The International Dimension of EU Competition Policy:
Does Regional Supranational Regulation Hinder Protectionism?
Hikaru YOSHIZAWA Thèse présentée en vue de l'obtention du grade académique de Docteur en Sciences Politiques et sociales sous la codirection de Madame la Professeure Janine GOETSCHY (ULB & CNRS) et Monsieur le Professeur René SCHWOK (UNIGE)
Année académique 2015-2016
1 Abstract
There is an increasing recognition of the international presence and regulatory influence of the EU in competition policy. Despite a scholarly focus on its international dimension, the issue of nationality-based (non-) discrimination has insufficiently been investigated in the existing literature on EU competition policy. Thus, this research aims to fill this gap in the literature by examining whether the EU internally and externally utilizes its competition rules for the objective of promoting (potential) national and European champions, while disadvantaging non-EU based companies operating inside and outside the European internal market. Empirical findings validate two hypotheses of this research: that the supranational institutional setting of the EU in competition policy constrains the ability of member states to use their competition policies for neomercantilist, and even for protectionist purposes; and that the institutional setup assures nationality-blind enforcement by EU competition regulators, even vis-à-vis non-EU based companies. The research also identifies key systemic factors which either constrain or empower the EU as a regulatory power in the competition policy domain. The empirical analysis draws on both quantitative data and in-depth studies of recent major cases. Most cases are from the period between September 1990 and August
2015, involving American and Japanese companies, which have a strong presence in
European economies.
EU competition policy is highly supranational and has a distinctive goal of market integration. In order to understand better how these features shape EU competition policy, this research proposes an original model of ‘stringent competition policy’, drawing on the theory of regulatory states. This model is more useful than the essentially neomercantilist model of strategic competition policy in explaining the EU’s enforcement without regard to the nationality of firms. Internally, the supranational institutional setting significantly constrains the ability of the member states to utilize their competition policies for
2 neomercantilist and protectionist purposes. Regarding external consequences of this policy, the EU stringently enforces its competition rules regardless the nationality of firms involved in law infringements, though some cases involving non-EU firms were highly politicized and contested. To ensure that its stringent competition policy does not deteriorate the international competitiveness of European firms, the EU has been promoting competition policy externally, especially since the 1990s. However, the EU’s ability to play a leadership role in global multilateral fora is limited, despite its dedication and ambitions. This is because the EU’s regulatory power is fundamentally constrained by systemic factors such as a sharp increase in the number and heterogeneity of competition policies around the world, the deadlock of WTO negotiations on world competition law, and the emergence of transgovernmental networks such as the ICN. At the same time, these systemic factors have created the demand of younger competition authorities for reference points, if not models, and this opened up a window of opportunity for the EU to promote its competition policy rules and norms more extensively in third states. Overall, this research contributes to the EU competition policy literature by firmly placing it in a wider debate on competition and/versus competitiveness in the study of global political economy.
3 Acknowledgment
I would like to express my sincere gratitude to my supervisors, Prof. Janine Goetschy and
Prof. René Schwok, who always encouraged me and gave me a lot of valuable comments when I was struggling with my thesis. I am also thankful to Prof. Amandine Crespy, who helped me a lot since the first year of my doctoral research, and Prof. Chad Damro and Prof.
Sandra Lavenex, who kindly agreed to become members of my thesis committee. With no doubt, I could not produce this thesis without continuing support and advice from GEM PhD
School Director Prof. Mario Telò, and Mr. Frederik Ponjaert and Mr. Johan Robberecht of the GEM Central Executive Office.
My research hugely benefited from interactions with my GEM mates and those colleagues whom I met at various conferences and meetings in Belgium, Switzerland, the Netherlands, the UK, China, Japan and Canada. In particular, I am grateful to Prof. Raffaele Marchetti, Dr.
Angela Wigger, Dr. Davor Jancic, Prof. Yane Svetiev, Mr. Hassan Qaqaya, Dr. Duncan
Wigan, Mr. Matthew Maguire, Ms. Basje Bender, Ms. Pola Cebulak and Ms. Anna Chung, who kindly took the role of my discussants at various academic events. My special thanks also go to Ms. Ee Lyn Chin, Ms. Sarah Goler, Ms. Coraline Goron, Mr. Gustavo Müller and
Mr. Shunsuke Sato. They read my papers and/or thesis drafts, and gave me very useful feedback. I got valuable insight from the interviewees, too. Last but not least, I would like to thank Prof. Hidetoshi Nakamura and Prof. Koji Fukuda at Waseda University for their continuing guidance for many years, and my EUIJ Waseda colleagues for their warm encouragement.
4 Table of Contents
Abstract ……………………………………………………………………………………….. 2 Acknowledgment ……………………………………………………………………………... 4 Table of Contents …………………………………………………………………………...... 5 List of Abbreviations …………………………………………………………………………. 8 List of Tables, Figures and Boxes …………………………………………………………… 10
Chapter 1: Introduction ...... 12 1.1 A strange combination? EU competition and industrial policies ...... 13 1.2 Puzzle and research questions ...... 18 1.3 Key variables and definitions ...... 19 1.4 Scope and intended merits ...... 22 1.5 Methodological choices ...... 24 1.6 Structure of the thesis ...... 27
Chapter 2: The Functioning of EU Competition Policy …………………………...... 30 2.1 Policy objectives: change and continuity ………………………………………………..... 30 2.1.1 Protecting people from giants: a broad political context ……………………………... 31 2.1.2 The persistent market integration ethos: a distinctive European approach ...... 34 2.1.3 A development of the international dimension since the 1990s ...... 40 2.2 Substance of policy: introducing the four main components ……………………………... 46 2.2.1 Restrictive practices ………………………………………………………………...... 47 2.2.2 Abuse of dominance ………………………………………………………………...... 52 2.2.3 Mergers ...... 55 2.2.4 State aid ...... 58 2.3 Evolving supranational characteristics ...... 63 2.3.1 The centrality of supranational actors in individual cases ...... 63 2.3.2 Marginal roles of intergovernmental actors in individual cases ...... 65 2.3.3 Limited impacts of recent institutional and treaty reforms ………………………...... 66 Conclusion ...... 68
Chapter 3: Theoretical Framework ...... 70 3.1 Gaps in the literature ...... 71 3.2 Strategic competition policy: a neomercantilist perspective ...... 74 3.3 Stringent competition policy: a regulatory state perspective ……………………………... 80 3.3.1 Limitations of the first model ………………………………………………………… 80 3.3.2 External implications of the regulatory state …………………………………………. 82 3.3.3 Differences and commonality between the two models ……………………………… 91 3.4 Further debate: EU competition policy in a global context ……………………………….. 94 3.4.1 Not only a trade and market power, but also a regulatory power? ………………….... 94 3.4.2 Two aspects of regulatory power …………………………………………………….. 97 Conclusion ...... 101
5 Chapter 4: Dynamics between National and European Regulation – Does 103 Supranational Action Hinder National Neomercantilist Policies? ……………….. 4.1 Merger control as a typical area wherein national and supranational policies clash ...... 103 4.2 The motor vehicle sector ...... 107 4.3 The energy sector ...... 109 4.3.1 Salience of networking industries ...... 109 4.3.2 E.ON/Ruhrgas, E.ON/Endesa, and Commission v. Spain …………………………… 114 4.4 Sensitivity to prevailing politics: state aid control after the global financial crisis …….… 118 Conclusion ...... 121
