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SPEECH/10/576

Joaquín Almunia

Vice President of the European Commission responsible for Competition policy

Competition Policy: State of Play and Future Outlook

European Competition Day, Belgium

Brussels, 21 October 2010

Introduction

Ladies and Gentlemen:

It is an honour for me to address you in this year’s edition of the European Competition Day.

First of all I would like to thank the Belgian Competition Authority, and in particular its President Mr. Van Steenbergen, for their hospitality and the work they have done in preparing this gathering.

I first attended the Competition Day, in Madrid, when I was still starting to carry out my work as Competition Commissioner in the Barroso 2 Commission.

Now, almost nine months after we started, I would like to take this opportunity to look back at what we have delivered over this period, as well to give you an indication of what lies ahead.

But before I dwell on those issues let me say a few words on private enforcement, the theme you have chosen for this conference, and about which I talked about more extensively last Friday at a Conference organised by the School of Law of the Valladolid University.

Private enforcement

All EU citizens and businesses should enjoy the right to obtain compensation for damages caused by a breach of EU law. But in reality, their rights depend on where they live in Europe. About half of the Member States don't have any form of collective action, and even where this right is recognised, its use is very diverse both in scope and effectiveness.

Last week, the College of Commissioners debated these and other issues related to collective redress. The discussion was prepared by an information note I put forward together with my colleagues Reding and Dalli, developing the ideas the three of us had anticipated to the EP during our confirmation hearings last January.

The College agreed on the need for a coherent EU framework to strengthen collective redress across Europe that would draw on the different European national traditions. At the same time, we are committed to avoid the excesses and drawbacks of the US system.

Five principles for group actions across the Union were agreed:

  • We should ensure effective compensation for everyone who has suffered damages, recalling that group claims are often cheaper and more practical than individual claims.

  • We should put strong safeguards against abusive litigation;

  • We should consider settlements or systems in addition to court proceedings to resolve disputes;

  • Collective judgements should be enforceable throughout the EU; and

  • Finally, we should ensure that adequate financing can be allowed so as to give citizens and businesses – especially SME’s – fair access to justice.

We decided to launch a public consultation from this coming November until the end of February 2011. In light of the replies that we will receive, we will propose a framework for collective redress.

This framework would become the basis for possible legislative initiatives in several policy areas including competition, environment, consumer protection, and others.

As to private enforcement of competition law, I’ve already announced that once the College approves this framework I intend to present a draft Directive on antitrust damages actions, hopefully in the second half of 2011, that would need to be approved by the Council and the European Parliament.

The initiative would set common standards and minimum requirements for national systems of antitrust damages actions to ensure that rights are a reality for all.

Member States would then translate these common standards into practice according to their respective legal traditions.

I believe that EU-wide action on group claims is particularly critical in the field of antitrust. Today, only large companies can afford to go to court to seek compensation for damages caused to them by illegal practices.

But when the victims are citizens or small businesses, they generally do not bring claims because when taken individually the losses are too small.

This can only be addressed with effective collective redress rules across Europe.

When the common standards will be in place, businesses and citizens will get the compensation they are entitled to on an equal footing across Europe. I don’t need to stress the implications for the single market.

And, again, I am convinced that we can uphold this right without importing into Europe the abuses we know exist on the other side of the Atlantic.

At any rate, these are just preliminary ideas and the public consultation will doubtless bring many more. I invite you all to participate in the consultation and help us trace a European way to group actions that is fair, consistent, and safe.

Ladies and Gentlemen, dear colleagues and friends:

Now I would like to give you a state-of-play account of competition policy.

Antitrust

I will start with the antitrust field as this ties in well with the issue of collective redress.

Cartel decisions

As I have said many times, cartels are the most serious infringement of competition rules and therefore the fight against cartels is one of my most important priorities.

Cartels hinder the normal functioning of competition in markets; they hurt consumers and reduce the competitiveness of the industrial users of the products for which the price is illegally fixed.

