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SPEECH/02/399

Mario Monti

European Commissioner for Competition Policy

A Global Competition Policy ?

European Competition Day

Copenhagen, 17 September 2002

Dear Minister Bendtsen, Ladies and Gentlemen :

Let me first express my gratitude towards Minister Bendtsen, as well as to my esteemed colleague Finn Lauritzen of the Danish Competition Authority and their services for organising this European Competition Day in Copenhagen.

I am also particularly grateful for the European Parliament's regular support in this area and welcome the presence of several Members of the Parliament's Economic and Monetary Committee, notably its President Mrs Christa Randzio-Plath who has been an active participant since the 1st Competition Day in Lisbon, in 2000 -- as well as the Honourable Members Mrs Karin Rijs-Jørgensen and Mr Jonathan Evans.

This is the sixth European Competition Day since we began the tradition of organising such events with a view to increasing the public's awareness about the benefits of competition and competition policy. With this in mind, let me also present two new publications hot of the presses which will help consumers, but also small businesses and other non specialists understand EU jargon. I bet not many Danish consumers will know what a Carlsberg Notice is, despite it bearing the name of your famous brewer. The "Glossary of terms used in competition policy" helpfully reminds us that it is simply a summary of an agreement that the Commission publishes in the European Union's Official Journal to warn companies and consumer associations that a deal has been filed for regulatory clearance, giving them the opportunity to voice their concerns. The first such Notice was published on a joint venture in 1992 between Carlsberg and tea company Tetley, hence its name. The other publication explains in layman's terms the European competition rules on distribution and supply agreements otherwise referred to as…vertical restraints.

But let's turn now to the theme of this morning's session "Competition, consumers and globalisation". I would like to think that the first two are already closely associated in the public's mind. Whilst it is true that markets are normally much better at allocating economic resources than public regulation, orderly market conditions cannot be expected to be established automatically. Somebody must check that a merger does not result in excessive market power and thus ensure that consumers will continue to benefit from a competitive environment in terms of innovation, quality, choice and prices. Similarly, it is the task of competition authorities both at European and national level to fight collusion on prices or bid rigging practices. Further to this, the Commission must also make sure that public subsidies to businesses are in line with EU rules. Some of them are, for example, those intended to help develop small businesses, encourage venture capital or environment-friendly production methods. Others can be problematic, if designed to keep un-competitive businesses alive artificially.

Allow me to give you a couple of examples. In June this year, the Commission imposed fines totalling € 124 million on eight Austrian banks for fixing the interest rate for deposits and loans in Austria to the obvious detriment of consumers. Another example, this one closer to you, concerns Danish air travellers. As you may remember, about a year ago the Commission fined SAS and Maersk Air for operating a secret market-sharing agreement on routes between Copenhagen and Stockholm. Our decision restored competition between SAS and Maersk Air and contributed, I hope, to a downward pressure on airline tariffs.

We at the Commission believe these type of decisions, which led to record fines of €1.8 billion in 2001, will act as a sufficient deterrent for companies tempted to make illicit profits on consumers' back.

Globalisation and Competition

The airline sector provides me with a good example of the globalisation of the economy and of the need for competition regulation to ensure that consumers do not lose out as a result. Airline alliances have become the norm as the deregulation of the aviation sector and the need to cut operational costs gathers pace, and global alliances are all the fashion. The Commission is not against such alliances as they bring benefits for consumers, especially on transatlantic and other long haul flights in terms of better and more services and lower fares. Of course, for this to happen regulators need to make sure that the alliance partners do not become dominant on any given route, otherwise the incentive to pass part of the cost reductions on to fares would not be there. I can inform you that after looking carefully into the alliance between Lufthansa, SAS and United Airlines the Commission will soon be able to close its investigation as the companies' offer to make slots available at Frankfurt to enable other airlines to fly Frankfurt-Chicago and other routes has removed our concerns. The Commission will also be able to close the probe into the KLM-Northwest deal since it did not receive any negative comment with regard to its preliminary favourable position announced in the EU's Official Journal at the end of July.

This shows that increasingly we have to address economic decisions which are not confined to the European Union or which may even be taken entirely outside of it, but which nevertheless have an effect on European citizens.

While in the past, cartels or mergers were often national or regional in scope, they now often encompass several continents and fall under the jurisdiction of several competition authorities applying different rules.

For many citizens, this global dimension of economic activities has become a target for scepticism and criticism. Their concern is often focused on fears that so called global players may manage to escape any sort of government control, and may behave as they please.

In spite of the question mark in the title of my intervention, let me tell you that I have no doubts about the need for a global competition policy. In fact, this is one of the key priorities of my mandate, together with an increased fight against cartels and a stricter control of harmful business subsidies. The globalisation of the economy has made it imperative to improve global governance in competition matters. Of course, one cannot say that we are completely lacking the power to address global mergers or cartels. The merger of the US companies General Electric and Honeywell, which we blocked, and the decision in the vitamins cartel, demonstrate that we have the means and the will to protect consumers in the European market. .

But, without improved co-operation with other competition authorities we will not be sufficiently efficient. We have established an excellent working relationship with our US colleagues, but with as many as 90 countries adopting some form of competition rules, bilateral co-operation has shown its limits.

The pursuit of multilateral solutions is starting to bear fruit. A global competition policy is beginning to take shape as the International Competition Network, launched a year ago by 14 antitrust authorities including the EU, will hold its 1st Annual Conference, in Naples, at the end of this month, and discussions are under way in Geneva in preparation for the 5th Ministerial meeting of the WTO in one year in Cancun, Mexico, where the formal negotiations for the new multilateral competition rules should be launched.

In the light of these two events, I would like to use today's opportunity to reflect on the key role that both the ICN and the WTO are playing in this process.

