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Competition

 

An European view on the implementation of the competition policy in the Republic of Turkey

SPEECH for the Turkish Competition Board Conference
ANKARA - 5 March, 1998

 

 

Good morning ladies and gentlemen. I am very pleased to be here today to mark this occasion of the first anniversary of your Competition Board and to congratulate you for the work of the Competition Board over the last year. I would like also to take this opportunity to talk about the role of competition policy in a modern world and its role both in the EU and in Turkey.

I hope today to achieve the following objectives:

* to set out the benefits to the economy and to industry, both large and small, of a strong competition policy;

* to analyse, from the EU perspective, what has been done in Turkey and what still needs to be done and

* I hope to be able, in the course of this exercise, to show what the Commission sees as the most important principles of its co-operation with Turkey in the field of competition are.

What, indeed, is competition policy for ?

 

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 and policies for which they are still suffering.

Turning away from these outdated ideas has not meant that the ‘market’ goes unchallenged. On the contrary, we have always believed that an essential element of an open market economy is competition policy. Markets need to be protected against the creation of dominant positions, cartels and abuses of market power. That is why we believe in the importance of a strong competition authority. That is why we must apply the competition rules in a rigorous and transparent way.

But competition is not an end itself. It is a tool to help us to react and cope with the changes we face. These changes continue to grow. I can mention globalisation, and technological developments, but there are other changes, as liberalisation is coming to many sectors.

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 a major 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, liberalisation has made the telecoms industry more efficient, and more competitive. Competitive pressures have reduced prices to both industry and consumers. New products and services have come to the market more quickly. Jobs have been created.

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. There will be more 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 supply, postal or gas supply services, we are continuing to work on a programme of liberalisation. In all these industries, competition is increasing, and we will all benefit from it.

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.

Turning back now to Turkey,

What has been done so far and what still needs to be done in the field of competition?

As you know, the Constitution of the Republic of Turkey, which was adopted in 1982, put the state authorities under the obligation "... to take measures to ensure and promote the sound, orderly functioning of... markets" and "to prevent the formation, in practice or by agreement of monopolies and cartels."

Adoption of the new competition law of 7 December 1994 has been an important step towards the fulfilment of the constitutional order to the state authorities, as was the establishment of the Competition Board last year.

Moreover, Article 39 of the Decision of the Association Council N° 1/95, dated 6 March 1995 states that, "with a view to achieving the economic integration sought by the Customs Union, Turkey shall ensure that its legislation in the field of competition rules is made compatible with that of the European Community, and is applied effectively".

It is clear that, not only adoption of a competition law which is compatible with that of the European Community, but also its effective application, is an obligation undertaken by Turkey.

As we know from our experience in the Central and Eastern European countries, the establishment of competition offices and competition laws are a far less controversial matter than many other components of the reform process. There is usually no serious parliamentary opposition to the initial competition legislation.

This being said, the enforcement of competition policy involves substantially more controversy. It soon becomes clear that the establishment of a competition authority and a competition law is only the first step - and possibly the easiest step - towards the enforcement of competition policy. It will soon be realised that it is not enough that the law exists, the law must be applied and expected to be applied by all economic operators. This turns out to be a much more difficult task to fulfil.

Let me start my analysis with some key principles applicable to any competition authority. According to the Commission, the following elements seem to be of particular importance to ensure effective competition law enforcement.

First of all, the competition authority must be established with sufficient human and financial resources.

This means that the competition authority must be able to attract experienced and well qualified people.

It is obvious that the staff of a newly created competition authority need intensive training. Together with legal advice in drafting legislation, this is one of the main areas of activity of the Commission as regards the newly created competition offices in the Central Eastern and European countries, and also in other countries like yours.

The Commission does not have the resources itself to satisfy the enormous needs and draws upon the Member States’ competition authorities and outside consultants.

In a second stage, training of judges, academics and lawyers is necessary. The fact is that credible competition law enforcement will never be achieved without establishing what we call "a competition culture", where there is a general awareness among all economic operators and society at large about competition policy and the activities of the competition authority.

Secondly, the competition authority needs to be independent from political interference. This is closely linked to financial independence as mentioned before, but concerns institutional independence as well. It is highly recommended that the people deciding cases and the Head of the competition authority be appointed in a manner that tends to immunise them from external influence or pressure. This is necessary to ensure that neither the selection of cases for investigation, nor the decision-making process, is distorted by political or other pressures.

This independence is foreseen in the Turkish law of 1994, in Article 20: "the Authority shall be independent in carrying out its tasks. No organ, body or person can order or give directives to affect the final decisions of the Authority".

This principle of independence is one of the most important.

Thirdly, the competition authority will need to gain credibility and respect. This can only be gained through transparency of rules of law and procedures.

