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Competition

The transatlantic and global implications of European competition policy

 

Speech by Commissioner Karel Van Miert on February 16, 1998

North Atlantic Assembly Meeting - Palais Egmont, Brussels

 

 

I. Introduction

 

Good morning, Ladies and Gentlemen. It is with great pleasure that I take this opportunity to share with you some thoughts about the transatlantic and global dimension of European competition policy.

 

In presenting my views on this issue, I would like to draw from the experience we have gained recently in three major areas of economic activity: aviation, defence and telecommunications. Let me start though with some brief remarks on why it is increasingly important for the European Union to seek for itself, and for its trade partners, an external dimension to its competition policy.

 

In recent decades the volume of trade has grown at a spectacular rate, doubling every seven or eight years. Foreign direct investment has grown even more dramatically. Multinational firms become larger as they adapt to the emerging world markets. More and more commercial practices have an international dimension. In an increasingly integrated world economy, competition concerns raised by the conduct or the transactions of major players transcend national borders.

 

In the absence of global competition rules, companies operating beyond the limits of a national market are subject to multiple sets of competition rules. These rules may diverge in substance and lay down different control procedures. In turn this state of play increases legal costs and decreases legal certainty. On the other hand, action against anticompetitive practices may be less rigorous in some countries than in others. This may have foreclosure effects in some markets and result in trade friction. 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.

 

Policy makers in the area of competition agree that we can tackle these problems in two ways:

* by improving bilateral (but also trilateral or multilateral) cooperation between antitrust authorities dealing with a specific case, and

* by working towards an international framework of competition rules.

 

 

II. Transatlantic relations in the area of competition

 

Cooperation between the European Union and the United States in the application of their respective competition rules is a key example for successful bilateral relations.

 

A. The existing cooperation framework

 

The bilateral Competition Cooperation Agreement of 1991, was spawned by the growing number of transatlantic transactions and the will to apply competition rules more effectively and efficiently. Before describing briefly the main cooperation tools under this Agreement, I would like to add that the Commission is currently in the process of finalising a similar Agreement with Canada.

 

The basic obligation stemming from the agreement is the exchange of non-confidential information. 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. Notifications take place regularly at the outset of a case, as well as before important procedural stages and prior to a final decision. In principle we notify each other " far enough in advance ... to enable the other Party’s views to be taken into account".

 

Provisions on coordination of enforcement activities are also very important. In all cases of mutual interest it has become the norm to establish contacts in order to exchange views and, when appropriate, to coordinate enforcement activities. The respective approaches on the definition of relevant markets are 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 involves the synchronisation of investigations and searches. This is generally 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.

 

The provisions on traditional and positive comity are not frequently activated in a formal manner. However, they are 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.

 

* Positive comity enables one side adversely affected by anti-competitive conduct carried out in the other's territory, to request the other side's competition authority to take enforcement action. For instance, last year 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.

 

B. Sectors in focus: air transport, telecommunications, defence

 

EU-US competition cooperation spans the complete spectrum of economic activity. Since 1995 the Commission has cooperated under the 1991 Agreement with the US Department of Justice and the US Federal Trade Commission on more than 300 cases involving companies in different sectors. However, transatlantic competition cooperation focusing on three high profile economic sectors (air transport, telecommunications, defence) captured recently the public eye. I believe they merit a closer look.

 

1) The air transport sector

 

* Transatlantic Alliances and Open Skies

 

Over the last few years the European aviation industry has changed substantially. Within the internal market, air carriers are now completely free to operate on any route. Further, they can establish themselves anywhere in the common market. We have already integrated Norway and Iceland in this market and we intend to integrate not only Switzerland, but also 10 Central European countries. There have been a series of mergers and co-operation agreements concluded between European carriers. New low cost start-up carriers have captured a significant share of the inter-Community market.

 

There is no doubt that since the entry into force of the third aviation package, competition within the EC has increased and will continue to increase with the full implementation of this package in April 1997. EC carriers have also made major efforts to improve their competitiveness by reducing costs and increasing productivity. In Europe, we have seen in recent years the conclusion of some agreements and partnerships between companies, in particular Lufthansa/SAS and Swissair/Sabena. However, their size was limited and involved mostly only European companies.

 

The conclusion of strategic alliances between European and American companies is a different phenomenon. I refer to the Transatlantic Airline Alliances between British Airways and American Airlines, Lufthansa/SAS and United Airlines, Swissair/Sabena/Austrian and Delta, KLM and Northwest.

