the anti-corruption framework. 81 The GVH has been publishing and submitting its annual reports ever since its creation in Decisions of the GVH are subject to judicial review at three different levels of courts that all review questions of law and facts. The final court is the Hungarian Supreme Court, and ultimately, after those three court procedures, the parties may file a constitutional complaint with the Hungarian Constitutional Court. The standard of review in administrative procedural law is that of 'legality'. 90 In Hungarian law, judicial review of the legality of administrative decisions covers breaches of both procedural and substantive law, whilst it excludes the review of the merits of the administrative decision taken under direct statutory or discretionary powers. The division between the review of legality and the review of merits is, however, not always clear in Hungarian law. 91 While Article 6 European Convention on Human Rights (ECHR) on the right to a fair trial in a reasonable time should, in principle, have had an important influence in Hungary. However, Hungarian court proceedings in judicial review have consistently refused to apply Articles 6 and 8 ECHR, even though undertakings almost always invoked the quasi-criminal nature of the proceedings in judicial review against the GVH's decisions. 92 However, both the Hungarian Constitutional Court and the Hungarian Supreme Court have acknowledged that cartel proceedings are quasi-criminal proceedings which require special guarantees. 93 Hungarian courts are thus competent to fully review the GVH's cartel decisions and to substitute the GVH's decision with their own, for example, to reduce the fines imposed by the GVH. In 2015, the Hungarian Constitutional Court also investigated how certain procedural guarantees should apply in cartel proceedings. 94 However, the effectiveness of the justice system increasingly raises concerns, in particular as regards judicial independence. Corruption risks and favouritism distort the allocation of resources as these are not channelled to the most productive firms. The rule of law, including the independence, efficiency and quality of the justice system, are crucial to attracting business and enabling economic growth. 95 Over the last year, perceived judicial independence among businesses decreased in Hungary 96 and checks and balances within the ordinary courts system further weaken. In December 2018, the Hungarian Parliament adopted two legislative acts establishing an administrative courts system. The new law (Act CXXX of 2018) creates a self-standing branch of administrative courts, technically within the Hungarian judiciary, yet, placed under the direction of a separate, newly established Supreme Administrative Court alongside the existing Supreme Court. 97 The Act undermines the separation of powers, the boundaries between the executive and judicial power in Hungary will be blurred and it could pave the way for the government's political interference both in individual cases and on a systemic level. These administrative courts will also decide cases with significant economic relevance such as market competition matters. The proposed system will give excessive powers to the Minister of Justice without effective oversight of any judicial self-administration body. The Minister, who is a member of the executive power, will have stronger powers than the President of the National Judiciary Office. 98 Administrative judges are and under the new proposal can be increasingly being recruited from the public administration. As Uitz argued the new Hungarian law on administrative courts "signals to Hungarian judges that they are disposable and interchangeable with civil servants.". Even though the Hungarian government has postponed the creation of these special administrative courts, independence of the judiciary remains a concern in Hungary as shown by the latest European semester report as well. 99

Conclusions
This paper voices two main points of criticism concerning the Directive that has its aim to make national competition authorities more effective enforcers of competition law. First, the paper analyzed how the multi-level enforcement system that was created by the States voluntarily also converged their procedural framework to that of the Commission's procedures, it has been the work within the ECN and with the dominant guiding role of the Commission that convergence has been encouraged. While convergence has so far been documented and encouraged through soft law documents within the framework of the ECN, the Directive is now hard law that necessitates convergence. This, however, does not mean that such guided convergence will in fact result in more effective enforcement. Second, as the case of Hungary shows and the particular provisions on institutional capacity (independence and accountability) there is a real risk that the Directive will be implemented and fully complied with in Hungarian law without producing any significant impact on more effective enforcement. Hungary's example shows that institutions interact and influence law enforcement in very subtle ways. In a country where the overall institutional capacity of administrative authorities has been weak for the past years, where the competition authority has been several times constrained directly by the government or by legislation to conduct proper competition law investigations and where both political and judicial accountability is decreasing or altogether disappearing, a future implementation in the blackletter law will be