Chapter 5: A Rhetoric or a Reality? The Equal Treatment of Firms Based inside 123 and outside the EU …………………………………………………………………….. 5.1 EU competition policy beyond its borders: a legal basis ...... 124 5.2 Cartel control ...... 128 5.2.1 A political commitment to non-discrimination ...... 129 5.2.2 Nationality-blind enforcement in practice ……………………………………………. 130 5.2.3 Unpacking entangled complaints from the Japanese business community …………... 135 5.3 Monopoly control ...... 142 5.3.1 The relatively frequent involvement of US firms ...... 142 5.3.2 The Microsoft cases ...... 145 5.3.3 The Intel case ...... 147 5.4 Merger control ...... 152 5.4.1 The relatively frequent involvement of US firms ...... 152 5.4.2 The GE/Honeywell case ...... 155 Conclusion ...... 162
Chapter 6: Commitment to Multilateral Rule Making as an Initial Response to 165 Cross-border Issues ...... 6.1 Incremental development of international competition law after the World War II ……… 166 6.2 The deadlock of WTO negotiation on competition law …………………………………... 172 6.2.1 The EU initiative under the leadership of Karel Van Miert ………………………….. 173 6.2.2 Initial exploratory discussion: from Singapore (1996) to Doha (2001) ……………… 177 6.2.3 A collapse of the negotiation: the Cancun Ministerial Conference (2003) and its 181 aftermath 6.3 Two competition-related trade disputes at the WTO ……………………………………... 188 6.3.1 The Japan – Film case ………………………………………………………………... 188 6.3.2 The Mexico – Telecoms case ………………………………………………………… 194 Conclusion ...... 197
Chapter 7: Systemic Constraints on and Opportunities for the EU as a 200 Regulatory Power ……………………………………………………………………... 7.1 A rapid increase in the number and heterogeneity of competition laws ………………….. 201 7.2 Engaging in and adapting to the ICN ……………………………………………………... 205 7.2.1 The rise of the ICN as a main driver of international policy convergence ...... 205 7.2.2 Constraints on and opportunities for the EU …………………………………………. 220 7.3 FTAs as a major instrument for international policy transfer? …………………………… 225 7.3.1 Persistent competition-trade nexus in bilateral relations ……………………………... 225
6 7.3.2 Externalizing state aid rules: the case of the EU-Korea FTA ………………………... 231 Conclusion ...... 235
Chapter 8: Conclusions ...... 238 8.1 Key empirical findings ……………………………………………………………………. 239 8.2 Theoretical contributions and limitations …………………………………………………. 242 8.3 The distinctiveness of EU competition policy: a comparative perspective ……………….. 244 8.4 Further reflections: stringent competition policy other are there any reasons for the EU’s 247 than the institutional constraints? …...………………………...………………………….. 8.5 Venues for further research ……………………………………………………………….. 248
Rerefences ……………………………………………………………………………………… 251
Appendix 1: List of interviewees ……………………………………………………………… 277 Appendix 2: List of current and former European Commissioners for Competition …….. 277 Appendix 3: The European Commission’s method of fines calculation under its 2006 278 guideline concerning the breach of TFEU Articles 81 and 82 ………………... Appendix 4: Number of notifications and decisions under EU merger regulation, 1990- 279 2013 ………………………………………………………………………………. Appendix 5: List of EU legislation (chronological) ………………………………………….. 280 Appendix 6: List of cases (chronological) ……………………………………………………. 282
7 List of Abbreviations
ASEAN: Association of Southeast Asian Nations
CARICOM: Caribbean Community
COMESA: Common Market for Eastern and Southern Africa
ECSC: European Coal and Steel Community
EEC: European Economic Community
EFTA: European Free Trade Area
EU: European Union
DG COMP: Directorate-General for Competition
DG TRADE: Directorate-General for Trade
FTA: Free trade agreement
GATS: General Agreement on Trade in Services
GATT: General Agreement on Tariffs and Trade
ICN: International Competition Network
ICPAC: International Competition Policy Advisory Committee
ITO: International Trade Organization
JBCE: Japan Business Council in Europe
JETRO: Japan External Trade Organization
JFTC: Japan Fair Trade Commission
MERCOSUR: Mercado Común del Sur (Southern Common Market)
8 METI: Japanese Ministry of Economy, Trade and Industry
MITI: Japanese Ministry of International Trade and Industry
OECD: Organization for Economic Cooperation and Development
SII: Structural Impediments Initiative
TEC: Treaty establishing the European Community
TFEU: Treaty on the Functioning of the European Union
UN: United Nations
UNCTAD: United Nations Conference on Trade and Development
WAEMOU: West African Economic and Monetary Union
WTO: World Trade Organization
9 List of Tables, Figures and Boxes
Tables
Table 1.1: Levels of analysis reflected in the thesis structure
Table 2.1: The frequency of international enforcement cooperation in competition policy, 2007-2011
(by enforcement areas)
Table 2.2: EU's dedicated competition cooperation agreements as of April 2015
Table 2.3: Legal sources and targets of EU competition policy, by policy component
Table 2.4: Cartel fines for the infringement of Article 101 TFEU, 1990-2004
Table 2.5: Top 10 cartel fines under Article 101 TFEU (by cases) as of 2 February 2015
Table 2.6: Major legal measures of the European Commission in EU competition policy
Table 3.1: A comparison of the main and rival models
Table 3.2: Cartel fines of 20 selected countries in 2010
Table 4.1: Combined market shares of Volvo and Scania in selected Northern European countries in
1998
Table 5.1: Top 10 cartel fines under Article 101 TFEU (by firms) as of August 2015
Table 5.2: Fines in the vitamins cartel case (2001) (after reduction under the leniency notice)
Table 5.3: Fines in the case of TV tubes and computer monitor tubes cartels (2012) (after reduction
under the leniency notice)
Table 5.4: Top 7 cartel penalty fees imposed by the EU on Japanese companies, as of April 2015
Table 5.5: Prohibition decisions in the area of abuse of dominance under Article 102 TFEU, 1999-
2014
10 Table 5.6: Commitment decisions in the area of abuse of dominance under Article 102 TFEU, 1999-
2014
Table 5.7: Prohibition decisions under Council Regulation 139/2004 (EU merger regulation), 1990-
2014
Table 7.1: Chief characteristics of the WTO and the ICN in comparison
Figures
Figure 3.1: Summary of the theoretical framework
Figure 4.1: Number of cartel members penalized by the European Commission, period 2003-2009 (by
countries)
Boxes
Box 2.1: Ordoliberalism
Box 2.2: The positive comity principle embedded in the 1991 EU-US competition-dedicated
cooperation agreement
Box 2.3: Thresholds for mergers over which the EU has exclusive jurisdiction
Box 6.1: GATT Article 23 (Nullification or Impairment) (1)
Box 6.2: GATS Telecommunications Annex, Reference Paper, Section 1
Box 7.1: A simplified structure of the ICN (as of April 2015)
11 Chapter 1: Introduction
Competition policy is not an afterthought in the process
of European integration. In fact, it is at its core.
Margrethe Vestager,
European Commissioner for Competition (2015a: 2)
In the study of European Union (EU) competition policy, there has been a growing interest in potential tensions between two distinctive objectives of the policy, namely the promotion of market competition for the functioning of the European internal market (a competition- oriented argument), and the enhancement of international competitiveness of European firms
(a competitiveness-oriented argument) (Blauberger and Krämer 2013; Bruzzone and
Prosperetti 2009; Dewatripont and Legros 2009; Roth 2006). While there is no consensus in academia on the question of which of the two logics actually takes precedence in the EU’s market regulation, it is generally acknowledged that this dilemma of competition policy could be serious when the level of regulation in the EU is substantially higher than that of major trading partners. This research aims to contribute to this debate by analyzing how the EU copes with the challenges internally and externally.