 

These alliances are a consequence of liberalisation. They enable airlines to develop into global service providers and offer a better service to consumers. However, they also do raise certain competition concerns and should be carefully scrutinised. The Commission has decided to examine them under Articles 85 and 86 of the EC Treaty in July 1996.

 

It soon became clear that, far from being simple "code-sharing" arrangements, these alliances established a much wider and closer co-operation. The companies consult each other on all commercial aspects of their business: prices, capacities, frequencies, schedules, common purchases, relations with travel agents, ground handling, Frequent Flyer Programmes...etc. In short, companies which sign such agreements eliminate any competition between them and present themselves in the marketplace as one single entity while remaining legally autonomous. All four alliances show these characteristics but of course with different degree. This co-operation covers mainly the routes between the Community and the United States. However, intra-Community services are also concerned.

 

I will not discuss in detail any of these alliances since they are still scrutinised by the Commission but I would like to stress the need to keep in mind in particular the long-term interests of the passengers when examining these cases. An agreement may have short-term benefits for consumers. However, it may also foreclose the market in the longer run, eliminate or substantially reduce competition and lead to fare increases. In that case, to authorise the agreement without obtaining the necessary guarantees would obviously not be beneficial for consumers.

 

On the basis of our investigation, it appears that these agreements will restrict competition on the routes between the United States and Europe, as well as on some intra-Community routes. They will have therefore direct effects in the Community and are likely to infringe European competition rules. We are currently considering a broad range of remedies necessary to satisfy our concerns.

 

On the other hand the approach is somewhat different on the other side of the Atlantic. The US Authorities always request the Member States concerned to conclude a bilateral open skies agreement, prior to granting the antitrust immunity to the Airlines which have concluded an alliance. This is part of the US transport policy. I must say that this is not possible in Europe.

 

Alliances are agreements concluded between companies, whilst open skies agreements are concluded between states. If we consider that an agreement can only be authorised under some conditions, these conditions must be applied to the companies. We can of course welcome the decisions of States to open their markets to competition.

 

Nevertheless, in the case of air transport, I consider that bilateral open skies agreements do not constitute the right answer. These agreements are mainly to the advantage of US carriers which have the opportunity to pick up more traffic in Europe.

 

If we want to establish fair competition conditions between European and North American Airlines, the best solution is to conclude a global agreement between the Community and the United States. We must develop a common policy giving Community carriers the possibility to compete on fair and equitable terms with the US. In today’s global market place, we believe that such a new approach is required and should substitute the existing bilateral framework.

 

The need to find common ground on many of the issues facing this industry is emphasised by the integration in the industry. The various forms of co-operation between carriers on both sides of the Atlantic make it increasingly difficult to distinguish between EU and US carriers, they have become global service providers and are, as such, subject to our legislative systems. Their interest is to have a global regulatory regime which is predictable and as uniform as possible. They want a global approach and not a mercantilist bilateral one.

 

The role of governments is no longer primarily to negotiate beneficial traffic rights, since these rights should be freely available.

 

The emphasis today should be on creating a stable framework ensuring fair market conditions; on finding the right balance between traffic growth and the environmental impact of aviation; on ensuring safety and security; on providing the necessary infrastructure; and on protecting the interests of consumers. These functions cannot be exercised in isolation, they require co-operation. The US and the EU should act as guarantors of free and fair competition, not as contenders.

 

There is thus a need to establish a "Common Aviation Area" or in other terms an EU/US Open Skies zone with a view to align the regulatory conditions applying to US and to EC air carriers in the perspective of free provision of service on both sides.

 

* Extending the scope of community procedural competition rules

 

Particularly for the air transport sector, transatlantic cooperation could be improved through the extention of the scope of community procedural competition rules. The application of such rules (Council Regulation No 3975/87) determining the application of Articles 85 and 86 of the Treaty to the air transport sector, is limited to the services between airports within the Community. As a result, the Commission cannot use this regulation to apply competition rules to services between the Community and Third countries. To investigate alliances related to transatlantic routes, the Commission has to use Article 89 of the Treaty.

 

Under Article 89, the Commission has, however, no direct decision making powers (as under Regulation 17 or Regulation 3975/87) enabling it to enforce itself the conclusions it has drawn on the basis of its investigation. For this, it has to rely on the Member States concerned which are under a duty to assist. In procedural terms, use of Article 89 is cumbersome and time consuming.

I want to stress that the Commission has had a close and fruitfull cooperation with the national competition authorities, in particular where these have opened their own procedures. This is the case with the UK and Germany, which scrutinise respectively the alliances between British Airways and American Airlines and between Lufthansa/SAS and United Airlines. Close co-operation is crucial in order to avoid contradictory conclusions and come to consistent results.

