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Competition

 

European competition policy


Speech by Commissioner Karel Van Miert on May 6, 1998

Bruxelles-De Warande

Management policy Council

 

 

 

Introduction

 

It is a great pleasure to be able to speak to you today on European competition policy and its impact on world trade. I hope to set out to you the benefits to the economy and to industry, of a strong competition policy. I hope to put competition policy in its global context and I also hope to touch, briefly, on some of the changes ahead that are likely to have an impact on the application of our anti-trust rules in the future.

 

First then I would like to try to put the role of anti-trust into its context. At a European level, all the policies of the Commission are directed towards one common aim. The greater prosperity of our citizens.

 

Within this there are, however, several specific objectives of Community policy which spread across all policy areas. The completion of a true Single Market, with no barriers to trade between Member States; the creation of sustainable employment, something confirmed by the Amsterdam Treaty; effective enlargement of the Community; and the successful implementation of forthcoming Monetary Union. These are the underlying objectives of much of what we do in the Community.

 

But we also have to face up to the changes that are affecting the rest of the world. The globalisation of trade. The ever increasing pace of technological change. The impact of these and other changes on employment and social stability. We cannot apply our policies in a vacuum. We must take into account the realities of the current economic, social and political environment.

 

It therefore requires all the services of the Commission to balance their policies so as to reflect the realities of the world economy we live in as well as the Commission’s wider objectives.

 

Against this background, I would like to address three sets of issues. Firstly, what is competition policy for and what is the role of competition authorities ? (I). Then I will turn to the solutions we have adopted or propose to adopt in order to increase the impact of our competition policy in a globalised and liberalised economy (II). Finally I will give you my view on two major challenges facing competition, those of Monetary Union and enlargement to the East (III). I will be quite brief on Monetary Union, because I believe this topic is on the agenda of your meeting to-morrow.

I- Benefits of Competition and role of competition authorities

 

A- Benefits of Competition

 

Whilst the philosophical arguments are many and varied I think the answer is straightforward. Competition policy is there to help us achieve economic prosperity and increase the welfare of society.

 

But how does it achieve this? The answer is that competition forces companies to run themselves efficiently. It forces them to adjust to changes and it forces them to innovate. Competition leads to lower prices and to higher quality for the consumer. It leads to greater dynamism in industry and perhaps most importantly of all to greater job creation.

 

I can confidently say that within the EU today there is a consensus that competition is a key element of our economic system. We have abandoned the old fashioned policies of industrial intervention by Governments and a belief in national champions; policies for which some of our Member States have paid an excessive price or indeed, from which they are still suffering.

 

But competition is not an end in itself. It is a tool to help us to react to and cope with the changes we face. I have mentioned Globalisation, and Technological developments. But there are other changes. Liberalisation is coming to many sectors. The Single Market becomes ever stronger.

These changes are a challenge. But they are also an opportunity. Let me give you an example. Within Europe, as in much of the world, unemployment is an increasing concern. This is often the product of inflexibility and inefficiencies in industries previously not exposed to competition. Yet in those countries which have liberalised and deregulated the benefits have been enormous. For example in the US, liberalisation has made the telecoms industry more efficient, and more competitive. Competitive pressures have reduced prices to both industry and consumers. New products have come to the market more quickly. Jobs have been created.

 

The same is starting to happen in Europe. A recent report estimated that by the year 2000 up to 500,000 new jobs may be created in Europe as a result of telecoms liberalisation. By 2005 this may rise to 1.3 million. These will not just be jobs in new telecoms operators or equipment suppliers. These will be jobs in other industries as companies across the Community benefit from lower costs and improved services.

 

The programme of liberalisation in Europe does not stop with Telecoms. Sectors such as Air Transport are already increasingly open to competition. In other sectors such as Electricity, Postal Services or Gas Supply we are continuing to work on a programme of liberalisation. But in all these industries competition is coming, and we will all benefit from it.

