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International Cooperation in the Field of Competition
A View from the EC
Speech by Commissioner Karel Van Miert on October 16, 1997
Fordham - 24th Annual Conference
It is again a pleasure to be here at Fordham with an opportunity to offer a European perspective on international cooperation in antitrust matters. Nowadays cooperation between competition authorities in different parts of the world is a necessity. In the past antitrust enforcers have been able to prosper in the splendid isolation of their respective jurisdictions. This time has come to an end.
There is no need to come back to the general effects of globalization extensively. A lot has been said on this issue. What I would like to point to is the impact of globalization on the policies carried out by Governments. Firms with multinational activities are forced to adapt to the emerging world markets. Decisions taken by industry headquarters can change the competitive environment overnight. Strategic moves by major players are felt all over the world and have consequences for the final consumer, for business partners, competitors, employees. Competition concerns raised by their conduct or by their transactions transcend national borders.
Take for instance international cartels, export cartels, mergers on a world scale, abuses of dominance on several major markets. Firms involved are subject to different competition rules with different criteria for taking decisions, different procedures, different time limits. Action in some countries against anticompetitive practices may be less rigorous than in others. This may have foreclosure effects in some markets and result in trade friction. Trade disputes undermine the positive results of efforts deployed in multilateral fora to open up international trade. Furthermore, antitrust authorities may lack the necessary instruments to deal with practices which affect competition on their territory but are organised in third countries. Finally, remedies adopted by an antitrust agency in order to ensure competition within its jurisdiction may seem legitimate, but may sometimes adversely affect the interests of another country. They may also directly conflict with remedies adopted in the same case by another authority.
To overcome these difficulties we need to take into consideration each others concerns and, to the fullest extent possible, devise remedies compatible with one anothers and coherent throughout the relevant market. Failing to do so gives private parties the opportunity to pit antitrust enforcers against each other. We risk also treating companies in an inefficient manner or making them suffer fragmentary and incoherent solutions imposed upon them by antitrust authorities ignoring each other.
So clearly we must cooperate.
But what is for us Europeans the best way to go about it ? Should we cooperate within a multilateral framework, like for instance within the WTO or the OECD ? Or through a network of bilateral agreements like the one we have concluded with the United States ? What are the advantages and pitfalls of each approach ?
You will agree with me that by opting for bilateral instruments we can probably push cooperation further and more quickly among partners with converging substantial rules and similar attitudes vis-a-vis key competition issues. The question is how much further are we able or willing to go. Are so called first generation agreements, which only allow for consultations and comity, enough ? Do we need to go further and envisage for instance the exchange of confidential information or the possibility to carry out enforcement activities on behalf of each other ?
I will give you my view on these issues, knowing that our experience in this area is probably not enough to supply answers to all questions that can spring to mind.
I will consider a number of different types of international cooperation. I will not deal with the most conspicuously successful mechanism for cooperation, so successful that we now think of it as a domestic arrangement: the European Union itself !
II. Multilateral or Bilateral framework for cooperation ?
The main advantage of multilateral cooperation frameworks is their tendency to achieve convergence among the largest number of the countries involved. Experience for instance from GATT negotiation rounds points to this direction. General Agreements set up common substantive rules. Members agree - to give an example - on which subsidies are acceptable and which are not. Is this approach a valid one for antitrust ? Can we achieve something concrete in the short and medium term ?
(1) WTO - the Working Group on Trade and Competition
The "Wise Men Group", which I set up in 1994, made some quite interesting proposals for a multilateral framework of competition rules. Its recommendation for a fully fledged international instrument, including adequate enforcement structures, a core of common principles and a positive comity provision remains far-sighted and valid in my opinion. The same applies to the proposed dispute settlement mechanism. I must make clear though that this mechanism should not aim at reviewing individual decisions by antitrust authorities. It should be used to settle disputes between Members on their compliance with agreed rules and principles.
You will further recall that the EU, on a proposal by the Commission, suggested last year to address these problems in the WTO. The mandate handed to the Working Group on Trade and Competition set up last December by the Singapore Conference is one of limited scope. The Group is examining "issues ... relating to the interaction between trade and competition policy, including anticompetitive practices, in order to identify any areas that may merit further consideration in the WTO framework".
This Working Group is by no means a forum for negotiations. It may not even prejudge whether negotiations will be undertaken. The Group will consider whether it is worthwhile to pursue this attempt to increase international consciousness of the importance of competition policy and of international cooperation in this field. It will be for the WTOs General Council to decide how to proceed further.
