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Prof. Mario Monti
European Commissioner for competition policy
EU competition policy after May 2004
Fordham Annual Conference on International Antitrust Law and Policy
New York, 24 October 2003
Ladies and Gentlemen,
It is a great pleasure for me to address this year's Fordham Conference on International Antitrust Law and Policy.
I would like today to present to you a forward looking picture and explain how EU competition policy enforcement will look like after 1st May 2004. As you know, this is the date of our own "big bang", the date of expected entry into force of the major reforms we have been working on in the recent years. I refer, obviously, to the modernisation of antitrust enforcement with the new Regulation 1/2003, the review of the EU system of merger control and the internal reforms of the Commission's Directorate General for Competition.
From a very broad point of view, these reforms aim at improving the effectiveness of our competition policy and at enhancing its real impact in opening and maintaining competitive markets. This is a goal that we must achieve to ensure that the European Union is able to cope with two major and immediate challenges:
I will concentrate in my speech on antitrust and merger policy. I wish, however, to stress my commitment to a strong enforcement of our policy to control State aids, which is another key element to cope with the challenges I have just mentioned. There is still a lot to do in this area, but I am pleased to observe, as shown in the latest Commission State aid Scoreboard, that the Member States are on the right track and the volumes of State Aid granted are progressively being reduced.
II. Focused enforcement of EU competition rules
Let me move now to first of May 2004. One of the key results of our reforms will be the ability of the Commission to better focus its enforcement activities.
The antitrust modernisation, with the abolition of the notification system, will oblige the Commission to adopt a more proactive stance in antitrust enforcement. Indeed, the Commission will have to rely more on complaints and own initiative investigations. A reinforcement of DG Competition's sector analysis capabilities as well as of its tools to gather market information and monitor markets will be necessary.
This change, together with the establishment of the joint responsibility of the Commission and national competition authorities and courts to enforce the EU antitrust rules, will lead to a better and more effective sharing of enforcement tasks between the Commission and national authorities.
The Commission will mainly focus in those infringements which present the greatest risk of distortions of competition at the EU level and that, therefore, have the greatest negative impact on consumer welfare. In fact, we are already anticipating this change and focusing our resources on those anti-competitive agreements and practices that are particularly harmful.
Cartels, the most pernicious agreements among competitors, is an obvious area of focus. The record of our cartel enforcement activity for the past two years shows that this re-orientation has already started: in 2001 the Commission adopted 10 cartel decisions, imposing total fines nearing € 2 billion (a figure which is higher than the sum of all the fines imposed in the past EU history of anti cartel enforcement). In 2002 this level of cartel-hunting activity continued with 9 cartel decisions adopted with total fines nearing € 1 billion. I can assure you that the Commission will seek to maintain strong emphasis on this activity in the future too.
Let me mention that an essential element in the fight against global cartels has been the intensified co-operation between competition authorities and in particular with the US authorities. Our co-operation agreements (we also have them with the Canadian and Japanese authorities) have proven to be a solid basis for effective co-operation in this area, despite the fact that we are bound by the limits of confidentiality in the information exchange.
We will also continue to focus on major abuses of dominant positions. We are currently investigating a number of relevant cases and practices that could fall under Article 82 and we will give priority to them.
As one of the measures to improve the quality of our decisions in this field, I have asked DG Competition to start a thorough examination of our policy on abuses of dominant positions. In the past few years the Commission has re-examined and reformed its enforcement policy towards different types of agreements between companies that could be caught by Article 81. Now the Commission's attention is turning quite naturally to a re-examination of Article 82. Its purpose is to evaluate existing policy and how we can make it more effective as well as to define the most appropriate means to make it more transparent.
The enforcement of Article 82 will be particularly relevant in the context of fostering market liberalisation. The liberalisation processes that the Community has launched in recent years can only be successfully achieved if former monopolists, who usually retain powerful market positions, are prevented from engaging in exclusionary practices that delay or prevent effective competition in these markets.
