The German ministerial permission: Reform incoming?!

Today the new coalition of the SPD, Greens and FDP, the so-called “traffic-light coalition”, published its coalition agreement. Rumours that the ministerial permission is to be abolished have not materialised. However, the new coalition plans to improve the right of third parties to appeal a ministerial permission and to potentially even involve the German parliament in the permission procedure. Time to look back on some of the most prominent past cases and to venture an outlook on the potential changes.

The ministerial permission in German competition law

The ministerial permission was introduced into German competition law at the same time as merger control rules were implemented. This was in 1973. Back at the time, there was some uncertainty about how the new merger control rules would play out in practice. For this reason, the ministerial permission was introduced as a political corrective (at the time Hans Friedrichs from the German liberal party FDP was Minister of Economic Affairs). Earlier drafts even provided for the Federal Cartel Office to only have the right of making a declaratory decision, with the final decision resting upon the Federal Minister of Economic Affairs. Thus, it is fair to say that the ministerial permission has always lain (and still lays) at the heart of the interplay between antitrust and politics.

Since its introduction, the ministerial permission faced criticism from various stakeholders. This might be one of the reasons that the Ministry of Economic Affairs has been cautious in using its power. Out of 23 applications submitted, only 10 received a ministerial permission. Some of the cases in which a permission was granted are well known, even outside the antitrust community:

• The ministerial permission for the merger between E.on and Ruhrgas in 2002 really has it all: The Bundeskartellamt had prohibited the merger because it would lead to the strengthening of dominant positions in both gas and electricity markets. E.on and Ruhrgas applied for a ministerial permission. The Minister of Economic Affairs at the time, Werner Mueller, excused himself from the decision because he had worked for a predecessor company of E.on. State Secretary Alfred Tacke, who was supposed to decide instead of the Minister, stayed away from the legally required hearing and nevertheless granted the ministerial permission. The ministerial permission was inter alia justified by the fact that a new “global player” would emerge for the benefit of the German economy (yes, the Siemens/Alstom-discussion is not a new one). According to the permission, Ruhrgas not only had a strong financial partner in E.on, sales were also secured and Ruhrgas position in international competition was to be strengthened. A competitor then obtained an injunction to revoke the permission on the grounds of a formal error (Tacke not attending the hearing), other companies also joined the lawsuit. Before the final decision of the court in this case, however, E.on reached an agreement with the claimants, and they withdrew their complaint against the ministerial permission one hour before the court was to hand down its decision in the case.

• No less spectacular is the case Edeka/Tengelmann. As discussed briefly in our earlier blogpost on election programmes, the Minister of Economic Affairs at the time, Sigmar Gabriel from the SPD, permitted the merger after the Bundeskartellamt had prohibited it. The permission was justified with the preservation of jobs as an overriding public interest reason. The permission was then – due to complaints from competitors – declared unlawful by the Higher Regional Court of Düsseldorf, inter alia, because Minister Gabriel met twice with the chief executives of Edeka and Tengelmann for discussions about the ministerial permission but had not put those conversations on record. As in E.on/Ruhrgas, Edeka and the complainants ultimately settled the case, and the claimants withdrew their complaints. After the decision of the Düsseldorf court and as reported in one of our earlier blogposts, the then governing coalition of CDU and SPD de facto abolished the possibility for third parties to challenge a ministerial permission in court after this decision. The new governing parties seem to have agreed to reverse these changes (see below).

• The most recent case of a ministerial permission is not as exciting as the two others in terms of procedure. Minister Altmaier from the CDU granted a ministerial permission to the merger between Miba and Zollern in 2019. However, the Minister’s reasoning is interesting: The current and future fields of application of bearings were decisive for the granting of the ministerial permission. The Minister held that plain bearings are a small but central part of the value chain of products that play an important role in the energy transition process, such as wind turbines and biogas plants.

The ministerial permission has supporters and opponents

There are some reasons that speak in favour of the ministerial permission. For example, some argue that reasons of public interest, which would not be taken into account, or not as strongly, within the framework of merger control proceedings, can be considered by the ministerial permission. According to those in favour of the ministerial permission, it can solve the question of whether the restriction of competition is outweighed by macroeconomic benefits. For the Bundeskartellamt, the ministerial permission has the advantage of not having to deal with such conflicts of objectives itself, but to have the ministerial permission procedure as some sort of back-up. In such cases the ministerial permission serves as a “valve” for political pressure.

However, others question whether the ministerial permission is still needed alongside modern merger control law. Many see the ministerial permission as a relic from a time when merger control procedures were not trusted. In addition, it is argued that the ministerial permission enables politics to exert too much influence over what would otherwise be purely merger control proceedings and that large corporations in particular benefit from the ministerial permission because they can more easily assert concerns of the general interest. Some say that the small number of cases was misleading with regard to the dimension of the ministerial permission, as the Bundeskartellamt only prohibits a few mergers anyway. In addition, the ministerial permission in the E.on/Ruhrgas case in particular is considered by many as a severe mistake which cemented monopoly conditions.

What will change in the future?

The ministerial permission has always been an instrument to take into account political considerations, macroeconomic benefits and overriding public interests in the context of transactions. Although this can be considered questionable from a regulatory point of view, it seems to have made the Bundeskartellamt’s work easier. If political arguments were raised in merger control proceedings, the Bundeskartellamt could (and does) dismiss them easily by referring to the ministerial permission process. This has certainly helped the regulator in some cases not to further complicate already complex proceedings. Accordingly, the president of the Bundeskartellamt Mr. Andreas Mundt has repeatedly said that the ministerial permission is a “useful tool”.

It will be interesting to see what exactly the new coalition will change with regard to the ministerial permission, especially because it is indicated in the coalition agreement that the parliament should be involved in the process. Will they only reverse the changes which were made following Edeka/Tengelmann and strengthen the right of third parties to fully challenge a ministerial permission? Or will they even go further and change the ministerial permission into a parliamentary permission? The latter would fundamentally change the character of the permission. As a consequence, the parliament would make individual decisions in favour of or at the expense of individual undertakings, but that is a responsibility of the executive. Furthermore, the complexity and the timing of the permission would change. Above all, the question arises as to how such a permission can be judicially reviewed. We will keep you updated on what is to be expected for German competition law overall once the (supposedly) new government coalition has revealed more details than in the coalition agreement.