It seems that early indications from the Groups work in Geneva are encouraging. In general developing countries and countries from other regions (e.g. Latin America) show an increasing interest in the WTO. We will play a full part in persuading the Member States of the WTO of the merits of competition policy and the need to meet the challenges of global markets. For the time being, there are strong differences of view. On one side we find those (like the US) who view with a certain amount of apprehension the excessive intrusion of an international body into the area of antitrust policy enforcement. On the other we have those (like some Asian countries) who might be tempted to use this new forum to question the legitimacy of trade defence instruments.
I remain confident that our arguments in favour of international action on trade and competition will win the day. And, as I said, early signs give me reason to be hopeful in this regard.
(2) OECD - The Recommendation
Another multilateral forum for antitrust is offered by the OECD. It has already given the antitrust community a "first generation" instrument for cooperation in the form of a Recommendation, issued in 1986 and last revised in 1995. It establishes a basic framework for cooperation between antitrust authorities in member countries. Certainly, compared to the WTO, the OECD presents less convergence problems by far. Members have more or less similar basic antitrust statutes and defend broadly the same ideology on most major issues.
The European Commission cooperates with all members of the OECD. However, our cooperation activities under the OECD instrument are considerably less intensive and less case-oriented than the cooperation we entertain with the US under a bilateral instrument. This is for part explained by the fact that the US is a major trading partner. We both have to deal with an important number of cases affecting both markets. This in turn generates the need for custom-made bilateral cooperation agreements providing for clear rights and obligations for both parties. Such agreements appear to work better for this type of close cooperation I am about to describe in detail.
III. Bilateral cooperation
(1) EU/US cooperation: the 1991 Agreement
As you know, our relations with the US are governed by the bilateral agreement of 1991. I will not go into details on the provisions of this agreement. They have been presented and discussed in this room often enough in recent years. I would rather like to give you an update on how the agreement works in practice, its good points and its limitations.
The exchange of basic information in the form of notification, or in less formal ways, is the clearest obligation stemming from the agreement. The agreement provides for an alert system whereby each party notifies its partner when it deals with cases which may affect important interests of the latter. Successive notification may occur in the same case: e.g. in a merger case we shall notify at the outset of the case, then, when appropriate, when the Commission decides to initiate proceedings and, eventually, " far enough in advance ...to enable the other Partys views to be taken into account", before a final decision is adopted. This part of the agreement works well and is, I would think, beneficial for both parties.
Provisions on coordination of enforcement activities are also very important. In all cases of mutual interest it has become the norm to establish contacts at the outset in order to exchange views and, when appropriate, to coordinate enforcement activities. The respective approaches on the definition of relevant markets are very often central to the discussions. We will often exchange views on possible remedies in order to ensure that they do not conflict. Cooperation may also, in certain cases, help to clarify a point of foreign law relevant to the interpretation of an agreement or to the effectiveness of a remedy. Factual elements relevant to the case are also exchanged within the limits of legal constraints on the protection of confidential information. Cooperation under this heading has recently involved a successful synchronisation of investigations and searches. This is designed to make fact-finding action more effective. It also helps prevent companies suspected of cartel activity from destroying evidence located in the territory of the agency investigating the same conduct after its counterpart on the other side of the Atlantic has acted.
Until very recently the provisions on traditional and positive comity have not been formally activated, although they may have been a source of inspiration in daily cooperation. We are for instance within the realm of traditional comity when we cooperate in a certain case to bring our respective positions and remedies closer to each other in order to avoid creating a harmful effect to the market of the partner. We may draw the attention of the partner to our concerns in a certain case. This may open a new trail for his investigation and lead to a final result taking our interests into consideration in a more appropriate way.
Activation of the positive comity provision was felt appropriate in a recent case. The US authorities requested the Commission to investigate specific allegations of discrimination regarding the operation of a computerised reservation system (Amadeus) set up by Lufthansa, Air France and Iberia. The Commission is currently investigating the case in close cooperation with the DoJ.
Another noteworthy case is Boeing. The Boeing/McDonnell Douglas merger is one of these rare cases, which - if nothing else - demonstrate how appropriate the "case by case" approach is for antitrust.
In dealing with Boeing the European Commission was able, despite the ambient noise, to keep a clear mind and obtain positive results for competition policy on one hand and for our cooperation with the US on the other.
The first lesson I would like to draw is that successful cooperation with our US partners in the area of antitrust can only occur within a clear legal framework. Issues of industrial or trade policy, which may already be subject of bilateral arguments with a partner like the US, should not be allowed to cloud our judgement or become entwined with competition issues when scrutinising a transaction.