Illegal agreements also hinder the necessary restructuring in certain sectors, increase production costs and ultimately thwart growth. This is certainly the wrong strategy to get out of the current crisis.

I would like to stress two aspects of our fight against cartels: our fining policy and the implementation of a tool we have recently introduced in our legislative framework: settlements.

Fining policy and inability to pay

Deterrence is the primary objective of our enforcement and we must make sure that fines are set at an appropriate level to make companies think twice before entering in this kind of agreements.

Even during a crisis such as this one, deterrence is key. But we are public authorities and cannot ignore the fact that some companies are in financial difficulties and may be driven into bankruptcy as a consequence of our fines – with the corresponding social costs.

This is why we assess very carefully companies’ requests to take into account their possible inability to pay the fines that we plan to impose.

The goal is to strike the right balance between maintaining a deterrent level of fines and avoiding unwanted side-effects, such us pushing companies out of business.

Our analyses have led us to grant reductions to some companies, mostly small- and medium-sized enterprises. These reductions have been granted on an exceptional basis to respond to an unprecedented economic and financial situation in the history of EU antitrust enforcement.

Bathroom fittings

The bathroom fittings cartel decision of last June is an illustration of this approach. In total, 17 companies were fined for operating a price cartel for 12 years.

We concluded that five of these companies were in dire straits due to the crisis and that they would not be able to pay the planned fines. We reduced the fines accordingly.

This case shows the central principle of our fining policy: we impose fines to punish past illegal practices and deter future ones, but we have no interest in driving companies out of the market.

Settlements: DRAMs and Animal Feed Phosphates

As to settlements, of the five cartel decisions adopted in the past months, we’ve already used this new instrument twice; in the DRAMs and Animal Feed cases.

The DRAMs case – in which ten companies were fined €330 million, including a 10% reduction for settling – was a milestone.

The benefits of settling were immediately apparent: there have been no appeals – which in standard procedures can last for years – and our investigations gave rise to a ripple effect of leniency applications in related sectors.

The other settlement case to date – Animal Feed Phosphates – was also a success. We discovered and fined a cartel – a classical market-sharing and price-fixing arrangement – which had run for over thirty years.

Although not all the parties settled – we call this a hybrid settlement case –, the procedure proved to be highly efficient, including the fact that we expect only one appeal.

Other antitrust cases

Besides cartels, we have maintained an intense activity in the field of antitrust, focusing in sectors and cases which may have the biggest impact in terms of efficiency and welfare.

You will not be surprised to hear that energy, telecoms, information technology, pharmaceuticals, financial services, and transport are still high on our enforcement agenda. As are commodities and industrial products.

We have been very active in the energy market; a key area for Europe’s industry and with a direct impact on citizens.

Since the beginning of 2010 we have adopted four decisions in this sector: the Svenska Kraftnet, EDF, EONgas and ENI cases.

The latter is a good example of our enforcement approach in this market, since we accepted far-reaching structural remedies, consisting in the divestiture of ENI's share in international pipelines that transport gas to Italy.

These remedies will remove the ability of the Italian gas incumbent to adopt anti-competitive practices to keep prices high on the national market.

We are also following very closely developments in the airline industry and especially the strategic alliances involving key European players.

Last July, we adopted a decision on the Oneworld alliance – including British Airways, American Airlines and Iberia – in which we accepted major commitments put forward by the parties, including the leasing of slots at Heathrow airport.

We are currently monitoring the implementation of those remedies, continuing our investigation into the other alliances, and other possible infringements in the transport sector.

Moving to a different area, we have done a thorough assessment of the planned proposal by the Anglo-Australian mining groups BHP Billiton and Rio Tinto to combine nearly all of their iron ore activities into a production joint venture.

This case has attracted a lot of attention because of the strategic role of iron ore for steel production and the potential for the joint venture to eliminate competition between these two giants in an extremely concentrated market.