Since there is a possibility that the promotion of competitiveness of firms by competition authorities could lead to a neomercantilist and, in extreme cases, protectionist idea, as will be presented below, the research centers on the treatment of non-EU companies by EU supranational regulators in terms of nationality based (non-) discrimination. Furthermore, the research investigates how key systemic-level factors such as the global diffusion of
12 competition policy and the emergence of transgovernmental networks of competition policy officials, especially the International Competition Network (ICN), constrain the EU’s regulatory power in this policy area.
The main contention of this research is that the supranational institutional structure of the
EU originally designed for internal competition regulation makes it difficult for the union to take a neomercantilist competition policy externally. In order to alleviate the competition/competitiveness dilemma arising from this situation, and to reduce the possibility of interjurisdictional political conflicts, the EU has been trying to promote competition policy internationally through bilateral and multilateral channels. This attempt is relatively effective in relation to candidate and neighboring coutries. However, it should be noted that the EU’s ability to set international regulatory rules, standards and norms is significantly constrained by systemic factors such as the increasing diversity and number of competition laws around the world, and the rise of the ICN. A major challenge for the EU is how to play a key role in the multilateral process of consensus-based policy convergence through the ICN, in which parties with larger domestic markets do not necessarily have stronger influence than others.
1.1 A strange combination? EU competition and industrial policies
Competition policy, which is also known as antitrust or antimonopoly policy in some countries, is one of the core policies of the EU. It has a solid legal basis and is crucial for the functioning of the European internal market. EU competition law prohibits certain conduct of private and public companies 1 : (1) hardcore cartels such as price fixing, and other
1 EU legislation and court judgements on competition use the term undertaking instead of more widely used words such as company, firm and corporation, and the former concept is defined by the nature of conduct rather than the nature of actors (Jones and Sufrin 2011: 124-126). It means that an entity could
13 competition-restricting agreements between firms, be they horizontal (i.e. between competitors in the same market) or vertical (i.e. between producers, retailers and distributors); (2) the abuse of monopolistic power, for example predatory pricing to force competitors to exit from the market (and raise the price later); (3) mergers and acquisitions which would directly trigger a sharp price increase resulting from a decreased number of market players; (4) in addition, the EU controls public aid granted by member states to certain firms, industries and regions. Typical examples of these are market-distorting subsidies, public guarantees, and public loans below the market rate. In short, EU competition law has a wide coverage and, as in many other competition laws, it is prohibitive in nature.
Without any public regulation of these anticompetitive practices, it would be largely ineffective to get rid of traditional trade barriers between states such as tariffs and quotas.
This is because, for instance, the creation of a free trade area may stimulate cross-border mergers and foster international monopolists possessing the capacity to make extra profit by abusing their dominant market positions. In terms of total economic welfare2, such behind- the-border private distortion of market competition could be even more harmful than the traditional, at-the-border public regulation of the market, especially for consumers, and small and medium-sized enterprises (SMEs). Similarly, trade liberalization within a regional organization may result in subsidy races among its member states, unless effective state aid control exists. These are key reasons why the Rome Treaty signed in 1957 by the original six legally be a non-profit organization and yet subject to EU competition law as long as its activity affects market competition in the union. Nevertheless, this research avoids the use of this jargon because it could easily deteriorate readability, and does not fundamentally affect the fact that the main target of EU competition law is the company, be they public or private. 2 Total economic welfare is a term used in economics and means a sum of producers welfare, consumers welfare, and the tax revenue of the government. By definition, total economic welfare would be maximized when productive and distributive resources are used in the most efficient way.
14 member states (France, West Germany, Italy and the three Benelux countries) had provisions on competition. It should be noted that competition policy was one of the first few areas wherein the Treaty granted exclusive competence to the European Community (now the
European Union) institutions (for greater details of the historical context, see Chapter 2).
Yet, not everyone supports the teleological argument that the creation of the European internal market in turn necessitates strict supranational competition rules. Some people insist that supranational competition regulaftion should not go as far as hindering the rise of national and European champions. According to this perspective, the benefits of market concentration and business cooperation should not be forgot because those practices would allow European companies to compete with non-European ones on the global stage while taking advantage of the economies of scale. This is why some politicians of EU member states call for more flexible EU competition regulation and greater discretion for national industrial policies.
Even after nearly six decades since the Rome Treaty was signed up, it is still important to question how far the idea of supranational competition regulation is accepted by the governments of EU member states. One should recall the recent open attack of former French
President Nicolas Sarkozy on the principle of market competition codified in Article 3 (1) g of the Maastricht Treaty establishing the European Union. At the European Council meeting in Brussels in June 2007, he proposed to downgrade EU competence over competition, arguing that EU competition policy was over-constraining national industrial policies.
Sarkozy even argued that the protection of market competition should be removed from the union’s main goals spelled out in the draft Reform Treaty – which is now known as the
Lisbon Treaty (Sierra 2012). This episode is widely considered as a case which revealed the member states’ divergent degrees of commitment to market regulation based on competition law (for details concerning the political debate on the Lisbon Treaty’s competition provisions,
15 see Chapter 2). Equally importantly, many politicians and commentators suspect that industrial rather than competitive considerations are behind day-to-day EU competition policy decisions. They argue that the EU’s competition regulators focus too much on multinational companies, such as American and Japanese ones – a viewpoint which EU officials have not surprisingly been denying for a long time. Such interpretation of EU competition policy as an instrumental one is a subject of empirical inquiry, whereas at the national level there are apparent cases of protectionism. A typical example is the maneuver of merger control by member states so as to hinder the acquisition of energy companies by foreign competitors, effectively blocking market entry by the latter (See Chapter 4). Taken together, it is clear that the competition policy of the union is not merely a technical issue underpinned by a consensual conception of capitalism.
Taking this into consideration, it is important to pay particular attention to the parallel development of competitiveness-oriented policy of the EU, which could have a profound impact on its competition policy. The EU is incrementally developing industrial policy, while
EU competence in this area remains supportive3. A political debate on the possibility of establishing EC industrial policy began in the late 1960s and 1970s, primarily as a regional response to the devastating oil crisis as well as increasing international competition with companies from the US, Japan, and newly industrialized countries. The seminal Colona
Report in 1970 was a clear sign of European ambitions, although its achievements were quite modest. In 1992, the Maastricht Treaty codified the idea of European industrial policy for the first time, while former European Commissioner for Industry Martin Bangemann paved way for EU-wide industrial policy during his term between 1989-1999, in cooperation with member states and other supranational organizations. An ever-increasing demand of member
3 The Lisbon Treaty spesifies which of the three categories of competence (exlcusive, shared or supportive) the EU has in a given policy field (TFEU Article 3 (1)).
16 states for a horizontal (i.e. cross-issue and cross-sectoral) socioeconomic strategy coordinated by supranational institutions led the EU to articulate the Lisbon Strategy by 2000.
The Lisbon Strategy (2001-2010) is an encompassing multiannual policy package aiming at the establishment of a knowledge-based highly-productive European economy by the year
2010 (European Council 2010; see also Rodrigues 2009). While its ambitious goals were not adequately achieved, as the EU itself admitted (European Commission 2010 a: 3-9), the strategy was modified, updated and materialized as the Europe 2020 program (2011-2020).
The principal aim of Europe 2020 is to pursue smart (i.e. knowledge-based), sustainable and inclusive economic growth by the year 2020 (European Commission 2010 b). For example, under the name of sustainable development, the Directorate-General for Enterprise and
Industry of the European Commission launched in 2010 an initiative, entitled An Industrial
Policy for the Globalization Era, with special emphasis on the global competitiveness of
European firms (European Commission 2010 c).