 

The drive to complete the Single Market in Europe is another major opportunity for business. Already the reduction in barriers to trade and the increase in competition have led to benefits. Recent estimates are that income in Europe is 1.5% higher and almost one million new jobs have been created as a direct result of the Single Market.

 

But to achieve the full benefit of these changes and to retain the progress we have made so far requires us to remain vigilant. Markets must remain open so that free competition can flourish unhindered. Indeed protecting the Single market from attempts to segment it by partitioning geographic markets have been a key element of our competition enforcement.

 

B- Role of National Authorities

 

If that is the role of the Commission as a European wide competition authority, what is the role for national authorities? Well, as I have said, there is now a consensus that the concept of ‘national champions’ is dead. Ensuring competition in national markets is as important as ensuring competition in European or global markets. To be competitive on a wider international stage, companies must be competitive on all levels. Not exposing companies to full competition on their domestic market is a false economy. It does not prepare firms for the competition in international markets. But more importantly it harms consumers. And that must be a key aim of competition policy. To protect the consumer, whether an individual or a company, and to ensure that they can obtain goods and services at the best price, and of the best quality.

 

It is also clear that national authorities know national markets best. They are best placed to investigate cases and understand the competitive forces at work. All of which are essential to a proper analysis of a competition case.

 

National authorities have therefore a key role to play in ensuring competition is active across the Community. Where cases affect trade between Member States then it is usually for the Commission to act. But even then, cooperation with national authorities can be vital to ensuring a clear understanding of the issues.

 

As the case load of the Commission grows, it will be more and more important that those cases that are primarily national in character are dealt with by the appropriate national authority. But it is also important for industry that competition law is applied in a coherent and consistent manner across the Community.

 

We are already developing a body of practice and experience in cooperation with the national authorities. We have recently published Notices on cooperation procedures with National Courts and National Competition Authorities. And as the principles in these Notices come to be applied, our policy of decentralisation is likely to develop still further.

 

Many Member States have also chosen to give their national authorities the power to apply Articles 85(1) and Article 86 directly. Others have not, choosing instead to rely on their own domestic competition laws, often based very closely on Articles 85 and 86. In either case this is a major step forward. A strong, broadly consistent approach to competition policy, across the Community, and between Member States and the Commission can only be good for industry. It brings clarity and consistency wherever the cases are considered.

 

If we play our part, at European and at National level, to ensure free and fair competition then we will all, both industry and consumers, benefit from the opportunities that lie ahead.

 

II- Impact of European competition policy in a globalised economy

 

In recent decades the volume of trade has grown at a spectacular rate, doubling every seven or eight years, while foreign direct investment has grown even 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.

For several years now, the European Commission has been considering how best to address these problems.

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.

 

B - 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.

 

 

1) The different types of agreements concluded by the European Commission with third countries

 

The EU has concluded various types of agreement with third countries. I will address only the most important ones

 

a) 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 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.

 

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.

 

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. Following the same logic that 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.

 

2) 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.

 

a) 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.

 

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, is to be signed very soon, constitutes 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.

 

b) Information sharing

 

The exchange of information is probably one of the most difficult issues competition authorities have to consider in international cooperation.

 

There is no doubt that, from a pure competition law enforcement perspective, the ability to receive information from whatever source relating to anti-competitive conduct would facilitate the enforcement of competition rules. Effective enforcement would lead to a reduction in the number of anti-competitive practices, either through the elimination of a greater number of anti-competitive practices in individual cases, or through the dissuasive effect which enforcement would have. This would bring benefits for both consumers and businesses.

 

However, exchange of confidential business information is not without risk.

 

For instance, a large amount of information of a more or less confidential nature is submitted to the Commission on a voluntary basis by companies merging or entering into agreements, or by complainants who fear retaliation and wish to remain anonymous. Knowledge that such information could be shared with other antitrust authorities might deter companies from notifying certain agreements or supplying certain items of information. Such a development could be counterproductive for the enforcement of our competition rules.