A good example of the Commission's actions in this respect is given by the energy sector. At the end of June this year the Council and the European Parliament finally approved the full liberalisation of both gas and electricity markets: the so-called "acceleration directive" and a regulation on cross-border trade of electricity. The new legislation will eliminate the distortions of competition resulting from the different speeds at which the Member States have been opening up their markets and eventually lead to effective liberalisation.
However, this legislative progress will require increased monitoring activity by the competition authorities to ensure that new market opportunities are not undermined by restrictive and/or abusive behaviour on the part of companies - in particular vertically integrated incumbents - by anticompetitive mergers or by competition-distorting state aid.
The Commission has already dealt with a series of antitrust cases in the energy sector, removing restrictions that limit supply competition or access to networks (pipelines, interconnectors). Merger control has also played a role in fostering liberalisation by preventing the incumbent operators from acquiring potential entrants in their markets. For instance the French incumbent EdF (Electricité de France) acquired the German company EnBW (Energie Baden-Württemberg) which, due to its strategic position, was one of the most likely entrants into the French market. The Commission only approved the merger after EDF made significant commitments to accelerate the opening of the French market to other new entrants.
Liberalisation policies, supported by competition rules, bring clear long term benefits to industry and ultimately to the customers, particularly in terms of price reductions. The liberalisation of the telecommunications industry is a case in point. Today, we see already part of the results: over the past five years (1998-2002) prices of long-distance and international phone calls have fallen by over 45%. However, local phone call prices fell only marginally over the same period. This difference in price trends reflects the fact that today the local loop is still controlled by the incumbent operators, which also run nearly 70% of all broadband connection. This prompted the Commission to take regulatory action to accelerate the unbundling process.
Tackling the problems of recently liberalised telecommunications markets is one of the main aims of the new EU regulatory framework for electronic communications adopted last year. Under the new framework, regulation remains still for those areas where competition can most likely not be safeguarded by the mere application of competition rules, for example to guarantee effective and speedy access to facilities which are crucial for the development of competition. However, as soon as a market becomes effectively competitive and regulation is no longer necessary to sustain competition, the regulation will be phased out.
The importance of the telecommunications industry to the European economy speaks also for an increased antitrust scrutiny in order to ensure that growth and innovation is not obstructed by market power abuses or other anti-competitive practices. In this respect, it is worth mentioning that we have recently acted against exclusionary pricing strategies by Deutsche Telekom AG (in the form of a margin squeeze for local loop access) and by France Télécom's internet subsidiary Wanadoo (for predatory pricing of retail ADSL services).
Merger control is also a key priority in our enforcement activities, as we wish to safeguard competitive market structures by preventing the creation or strengthening of dominant market positions through concentrations. We are looking also in this field for ways to focus our activities. Indeed, one of the main objectives of the merger review, which we launched in 2000 and is about to be completed, is to optimise the allocation of merger cases between the Commission and national competition authorities in the light of the principle of subsidiarity.
III. Legal certainty and enhanced economic approach
In addition to an enforcement activity focused on the most serious infringements, one of the major goals of our reforms is to guarantee that, after 1st May 2004, companies benefit from a high degree of legal certainty as to what is allowed and what is not under competition rules.
To this purpose the Commission has in recent years revised the totality of its block exemptions regulations and produced guidelines on main types of business practices and agreements that can be caught by competition rules. In making this revision, we have shifted from a legalistic based approach to an interpretation of the rules based on sound economic principles.
To develop an economic interpretation of EU competition rules was, indeed, one of my main objectives when I took office as Commissioner for competition four years ago. Since then, I believe, we have made substantial progress, starting from the overhaul of our policy in relation to vertical restraints and horizontal co-operation agreements. Now, market power is a crucial element to take into account in applying Article 81 in these areas. Under the new type of block exemption regulations, companies with little market power, in particular the vast majority of small and medium sized enterprises, are able to act within "safe harbours" and do not have to worry about the compatibility of their agreements with EU competition law.