The brief overview of policy development in the areas of competition and industry raises a point that this research aims to problematize, namely potential tension between the goals of competition and competitiveness. While competition policy is often referred to as a success story of European economic integration, not only by EU officials but also by numerous academics and stakeholders, this policy could actually be part of the problem rather than part of the solution. In its Annual Reports on Competition Policy, the European Commission and its Directorate-General for Competition (DG COMP) continuously emphasize the positive contribution of the policy to the Lisbon Strategy, and more recently, Europe 2020. Their argument is based on a strong (but not full) trust in market competition: that competition policy corrects market failures, fosters competition among companies, boosts innovation, and ultimately, makes European companies ready for competition at the global level. However, this discourse is and has almost always been contested inside and outside Europe. There is a
17 wide belief at least in academia that the international competitiveness of European firms could be undermined if EU competition law is substantially more rigorous than that of the union’s major trading partners (Blauberger and Krämer 2013: 173-175; Dewartripont and
Legros 2009: 89). In other words, few people deny the necessity of a certain level of market regulation given the inexistence of perfect competition in the real world (this is the very starting point of the extensive literature on public economics). Yet, one could still argue that a higher level of market regulation in comparison with other jurisdictions could be a serious disadvantage for companies operating within the EU in terms of international competitiveness.
1.2 Puzzle and research questions
After understanding the contested balance between competition policy and industrial policy, one would find EU competition policy intriguing with regard to its treatment of non-
European companies. In theory, competition policy could be strategically used to promote the international competitiveness of domestic firms. One possible option for governments is to target foreign companies. If the EU makes policy based on a pure cost-benefit calculation, it is most likely to take this aggressive strategy so as to protect and foster national or even
European champions. In reality, however, there are numerous hints here and there indicating that the EU treats EU and non-EU based companies on an equal basis. It is particularly noteworthy that this opinion comes from some outsiders as well as the EU. One good example of this is a report in 2008 of the Study Group regarding Competition Law
Compliance, which was appointed by the Japanese Ministry of Economy, Trade and Industry
(See Chapter 5).
18 In light of this puzzle - the neutrality of EU competition policy with regard to the nationality of firms - and the dilemma of supranational competition policy explained above, this research addresses the following primary research question: does the EU strategically use its competition policy, internally and externally, to enhance European companies’ international competitiveness? In order to answer this broad question, two subsidiary questions should be raised:
Research Question 1: Does EU competition policy foster European monopolists even at the expense of competition-promotion purposes?
Research Question 2: Is this policy discriminatory against third-country based companies?
Companies referred to here may (a) operate within the European single market or (b) do business outside the EU but have substantial effects on its market competition.
After evaluating those points, which are directly relevant to the puzzle mentioned above, the role of the EU in global competition governance will be examined. Specifically, drawing on the existing literature that analyzes the regulatory power of the EU in the area of competition among others (Young 2015a; Aoyagi 2012; Bradford 2012; Endo and Suzuki
2012; Bach and Newman 2007; Fox 2001), this research addresses a further question:
Research Question 3: How do systemic variables such as the growing diversity among competition regimes and the rise of transgovernmental networks such as the ICN constrain the EU’s regulatory power?
1.3 Key variables and definitions
The independent variable of this research is the supranational institutional setting of the EU.
This supranational institutional setting is a legal and political structure where supranational
19 actors (regarding competition policy, especially the European Commission and the EU
Courts) have extensive competences and considerable autonomy from particularistic national and industrial interests. A common methodological problem in social science is that the independent variable actually does not vary. While this research argues that EU competition policy was and remains substantially supranational (see Chapter 3), it makes a comparison with the national competition policies of member states (see Chapter 4) and therefore does not face this issue.
The dependent variable is EU competition policy within and outside the union, while the control variable is the general trend of minimalist or maximalist public regulation of the market depending on prevailing politics and macroeconomic situations. Early political science literature on EU competition policy tended to insufficiently address the importance of broad socioeconomic context in Europe, but in reality it fundamentally affects the conceptions of competition policy (McCann 2010; Wigger 2008). The current economic and financial crisis in Europe since 2007/08 only confirms this point.
In addition to key variables, it is important to define four key concepts at this stage for the sake of clarity:
(1) Competition policy: a regulatory policy which is prohibitive in nature, primarily uses
legal rather than administrative rules, and covers various areas of cross-sectoral market
regulation such as control of restrictive practices, abuse of monopolistic power, and
mergers4. International competition authorities may also have statutory power to control
state aid which would create an artificial comparative advantage of indigenous
companies.
4 For the distinction between competition policy and industrial policy in terms of regulatory instruments, see Sugiura (1994: 106).
20 (2) Industrial policy: proactive policy of governments in areas of market expansion, structural
adjustments, and technological development. It often involves direct budgetary
expenditure and uses administrative directions as the main instrument.
(3) Protectionism: governmental practices of protecting domestic industries from
international competition by limiting the access of foreign firms to the domestic market,
and by privileging domestic companies with various financial and regulatory instruments.
(4) Supranationality: the extent to which the formation, interpretation and enforcement of an
international entity’s policy are isolated from political intervention by the member states
in pursuit of their individual interests. The supremacy of international law (here, EU law)
is an important underlying component.
It should be noted that competition policy is defined here in terms of regulatory areas and modes rather than policy objectives, and this conceptualization directly reflects the central point of this introductory chapter. Key textbooks on competition law and economics tend to define the goal of competition policy a priori, especially from the neoclassical economics perspective with its emphasis on market efficiency, and numerous political science works on this policy in turn reinforce this bias without sufficiently problematizing normative implications it would have (for this critique, see Buch-Hansen and Wigger 2011: 6-7). It is important to remember, however, that goals of EU competition policy themselves are an outcome of the political process in which various governmental and societal actors interact and promote their own interests, ideas and discourse. In a word, what is the primary goal of
EU competition policy, that is the question, and this research empirically examines it rather than predefines it.
21 1.4 Scope and intended merits
Regarding levels of analysis, this research studies both the interaction between national and supranational regulation, and the external consequences of supranational regulation. The relationship between national and supranational regulation will be analyzed mainly in two aspects – namely, competence allocation between national and EU competition authorities, and supranational action against the infringement of EU law by member states. As for regulatory areas, following chapters study the four substantive areas of EU competition regulation: restrictive practices, abuse of dominance, mergers and state aid. Associated areas such as competition advocacy and consumer relations are beyond the scope of the research because they are less relevant to the research questions. Interactions with industrial policy and common commercial policy are of great importance for the analysis of the international dimension of EU competition policy. By contrast, the interface with sectoral regulation is less relevant here, and it differs considerably sector by sector, making it extremely difficult to provide a single analytical framework. Therefore, this research does not focus on it.
One intended scientific merit of this study is the development of two contrasting models, namely ‘strategic competition policy’ and ‘stringent competition policy’. The former model is developed to some extent in previous works, whereas the latter is an original contribution of this research. It should be noted that they are not ‘models’ in a normative sense. Rather, they are heuristic devices for the better understanding in a complex reality in this policy field.
They rest on different balances between competition and competitiveness, and take opposing positions concerning the (non-) discrimination of non-EU firms. Greater details will be presented in Chapter 3 on the theoretical framework.
22 Another intended merit is a ‘comprehensive’ approach in three aspects. First, it looks at both internal and external aspects of EU competition policy, while emphasizing the latter.
