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Competition
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Competition

What does a level playing field mean in the global economy?
by Commissioner Karel Van Miert

30/01/1998

DAVOS - World Economic Forum

 

 

The topic of this plenary session, "competition policy : what does a level playing field mean in the global economy?" is an invitation for a debate on what must be done to provide economic operators with equivalent conditions when competing with foreign firms.

It is a great pleasure to be able to take part in this debate.

In recent decades the volume of trade has grown at a spectacular rate, doubling every seven or eight years, while foreign direct investment has even grown more dramatically. There are also larger multinational firms, and also more commercial practices that have an international dimension.

In such a context, every country has to make sure that firms are competing on an equivalent basis, even if they choose to operate beyond the limits of a national market. We know, however, that such a target is difficult to reach if these firms are subject to different competition rules with different criteria for taking decisions, different procedures, different time limits. The principle of equivalence is also violated when anticompetitive practices result in sanctuary market profits, or when remedial action is prevented by the fact that evidence of anti-competitive practices is located outside the jurisdiction of a competition authority.

It is thus in the interest of any country to seek for itself, and for its trade partners, an external dimension to its competition policy. And I understand that this opinion is shared by many.

A global perspective on competition rules is not a new concern. The Havana Charter was a first attempt to introduce competition rules at an international level. It was not ratified. The more modest recommendations of the OECD on the trade-competition interface have been the main provisions in this field. For decades, we managed to live without proper international rules on competition, but this situation cannot persist.

For several years now, the European Commission has been considering how best to address these problems. You might remember that at the 1992 Davos conference, Sir Leon Brittan’s speech anticipated the evolution of the European Union’s policy in this area.

One question is what is the best approach to establish an international framework of competition rules. Should we try first to work on further convergence as suggested by some business representatives and then enter into closer cooperation agreements? Or is it not better to adjust the degree of cooperation to the existing level of convergence? I am convinced that both approaches are not incompatible with each other. In 1994, I requested a group of independent experts to set out an approach which the EU could adopt. The group recommended that efforts should, in the future, be made on two parallel fronts : deepening the existing forms of bilateral cooperation; and developing a multilateral framework of competition rules including a commitment by all countries to apply competition rules.

I will take these two points in order.

I Deepening the existing forms of bilateral cooperation

Deepening means improving what already exists. Therefore, we need first to take stock of the different types of agreements concluded by the European Commission on behalf of the European Union with third countries and then to analyse the improvements which could be considered.

A - The different types of agreements concluded by the European Commission with third countries

The EU has concluded various types of agreements with third countries.

1) Agreement on competition

A key example of the EU’s bilateral policy in the field of competition is the agreement concluded with the USA in 1991. When this agreement was signed the parties were facing a growth in transatlantic transactions and they wished to ensure a more effective and efficient application of their respective competition rules, especially in view of the development of transborder anticompetitive practices.

The objectives of this agreement are to promote a better coordination of competition policies, further cooperation where possible (although this is presently limited to the exchange of non-confidential information and does not permit sharing business information), coordination of actions, and the respect of principles of comity when implementing competition rules in individual cases. An original element is the inclusion of a so-called positive comity instrument whereby one country can ask the other country to act in those cases where the practice falls within the latter’s jurisdiction but affects the former’s important interests. The EC-US Agreement finally also includes provisions on mutual notification of cases.

The Commission’s experience of cooperation with the US since 1991 has been positive. The Agreement has undoubtedly proved its worth as a vehicle for sharing views on policy developments and for cooperation in individual cases.

Most cases of cooperation, which can range from merger reviews to cartel investigations, start by a discussion of the timing of the respective procedures. Checking when each step in the procedure is likely to be taken is a key element in determining the evolution of future cooperation and the scope for coordination of enforcement activities.

Further, discussions frequently focus on the product market to determine whether both competition authorities have arrived at similar conclusions. These discussions are based on information which is publicly available. Under present rules, exchange of confidential information can only occur with the agreement of the firms through the grant of a waiver of their confidentiality rights. In fact, frequent exchanges of information have taken place after such waivers.