Another step to provide more legal certainty and at the same time ensure that the rules are based on a sound economic approach is the on-going review of our policy in relation to Intellectual Property agreements and, in particular, of the Technology Transfer Block Exemption Regulation. The new rules, which will apply to licensing of patents, know how and software copyright, will have a clear and short list of hard core restrictions that are normally prohibited. Otherwise, they will also offer a "safe harbour" below certain market share thresholds for licensing agreements between competitors and for agreements between non-competitors. For those cases not covered by the safe harbour, a set of guidelines will explain how Article 81 will be applied to individual cases.
We will further complete this framework with a series of notices providing guidance on key features of the new antitrust enforcement system. The notices will deal with issues such as the concept of affectation of trade between Member States, the principles underlying the application of Article 81(3) EU and the treatment of complaints.
In reforming our rules, we want to ensure maximum transparency and to take into account, to the extent possible, the comments of the companies concerned. To achieve this, drafts of the regulations, notices and guidelines that I have just mentioned were published for a two month public consultation at the beginning of October. Our objective is to have the revised rules in place prior to the application of the modernised antitrust regime in May 2004.
Despite all these efforts to clarify the existing rules, it is not excluded that in a limited number of individual cases novel questions on the application of Articles 81 or 82 may arise. The Commission will remain open to discuss such cases with companies, where appropriate, including the possibility of providing written guidance in the form of "guidance letters".
The need to ensure legal certainty while at the same time developing greater sophistication in the economic analysis also applies to the merger control field.
In the draft for the new Merger Regulation the Commission has proposed to clarify the substantive test to assess the competitive impact of mergers so as to eliminate any uncertainty as to its scope.
Discussion on this subject is ongoing in the Council of Ministers and we are confident to achieve a consensus before the end of the year, in view of the entry into force of the new Regulation on 1st May 2004. During this discussion, the Commission has been committed to ensure that, whatever new wording for the substantive test is agreed by the Council, legal certainty is enhanced and the relevance of the existing jurisprudence is maintained.
As a part of the merger reform, the Commission also adopted at the end of last year for public consultation a draft Commission Notice on the assessment of mergers between competing firms (so-called "horizontal" mergers).
In the Notice we intend to set out two main ways in which such mergers may give rise to competition concerns:
The notice also explains in detail the circumstances where these types of concerns will not lead to a declaration of incompatibility, either because entry in the market is easy, there is countervailing buyer power; the merger produces efficiencies or the failing firm defence applies. Let me stress, in particular, the fact that the notice describes in detail the elements that the Commission will take into account to assess efficiencies positively in the framework of merger investigations.
This new framework should strengthen the soundness of our analysis of mergers and, at the same time, contribute significantly to enhance the transparency of our policy in this field. Incidentally, it is another example of the increasing convergence between EU and US competition policies.
IV. Co-operation between the Commission and the national competition authorities and courts
A third key element of EU competition policy after first of May 2004 will be the close co-operation between the Commission and the national competition authorities and courts to ensure an efficient and coherent enforcement of competition rules.
It was with this objective in mind that we launched the ECN, the European Competition Network. Within this network, the Commission and the national competition authorities will systematically co-operate and co-ordinate their enforcement activities, ensuring a high degree of coherence. At present, we are discussing a number of issues which are central to the successful enforcement of the new competition system, such as allocation of case-work, the exchange of confidential information, joint investigations or setting up a common intranet that will permanently connect all the members and become the central tool for our daily contacts.
I cannot describe now all the details relating to co-operation in the ECN, but I would like to address one of the most pertinent questions: How are the Commission and the Member States' competition authorities going to share the case work?.
The goal is that, in this new world of parallel competence to apply EU Competition rules, each case is dealt by the best placed authority within the network. We want to keep the system flexible, but there will be some general principles that will guide our action:
These orientations are without prejudice to the responsibility of the Commission to take up cases that are potential precedents in order to set policy for the single market, to ensure coherence or to compensate for a lack of enforcement in parts of the Community.