 

Moreover, even between countries with developed systems of competition rules, a certain degree of divergence exists, particularly as regards certain conduct which may be prohibited under one set of rules but tolerated by another, as well as regarding the severity of sanctions (e.g. criminal sanctions for conspiracies in the USA, as opposed to administrative fines for cartel activities in the EU). It is a matter of concern for businesses that information exchanged and pertaining to those activities, which are not subject to sanctions or are subject to less severe sanctions in one country, may allow the competition authorities of another country to punish companies and individuals more severely in applying their own rules. Furthermore, even in cases where investigated activities may at the outset be thought to infringe both sets of rules, it is not certain that both procedures will end in a final prohibition. Should one party decide to close the case, information exchanged at earlier stages may enable the other party to proceed and impose sanctions on the companies or persons involved on the basis of its own rules.

These are just illustrations of the risk of sharing confidential information. I could have added the risk that information shared with a foreign competition authority may be communicated to other authorities.

 

We are fully aware of all these risks. This is the reason why I believe that it would be premature to consider opening discussions or negotiations in the WTO on the issue of confidential information sharing.

 

If any progress could be considered in this area, I think it would be on a bilateral basis, between countries that already have experience in cooperation.

 

Progress in information sharing could also be considered in a multilateral agreement, as long as it is done on a voluntary basis. For example, the OECD Council adopted a recommendation last month (at ambassadors’ level) on hard-core cartels, which encourages the communication of confidential information. However, the document is only a recommendation and therefore imposes no obligations. OECD members are merely ‘encouraged’ to conclude bilateral and multilateral agreements to give effect to the recommendation. The text also provides for numerous cases in which a member country may refuse to cooperate. Finally, the communication of confidential information can be envisaged only in accordance with national legislation. In our case, that means that it is simply not possible (unless of course the parties authorise us to do so).

 

 

 

 

B - developing a multilateral framework of competition rules.

 

There has these last years been extensive debate on the question of how public international law could be complemented by a specific framework to support competition law enforcement. You know that the European Union has taken the initiative in this field. Our Communication of June 1996 put competition squarely on the international agenda and inspired the Singapore Ministerial meeting to establish a WTO working group on the interaction between trade and competition policy.

There are several institutional arguments for choosing the WTO as the forum for the negotiation and establishment of an international framework for competition rules. Most importantly, the WTO has near universal membership and can provide a balanced response to the interests of both developed and developing countries. We may not underestimate the advantages of involving the wider international community in the international competition debate, nor the disadvantages of excluding it.

Also, we have always insisted that the working group would give careful attention to the work already done by other organisations, especially UNCTAD, the OECD and the World Bank. It is worth mentioning that the recent symposium organized by these three organisations in Geneva on economic development and international trade has proved to be very enriching.

So far, the extensive discussions in the WTO working group look very promising. But the working group has been mandated only "to study" the interaction between trade and competition policy. I believe we must go beyond this stage. At the end of the present mandate, we must seriously consider negotiations on the development a multilateral framework of competition rules.

 

1) The case for a multilateral agreement on competition rules

Let me set out first of all some of the reasons why I believe a multilateral agreement on competition is necessary. In today’s global economy, there are numerous anticompetitive practices which have an international dimension and which therefore come under the jurisdiction of different competition authorities. This may result in conflicts of law and jurisdiction and might make it difficult for competition agencies to deal with transborder restrictive practices.

A number of countries have already concluded agreements on cooperation between their competition authorities or are in the process of doing so. Furthermore, many international agreements, either bilateral or sectoral, include provisions on competition. However, this case by case approach is not sufficient to meet all the concerns raised by globalisation. A more comprehensive and consistent approach is necessary.