However, Boeing illustrates the natural limits of this type of bilateral cooperation. Procedures of notification and consultation and the principles of comity and positive comity allow us to bring our respective approaches closer in cases of common interest (and we have had some of them recently), but there exist no mechanisms for resolving conflicts in cases of substantial divergence of analysis. A multilateral (for instance within the WTO) or bilateral arbitration mechanism, which would allow us to go beyond the limitations of Community interest or national U.S. interest is inconceivable under current circumstances. I even wonder whether this should be pursued as a goal in the longer term. We must therefore admit that we can profitably cooperate in the majority of cases and admit that there are infrequent situations where our approaches diverge.
Our decision to challenge this merger, and the remedies we required before authorising it, were unexceptional.
On the issue of jurisdiction our approach does not differ from the one adopted by the US authorities in cases like Novartis or currently in Guinness/Grand Metropolitan. In this context I would like to point out that in Nippon Paper the US authorities went beyond what we did in Boeing. They challenged a cartel between companies who do not sell directly in the US market. Under similar circumstances we would probably have done the same. It is clear that if anticompetitive conduct originating outside the European Community or a transaction between companies incorporated in third countries is implemented within the Union and affects prices or consumers in Europe, we intend, like the US, to apply our law to the full.
As regards the substance of the case, we certainly felt entitled to express concern in the face of a merger with a post-merger HHI reaching nearly 6000 points and an HHI increase of more than 700 points. According to the US Guidelines, such mergers presumptively enhance market power and Government is "likely to challenge". For us this merger could jeopardise the competitive process creating an incumbent with enough market power to stifle competition and foreclose potential entry. It was argued that Douglas Aircraft (DAC) was no longer a real force in the market for new aircraft on a stand-alone basis. However, integrated into the Boeing group, DAC represented a significant factor in the market. So we did not focus our analysis on a "distressed company" concept taking into account the pre-merger situation of DAC and its difficulty to continue competing. We opted for a dynamic view of what DAC could bring to the commercial strength of Boeing: access to an important fleet in service, additional capacity and, not least, enhanced possibility to offer exclusive deals. The bottom line was for us more a question of whether a dominant firm like Boeing should be allowed to enhance its dominance by acquiring a competitor, than whether Douglas Aircraft could keep its head out of the water in the medium term.
Now, regarding the exclusivity arrangements I would like to stress that we have long had in Europe a rigorous approach to vertical restraints. It is said that under US law exclusivity deals of a cumulative order of 13% market share would fall into a safe harbour. However, if it is true that there was no chance to challenge such agreements successfully in court, even in cases like Boeing, I would be tempted - with all due respect - to find this worrisome. Particularly since exclusivity deals can, under certain circumstances present in Boeing (such as the long duration of the agreements) snowball into something very hard to stop. This is of course an internal US problem. Nevertheless, such agreements can exercise a direct foreclosure effect on foreign companies and, consequently, we would expect that the US, for instance on the basis of positive comity, should have the means to impose adequate remedies. For us the exclusive deals were related to the anticipated merger and abandonment of them was necessary.
The fact that the exclusive deals contested in Boeing were between US companies implemented in the US is irrelevant. Large commercial aircraft are a world market. The agreements foreclosed 13% of this market for the next 20 years, and this in addition to the 70% post-merger market share of Boeing. One last word on the exclusive deals. It is not the first time that we request the termination of exclusivity agreements. We have done the same in Fiat Geotech/Ford New Holland in 1991, where Fiat had to terminate an existing exclusive purchasing arrangement with a central purchasing organisation for agricultural machinery. The licensing remedy was not invented by us. The US authorities imposed similar remedies in Boeing/Rockwell and Novartis.
As regards the nature of the remedies in Boeing, I must say that the situation was rather unusual. After the merger only two players were left in the market for large commercial aircraft. Airbus had no interest in buying DAC. No other companies were interested in entering the market through acquisition of DAC. Therefore the classical remedy, divestiture of DAC, was not available. Putting DAC in the hands of an independent trustee with a mandate to sell would have given rise to a tendering procedure without any chance of success. Personally I think that a "divestiture" of this sort could not satisfy our competition concerns. And under the circumstances (no serious purchaser in view) it would have been harsh for DAC employees. Furthermore, we had to consider the difficult problem of spill-over effects from defence and space activities. In such a situation, the Commission accepted a package of commitments. Some are structural, some are behavioural in nature.