Last January – and in light of our experience of the merger the companies had planned and abandoned years ago – we opened an ex-officio investigation into the proposed joint venture.

We informally communicated our concerns to the parties last Friday, which as you all know decided to abandon their plans over the weekend.

Apple’s warranty for its iPhone is another case where we’ve had an impact on the market.

Last Spring, we launched a preliminary investigation on Apple’s country-of-purchase rule, which limited repair services to the country where the iPhone was bought.

Our concern was that this restriction would dissuade consumers from buying iPhones outside their country of residence, leading to a market partitioning.

However, after our conversations, in September Apple repealed the rule for the EU/EEA, where it now offers cross-border warranty services.

Digital agenda

The Apple case I’ve just mentioned is not the only one in the ITC sector. As you remember, at the end of last year we closed a case concerning Microsoft after the company made a commitment to allow users to use their browser of choice. Our monitoring of the market shows that the commitment is yielding results.

Another case that has created headlines concerns a number of complaints against Google, which were made public by the company itself. We are presently analysing the comments we have received from the company but no decision has been taken as to whether we will open formal proceedings.

In relation to these cases, I would like to say a word on competition policy and the digital economy.

In this fast-moving sector, we are monitoring market and technological developments closely. Our goals include

  • Keeping digital platforms as open as possible;

  • Having operators respect the net-neutrality principle, and

  • Strengthening the digital single market in Europe; including for content.

In general, I believe that competition rules apply to the digital economy just as they do to any other industry. If anything, they are even more crucial, because the digital sector holds out the promise to bring a new impetus to our economy – and for this reason the Digital Agenda is a priority of our Europe 2020 strategy.

Mergers

Moving on to merger control, this is a mature area of enforcement in which the legislative and analytical framework has been reviewed in the last years.

We now have a solid and consistent practice, and I think that it is important that it continues like this.

The business community needs to know that our decisions are based on solid analysis and that remedies are effective in addressing the competition issues at stake.

The crisis has produced a drop in mergers and acquisitions in the last years, and the number of cases has remained stable in 2010.

However, we’ve had, and continue to have, quite a few interesting cases to decide upon.

In the pharmaceuticals sector, for example, we cleared both Novartis/Alcon (branded eye care products) and Teva/Ratiopharm (generic pharmaceuticals) with clear-cut remedies in each case.

In telecoms, we cleared T-Mobile/Orange, having co-operated closely with the UK's OFT and OFCOM.

In transport, we cleared the Deutsche Bahn/Arriva merger, but only after securing the full divestiture of Arriva's German operations.

At present, we have a number of in-depth investigations of which I will mention two: the acquisition by Unilever of Sara Lee Body Care and the proposed merger between Aegean and Olympic Air.

The Unilever/Sara Lee transaction will have an impact on a large number of end-consumers in the EU.

This is a complex case which involves consumer products such as deodorants, aftershave, and detergents – including many popular brands – which makes the search for suitable remedies particularly challenging because not all the brands, products, and markets present the same problems.

This is why we are taking extra care with this case.

As to the proposed merger between Aegean and Olympic Air - the two largest Greek airlines –, the second-phase investigation is under way and the final decision is planned for January 2011.

The big difficulty here is that the two companies hold almost all the domestic market in Greece.

It is worth noting that one of the only two mergers that the Commission blocked under Neelie Kroes's mandate was the Air Lingus-Ryanair case, which had some similarities with this one.

As with previous airline cases, we will need to ensure that consolidation in the airline sector does not happen to the detriment of consumers and businesses in Europe.

Taken together these cases illustrate two important features of merger control: the need for detailed investigations in complex cases, and the search for effective remedies with sustainable effects on the market.

Prohibitions are rare. When we are satisfied that mergers pose no competition problems, we will not stand in the way of the emergence of companies with a global reach.