Most WTO members, including a large majority of developing countries, seem to acknowledge that an international framework of competition rules would contribute to the development of international trade and would therefore benefit all interested parties. Indeed, there is a growing recognition that anticompetitive business practices can in certain cases have restrictive effect on access to markets. There is also a general consensus that competition policy is a key factor in supporting the competitiveness of industry, in protecting a sound functioning of the economy, and in maximising consumer welfare.

The developing countries may have most to gain from an international framework of competition rules. On the one hand, they would be able to benefit from the multilateral framework right away – by enabling requests for cooperation to combat anti-competitive business practices and by providing for technical assistance regarding the setting up of domestic competition structures. On the other hand, one could envisage transitional periods in the multilateral framework designed to meet certain specific problems of developing economies.

 

2) Our proposals for negotiations

Let us now consider which areas could be covered by negotiations. In light of the discussions that have already taken place within the working group, I believe that negotiations could focus on the following four points :

- First, the contracting parties could commit themselves to adopt domestic competition structures. This would imply basic competition rules on restrictive business practices, abuse of market power and mergers. Of course, the mere adoption of national legislation does not guarantee that competition law would be enforced in an efficient way. It does not ensure either that there is no discrimination between domestic and foreign firms. This legislation should therefore be coupled with adequate enforcement provisions and a right of access for undertakings to domestic enforcement authorities and national courts.

- Secondly, this domestic competition structure could include common principles or rules on anticompetitive practices with an international dimension. It seems opportune to concentrate initially in areas where international consensus can be reached at an early stage. I think here of horizontal restrictions : price and output fixing , market sharing, bid-rigging and export cartels. Work in other areas, such as monopolies and vertical restraints may take longer, but could begin in parallel. On the other hand, setting up an international competition authority with its own powers of investigation and enforcement is not a feasible option.

- Thirdly, the elements of a cooperation instrument could also be developed. They would be based to a large extent on experience to date. This means that they should include for instance exchange of non-confidential information and notification. These are, among other procedures, already provided for by the 1995 OECD Recommendation. But a WTO agreement should also be extended to other forms of cooperation that can be found in bilateral agreements. I think especially of "positive comity", an important feature of EU/US relations in this field. This instrument enables one competition authority to request another to investigate and if necessary take action where anti-competitive conduct carried out on the latter’s market affects the former’s important interests. The group could even consider including in the multilateral agreement the strengthened version of positive comity that we will soon conclude with the United States. Our new agreement creates a presumption that when anticompetitive activities occur in the territory of one party and affect the interests of the other party, the latter will normally defer or suspend its enforcement activities in favour of the former. This instrument should be a positive alternative to the extraterritorial application of competition law which is often a source of irritation.

Of course, precautions should be taken to make sure that a party with a more "pro-active" stance and more resources available does not influence the agenda and disturb the established enforcement priorities of another party. Priority would have to be given to practices with a substantial foreclosure effect.

- Finally, a mechanism should be set up to settle disputes in clearly specified circumstances. One can imagine, for instance, an adaptation of the present dispute mechanism of the WTO, but I remain open-minded on this question. I will come back to this topic later.

 

III- Other challenges facing competition

 

The challenges of globalization are crucial for our economy. However other changes may have an even more dramatic impact on us in Europe. The two most important ones are Monetary Union and Enlargement to the East.

 

A- Monetary Union

 

As I have mentioned earlier, I am aware that this topic will be addressed to-morrow. But I thought it appropriate to give you my view as well, which I will do briefly.

 

The completion of Monetary Union will give a major impetus to the completion of the Single Market. For the first time real price transparency across borders will exist. Consumers will be able to source their purchases from anywhere in the Community, free from the uncertainties, costs and complexities of exchange rate fluctuations. This can only bring benefits to consumers.