It means a wide publication of its decisions, the guarantee of third party rights during the proceedings and the possibility of appeal of its decisions to a court.

As I already said, the establishment of a competition culture does not happen overnight. The business community may not be fully aware of the rules, or firms may not know what to notify and when. I believe these very practical obstacles play an important role and should not be underestimated. The development of notification forms, clear procedural rules for the handling of cases, clear rules on access to file and hearing procedures are of crucial importance.

Of course, some elements in the business community may simply not care about competition rules! The best way to remedy this situation and to spread the word of competition law enforcement is to impose sufficiently deterrent fines in appropriate cases.

Fourthly, the competition authority must define a targeted enforcement policy focusing on the kinds of conducts or transactions by firms that most seriously obstruct the working of the markets. The competition authority needs the necessary courage and political backing to come down hard on the most serious anticompetitive behaviour by firms.

In a first phase, what should be the priority of a competition authority? Sometimes, potential competition is said to be the main force relied on to keep firm behaviour responsive, because actual competitors do not exist. If barriers to entry are high, the competition authority should be more sceptical about the strength of potential competition and therefore more cautious about relying on it to keep markets competitive. With high barriers to entry and a small number of firms in the market place, collusion between firms or market foreclosure is both possible and damaging. It would seem that priority should be given to such cases which restrict entry to or expansion of markets. It is true that hard core cartels are hard to detect and hard to prove. However, rather than devoting resources to investigating cases which do not have the most significant impact on market under competition, attention should be concentrated on the most important cases of cartels and monopolistic acquisitions.

After having set up these key principles applicable to any Competition Authority, let me now come to the substance of the Turkish legislation in the field of competition. I will start with the antitrust provisions (cartels, abuse of dominant position, mergers) of your law, then with the public undertakings, state monopolies and state aids.

Antitrust provisions

The substantial provisions of the Turkish law can be summarised under three headlines:

1. Prohibition of practices (agreements concerted practices and decisions) which prevent, restrict or distort competition (Article 4)

The definitions of the practices and the examples of which prevent, restrict or distort competition practices are almost identical to those of the Community competition rules, namely Art 85 of the EC Treaty.

2. Prohibition of abuse of dominant position (Article 6)

Again, this provision is almost identical to Article 86 of the EC Treaty.

3. Control of mergers and acquisitions

Article 7 of the Law prohibits and declares void the merger of two or more undertakings or acquisition by an undertaking or by a person of another undertaking which would create or strengthen the dominant position of one or more undertakings as a result of which competition would be significantly impeded either in the whole territory of Turkey or substantial part of it.

The Competition Board shall publish the categories of mergers and acquisitions which, to be considered as legally valid, require a prior notification to the Board.

What is our assessment of these provisions?

Concerning cartels and abuse of dominant positions, it seems that the law is very much in line with the European law and that the Turkish competition law of 1994 and the communiqué 1997/2 of October 1997 have set up the necessary means to implement it, equivalent to our Regulation 17/62 (complaints, notifications, requests for information, investigating powers, administrative penalties, ...).

Concerning the obligation of Turkey to ensure that the principles contained in block exemption regulations in force in the Community shall be applied to Turkey, the Commission has analysed the 2 communiqués issued by the Board on competition at the end of last year (Communiqué 1997, 3&4) on exclusive distribution agreements and exclusive purchase agreements. We can confirm that Turkey has matched the Community competition rules, even if some comments have been made suggesting improvements to these texts and suggesting that more aspects be covered.

However, a lot remains to be done. In particular, block exemption regulations on Research and Development, franchising, in the insurance sector, but also in transport should be adopted.

Concerning mergers, the Turkish Competition Authority issued a Communiqué at the end of 1997 to define the types of mergers and acquisitions which are subject to prior notification and approval of the Competition Board, pursuant to the provisions of the 1994 Turkish law.

In general, the Turkish Act and Communiqué, taken together, appear to have successfully harmonised the essential elements of the Merger Regulation. However, two practical considerations should be borne in mind:

* First, the lack of clarity regarding the effective date of the Communiqué must be solved, for the sake of transparency and fairness. It is vital for businesses to have a clear understanding as to when their filing obligations commence. Moreover, because provisions in the Act hinge on provisions in the Communiqué, it is not clear as to whether the Act has taken effect with respect to prior notifications of mergers and acquisitions. Consequently, the Competition Board should explicitly state what its policy is with regard to fulfilling obligations for these proposed operations under the Act and Communiqué.

* Secondly, it would also be useful to clarify and correct some minor inconsistencies regarding the terms used to describe procedures, again for reasons of transparency and fairness.

In other respects, the Act is consistent with the EC Merger Regulation.