When attempting to situate the EU’s economic policies in the context of the global economy
(regional v. global dimension), a good understanding of the internal dynamism within the EU is indispensable (EU v. member states dimension). Second, the theoretical framework builds on both EU studies and the study of international political economy, while acknowledging
European and international legal context. Specifically, arguments in subsequent chapters draw on the theory of the regulatory state developed in EU studies, and aim to engage with the competition and/versus competitiveness debate in the International Political Economy.
Key concepts in EU law and international economic law such as the group economic unit doctrine, the implementation doctrine, and positive and negative comity principles will be introduced in order to explain legal foundations of the EU’s external competition policy.
Third, this research intends to investigate selected competition cases without losing sight of the broader political context. This point is inextricably linked to the interdisciplinary approach noted above. On the one hand, political science studies on this issue have a general tendency to mention individual competition cases as mere episodes and do not fully integrate them into theory-building and theory-testing processes5. On the other hand, the majority of economic and legal studies of competition policy fall within either of two categories: purely theoretical research, and case-oriented or area-specific (e.g. merger control and cartel control) one. This research attempts to strike a balance between these two extreme approaches.
The research also aims to be up-to-date and to have policy relevance. In the face of current economic and financial upheavals, EU competition policy is at a crossroads. It is under pressure, particularly in the area of state aid control. A major reform of state aid control was
5 However, there are some exceptions. See, for example, From (2002). It goes without saying that the usefulness of in-depth case studies largely depends on research questions.
23 recently proposed by the European Commission, and people even outside the union are carefully observing and speculating the direction of this reform and other areas of EU competition policy.
1.5 Methodological choices
Three methodological choices serve as guidelines throughout this research. The first one concerns the method of generating and testing hypotheses, while the latter two deal with the relevance of everyday politics in competition regulation and the importance of multiple sources respectively.
(1) Inductive and yet theory-informed method of hypothesis generation
Chapter 3 develops two theoretical frameworks, namely stringent competition policy (the main framework) and strategic competition policy (a rival one) based on empirical observations, including contemporary phenomena and historical events. After this, theories play an important role in developing the arguments in a coherent, cohesive and structured way. This stage of theory-building is followed by the theory-testing stage in the empirical analysis chapters. In order to avoid tautological arguments, the two stages use different data.
(2) Significance of ‘day-to-day politics’
Why do we study individual competition cases? This question may sound bizarre to competition economists and lawyers, but it is a relevant and important question for political scientists working on EU competition policy. It is possible to focus on materials such as
24 treaty revisions and prominent secondary legislation, and a typical example of this approach in EU studies is (liberal) intergovernmentalism. Although it may look like a legitimate strategy of research in terms of parsimony, there is a serious shortcoming. In the area of competition, incremental policy development and changes through everyday politics, including court judgements and the Commission’s binding decisions and non-binding explanatory publications, are too crucial to ignore. The competition provisions of the Rome
Treaty have been surprisingly intact despite changes in socioeconomic situations in Europe.
As for treaty amendments, the Council of EU’s legislation is rare in this area. For example, in cartel and monopoly control, Council Regulation 17/62 remained untouched for as long as four decades until Regulation 1/2004 replaced it. Individual competition cases are therefore of great importance to better understand this policy.
(3) Multiple sources, both EU and non-EU
This research extensively investigates primary sources by authorities both within and outside the EU. Considering the nature of the above mentioned research questions, this point is crucial in order to develop a balanced argument. Main EU documents used in this research are: (1) annual reports of the European Commission on competition policy, and associated staff papers prepared by DG COMP; (2) speeches by past and present European
Commissioners for Competition and Directors-General of DG COMP; (3) various documents detailing the EU’s Lisbon Strategy and Europe 2020; (4) several publications by DG
Enterprise and Industry, especially its annual Competitiveness Reports; and (5) a few
Commission White Papers which discuss competition policy issues in the context of enlargement policy. As for material from third states, particularly noteworthy ones include
(1) policy reports of the Japanese Ministry of Economy, Trade and Industry; (2) annual
25 reports of the Japan Business Council in Europe, which is a leading business association based in Brussels and represents interests of multinational companies of Japanese parentage operating in European markets; and (3) speeches of senior officials of the US Fair Trade
Commission and the US Justice Department, Antitrust Division. Last but not least, the research also uses documents of international organizations, especially for the analysis of global institutional structures constraining EU competition policy. These documents include those of the ICN (policy documents; recommended practices and manuals, speeches of senior officials), the WTO (dispute panel reports; annual reports of the Working Group on the
Interaction between Trade and Competition; contributions to the working group discussion by the WTO member states), the OECD (reports and recommendations) and UNCTAD
(recommendations).
It is worth explaining sources of aggregate data and case-specific information used in this research. Regarding quantitative data, the DG COMP website is the most comprehensive. It is therefore one of the major sources of information used in this study. In particular, Chapter 5 which directly examines the question of nationality-based discrimination extensively uses data based on an online competition cases database (search engine) available on the website of DG COMP. This database provides basic information about individual competition cases
(e.g. case numbers and links to related documents), and covers cases during the period 1999- present for restrictive practices and abusive dominance policies, and 1990-present for merger policy. Statistics on EU competition policy compiled by the Japanese Ministry of Economy,
Trade and Industry is also going to be analyzed in Chapter 5. Finally, the chapter refers to a recent study of EU merger control by a political scientist Mark Thatcher (2014), based on his original dataset of EU merger cases during the period between 1990 and 2009 in energy, telecommunications and banking sectors.
26 Case-specific information is equally important. The collected information falls within four categories: (1) decisions of the European Commission and judgements of EU courts; (2) press releases are less informative in general, but they sometimes provide information supplementary to the Commission decisions; (3) Competition Newsletters, a quarterly journal of DG COMP, and various academic publications (especially those on EU competition law) are also informative and insightful concerning very technical aspects of individual cases; (4) since the research analyzes the (non-) discriminatory nature of EU competition policy, several interviews were conducted not only with EU and EU member state officials but also with an official of the Japanese Mission to the EU (see Appendix 1: list of interviewees).
However, the interview material does not dominate the direction of the research. Rather, it complements published case-specific information.
1.6 Structure of the thesis
The structure of this thesis takes into account three levels of analysis –namely, the internal dimension of EU competition policy, its external implications, and external relations. Table
1.1 presents a simplified version of the organization. It should also be noted that the structure reflects the inside-out perspective of this study, that is, a view that EU competition policy is originally devised as an intraregional policy, and that the development of its external dimension was greatly constrained by internal historical experience as well as broader political context at the global level.
As a point of departure, Chapter 2 explains the functioning of EU competition policy from historical, legal and political perspective. First, it explains the historical context and underlines the continuing importance of ‘market integration’ goal in EU competition policy.
27 Then, the chapter introduces the four core components of this policy, while briefly setting out its evolving supranational character in legal terms.
Table 1.1: Levels of analysis reflected in the thesis structure
Theoretical framework ・Making a heuristic distinction between strategic and stringent competition policies ・Identifying key variables which constrain the EU’s internal and external action in the area of competition (Chapter 3)
Internal dimension ・The objectives, substance and decision-making process of EU competition policy (Chapter 2) ・Dynamics between national and supranational competition regulation (Chapter 4)
External consequences of 'internal' competition policy ・The EU's regulation of third states' companies operating within and outside the internal market (Chapter 5) ・The role that the EU played in the failed WTO negotiation (preliminary discussion) on world competition law (Chapter 6)
External dimension ・The global diffusion of competition policy and the emergence of multilateral transgovernmental networks ・ Challenges and opportunities for the EU as a regulatory power (Chapter 7)
In turn, Chapter 3 presents the theoretical framework of this research. Based on a critical review of the literature, the chapter provides two competing conceptual frameworks, namely the model of stringent competition policy, which draws on the theory of the regulatory state, and the model of strategic competition policy, that is essentially a neomercantilist reading of the policy . The former is the main and original analytical tool of this study, while the latter is a rival model.