 

However, drawing from the Boeing experience, I believe that Europeans have a better chance in such EU/US cases, if they can speak with a common voice. On my initiative, the European Commission has approved in May 1997, two proposals for Council Regulations concerning the application of Articles 85 and 86 of the Treaty, to air transport and in particular to routes between the Community and third countries. If they are adopted, these proposals would remedy to the unsatisfactory situation that the application of Article 89 implies for the Commission and the airlines parties to the alliances investigated now under that provision.

 

The first proposal concerns the extension of the field of application of Council Regulation 3975/87 (which at present only concerns air transport between airports within the Community), to all routes between the Community and third countries. Such an extension will give the Commission the power to apply fully and directly Articles 85 and 86 of the Treaty to agreements which restrict competition on these routes (such as for example the alliances between European and American airlines).

 

The extension of the field of application of European competition rules to international air routes with third countries will give undertakings the advantage of a single control on the legality of their agreements with regard to Community competition law, as exists already for the other sectors of the economy.

 

Further, this extension will give the Commission the same powers that the US Antitrust Authorities have. These authorities already apply their competition law to European Airlines.

 

The second proposal concerns the ability of the Commission to grant group exemptions to certain types of agreements which restrict competition on routes with third countries. As you know the Commission's powers to adopt group exemptions are limited by Council Regulation No 3976/87 to international transport between airports of the Community. This proposal is particularly important for European Airlines which do not have any legal certainty when they cooperate on North Atlantic services.

 

2) The telecommunications sector

 

Telecommunications constitute another key area of transatlantic competition relations. Cooperation involves more generally the Information Society industries, or the Information Highway as this is sometimes called in the USA. It concerns (i) telecoms liberalization, (ii) ensuring continued competition, (iii) developing jointly the guidelines for the development of new global services.

 

As for telecoms liberalization, we should recognize that the USA had some headway since the 1980’s, at least on long distance services. Thanks to the 1998 package liberalizing all services in Europe, this side of the Atlantic has now caught up.

 

Jointly, we have also negotiated the WTO agreement on a worldwide liberalization of telecommunications. This agreement furthers the EU 1998 package, and furthers the US 1996 Telecommunications Act, in that it does not allow any step back on either side, and opens these opportunities to international competition. For the economic benefits to be reaped, it is important that each side fulfills its commitments entirely. The European Commission intervenes quickly whenever a Member State or an operator does not comply with its European and international obligations. We hope that the US authorities and the Congress will also fulfill their US obligations timely and entirely, and will continue to monitor developments in the US carefully.

 

It is not enough to open up the markets, one has to make sure that there are no cartels or abuses of dominant position. Otherwise, the economies around the Atlantic and elsewhere would not enjoy the greater service innovation and the decreasing prices. There are several markets worth analyzing. For example Internet software, where our US counterparts are taking the lead. Or also international telephone costs, where both the EU and US authorities have taken initiatives, under their different procedures and approaches. Important international negotiations are going on concerning the so-called ‘accounting rates’, which will eventually be replaced by cost-oriented rates, at least between developed, liberalized countries. Finally, international satellite organisation are separating their commercial affiliates, both pressure from both market developpements and soem of thier signatories and shareholders. It is important to ensure that no positive or negative discrimination applies to them, and that these negociations proceed at a good speed.

 

Also, the European Commission examines transnational alliances between companies, when they are relevant for the EU markets. We always look at the degree of opening of the respective domestic markets, and take into account the benefits that cross-border alliances can bring to multinational customers. This was the case, for example, for the agreement between BT and MCI, which was agreed by competition authorities on both sides of the Atlantic. It could have been a model of transatlantic cooperation if it had been implemented.

 

Will this kind of approach be sufficient in the future to check the behaviour of large multinational companies, on really global markets? Probably not.

 

We are at an early stage on thinking about the role of public authorities in a globalising economy. There are differences in approaches between the US and Europe, but probably some agreement on some key principles. This role should be neither a total retreat from our responsibilities, nor overregulation and over-lenghty international negotiations.

 

3) Defence: in search of a transatlantic equilibrium

 

The defence aspects of the Boeing/MDD merger

 

Even though the merger between Boeing and McDonnell Douglas was felt as being mainly a concentration between two commercial aircraft manufacturers, no one can deny that it was also greatly motivated by the prospected synergies in the defence sector. The Commission decided not to address issues specifically and solely related to defence, in compliance with the 1991 EU/US Competition Cooperation Agreement. In fact, in the course of the procedure, the US government had expressed concerns that a decision prohibiting the merger could harm important US defence interests. Hence, the European Commission took these important national interests of the United States into account and limited the scope of its action to the civil side of the operation, as well as to the spillover and overall effects from the defence sectors to civil aircraft.