I believe that mergers and acquisitions are an important part of a healthy economy. I can think of many examples of global and European champions cleared by the Commission; for instance, only last July we cleared SAP's acquisition of Sybase, which created a global player in software, database and mobile technology.

There is plenty of room for pro-competitive mergers, but when a merger threatens the European economy and the interests of consumers, we have the duty to intervene.

My goal is finding a balance between protecting consumer welfare and creating the right conditions for business in Europe to grow to the scale needed to take on global competitors.

State Aid

Finally, I would like to close my review with a brief look at the special State aid regime we have introduced to tackle the financial and economic crisis.

Two years after the crisis erupted, we are at a crucial juncture in the exit strategy, which should be neither too abrupt – because we are not out of the woods yet – nor too slow, because that would be dangerous in the medium term.

Given the still shaky state of the markets and the uncertain recovery, the crisis regime for financial institutions will be extended to 2011. However, its measures will be adapted to prepare the shift to the post-crisis regime. In the course of next year we will tighten the conditions of access to the extraordinary support.

For instance, every beneficiary of a recapitalisation or impaired asset measure will be required to submit a restructuring plan, irrespective of whether the institution is considered to be sound or distressed.

In parallel, work has started on the new rules for banks’ rescue and restructuring in normal times. Market conditions permitting, they will be in place as of 1 January 2012.

Another extraordinary instrument introduced in December 2008 was the Temporary Framework, designed to encourage banks to resume lending to companies – especially SMEs – that were suffering from a sudden shortage of credit.

In 2009, measures totalling about €81 billion were approved under this measure. The Temporary Framework too will be extended in revised and limited form until the end of 2011.

Beyond enforcement

Ladies and Gentlemen:

Enforcement is not our only task.

We need to keep our rules in tune with today’s changing economy and ensure that we have a consistent framework, rooted in solid economic principles,that can give guidance to companies.

We have done so recently with the adoption of new “vertical” guidelines and the new rules on car distribution and the after-sales market.

We are now in the process of updating our "horizontal" guidelines on co-operation agreements between competitors.

A final text will be adopted by year’s end, taking account of the results of a public consultation that closed last June.

Due process is another priority – and a very important one. Our decision-making process – and the decisions that result from it – must be open and respectful of the rights of defence of the parties.

I am convinced that our administrative system complies with due process requirements at least at the same level than those based in the judicial principle. Our checks and balances, from transparency to the role of the Hearing Officers, are adequate.

But as I said several times in previous speeches, every time I will consider that our procedures, and the rights of the parties, can be improved without putting at risk the fulfilment of our own responsibilities, I am ready to introduce such changes.

Before I close, I would like to tell you that I am very happy with the excellent cooperation we have established with the National Competition Authorities; which I regard as especially important in the current economic climate.

My services cooperate closely with competition authorities across the EU to examine cross-cutting issues that are crucial for well functioning competitive markets.

Interchange fees in payment card systems, or the functioning of milk markets, are among those topics.

Among the network of the European Competition Authorities, we have also seen an intense two-way referral activity, which shows that the mechanisms we have in place ensure that cases are dealt with by the best placed authority.

They also show that parties should consider this principle already at the stage of pre-notification referrals; there is no room for forum shopping.

Conclusion

Ladies and Gentlemen, dear friends and colleagues:

I am very pleased with the work we have done in these first few months, but let me tell you that this is just the beginning. I can assure you that there is a great deal of work waiting for us in the future.

We will have to be more vigilant than usual in the next period, because the uncertain recovery makes anti-competition temptations all the more difficult to resist.

We will continue to be the best friends of an efficient and dynamic economy and the worst enemies of protectionism. I am convinced that this is the best service we can render to Europe’s economy and to our fellow European citizens.

Keeping a level playing field in the internal market will create the best environment for Europe’s competitiveness and will boost its prospects for long-term growth and job creation.

Thank you.


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