The Chapters from 4 to 6 are directly relevant to the first two research questions. Chapter 4 takes the internal aspect of EU competition policy. So as to directly test the competing theories, the chapter examines cases from three selected areas of high political sensitivity, namely motor vehicle and energy as well as the contentious state aid control since the
28 outbreak of the current economic crisis in Western countries. Chapter 5 focuses on the treatment of non-EU-based companies by the EU. After briefly setting out legal foundations for the EU’s extraterritorial legal enforcement, the chapter ascertains whether the EU discriminates firms from third states in areas of restrictive practices, abusive dominance, and mergers. Both aggregate data and high-profile cases will be studied. Then, Chapter 6 explains why the EU took an initiative to create world competition law within the WTO legal framework, and why it failed. The case of the WTO is important in itself, but it also sets the scene for the next chapter, which looks at the EU’s second-best option, the ICN.
Chapter 7 brings in a wider context and tackles the third and final research question. It analyzes systemic-level changes such as an explosion in the number of competition laws and institutions around the world, and an emergence of global competition networks such as the
ICN, and explains how these factors constrain EU competition policy.
Finally, Chapter 8 summarizes major empirical findings and answers the research questions.
It also provides further explanation on theoretical contributions of the research, and then elaborates on their wider implications.
29 Chapter 2: The Functioning of EU Competition Policy
The European competition regime is a multilevel system and covers a wide range of regulatory issues. It is a complex policy because its four sub-areas are based on distinctive sets of rules and procedures, and have developed at different speeds. Moreover, competence allocation among supranational and national institutions has become more complex since the modernization reform in 2004. Therefore, in order to provide a basis for empirical and theoretical analyses in subsequent chapters, this part presents (1) policy objectives, (2) substantive law and (3) the evolving supranational institutional setting of EU competition policy.
Drawing on official publications of the EU as well as previous works of lawyers, historians and political scientists, the chapter shows that this supranational policy has significantly developed in the late 1980s and onwards. Today it is one of the core economic policies of the
EU and remains highly supranational, despite institutional and treaty reforms in the last fifteen years. Generally speaking, there is no fundamental change in central goals of this policy. Having said that, an incremental development of the international dimension of EU competition policy should be underlined because this is a point which is directly relevant to the core arguments of this research.
2.1 Policy objectives: change and continuity
There are two core policy objectives which underpin EU competition policy, namely market integration and market competition. For example, the First General Report of the
Commission of the European Economic Community (1958: 59) articulates these goals:
30 The aim of the [Rome] Treaty is not only to stimulate competition by the suppression
of the obstacles to international trade, but to establish a system of fair and healthy
competition as the indispensable condition for the achievement of a rational division
of economic activities and for ensuring an equitable basis of operations for the
productive forces.
On the one hand, this sentence underlines the potential contribution of competition regulation to the promotion of international trade among the member states. On the other hand, it points out the importance of competition for the efficient allocation of resources and the maintenance of a level-playing field. This section presents some historical background against which the EU has pursued these two interlinked and yet distinctive goals.
A greater emphasis on consumer welfare, which is closely linked to the goal of market competition, is a recent trend, and this goes hand in hand with a gradual shift of EU competition policy from a legalistic approach to a more economic and efficiency-based one since the 1990s. This paradigm shift was not a smooth process, and in the transitional period the Commission made some controversial decisions, which were openly criticized by third states as well as EU courts. Another relatively new trend is a development of the external dimension of EU competition policy, and as noted in the introductory chapter, international competitiveness has become a key theme in the early 2000s.
2.1.1 Protecting people from giants: a broad political context
Competition policy is very technical, but it is at the same time highly political. The American experience of competition regulation, which has had a direct and indirect influence on the
European Communities’ competition policy, is a prime example of this. In 1890, the US
31 federal government enacted one of the very first modern competition laws, the Sherman Act, aiming for the breakup of gigantic trusts in monopolistic and oligopolistic markets such as the railroad industry (Martin 2010: 609-615), and the Clayton Act of 1901 supplemented the
Sherman Act with rules on merger control. While this set of rules clearly aims to serve economic goals of competition promotion and market efficiency, it also reflected a political motivation, namely the protection of vulnerable people (small firms and consumers) from
‘giants’ (trusts between large firms) (Martin 2010: 613). In other words, economic freedom has been regarded as an essential condition for liberal democracy in the US, and these political values are deeply embedded in its competition policy - which is more commonly known as antitrust policy there, reflecting the historical origin.
Similarly, the origin of European competition policies cannot be fully understood without taking into account political contexts and macroeconomic conditions before and after the
Second World War. The first generation of a small number of competition laws was enacted in European countries in the 1920s mainly for economic reasons. For example, the Weimer
Republic legislated a competition law in 1923 in order to spur market competition and alleviate the hyper-inflation which occurred after the First World War (Gerber 2010: 164).
These early national competition laws in Europe were short-lived, however. In the wake of the Great Depression, most European national governments started to tolerate cartels and other competition-restricting business practices primarily in order to help companies sustain their profit and employment. There is a wide belief in Europe that this process of economic concentration and cartelization at that time has played a significant role in the rise of fascism in Germany, and to some extent, Italy (Gerber 2010: 166-167). In particular, the Nazi
Germany centralized its economy by facilitating mega-mergers and encouraging various forms of cartels and other anticompetitive business practices so as to create and sustain a totalitarian regime. Partly because of this pre-war experience, and partly because of the
32 influence of US antitrust officials6, competition provisions were included in both the Paris
Treaty of 1951 establishing the European Coal and Steel Community (ECSC) and the Rome
Treaty of 1957 establishing the European Economic Community.
Box 2.1: Ordoliberalism Ordoliberalism is ‘a particular, significantly qualified form of liberalism’ (McCann 2010: 49), which emphasizes the merit of market competition on the one hand, and its fragility on the other hand. According to this variant of liberalism, competition is crucial for innovation and the efficient allocation of resources because it drives companies to innovate, produce better goods and services at lower prices. Yet, the situation of ‘perfect competition’ often assumed by economic liberals does not automatically take place because firms may collide or manipulate their dominant market power at the expense of other firms and consumers. Advocates of ordoliberalism regard these anticompetitive business practices as a threat to fundamental rights of individuals to access high-quality, low-price goods in the market. It follows that rigorous, rule-based control (in opposition to an administrative approach with a high degree of regulatory discretion) should be used so as to establish the principle of market competition as a kind of economic constitution, which protects people from business interests as well as the government (Gerber 2010: 167-168). Ordoliberalism is a historical product, and it aims to strike balance between two extreme models, namely modest, rule-based economic governance during the Weimar period, and intensive state intervention to the market under the Nazi government (Gerber 2010: 167-168).
US antitrust law was certainly not the only source of inspiration for the community’s supranational competition law, however. On the one hand, European competition law was inspired to a large extent by German ordoliberalism (see Box 2.1 above), which gave importance to the legal control of anticompetitive economic activities, and directly associated the value of individual economic freedom with free market competition (Gerber 1994: 103-
6 As in the case of post-war West Germany, the UK and many other European countries, there is some evidence of US influence on European supranational competition law. Senior officials of the US consulted their European counterparts during the drafting period of the Paris Treaty, and even insisted on certain wordings (Leucht 2009).