 

The immediate consequences of the operation are an increase in Boeing’s overall resources, an increase in Boeing’s access to publicly funded R&D, an increase in intellectual property, an increase in Boeing’s bargaining power vis-à-vis suppliers and finally opportunities for offset deals.

 

The merger was finally authorised, after the Commission received strong commitments by Boeing on the commercial aircraft sector, which was directly concerned by the procedure. More precisely, as far as it concerns the spillovers from the military activities to the civil activities, in particular those related to R&D, Boeing offered the possibility to licence to competitors, on a non-exclusive basis, any "government-funded patent" as well as the know-how related to such patent. Boeing also committed to provide the Commission, for a period of 10 years, with a yearly report on non-classified aerospace projects in which it takes part under public financing arrangements. These commitments are aimed at increasing transparency on the overlap between civil and military activities. It is worth noting that these commitments go far beyond the provisions of the bilateral agreement on large commercial aircraft.

 

Consequences for the European defence industry

 

However, the Boeing merger, along with the wave of recent mergers in the US defence-related industry (Lockheed/Martin Marietta, Northrop/Grumman, McDonnell Douglas/Hughes Helicopters, Raytheon/Hughes Aerospace & Defence, to mention the major ones as well as the prospective Lockheed Martin/ Northrop Grumman merger) is an illustrative example of how the US defence sector is maintaining its international competitiveness.

 

Here, the key word is restructuring through consolidation. Against the rapidly consolidating defence sector in the US, the European defence industry remains highly fragmented. Some characteristic examples will make this contrast even clearer: there are 6 civil aircraft manufacturers in the EU, against 1 in the US; 6 fighter aircraft manufacturers against 2 in the US; 3 helicopter manufacturers as in the US; 12 missiles manufacturers against 4 in the US; at least 6 large suppliers of military electronics against 4 in the US; and 5 operators in the field of satellites against 4 in the US.

 

In broad terms, defence industry includes aerospace, weapons systems and defence electronics. The aerospace industry is regarded as being the most important and sensitive part of the defence industry as a whole. However, in this respect, a distinction needs to be made between the civil and the military parts of aerospace. In civil aerospace, competition takes place at global scale rather than national. In military aerospace and other defence-related industries markets have still to be considered national when a domestic supplier exist, notwithstanding the increasing trend towards a more international approach to procurement, both through the creation of international teams (Airbus, Euromissile) to implement multi-national programs, as well as through the formation of cross-border joint ventures (e.g. Eurocopter between DASA and Aérospatiale, Matra BAe Dynamics between Matra and British Aerospace).

 

The consolidation of the European defence industry will bring about a significant concentration of companies through joint ventures, mergers and other alliances. One of industry’s requests is that regulatory approval by the Commission takes into account the sectoral specificity of the defence industry (for example, through specific mergers guidelines or new legislation). In particular, there would be a need to clarify and certify certain specific factors which are crucial for the competitive assessment of mergers and joint ventures, such as for example the geographical scope of the market, the monopsonistic role of national MoDs, and how the assess complex interrelations between civil and defence sectors (dual use, R&D’s spill-over, etc.). National governments have also shown interest in knowing the Commission’s approach to competition issues.

 

The Commission maintains that sectoral specificity of the defence industry does not need to be stated by legislation or interpretative notices. Its position, as contained in the Communication of January 1996 is "... that the legal basis for the Community’s competition policy could be used and provide an adequate framework for competition matters relating to the European defence-related industry. However, the application of competition law to the defence-related industry must take into account the specific features of this industry ...".

 

The main criteria for assessing defence mergers have been made sufficiently clear by the Commission through the extensive body of decisions which it has so far built up in this area. These criteria - which were also contained in the Communication of February 1996 - coupled with the use of Article 223 of the Treaty and of Article 21(3) of the EC Merger Regulation (to protect legitimate interest of a Member State) have so far served the purpose of responding to the needs for the specificity of the sector.

 

Recent developments and current cases

 

The list of mergers and alliances in the defence sector makes apparent a transatlantic cleavage: unlike mergers and alliances in the telecommunications sector, there were up to now no such EU/US transactions in the defence sector. However, consolidation this side of the Atlantic is gaining speed. The MBD/DASA/LFK case, approved by the Commission on 27.01.1998, concerns the acquisition by Matra BAe Dynamics (a JV between French Matra and UK British Aerospace) of joint control over DASA’s subsidiary LFK in the field of systems of tactical missiles. This is the most recent Commission decision on a defence case and present some implications for competition which are expected to become more and more important for the future cases.