We are also enhancing our co-operation with the national competition authorities in the merger field. As I have already mentioned, the Commission is proposing to simplify and make more flexible the referral of merger cases from the Commission to Member States and vice versa. To avoid that a referral process leads to undue delays for companies, we have included the possibility of referrals being made prior to notification.
Finally, from May 2004, the role of National Courts to apply EU competition rules will also increase. To ensure coherence across borders is one of the main challenges that we will face in the first years of application of the new system. The instruments for greater legal certainty that I have mentioned before (Block exemption regulations, notices, guidelines…) will be crucial for this purpose but, in addition, Regulation 1/2003 sets several methods of co-operation with national courts.
First, it establishes a legal basis for national judges to ask the Commission for an opinion on questions concerning the application of EU competition law or for information it holds. Second, it allows the Commission and national competition authorities to submit to the courts, on their own initiative, observations ("amicus curiae" submissions). These means of interactions are intended to allow the Commission (or a national competition authority) - in the public interest - to draw court's attention to important issues relating to the application of EU antitrust rules and contribute to the coherence of their rulings.
Regulation 1/2003 thus contains some important means to encourage private enforcement via national courts. The Commission is now reflecting on how it can further improve the situation for those who suffered from infringements of EU competition rules. In order to back that reflection, the Commission asked earlier this month for a study on the conditions under national law of claims for damages in case of infringement of EU competition rules and we are looking forward to seeing the results of that study.
V. Internal reforms
Let me now turn to internal reforms we have undertaken in the Commission to be ready to take the most from the new system in May 2004.
First, we have decided to reorganise the Competition Directorate General. The new organisation of DG Competition is based on integration of both merger control and antitrust enforcement in directorates responsible for the various sectors of the economy. This change will take place progressively: already now roughly a quarter of the present Merger Task Force staff has been re-deployed to four merger units within the sector antitrust directorates. The transition will be completed by May 2004.
The re-organisation aims at enhancing sector specific knowledge in view of the change of antitrust enforcement culture. The new organisation allows us to pool the market knowledge that flows from both types of enforcement - antitrust and merger - in one and the same structure where cross-fertilisation is much simpler. It will facilitate the spread of the best practices developed in the Merger Task force over the years to the whole Directorate General and is also designed to ensure effective use of the Competition DG's scarce staff resources and increase flexibility in their allocation between merger and antitrust work. I also believe that it will establish a sound basis for our co-operation with national competition authorities in view of the critical importance of dialogue with them on important sector developments.
Second, to reinforce the Competition DG's economic capabilities, we have created a new position of Chief Competition Economist. Professor Lars-Hendrik Röller has been nominated to this post in July 2003. He will be assisted by a team of specialised economists. In antitrust, merger and state aid cases, the Chief Economist will offer an independent economic viewpoint for policy development and provide guidance in individual cases throughout the investigation process. In cases requiring sophisticated quantitative analysis, a member of his team of economists may be seconded to work in the case team.
I believe that the increasing complexity of competition cases justifies the reinforcement of the Competition DG's economic capabilities also more generally. We have therefore accelerated the recruitment of industrial economists and intend also to make greater use of outside economic expertise.
Third, DG Competition has created an internal system of peer review panels to reinforce internal scrutiny. In complex and high-profile cases, a panel composed of experienced officials scrutinises the case team's conclusions with a "fresh pair of eyes" at key points of the investigation. This results in a second opinion as to the strengths and weaknesses of a case, independent from the position of the case team, which increases the legal and economic solidity of the final decision. We have already applied this panel system in around 10 merger and antitrust cases, with positive results, and it is my intention to deploy it throughout the Directorate-General so as to make antitrust, merger and state aid cases benefit from internal scrutiny.
Finally, we are also improving the process of Merger Control, by increasing the transparency towards the merging parties and their ability to intervene in the procedures. In the draft Merger Regulation we propose to introduce a degree of flexibility into the timeframe for merger investigations in order to allow more time for the proper consideration of remedy proposals.