33 104). West Germany’s influence on the EEC’s competition policy is particularly attributable to the fact that it was the only member state which already had a comprehensive competition law by the time the EEC was founded7. On the other hand, while the American model is essentially based on the principle of prohibition (i.e. the idea that market dominance is illegal per se), France incorporated the principle of abusive control (i.e. an alternative idea that the abuse of a dominant market position should be prohibited) into the community’s competition policy (Martin 2010: 642; 645-646). Besides, the blueprints of the two treaties, namely the
Schuman Plan, and the Spaak Report of the intergovernmental committee, put the goal of market integration to the fore. The next section elaborates on this policy goal, which is persistent until today.
2.1.2 The persistent market integration ethos: a distinctive European approach
While the promotion of market competition is a typical objective of competition policy in general, the distinctiveness of EU competition policy is its role of a functional complement to the operation of the common market (Goyder and Llorens 2009: 11-12; Korah 2007: 13-14).
The goal of market integration was spelled out in Article 3 (f) of the Rome Treaty, which stated that the activities of the European Economic Community shall include the establishment of ‘a system ensuring that competition in the common market is not distorted’.
This market integration ethos has been a key in EU competition policy, even after the completion of the single market. In the words of a former European Commissioner for
Competition, Joaquín Almunia (European Commission 2011: 4), ‘[t]he Single Market cannot deliver its full potential if the anticompetitive behaviour of firms and governments re-
7 West Germany enacted the Law against Restraints of Competition in 1957, and it was one of the first European competition laws.
34 establishes barriers to the free movement of goods and services’. The recognition of the market integration objective is crucial in order to understand the development of EU competition policy, and a rationale for its unique system of state aid control.
The idea of supranational competition policy was not without controversies among the member states. In the mid-1950s, the original six member states found it extremely difficult to expand the ECSC-style strict competition rules to sectors other than coal and steel because their economies were still undergoing a difficult time of postwar recovery. This controversy came to the surface during the intergovernmental conference from 1956 to 1957, wherein
French representatives expressed a fear that their industries could not survive intensified market competition within the integrated European market without a long transition period
(von der Groeben 1985: 59). Because of this lack of consensus among member states, competition provisions of the Rome Treaty were very brief and left large room for interpretation. When the Rome Treaty came into force, Belgium and Luxemburg had no legislation in this field, while the Italian competition law only identified broad principles and did not contain implementation procedures (European Commission 1958: 61). The other three original members, France, West Germany and the Netherlands, already possessed administrative bodies which could implement the competition rules of the community
(European Commission 1958: 61), but it was only West Germany that had detailed competition law in the late 1950s. Despite differences in principles and implementation styles, they had one thing in common: the national competition laws of these countries aimed to maintain market competition within their own territories. Therefore, anticompetitive business practices which only concern exports were permitted (European Commission 1958: 61).
These situations in the original six member states explain their demand for competition rules at the supranational level.
35 Articles 85 to 94 of the Rome Treaty set out general rules on competition, and they remain largely intact up to the present except for the numbering. The implementation of these abstract provisions was by no means straightforward. In fact, the European competition regime was largely ineffective in the first four years until the Council enacted a regulation for the implementation of Article 85 (restrictive practices) and Article 86 (abuse of dominance) in 1962. A monograph by the first European Commissioner for Competition from West
Germany, Hans von der Groeben (1985: 108-111), describes a sensitive legislative process of
Regulation 17/62, involving European institutions and member states. On the one hand, the
French government proposed that (1) member states concerned and the European
Commission make joint decisions under Articles 85 and 86, and (2) the application of Article
85 (3) (exemptions for cartel agreements) does not require prior notifications to the
Commission. On the other hand, West Germany and the Netherlands refused the French proposal because, in the words of von der Groeben (1985, 109), ‘they would in practice have led to the prohibition principle being replaced by the abuse-prevention principle’. In the end, the French government conceded mainly because they thought their interest was already secured in parallel negotiation on common agricultural policy (von der Groeben 1985: 108-
110).
Even after the coming into force of Council Regulation 17/62, supranational competition regulation remained minimal for three main reasons. First, the Rome Treaty and Regulation
17/62 provided only obscure definitions of key concepts such as ‘dominance’ and ‘abuse’, and the Commission and the Court of Justice could only incrementally clarify these notions in case law (Cini and McGowan 2009: 101). Second, the Commission could not strictly apply the competition rules of the community because of a lack of the member states’ commitment.
In the Keynesian era, member state governments extensively used interventionist policies and tended to exempt various forms of anticompetitive business agreements such as cartels and
36 mergers from competition law (Büthe 2007; Buch-Hansen and Wigger 2011). At that time, there was a wide belief among national policy makers that these business practices would help firms compete on the global stage and positively contribute to the European economy.
Dirigisme had strong influence in France and many other European countries, and they often considered EU competition policy, especially state aid control, as a serious impediment to their industrial policies. In such a context, ‘Whatever its legal powers, the Commission had to remain sensitive to the balance of political opinion at national governmental level if it was to avoid a powerful backlash against its authority’ (McCann 2010: 51). Last but not least, the oil crises in the 1970s weakened the enforcement of EU competition policy even more. Because of a high pressure from member states during the economic downturn, the European
Commission had no choice but to exempt numerous cartels under the name of the crisis cartel.
The marginal role of supranational competition policy until the 1970s was reflected in the early debate in the community on the possibility of common industrial policy (Swan 1983).
The Colonna Report of the Commission published in 1967 articulated growing concerns of the member states about international competition pressures (e.g. fast-growing imports, foreign direct investment, and mergers and acquisitions) from the US and Japan (Cini and
McGowan 2009: 24-25). This policy debate did not result in the establishment of a supranational industrial policy. Nevertheless, it undermined political support for the supranational competition policy, which was widely regarded as a severe constraint on national industrial policies. This situation led then EC Commissioner for Competition Frans
Andriessen (1981:1) to open his speech at the American Bar Association in 1981 in a cynical way.
The analogy between Bengal tiger and antitrust is greater than you think. They both
seem threatened with extinction and in great need of protection of - at least as far as
37 Bengal tiger is concerned - the World Wildlife Fund. I sometimes wonder what and
whose protection we need in the field of antitrust.
In the early 1980s, EU competition policy was still under pressure in the aftermath of the oil shocks and the subsequent economic crisis. Besides, Commissioner Andriessen was at that time facing a strong opposition of the Council to a proposed supranational merger regulation, despite the enthusiasm of the Commission and the Parliament for this (Andriessen 1981: 10-
12). With this in mind, one can easily understand that he was actually not joking when using the metaphor of competition policy as an endangered species.
That being said, the 1960s and 1970s saw an incremental accumulation of case law in this policy field (European Commission 2011: 12-13). In retrospect, such a development in the legal aspect led by the European Commission and the Court of Justice had a greater impact on subsequent policy developments than many thought. For example, in the GEMA case concluded by the Commission in 19718, TFEU Article 102 (ex Art. 82 EC) on the abuse of dominance was applied for the first time. In the area of state aid, the judgement of the Court of Justice in 1973 (Commission v. Germany) confirmed the power of the Commission to legally request member states to get illegal state aid back from firms9.
It was only in the late-1980s that EU competition policy started to become as active as it is today. Former Competition Commissioners with strong political profiles such as Peter
Sutherland (1985-1989) and Leon Brittan (1989-1993) significantly strengthened policy enforcement during their terms (see Appendix 2, which provides a list of former and current
Competition Commissioners). The adoption of the first merger regulation in 1989 was a breakthrough because competence over merger regulation was the last ‘missing piece’ for EU
8 Case IV/26.760, GEMA, Commission decision of 2 June 1971, OJ L134/15, 20 June 1971. 9 See Section 2.2.4 below on state aid control.