 

The assessment of this cross-border JV involving French, UK and German players presents some interesting aspects as to the product and geographic market definition and to the competitive assessment.

 

Firstly, it appears that it is important to distinguish between the market for prime contracting of systems (as regards missiles MBD and LFK are the largest players in Europe), and the market for sub-contracting of sub-systems and components. The trend towards concentration is mainly driven at prime contracting level, but it displays its effects on the more fragmented and articulated sub-contracting markets.

 

As to the geographic scope it is clear that cross-border operations of this kind, which imply cooperation between national governments in terms of establishing common defence programs, do affect the structure of the markets and could lead, to the extent they help lifting national barriers, to the creation of regional markets including more national countries.

 

Finally, given that the prime contracting market has an auction type nature, where contracts stemming from national or multi-national programs (for example NATO programs) are awarded rarely and cover long-term projects, the impact of the operation must be assessed at the level of ongoing and future projects rather than on a traditional approach based on market shares. Also, an assessment is needed as to the risk of foreclosure in respect of sub-contracting markets for subsystems and components.

 

The Matra/DASA/LFK case provides an important example of European cross-border consolidation. However the industry (led in this by British Aerospace) has made clear that it needs and wants to go much further: one of the priorities set to be achieved before the end of the decade would be the rationalisation of the aerospace industry through the creation of a single transnational company with unified management, which would encompass the civil and military aircraft sectors of France, Germany and the UK. The company, which later would be extended to Italy, Spain and Sweden, would be active in civil aviation (expected to be the principal growth market for the aerospace business), military aviation (with opportunities for cross-fertilisation of technologies), weapon systems, helicopters, space and defence systems. Industry wants consolidation to be done in one single step, possibly by a full merger of the French, German and UK competitors.

 

How would such an operation be regarded as to its impact on competition? Recent cases, including the mentioned Matra/DASA/LFK have shown that both Ministries of Defence (MoDs) and major European competitors seem to support the view that the consolidation of the European defence industry and to its strengthening vis-a-vis the powerful US industry should be given priority, at this stage, on any considerations about restrictions of competition. In particular, in countries where a national producer exists, few objections against mergers are raised by the national MoDs, which benefit from their monopsonistic position. In other countries, MoDs are not particularly concerned either, provided that a sufficient level of competition is guaranteed by the availability of alternative supply. The opening-up of the national and European markets appears therefore to be a crucial issue to assess the competitive impact of any intensive concentrative process. Also, it will be important to distinguish between civil and military aerospace and to take into account the complex links between them. Finally, It must be stressed that any consolidation at the level of the prime contracting market should only be allowed up to the point at which it does not give rise to foreclosure effects on the markets for sub-contracting of components and sub-systems.

C. Improving the rules: the proposed EC/US Positive Comity Agreement

 

These examples illustrate the need to broaden, deepen and intesify transatlantic cooperation in the area of competition. The 1991 Agreement, combined with waivers of confidentiality granted in most major merger cases, provides a solid and up to now quite satisfactory framework for cooperation.

 

It is also beyond doubt that certain conflicts can be avoided by using the positive comity concept more extensively. On the basis of a mandate by the Council, the Commision negotiated with the United States an agreement which would strengthen the relevant provisions of the 1991 Agreement. It is expected that the Council, having received the opinion of the European Parliament, will adopt the new Agreement very soon.

 

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.

 

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.

 

However, before looking into the global context, I would like to stress that there are certain natural limits to bilateral case specific co-operation. The Boeing/MDD case is an example of these limits. Procedures of notification and consultation and the principles of traditional and positive comity allow us to bring our respective approaches closer in cases of common interest but there exist no mechanism for resolving conflicts in cases of substantial divergence of analysis.

A multilateral (for instance within the WTO) or bilateral arbitration mechanism (and to a greater degree a global antitrust authority), which would allow us to resolve case related conflicts and go beyond the limitations imposed by the necessity for each competition authority to implement its own legal rules and to take primarily account of the specific market conditions and the consumer interests in the territory it polices, is inconceivable under current circumstances. We must therefore admit that we can profitably cooperate with our partners in the majority of cases and accept that there will exist infrequent situations where our approaches may diverge.

On the other hand, there is a lot we can do to create a global enviroment more aware and respectful of fondamental competition principles.

 

III. Towards a multilateral framework of competition rules

 

The question 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.

 

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

 

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 the 1991 Competition Cooperation Agreement.

 

Since May last year, the OECD considers 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 legal rules and 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.

 

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