Although agreements such as the EC/US agreement will not suffice to avoid possible conflicting views, because parties retain independent analysis and decision-making rights, they do contribute to improving the effectiveness and efficiency of the parties’ competition laws and reduce the risks of divergent decisions.

The Commission is currently negotiating a bilateral agreement with the Canadian Government which is similar to the 1991 EC/US agreement. It is hoped that it will be adopted soon.

2) Agreements with other European countries

a) European Economic Area Agreement

The EU has also entered into agreements with other countries.

For example, the European Economic Area Agreement which was concluded between the then twelve members of the EEC and six members of the European Free Trade Association, came into force on 1st January 1994 (three of these countries, Sweden, Austria and Finland have since joined the European Union). The countries concerned (now Norway, Island and Lichtenstein) are subject to rules identical to the provisions of the EC Treaty, secondary legislation, as well as interpretations given by the European Court of Justice.

b) Europe Agreements

The European Union has also developed close relationships with the Central and Eastern European countries, including the Baltic States. The so-called "Europe Agreements" are seen as paving the way for future membership of the Community. The rules of competition play an important role both in the framework of these agreements and in the Community's pre-accession strategy with respect to these countries. In the same logic as applies within the Community, it is felt that the elimination of trade barriers between countries should be supported by the establishment of competition law structures in order to ensure that public barriers are not replaced by private barriers with the same effect.

The Europe Agreements also provide that the competition system set up between the Community and the Associated Countries should mirror the system which exists within the Community : the national competition laws of these countries and the rules applicable to practices that affect trade between them and the EU are inspired by the principles of Community competition law. These countries are in the process of establishing the necessary structure for a credible enforcement of those principles and establish the procedural framework for the cooperation between the two parties. Important progress has been achieved. However, there is still some way to go, especially concerning effective enforcement.

Under the PHARE programme the Commission provides technical assistance to the Associated countries in the field of competition to help them develop the necessary legislation, to establish the appropriate structures and to train the officials of the competition authorities.

3) General agreements including competition provisions

The Community has also concluded general agreements with third countries which include competition provisions. I think especially of Association agreements (for example with Israel, Morocco and Tunisia), Partnership agreements (for example with Russia, Ukraine, Moldova and other CIS countries). A customs union agreement including competition provisions has also been concluded with Turkey.

Negotiations are also under way with many other countries like Egypt, Jordan, Lebanon, Algeria, South Africa and some Latin American countries.

4) Informal cooperation

Finally, the European Community has developed informal bilateral relations on competition with many other countries.

B - Improvement of bilateral cooperation

The Group of experts that I have already mentioned considered that cooperation between the EU and the USA should imply a commitment by the parties not to act unilaterally unless all means provided by comity have been exhausted. Deepening bilateral relationship also means overcoming the difficulties relating to information sharing.

I now propose to address briefly these two points.

1) Commitment not to act unilaterally

In October 1996 the Commission was granted a mandate by the Council to enter into negotiations with the United States in order to reach an agreement which would strengthen the positive comity provisions of the EU/US Agreement.

Negotiations have been extremely productive and a draft Agreement has been provisionally approved by the US authorities. It is expected that the Council, having received the opinion of the European Parliament, will approve the Agreement very soon.

The draft Agreement provides that a competition authority will normally defer or suspend its own enforcement activities in respect of certain anti-competitive activities which occur principally in and are directed principally towards the other Party’s territory, where that other Party is prepared to deal with the matter.

This new Agreement would constitute an important development, since it represents a commitment on the part of each party to cooperate with respect to antitrust enforcement, rather than to seek to apply its antitrust laws extraterritorially.

2) Information sharing

In an ideal world, the exchange of confidential information between competition authorities would lead to a more efficient application of our respective competition rules, with all the attendant benefits for business and for consumers.

However, even in countries or regional groupings of countries with developed systems of competition rules, competition policy serves different policy objectives.

