Vice President of the European Commission responsible for Competition Policy
Recent developments and future priorities in EU competition policy
International Competition Law Forum
St. Gallen, 8 April 2011
Ladies and Gentlemen:
I would like to thank the President of the EFTA Court, Prof. Carl Baudenbacher, for the kind invitation to participate in one of the main and most traditional events in the calendar of the competition-law community.
Today, I would like to talk about developments and perspectives in the European competition policy against the background of a slow emergence from the worst economic and financial crisis in 70 years. This crisis will leave its mark for many years to come. But the other factor to be taken into account is that markets are evolving fast thanks to technological change.
I realise that the typical features of a good enforcement authority are continuity and predictability. However, I believe that it is also our duty to keep our doctrine and operations constantly up to date with changes in the markets and in business practice.
Regulation and competition
Over the past 14 months, I have spent a lot of time and efforts to keep under control and attach conditions to the huge sums our governments had to spend to bail out ailing banks.
At the same time, as you know, a wave of new financial regulations has been introduced; so, I would like to tell you about the relationship between competition and regulation in this area.
Since the beginning, competition policy has been part of the response of the European Commission and of the other institutions of the Union.
It has been – and still is – my responsibility to make sure that the massive amount of public subsidies would not distort competition in the financial markets and that the banks that asked for them would restructure and return to viability.
Our control is designed to ensure financial stability and help governments make a more efficient use of public funds. In addition – and almost as a side effect – we have been doing the job of resolution authorities.
We are now phasing out the emergency measures. If everything goes to plan, on January 1st, 2012 they will be replaced by a permanent framework for the rescue and restructuring of banks.
At the end of the day, I hope that we will have contributed to a reform of the financial sector that will avoid that we ever go through a crisis of this amplitude again, and which ensures – if there is a new crisis - that banks, not the taxpayers, pay for it.
The Commission is still working with the other EU and global institutions to coordinate enforcement and regulatory measures.
As the age of deregulation is coming to an end on a global scale, it is our responsibility to use both regulatory and enforcement action to protect the interests of ordinary citizens and businesses large and small, and set much high standards of transparency and fairness in financial markets.
I would now like to review the main trends in mergers, cartels and antitrust we are observing in the economic and business environment that is emerging from the crisis.
As concerns mergers, we see a recovery in M&A activity this year as the recovery takes hold. As always, we will remain vigilant as to the market structures that mergers and acquisitions would entail in the EU.
Many mergers do not raise competition concerns and can in fact allow companies to expand in new markets; however, we will continue to look closely at those mergers that may lead to further consolidation in already concentrated markets.
As to mergers in fast-growing and innovative industries – such as in high-tech – we need a dynamic analysis of the markets, looking for new technologies being developed and new entrants that could displace the incumbents.
An example of this challenging exercise is the Intel/McAfee merger, which was cleared last January subject to remedies.
These remedies ensured that Intel – the dominant chip producer for PCs – does not leverage its market power into the security solutions market. At the same time, they will not prevent the companies from reaping the benefits of future innovative solutions.
However, we do not look only at the potential harm of mergers. If companies require mergers and acquisitions to drive down costs, increase output and innovate, then we will look at these efficiencies as well – if they are claimed - and to the benefits they may bring to consumers.
But, today, one priority for EU merger control is also about ensuring that markets remain open within the EU. When it comes to cross-border transactions, we see that we must prevent protectionist temptations in the internal market.
EU merger control – together with our internal market rules – is key here. Article 21 of the Merger Regulation allows Member States to take into account legitimate public interests such as media plurality, public security, and prudential rules. But the same provision also gives the European Commission the power to ensure that Member States do not put forward unjustified obstacles to cross-border mergers with EU implications.
These powers have been used in the past against Member States that were invoking public security concerns to prevent legitimate transactions. And I am determined to rely on such powers again if necessary.
If we are serious about putting Europe´s econmy back on track, we must keep the internal market open and competitive, not raise protectionist barriers.
That is why I am closely following the developments of Lactalis’ acquisition of a stake in Parmalat. We are examining whether the case is reviewable under EU merger control. If it is, the Commission will have exclusive competence to assess its compatibility with EU competition rules and will act accordingly.
Another growing trend in the merger landscape comes with the advent of the so-called BRIC countries; which are emerging from the crisis as forces to be reckoned with in the global markets.
In the first months of 2011 we have looked into mergers involving Chinese state-owned companies: China National Bluestar/Elkem and Huaneng/Intergen were cleared in phase one and more cases can be expected.
In the cases that we have examined, we have used the same criteria we adopt to assess mergers involving companies controlled by the Member States.
Among other things, we try to determine whether the companies manage their business strategy independently; whether the decision-making power lies with the controlling entity above them, at central or regional level, and to what extent they effectively compete with other public companies.
In other words, we look carefully at whether, through the State, companies in the same sector act as one or different entities. This is not because they are foreign or we have a prejudice against State control, but because it is a relevant aspect for assessing if competition will be significantly reduced or not.
I remain firmly convinced that EU merger control must remain anchored to its own rules and purposes at all times, irrespective of the nationality of the companies concerned.