Public undertakings and state monopolies of commercial character

According to Article 41 of the Customs Union Agreement, "Turkey shall ensure by the end following the entry into force of the Customs Union (on December 31, 1996) that public undertakings and undertakings to which special and exclusive rights have been granted, uphold the principles of the Rome Treaty (Art. 90) as well as the principles contained in secondary legislation".

It seems that so far no legal provision has been adopted to implement this commitment.

Concerning state monopolies, according to Article 42 of the Customs Union Agreement, "Turkey shall progressively adjust, in accordance with the conditions and the timetable laid down by the Association Council, any State monopolies of a commercial character so as to ensure that, by the end of the second year following the entry into force of the Customs Union Agreement on December 31, 1997, no discrimination regarding the conditions under which goods are procured and marketed, exists between nationals of the Member States and of Turkey".

In Turkey, TEKEL supervises, determines and appreciably influences imports and exports of the goods over which it has a monopoly (tobacco, salt, alcohol).

The compatibility of the system with Community law is questioned as regards some of the aspects of the monopoly. The Commission has submitted its observations in December 1997 and we are waiting for a reaction from our Turkish counterparts.

I have to stress that this issue of monopolies is very important for the Commission.

The Commission recently received some proposals from the Turkish authorities in relation to the Alcohol monopoly. However, nothing has been received for the other monopolies. In any case, these proposals are not in line with what the Commission considers necessary for the adjustment of this monopoly in accordance with EC competition rules.

The exclusive rights of import, export and wholesale distribution have to be discontinued. The Turkish proposal to maintain the existence of a partial import monopoly, together with a partial retail monopoly, is not in line with Community law. The obligation for competitors to achieve a minimum annual quantity of imports is discriminatory and unsatisfactory. Moreover, TEKEL also possesses discretionary powers as regards granting of licenses to other operators. The creation, in this respect, of an independent agency is necessary, and criteria have to be transparent, proportionate and non-discriminatory.

Finally, it is foreseen that the monopoly "shall carry out the duties hereby given to it on its own or by establishing affiliates or equity participation or by participating as an equity partner in companies already established".

This provision is also questionable because the adjustment of the monopoly should allow every operator to freely produce and sell. Every influence of the monopoly over its competitors should be eliminated.

The ball is now in the court of Turkey and we hope that the competent services will come back to the Commission with new useful proposal allowing the necessary adjustment of the Turkish system with the Community law.

Let me finish this review with

State Aid

The control of state aid is just as important as the issue of cartels, abuse of dominant positions and monopolies in order to create a level playing field in the market. We understand that the introduction of state aid control is more controversial and politically sensitive than antitrust policy, the reason being that state aid control goes to the heart of the role of the state, namely how governments spend the money to support their industry. The implementation of state aid control is far reaching and touches upon issues which are politically sensitive. It is, however, in the interest of the governments themselves to control state aid to industry, in order to promote aids which actually contribute to economic progress (e.g. aids to new investments, jobs creation, R&D,...). In any case, it is important to stop spending public resources in inefficient aids (e.g. operating aids), which constitute social and economic wastage, and, at the same time, greatly distort competition.

For Turkey, the Customs Union Agreement contains the same substantive rules as for the EU Treaty and a transitional period of 5 years has been foreseen, with a view to accomplishing structural adjustment necessitated by the establishment of the Customs Union. The Association Council shall indeed review the issue after this 5 year period. It is indeed not possible to imagine a Customs Union where one Party is supervising the granting of state aid to its industry, whereas the other Party does not do the same. Experience has shown already, that state aid control is very important for creating and maintaining mutual confidence in trade relations.

The most important objective is to create transparency in the granting of state aid, in particular, as regards aid granted to public undertakings. Only when transparency is achieved will it be possible to start examining the aid measures to see which are compatible and which should be abolished. A second urgent priority is the setting-up of a monitoring authority on state aid, and a system for implementing this monitoring. My remarks as regards the need to train the staff, the need to have political backing and so forth are equally valid when it comes to this authority.

To my knowledge, no implementing rules have been set up by Turkey in the field of state aid, although provision is made for the adoption of implementing rules under Article 37 of the Customs Union Agreement. This should be one of the most urgent priorities in the time to come, as our Member States are becoming more and more sensitive to this issue.

 

 

CONCLUSION

 

I will end my (too long) speech by again thanking you for your kind invitation. I hope I will be able to come back next year for your second anniversary. I also hope that the speech I will deliver next year on that occasion contains less criticism, the issues I have raised having been dealt with, and some of them having been solved. Generally speaking, I think that you are on the right path, and that your legislation, the administrative structure put in place, and the efforts to start implementing competition laws are promising. Some work still lies ahead, but I am confident that you will be able to build a balanced competition policy which pays due regard both to the pressing need for economic efficiency, and to the general interest.

 

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