This calls for appropriate safeguards on the disclosure and use of shared information. The effectiveness of such protection will in the first place depend upon the internal legal system of the member countries concerned and the legal nature of the implementing agreement. For example, US legislation provides that an antitrust mutual assistance agreement may not prevent the disclosure of antitrust evidence received under such agreement to a defendant in an action or proceeding brought by the DoJ or the FTC for a violation of any of the Federal laws if such disclosure would otherwise be required by Federal law.

The Commission, with the help of a working group is discussing ways to overcome these difficulties. 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 exercice. However, if we manage to identify the guarantees needed to ensure that information originating from European companies would not be misused or unduly disclosed, a draft mandate to negotiate on this issue could be proposed in due course to the European Council.

I would also like to mention that the OECD is discussing on a "second generation" recommendation concerning effective action against cartels. The draft proposal under discussion includes the exchange of investigatory information between antitrust authorities in some circumstances, and could therefore be beneficial for our consideration of the broad lines of a possible agreement with the US.

Bilateral agreements are an important means of developing international cooperation and of promoting competition principles and they will remain so in the future. However, this is not the whole story. Agreements so far have tended to be concluded between countries taking a common view of competition policy and sharing a commitment to enforcement. Moreover, the case by case approach of bilateral agreements is not sufficient to meet all the concerns raised by globalisation. Regional cooperation is also a means of overcoming some difficulties resulting from globalisation. The European Union has a long and rich experience in this area. There are also more recent experiences in other continents, Mercosur in South America, and UDEAC in Africa, for example. But this type of cooperation is by definition geographically limited. If we are to be able to reap the benefits of greater trade liberalisation, a more comprehensive and consistent approach is necessary.

II developing a multilateral framework of competition rules.

The question I would like to address now is how public international law should be complemented by a specific framework to support competition law enforcement ? This question leads to another question: what is the most appropriate forum to debate this issue, the WTO, OECD or UNCTAD ?

There are several institutional arguments for choosing the WTO as the forum for the negotiation and establishment of an international framework for competition rules. For instance, the WTO has near universal membership and can provide a balanced response to the interests of developed countries. It is important that we do not underestimate the advantages of involving the wider international community in the trade and competition debate nor the disadvantages of excluding it.

Having said this, I would like to stress that the EU and its Member states attach considerable importance to the continuing role of the OECD and UNCTAD.

Let us see first how the WTO could contribute to the debate

A - WTO

The European Union has taken the initiative to start a process of reflection and exploration in this field. It may of course be tempting, from a theoretical point of view, to think of an international system of common competition rules for cross-border issues. Such a system has been working effectively within the European Community for decades. But it would not be realistic to extend this experience outside Europe for many reasons: problems of national sovereignty, different economic and legal traditions, etc...

The approach we have chosen is prudent, pragmatic and progressive. What we have in mind is, in a first stage, a limited framework of competition rules. We would afterwards see what else could be done.

For the first stage, we have suggested that a WTO working group with an exploratory mission in precise areas be set up. You may know that this proposal has greatly inspired the Singapore ministerial decision to "establish a working group to study the interaction between trade and competition policy".

What would the working programme of this group be for this first period? We suggested four areas of reflection:

- The first condition for development of cooperation at the international level is that competition law should be applied in all countries. The working group could therefore examine the feasibility of a commitment by all WTO Members to adopt domestic competition laws and enforcement systems. In particular, laws to address such practices as restrictive agreements, abuses of dominant position and mergers would be especially important. This framework should also, for the sake of efficiency, provide for proper investigatory instruments and sanctions. Finally, the parties affected by anticompetitive practices should be able to bring their case before a judicial or administrative body and should have access to judicial review.

These competition rules should apply to all economic operators, including public enterprises and companies with special or exclusive rights in so far of course as the application of these rules does not obstruct the performance of their public task.

The objective is not uniformity. This would not be realistic. However, we know that different mechanisms from country to country can still lead to overall comparable results.