We complied fully with the comity principle which we believe to be an established part of international law and know to be part of the EU/US Agreement of 1991 on cooperation in competition matters. Comity is not, as a learned judge held recently in this country, a mere "aspiration": it is a rule which governs our international relations. In Boeing we took full account of the important interests of the USA, which its Government represented to us, in the way in which we dealt with military aspects of the case and relevant features of the civilian aspects too. Also, I would not agree with the suggestion that European competition policy is somehow more concerned with competitors than competition. Our overriding objective is to promote consumer welfare by protecting the competitive process. This means that we will resist attempts to dominate our markets by merger or take-over, whoever the protagonists may be, wherever they may be headquartered, and however powerful their friends may be. Our law is not a football to be kicked around by special interest groups. National champions are for sport, not economies. In Europe the consumer is the champion.
(3) Some further aspects of concern
Boeing was certainly not an ordinary case but in the aftermath of the decision it is business as usual for EU/US cooperation. So I would like make some more prosaic and practical remarks.
Timing of merger procedures is certainly a problem. When the DoJ or the FTC issues a second request, parties can control the timing of the procedure by "starting the clock" at their convenience. Even when parties notify simultaneously to the Commission and to the US authorities, firms have a tendency to deal with us first and comply with second request once they have our green light in their hands. That can give rise to an imbalance in the bilateral relationship since at a certain stage in the procedure we might have more information to give than to receive. However, Boeing demonstrates that the opposite is perfectly possible.
On the other hand when we negotiate a certain remedy, the US authority subsequently dealing with the case can examine our decision, take the remedy we obtained as a starting point (if applicable in the USA) and ask for something more. However, I must admit that when one authority has given its green light to a merger, it is more difficult for the next one dealing with it to obtain the remedies it judges necessary.
I do not have ready solutions to these problems. Increased cooperation during the crucial phases and coordination of procedures and remedies seems to be the most appropriate method.
(4) EU/Japanese cooperation
Let me say a few words about our cooperation with Japan in recent years. The three joint public seminars on competition law that DGIV has held together with the JFTC in 93, 94 and 95 have been successful in comparing the EU and Japanese approaches on a variety of issues such as, for instance, private restraints to international trade and the elimination of immunities and exceptions from competition rules. The regular annual bilateral meetings between DGIV and the JFTC enable us to consult each other and exchange views on a broad range of legislative and enforcement issues.
Furthermore we expect that the proposals initiated by the JFTC in the second revision of the Deregulation Programme announced last March by the Japanese Government will succeed in improving the structures of competition in Japan. We see an important role for the JFTC in dealing with anti-competitive behaviour on the Japanese market. In this respect we would like the JFTC to pursue a more rigorous enforcement policy in the future. Companies experiencing difficulties in Japan should submit formal complaints to the JFTC under the Japanese Anti-Monopoly Act in test cases of anti-competitive behaviour occurring in Japan.
IV. Use of antitrust laws with respect to market access problems
I will examine now another key issue to this mornings session: the possibility of using antitrust laws to resolve market access problems. But first I would like some clarifications: whose antitrust laws for access in whose market ?
(1) Unilateral use of US antitrust to address foreign market access barriers
Let us take a worst case scenario: use of US antitrust rules to gain access for a US company exporting to the European market and allegedly facing barriers erected by anticompetitive practices of incumbents. This is a plausible scenario after the suppression in 1992 of footnote 159 in the 1988 Antitrust Enforcement Guidelines for International Operations, and particularly following the adoption by the DoJ and the FTC of the new Guidelines in 1995. In principle the Sherman Act may be applied to anticompetitive conduct occurring outside the US, when this conduct has a direct, substantial, and reasonably foreseeable effect on exports of goods or services from the United States.
The territorial reach of US antitrust jurisdiction is one aspect of US antitrust policy which has given rise to much controversy and disquiet. In my opinion, if the US market or US prices and consumers are not affected, unilateral use of antitrust rules is not the best way to tackle market access problems.
It is difficult to accept that an already mature system of cooperation which includes provisions on positive comity should co-exist with the possibility of unilateral action carried out by one party against restrictive practices implemented on the territory of the other party which have no effect on the market or the consumers of the former.
(2) The envisaged EU-US positive comity agreement
As the Community has never formally claimed territorial jurisdiction as extensive as that which is claimed by the US, this situation was viewed as an imbalance in our bilateral relations and an obstacle to any further deepening of these relations. For this reason we have decided to negotiate a strengthening of the positive comity instrument. We believe that the new draft agreement which the Commission adopted last July, and which will soon be concluded, will be a significant contribution to rebalancing relations in this respect.