While we oppose a general erosion of the tight timetable to complete merger investigations, this additional flexibility should increase the opportunities for the parties and the Commission to find appropriate solutions for competition concerns.
We have also published draft Merger Best Practices that describe a number of procedural improvements. The final document will be adopted together with the rest of the Merger Review package, but we have already put in place a considerable number of the measures that it contains. I would like to mention in particular the so-called "State-of-Play" meetings between the Commission and the merging parties at key points of the procedure, the possibility for the parties to discuss concerns arising from the transaction with the Commission and third parties (complainants, for instance) in so called "Triangular meetings" and the opportunity provided for the parties to review non-confidential versions of "key documents" on the Commission's file before any objections are raised (such as key submissions of third parties). The role of the Hearing Officer in scrutinising the respect of the procedures is also being strengthened.
All these improvements should contribute to a better decision making process and guarantee that the relevant elements and points of view are properly taken into account in the final decision on individual cases. An appropriate decision making process at the Commission is, indeed, the best guarantee that our decisions, ultimately aiming at protecting the consumers from anti-competitive practices, will always meet the strict standards required by the CFI and the ECJ.
VI. International co-operation
Let me now conclude my remarks with a few words on the "external" component of competition policy after May 2004. With the growing number of merger operations covering multiple jurisdictions and cartels having often a truly global dimension, it is clear that efficient competition policy enforcement will continue to require more and more co-operation between competition authorities.
I have already referred to the growing bilateral co-operation in cartel enforcement, and you all know that bilateral co-operation in merger enforcement, in particular with the US authorities, the Department of Justice and the Federal Trade Commission, has become part of our daily routine.
However, with the growth in the jurisdictions that apply competition rules of one sort or another, it became evident to us already a few years ago that the main challenge lies in establishing co-operation and co-ordination initiatives on the multilateral level. In this respect, the last year has seen significant progress as well as set-backs.
The failure of the WTO Cancun ministerial meeting was clearly a disappointment. The future of the discussions on competition in the WTO has now become just one aspect and in the global scheme of things, not necessarily the most important one of the wider question of the future of the Doha Round. The EU (including of course myself and DG Competition) has always been a proponent of the idea of a multilateral agreement on competition in the WTO. However, given the cold reactions expressed in Cancun by a relevant number of WTO members, we have to consider within the EU how best to take this forward, and whether it is an idea whose time has not yet come. No decisions have been taken on that point, and it is probably best to let the dust settle for a while before taking them.
On the positive side, everyone acknowledges that the International Competition Network (ICN) is being a successful initiative. The ICN second annual conference in Merida some months ago saw further progress in global convergence and co-operation through a result-oriented agenda.
I am particularly satisfied of the progress achieved in relation to merger control, notably through the set of "Guiding Principles" and "Recommended Practices" for the control of multi-jurisdictional mergers. Although these principles and practices are entirely non-binding, ICN member agencies are invited to check whether their domestic competition regimes are in compliance with these provisions. I wish to underline that, in our Merger Review, we have proposed to accept notifications before binding merger agreements are concluded in order to ensure that our regime is fully in line with the ICN recommendations.
We see, therefore, the ICN as a useful tool to enhance co-operation and convergence in the years ahead. We are aware, though, that some of the world's competition authorities may not yet feel well equipped to employ such common standards. Therefore, supporting the capacity building process of the younger authorities, and especially those in developing and transition countries, will become in the next years an essential element to ensure the full success of the ICN.
Let me conclude this travel into the future of competition policy enforcement with a positive note. Some time ago we imposed to ourselves the difficult task to achieve the implementation of major antitrust and merger reforms by 1st May 2004. This was certainly a challenge, but we are now in a very good track to meet it. The challenge is, therefore, becoming an opportunity: an opportunity for more effective enforcement of competition policy across the EU in the benefit of the consumer; an opportunity to contribute through competition policy instruments to foster market oriented reforms in the EU economy and, therefore, to improve its capabilities for sustainable growth; an opportunity to better integrate our ten new Member States into a single market with common competition rules.