Of course, for some developing countries, a considerable effort remains to be made. Therefore assistance should be provided whenever necessary and wherever possible.

- The second area of reflection could be the identification of some common principles on the substance of competition law. Of course, we know that each member of the WTO has its own institutional structures and economic and legal system and it would be impossible to impose overnight a common set of rules. However, the group might see whether a consensus could be obtained on some practices that are particularly harmful for the economy (eg. horizontal price fixing, market sharing, predatory behaviour, export cartels).

- The third area concerns the creation of an instrument of cooperation between competition authorities. Various models are available in this area.

The working group could be asked to debate the lessons to be drawn from the existing experience for setting up a multilateral framework.

- Finally, the working group could think of ways of adapting the dispute settlement mechanism of the WTO, in clearly specified circumstances, to the area of competition law and policy.

Clearly this is not the time to think of the creation of some sort of international court of justice which would be empowered to decide whether a competition authority had done an adequate job, or had reached the right conclusion. This would result in major problems of sovereignty renunciation and would imply exchanges between competition authorities of confidential information communicated by companies. As a result, it would not be appropriate to ask the working group to try to find a solution to this problem at this first stage.

However, the group could consider the possibility of applying the dispute settlement mechanism to cases where a country fails to transpose properly in its legal order the principles that have been agreed in common or to react to a request for enforcement.

The WTO working group has already met three times and the first results are quite encouraging. The group has adopted a timetable at its first meeting, which was a positive development in itself. Some thought, or perhaps even hoped after the Singapore Conference, that the group would waste all its time in setting up a programme. The second positive development is that the European Union, which is expected by many countries to lead the debate, has managed already to open the discussions on substantive questions, and many countries, which have not adopted competition rules yet, have shown a real interest.

So, overall, we are heartened by progress so far and remain optimistic about the outcome of the working group’s deliberations.

B - OECD

In May last year, the US authorities proposed in the OECD to consider improving the effectiveness and efficiency of Members’ law enforcement against hard core cartels by eliminating or reducing statutory exceptions that create gaps in the coverage of competition law, and by removing the legal restrictions that deny competition agencies the authorisation to provide investigative assistance to foreign competition agencies.

No doubt, it is in this area of hard core cartels that the OECD’s considerable experience can best be brought to bear. The European Commission would welcome an OECD Council recommendation urging members to provide investigative assistance to foreign competition agencies, where such assistance would not be inconsistent with their own interests.

But this must be done on the clear understanding that the OECD initiative is not an alternative to the debate which takes place in the WTO.

C - UNCTAD

UNCTAD plays a key role in the debate on the international dimension of competition rules. This is not a surprise since this organization has already adopted a full Competition Code in 1980. Moreover the Singapore Conference has specifically stressed that the WTO working group should cooperate with UNCTAD, to ensure that the development dimension is taken fully into account.

Against this background, it is reassuring that UNCTAD has devoted its 1997 World Investment Report to competition policy. It has also organized various conferences on the international aspects of competition law. Interestingly, all these conferences have shown that very few countries actually have doubts about the necessity of adopting an international framework of competition law.

In conclusion, this interest manifested by a large number of countries shows that the efforts of cooperation developed over the years on a bilateral or multilateral basis are bearing fruit. I even wonder if we should not consider, next year, opening negotiations on global competition rules within the WTO. It seems to me that the time is ripe for this. If there was any doubt in this regard, I think it has been lifted by the recent WTO Panel’s Report in the US/Japan Film case. In this case, there were many competition issues which would have been addressed in a more satisfactory way within a competition law framework.

Liste des annexes

 

 

 

1) Déclaration de Singapour

2) Compte rendu de la dernière réunion du groupe de travail de l’OMC

3) Note de briefing sur le groupe de travail de l’OMC

4) Note sur le projet de recommendation de l’OCDE sur les ententes injustifiables

5) Projet d’accord sur la courtoisie positive

6) Note sur "global reach" (règlement concentration)

7) Note sur le litige Kodak/Fuji

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