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GLOBALIZATION OF COMPETITION :
THE NEED FOR GLOBAL GOVERNANCE
speech by Commissioner Karel Van Miert
on March 25, 1998
Vrije Universiteit Brussel
It is a great pleasure to be able to speak to you today on globalization of competition, a topic which has taken on considerable importance in recent years. Just a few years ago it would have been hard to imagine international issues exciting so much interest in the competition and trade communities. Yet, this decade have seen the successful conclusion of the Uruguay Round and the resulting reduction of state imposed barriers to trade to an all time low - where they exist at all. It is right in this context that we should identify and examine other areas of state and private behaviour which might limit the benefits of this liberalisation.
I think that one can modestly say that the European Union has an enormous depth of experience of the challenges associated with dismantling classical trade barriers. In the competition area, real cases have amply demonstrated that, as we completed our Single Market Programme, businesses have sometimes yielded to the temptation to erect new barriers to protect their traditional "national markets" through the creation of horizontal cartels or other anti-competitive practices designed to divide the European Market. We have enforced our competition law vigorously against such practices.
Such behaviour is no less likely at the world-wide level, where in the absence of state protection, companies may act to restrict the ability of new entrants to gain a foothold on their traditional markets. If Governments turn a blind eye and refuse to take action to restore the balance, then inevitably private anti-competitive practices become a barrier to trade and, to some extent at least, will negate the benefits we should be reaping from trade liberalization.
Greater international cooperation also serves an important purpose from the point of view of competition enforcement. At the end of the 20th century business not only have a liberalized environment enabling them to carry on their activities on a global level, but also have the technological means and resources to do so. Anti-competitive behaviour, dividing the global market, is not uncommon. Many companies are now present in several countries or are concluding strategic alliances to have a greater presence through an international partner. Inevitably more and more competition cases are falling within the jurisdiction of two or more competition authorities at the same time and the areas of activity covered by these transactions make them of considerable economic importance for the countries concerned. It is important in order to avoid conflicts, if not of law then of analysis and remedy, that there is some common understanding at the international level of the principles of competition.
All of these were issues considered in 1994 by three independent experts who, at my request, made a number of recommendations on the European Unions objectives for competition policy in the post-Uruguay Round era.
In their report, the experts took a pragmatic view.
They 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 DEEPENING THE EXISTING FORMS OF BILATERAL COOPERATION
A - Bilateral cooperation
1. The UE/US agreement of 1991
A key example of the EUs 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 latters jurisdiction but affects the formers important interests. The EC-US Agreement finally also includes provisions on mutual notification of cases.
The Commissions 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 countries
But the EU has also entered into agreements with other countries. For instance, it has 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.
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 practices which occur principally in and are directed principally towards the other Partys 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 which are adapted over time to economic realities. Invariably, there are different substantive and procedural rules. Therefore, the Commission has to make sure that information that it supplies can not be used in a way that would harm European interests. These are the reasons why the Commission is not suggesting that the WTO working group discussions should extend to the exchange of confidential information (I will come back to this later)
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 exercise. 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 going to adopt this very day a "second generation" recommendation concerning effective action against cartels. This document encourages 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 conviction that an international framework of competition rules needs to be established as a complement to trade liberalization was at the heart of the Commission Communication to the Council of 18 June 1996, which proposed that the WTO should, at its first Ministerial Conference in December, set up a working group with an exploratory mission in the following four areas:
- firstly, to examine the feasibility of a commitment by all WTO Members to adopt domestic competition laws, adequate enforcement systems and a right of access for private parties to domestic authorities;
- secondly, to identify common principles on the substance of competition law; the Commission suggests concentrating initially on some practices that are particularly harmful for the economy (ex.: horizontal price fixing, market sharing, predatory behaviour, export cartels);
- thirdly, to create an instrument of cooperation between competition authorities; this would be based to a large extent on the existing experience under the OECD Recommendation and various bilateral agreements. This instrument would include provisions on notification of enforcement activities, information exchanges, consultation, cooperation and avoidance of conflicts over enforcement activities, especially in cases of common interest. It could also include comity principles, which means that whenever a party takes action, it must take into consideration the important interests of another party; and
- finally, the working group could consider the relevance of a dispute settlement mechanism in the area of competition law and policy. The Commission suggests that the working group think of ways of adapting the present WTO mechanism to the specific field of competition.
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.
You may know that our proposal has greatly inspired the Singapore ministerial decision of December 1996 to establish a WTO working group to study the interaction between trade and competition policy. This group has already met four 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 groups deliberations.
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 Panels 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.