Competition policy in the World Trade Organisation : the road to Cancun

First let me present you the case for a multilateral WTO agreement on competition.

In the absence of a specialised world-wide competition organisation and in view of the complementary relationship between trade and competition policy, the World Trade Organisation is the institution best suited to house an International Competition Agreement. The WTO possesses the advantages of a very broad membership and a tradition of enforcing binding rules. That is why the Commission has been at the forefront of efforts to persuade member countries of the merits of a WTO multilateral agreement in the area of competition.

During the current "pre-negotiating period", we are clarifying with our partners from developed and developing countries the issues on which we will negotiate and we expect to open formal negotiations on a Multilateral Agreement immediately after the 5th WTO Ministerial in 2003 in Cancun.

Of course, we have to be pragmatic and focus initially on what can be achieved. I believe a WTO agreement should:

  • put in place a framework that would facilitate co-operation between competition authorities world-wide. The co-operation modalities could be modelled closely on existing and well functioning bilateral agreements.

  • pay close attention to ensuring that the development dimension is an integral part of the new multilateral framework. I must stress that a WTO multilateral framework agreement would assist developing countries in the process of progressively establishing effective enforcement mechanisms at the domestic level which would be in the interest of their own citizens.

  • Finally, we should strive to reach an agreement on core competition principles of domestic competition law and policy. These would include transparency of rules, the removal of discrimination between firms based on their nationality, and the provision of fair procedural rules and judicial review. Most crucially the agreement should include a commitment to prohibit hard core cartels which are the worst form of antitrust violation. Studies presented at a joint Symposium on international cartels organised by the WTO and the United Nations Conference on Trade and Development (UNCTAD) last April show that the effect of merely 16 cartels on developing country imports was estimated at €80 billion.

I believe that the most efficient way to fight global cartels is through global co-operation. I am also confident that if we can make time work on our side and not against us, the Multilateral Competition Agreement can see the day in 2005.

The International Competition Network : Naples

Allow me now to move on to a parallel and equally interesting route towards multilateral co-operation: I am referring to the International Competition Network, or ICN. As I said, in 10 days the first Annual Conference of the ICN, in Naples, will bring together the leaders of most of the competition authorities around the world. As far as I can see, never before have the representatives of so many agencies been assembled in one place to express their willingness to engage in a direct international dialogue.

The European Commission has been one of the driving forces behind the ICN, which started with 14 competition agencies and, in less than a year, already counts 70 members. Looking at its membership, I find most encouraging the participation of many younger competition authorities from developing or transition economies. And I am glad to see that the ICN offers them a good forum to make their voice heard on an equal footing.

The ICN has been focusing on how to improve the parallel investigations by several competition authorities into international mergers. Secondly, and this is an issue of particular importance to younger competition regimes, the ICN has also began to discuss how best to react to distortions of competition created by state intervention. We refer to this second branch of a competition authority's activity as "competition advocacy".

What then are the first likely results of our efforts?

Let me begin with multi-jurisdictional mergers. When several competition authorities are called upon to give a verdict on an international merger, typically two sets of issues arise. The first one relates to the need to streamline our investigative procedures. The second issue deals with the substantive tests that we use.

Let me focus on the procedures. Naturally, each jurisdiction applies its own set of procedural rules when an international merger is notified to it, for example in terms of the timing of the review process. These divergences do not always facilitate the co-operation between competition authorities on a given merger case. Also for the companies engaged in a merger it is not always easy to cope with this disparity of procedures.

Let me point out that these are not hypothetical scenarios, but real issues. For example, just looking back over the Commission's merger practice during the last year or so, there are several cases that required notification in several jurisdictions. These included such well-known cases as Hewlett Packard / Compaq, Bayer / Aventis and the two competiting bids in the cruise market, P&O / Carnival and P&O/Royal Caribbean.

Against this background, one of the ICN's Working Groups has elaborated, as a first step, a set of "Guiding Principles for Merger Notification and Review" which will be discussed at Naples. These principles will be the starting point for the envisaged procedural convergence. The document invites competition authorities to respect such basic principles as sovereignty, transparency, non-discrimination on the basis of nationality as well as procedural fairness in their merger investigations. In addition, the Guiding Principles highlight the need to conduct a merger review in a timely and effective manner.

The debate will continue throughout next year, and I expect that already by the time of ICN's 2nd Annual Conference - which is scheduled for June 2003 in Mexico we will have a clear vision where convergence in international merger control can lead us.

The ICN Working Group on competition advocacy, for its part, has just presented its final report. This report is partially based on a survey among all ICN Members, explaining what they are actually doing in terms of advocacy. In my view, one of the most surprising conclusions of this report is how little we actually know about what other agencies are doing in this respect. The Working Group's report will make a decisive step towards remedying this situation, and we as competition authorities stand to learn a lot from this inventory.

The informal co-operation that is facilitated by ICN is a fascinating enterprise and it is quite remarkable that in such a short time one should already see results.

Finally, after Naples, the time will come to reflect calmly about the most appropriate design for the future of ICN. The current virtual structure of the network has its beauties. However, it remains to be seen to what extent this ultra-light structure is able to support the increasing expectations heaved onto it. One should not forget that, at this moment, the ICN does not even have a letter box, nor a bank account…

Conclusions

Concluding this brief survey of developments shaping an international competition policy, I would like to stress that I expect them to have a positive impact on the increasing globalisation of business, to encourage the progressive creation of new multilateral legal instruments, and to serve as foundations for a future system of international governance in our policy area to the benefit of consumers.

I must admit that a difficult part of the work is still ahead of us. However, I remain quite enthusiastic about the prospects for us to succeed. We have now a clear commitment, a destination to reach, a time-proven method of work and adequate tools at our disposal.


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