Of course the future agreement, like the current one, does not alter existing law, nor does it require any change in existing law. However, it does create a presumption that when anticompetitive activities occur in the whole or in a substantial part of the territory of one of the parties and affect the interests of the other party, the latter "will normally defer or suspend its enforcement activities in favour of" the former. This is expected to happen particularly when these anticompetitive activities do not have a direct, substantial and reasonably foreseeable impact on consumers in the territory of the party deferring or suspending its activities.
Deferral will only occur if the party in the territory of which the restrictive activities are occurring has jurisdiction over these activities and is prepared to deal actively and expeditiously with the matter. When dealing with the case that party will keep its counterpart closely informed of any developments in the procedure, within the limits of its internal rules protecting confidentiality.
Nothing legally precludes the "requesting authority", that is the authority that chose to defer or suspend its enforcement activities, from later initiating or reinstituting such activities. However, in such a case, it will have to inform the other authority of its intentions and reasons.
Furthermore it should be noted that the agreement does not deal only with situations where, as described before, the US might have been tempted to use antitrust rules for trade purposes only, that is in situations where the restrictive activities are harmful to US exports but have no effects on the US market or the US consumer.
Indeed the agreement covers also the very frequent situations where the same business practices have an impact on both markets but principally occur in, and are directed towards, one of the two markets. In such a case it will be "normally" for the authority of the market principally affected to deal with the case.
Last but not least I should add that this draft agreement is not applicable to mergers.
This agreement should be adopted formally soon. I believe it will constitute a substantial step towards closer cooperation through confidence building.
(3) Is an EU/US MLAT under the IAEAA a starter ?
A further possible and also - at least in Europe - controversial way to consolidate our partnership with the US would be through the conclusion of an arrangement making it possible to share confidential information and use compulsory process on behalf of the other party.
This is a very difficult and delicate matter and time does not allow me to discuss all its implications.
One thing is sure: the current constraints imposed by our respective internal rules on protection of confidentiality limit the scope of our cooperation with the US authorities.
At present we need a waiver from the company concerned in order to share confidential information. In cases of serious infringements (cartels, abuses of dominant position) the necessary "good will" is not there, unless the companies are willing to cooperate in order to get a more lenient treatment. On the other hand from our own experience in building up the single market, we know that when state barriers to trade are dismantled, businesses are tempted to protect their traditional national markets through mainly horizontal arrangements. Furthermore, we know that the US authorities have been active in this area in the last few years and that many of the cartels investigated here have an international scope.
Thus I accept that the possibility of exchanging information in cartel cases would enhance the efforts of both sides to focus their actions on the most serious infringements of competition law.
This being said we are also aware of the concerns expressed by businesses about their legitimate right to have information given to DGIV duly protected. Furthermore, many voices have pointed to the differences between substantive rules in the US and in Europe and the risk that the US might use information supplied by the Commission in a way that would harm European interests.
These concerns are taken seriously by the Commission. However I have three reasons to believe that some move forward may be appropriate. First, our experience in implementing the current cooperation agreement has shown that our views more often coincide than differ. Secondly, differences between European and American rules are less important when it comes to the most serious infringements, such as hard core cartels and the most serious cases of abuse of market power by dominant firms. This may open the way for cooperation limited to this type of situation. Finally, in other areas where the regulators of our Member States have developed close cooperation with the US (customs, securities, drugs), discrepancies between rules do not seem to have precluded effective cooperation.
This being said, we are studying very carefully, in conjunction with experts from Member States competition authorities, the particularities of US procedural rules in order to identify the guarantees that should be obtained in order to ensure that information originating from European companies could not be misused or unduly disclosed. I would like to stress that all this work is at a preliminary stage and that at this moment we are still in the middle of a fact finding exercise. In this context I would also like to point to the recent OECD work on a "second generation" Recommendation concerning effective action against cartels. The draft proposal under discussion at the OECD include the exchange of investigatory information between antitrust authorities. We follow this process with interest and we expect that it will be beneficial for our reflection on the broad lines of a possible MLAT with the US.
As it is now time to conclude I would just like to add that I hope I have been able to convince you that international cooperation in the area of antitrust, is probably the best solution to the problems created by globalization and certainly deserves more attention and contributions from all sides. Frankly, we have no choice. We are condemned to succeed, to find new ways to live and work together.