If we keep Europe’s internal market open to the world, we will look at a win-win situation that will benefit both our trade partners and us. If, on the contrary, we raise protectionist barriers, everyone will lose.
That is why we advocate for greater convergence in regulation and competition enforcement with our partners. Our goal should be disseminating our open model and principles, not importing practices and instruments that are typical of non-market economies.
Moving on to the fight against cartels, let me say that I consider them as the single most serious and dangerous infringement of competition law. In this regard I will continue to adopt a policy of zero tolerance.
But in today’s globalised economy, where cartels often go beyond our borders, it is also of the utmost importance that Competition authorities around the world cooperate efficiently. Several cooperation agreements between the EU and other major jurisdictions around the world – such as the US – are already in place and are working well.
Let me underline that the conclusion of a cooperation agreement with Switzerland would be a significant step in this direction. That is why I welcome the recent launch of negotiations with Switzerland, which are made possible by the maturity of the Swiss competition enforcement system and our excellent relations with the Swiss Competition Commission.
As to our policy for the future, I intend to initiate more cases ex-officio, because it is important to target markets that we know from experience are prone to cartel behaviour.
Regarding fines, I intend to keep the line of the 2006 guidelines, but also taking into account inability-to-pay claims
We have no interest in driving companies out of business.
Against the background of the economic crisis, the seven cartel decisions adopted in 2010 led to 32 applications for a fine reduction on grounds of inability to pay, nine of which were granted after a thorough analysis of the financial situations of the applicants.
In addition, this week we decided to reduce the fines that had been imposed on the subsidiaries of two groups of companies involved in the pre-stressing steel cartel.
We took this decision because, in this specific case, the parent companies were liable for only a small proportion of the infringement and therefore of the fine, while the subsidiaries were solely liable for a much greater portion of the fine.
In other words, the liability gap was very wide and the normal application of our rules resulted in excessive and non-recoverable fines for the subsidiaries – several times their turnover, in fact.
This is why we have greatly reduced the fines we had imposed earlier; a reduction that I consider necessary on grounds of proportionality and effectiveness.
Moving on to other areas of development in cartels, I can cite our efforts to maintain the attractiveness of our leniency policy and of tapping the full potential of the settlement policy.
Let me say a few words on the latter.
The settlement procedure has been used in two cases so far; the DRAMs and Animal Feed cases. The former has shown that settlement can work in complex cases and the latter has tested the so-called hybrid procedure, in which some companies settle and others decide not to.
These pioneer cases have been successful and have reinforced the confidence in this new tool. As a matter of fact, settlement discussions are now ongoing in other cases.
I welcome this development, because settlements are a win-win situation.
On the one hand, companies that are willing to settle can take advantage of lower fines; limit the damage to their reputation; and get on with their business faster.
On the other, this instrument – used in full compliance with rights of defence and due process – can reduce our enforcement costs and free resources that can be better employed on other cases.
I will close with a look at our work in antitrust. A challenge in this area is to intervene in a timely fashion, before it’s too late.
One trend that is emerging from a growing number of antitrust cases is our search for effective – and sometimes structural - commitments when they would more efficiently prevent competition concerns in the longer term.
Take for example some recent cases in the energy market, relating to potential abuses of dominance. In 2010 we adopted four decisions in this sector that made the commitments offered by incumbents in France, Germany, Italy, and Sweden legally binding.
We accepted the commitments offered by the companies because we were satisfied that they would grant present and future competitors more effective access to their respective markets.
A similar approach was taken when agreements between operators were at stake. In the Oneworld case for instance, substantial slot remedies were offered ex ante to ensure a good level of competition with the Alliance partners on the affected routes.
Another example was the reduction of the interbank fees for Visa debit cards; an important decision that will bring benefits to large numbers of card owners and businesses and that is worth between €10 and €20 billion a year.
In sum, these cases show how we try to intervene as early as possible when we see that remedies can bring effective and lasting solutions, in a more timely fashion.
However, when we see that this is not possible and that the right commitments are not coming our way, you can rest assured that we will take our decisions without waiting for them.
Such balanced activism applies to all sectors in which we are taking actions. Of course, some network industries, which are still dominated by former national incumbents, such as energy, telecoms, or transport, remain high on my agenda.
But we also need to be vigilant in other important sectors for the economy, such as pharmaceuticals, where we are investigating a number of cases involving patent settlements and closely monitoring settlements on an annual basis; wholesale financial services, where I am taking a close look at pre-trade and post-trade information; and the ICT industry, where we are facing network effects conducive to extremely large market shares – Google is an example that comes to my mind.
In all these sectors, we need to make every effort to leave the door wide open for new competitive companies to enter the market and be able to challenge the established players on the merits.
Ladies and Gentlemen:
These are some of the things we have been doing and we are planning to do to keep our control of competition in the internal market relevant, efficient and effective in a fast changing world.
As I said in opening, continuity and predictability are among the most desirable qualities for an enforcement agency.
But if we are to ensure a level playing field and a healthy competition environment for Europe’s companies and consumers; we can never rest on our laurels. I am committed to keeping EU competition control always vigilant, fair, and capable to evolve with the times.