 

But what of industry? Here too EMU will bring benefits. As with other consumers firms will benefit from greater certainty in the costs of raw materials bought within the community. Investment decisions will no longer be clouded by the vagaries of exchange rates. The elimination of such exchange rate risks should lead to a general increase in economic activity. This is to say nothing of the wider macro-economic benefits to the Community of the lower interest rates and greater stability that should accompany the Euro as a strong international reserve currency.

 

But for the Commission as an anti-trust authority what are the implications? Well, it is likely that, as with the moves towards the single market, EMU will push many firms to cooperate or merge. It is also, I suspect, inevitable that some firms will respond to the removal of one barrier by trying to erect new ones to protect their market position. But the response from the Commission to all these scenarios must be that we continue to apply the anti-trust rules rigorously. We must not allow firms to restrict the success of EMU by partitioning markets.

 

But it is also clear that the precise nature of the Monetary Union that is created will be equally important. It may be that not all Member States will join in the first wave. There are therefore likely to be inevitable tensions between those in the Monetary Union and those outside it. This is most likely to happen if price distortions between the two groups occur as a result of monetary depreciation by those on the outside. If this arises, there are some who already argue that the competition rules should, to some extent, be disapplied to ease the problem.

 

Let me tell you that this will never happen. The position of the Commission has always been, and will always remain, that price distortions caused by monetary changes should be countered through macroeconomic policy changes - the competition rules are neither the cause nor the remedy for macroeconomic distortions. They will therefore always be applied to ensure that markets are kept open and that protectionist measures are never applied by companies.

 

B- Enlargement

 

I would like now to turn to the other major challenge confronting the Community. Enlargement. If the effects of globalisation and EMU can be accommodated within our existing framework, what of those of enlargement to the East?

 

First, again, the context. Of the eleven countries that have applied to join the Community the Commission has proposed launching negotiations with six: Poland, Hungary, the Czech Republic, Slovenia, Estonia and Cyprus. Although many others applied it was felt they did not yet meet the necessary criteria.

 

It has always been agreed that the competition rules must be part of the "acquis communautaire" to be applied from the beginning of the enlargement. These countries must be capable of operating in a free market environment such as the Community. An essential part of this is learning to apply and understand competition rules, something that much of their industry has little experience of.

It has therefore been an essential part of the Union’s pre-accession strategy to provide these countries with the assistance they need to develop such an understanding. This has in part been through financial support under the PHARE programme, but also through a significant programme of training and exchanges of staff.

 

As I have already mentioned, the Europe Agreements with these countries also include significant provisions on competition.

 

It is clearly not easy for these countries to overturn 40 years of history. The move towards a market economy is likely to prove difficult. There is therefore clearly a role for the national anti-trust authorities in explaining to their public and to businesses the rationale behind competition policy. But there is also an obligation on us in the Commission to take account of the different economic conditions in these countries as we move towards enlargement.

 

What does this mean in practice? Well, first I should state that it is my view, that the structural differences between the Western and Eastern economies must be remedied by macroeconomic policy measures and not by derogation from the competition rules. These must remain applicable to guarantee the functioning of the internal market; to integrate the Eastern economies into the Western economies and to raise the competitiveness of European firms on the Community and world markets.

 

That does not of course mean that the Commission cannot, or will not, take account of the substantial differences in economic development between the East and the West. These judgements must be made on a case by case basis. Although ultimately I believe our aim must be the consistent application of competition rules across the whole Community.

 

In conclusion, I hope that I have been able to convince you that a strict application of competition law is the best way to face up to many of the changes affecting Europe and the rest of the world. Of course this law does not yet exist at the global level. This is why we have to start to establish an international framework of competition law. I am heartened by progress made by the WTO group. The discussion on the substance of competition law and policy is enriching for everybody. But the work should not be confined to an educational process, however important it is. The group will soon have to answer the question of whether there is a political will among its members to go ahead and to open negotiations, in 1999, on the establishment of a multilateral framework of competition rules. I do think that, in spite of some reticence and apprehension, we are quite close to a consensus.

 

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