38 competition regulators. This regulation made EU competition policy more comprehensive, while empowering the European Commission and its DG COMP considerably.
Meanwhile, the coming into force of the Single European Act and the completion of the
‘1992 program’ triggered an increase in international trade and cross-border merger activities within the European market. This intensified market integration process made the supranational regulation of competition issues even more important (Cini and McGowan
2009: 30-35; Wilks and McGowan 1996). In its white paper in 1985 which was entitled
‘Completing the Internal Market’, the European Commission explicitly stated its determination to strengthen competition rules enforcement. For example, the paper said that
‘any action taken to ensure the free movement of factors of production must necessarily be accompanied by increased surveillance by the Commission in the field of competition rules to ensure that firms and Member States adhere to these rules’ (European Commission 1985: 8).
DG COMP officials were aware of the widespread perception/criticism that the establishment of the single market could lead to a ‘fortress Europe’, whose economy would be internally borderless but externally less liberal. Therefore, the annual competition policy report of 1990 emphasized that ‘[i]t is important that the Community, in completing the internal market, should not adopt a protectionist attitude vis-à-vis the rest of the world, thereby isolating itself from international competition’ (European Commission 1991: 13). Competition policy played an important role in securing an open market in combination with internal market policy.
The market integration goal of EU competition policy is persistent, even after the completion of the single market in 1992. Notably, the current European Commissioner for
Competition Margrethe Vestager (2015a: 4), who was appointed in late 2014, made it clear in her recent speech that EU competition policy should take into account the Juncker
Commission’s broader policy priorities and contribute to the ‘Energy Union’ and ‘Digital
39 Single Market’ strategies of the EU. This statement sent a clear message to the public that EU internal market policy and competition policy continue to go hand in hand, especially in such areas as the energy market and the digital market, which are less integrated than others because of various public and private restraints on market competition.
It is worth repeating the point made in the introduction that the promotion of
‘competitiveness’ of European firms is also one of the policy objectives of EU competition regulators, though it might be of secondary importance in the EU’s competition policy.
Competitiveness is a recurrent theme in the history of EU competition policy, and it is a priority in the current overarching socioeconomic programs of the EU, namely the Lisbon
Strategy and Europe 2020. One of the reasons for the articulation of the Europe 2020 program is the pervasive perceptions among the EU and its member states that the EU economy’s competitiveness is relatively declining compared with the US and BRICs among others. The competitiveness objective has come to the front, especially since the outbreak of the global financial crisis in 2008. For example, in 2011, the European Commission (2011:
20) stated in its annual report on competition policy that ‘[a] s the EU exits the current crisis in the face of fierce global competition, a major challenge for competition policy in the coming years will be to support as effectively as possible the Europe 2020 strategy for smart, inclusive and sustainable growth’. Whether the goal of greater competitiveness takes precedence over the goal of market integration (the maintenance of a level-playing field within the EU) in EU competition policy will be empirically tested in subsequent chapters.
2.1.3 A development of the international dimension since the 1990s
While the persistent goal of market integration represents the continuity of EU competition policy, a relatively recent development of its international dimension is a fundamental change.
40 Since the 1990s, the EU has gradually developed its actorness and presence in the international arena in competition policy. Today, the EU plays an active role in various international organizations dedicated to or related to competition policy. It also advocates competition policy both internally and externally, and has signed with third states a large number of binding and non-binding international agreements containing rules for competition regulation.
On the one hand, internal political dynamics were important for the EU’s international activism. The development of the internal dimension of EU competition policy in the late
1980s and 1990s, which proceeded in parallel with the single market project, led the EU competition authorities to promote its model of competition regulation to third states more confidently. As noted above, one of the major developments over the period was the coming into force of the first EU merger regulation in 1990. Another legal development was an establishment of the ‘implementation doctrine’ in case law in 1988, which provided legal foundations for the extraterritorial application of EU competition law10.
On the other hand, the relatively recent development of the external dimension was partially a response to the new international environment, that is increasing economic interdependence. Trade liberalization ironically facilitated anticompetitive business practices across borders. See, for example, an increase in the number of cross-border cartels revealed around the world. According to a report by the OECD (2014a: 29-30), the number of international cartels revealed by competition authorities was very little until the 1980s, but has been increasing since the early 1990s. In the period 1990-1994, an average of about 3 international cartels were detected per year around the world, whereas an average of about 16 cases were found from 2007 to 2011. Competition policy problems across borders require
10 See Section 5.1 , which explains implications of the Woodpulp judgement of the Court of Justice of the EU in 1988.
41 effective international cooperation among enforcers. Accordingly, a dozen of active competition authorities, including the EU’s one, have cooperated in numerous individual cases in these years. The number of enforcement cooperation increased slowly and yet steadily over the period 2007-2011, as Table 2.1. shows. An implication of this is that the gradual internationalization of EU competition policy was partly due to external pressures.
Table 2.1: The frequency of international enforcement cooperation in competition policy, 2007-2011 (by enforcement area)
Number of authorities Enforcement area 2007 2008 2009 2010 2011 Total with any cooperation experience Cartel 48 47 49 51 55 250 19 Merger 86 96 106 101 116 505 21 Abuse of dominance 22 22 22 26 29 121 13 Total 156 165 177 178 200 876 53 Source: adapted from OECD (2014: 15).
This point was confirmed by the European Commission’s annual reports on competition policy in the early 1990s. For example, the 1992 annual report stated that ‘[t]he globalization of markets and the knock-on effects of certain anti-competitive behavior outside the
Community mean that policy must broaden to take account of the international dimension’
(European Commission 1991: 15). In other words, some business practices outside the EU negatively affected its market, but EU competition law was primarily applied to conduct implemented within the community. So, the Commission stressed that international enforcement cooperation was crucial to cope with cross-border anticompetitive practices of firms.
42 Table 2.2: The EU's dedicated competition cooperation agreements
Country Agreement Year Agreement between the European Communities and the Government Canada 1999 of Canada regarding the application of their competition laws Agreement between the European Community and the Government Japan 2003 of Japan concerning cooperation on anticompetitive activities Agreement between the EU and the Republic of Korea concerning 2009 South cooperation on anticompetitive activities Korea Cooperation agreement between the EC and the Government of the 2009 Federal Republic of Korea Agreement between the EU and the Swiss Confederation concerning Switzerland 2014 cooperation on the application of their competition laws Agreement between the Government of the United States of America and the Commission of the European Communities regarding the 1995 application of their competition laws
US Agreement between the European Communities and the Government of the United States of America on the application of positive comity 1998 principles in the enforcement of their competition laws 2001 Best Practices on Cooperation in merger investigations (last update)
Brazil Memorandum of Understanding on Cooperation 2009
Terms of Reference of the EU-China Competition Policy Dialogues 2004 China Memorandum of Understanding on Cooperation 2012
India Memorandum of Understanding on Cooperation 2013
Russia Memorandum of Understanding on Cooperation 2001 Source: adapted from DG COMP website, 'bilateral relations on competition issues', accessed on 7 April 2015 (European Commission 2015a).
As presented in Table 2.2, the EU concluded a number of competition-dedicated cooperation agreements with its major trading partners (the US first, and then Canada, Japan,
South Korea and Switzerland). These agreements are non-binding, and their primary objectives are mutual notifications of case initiations, information exchange, and the
43 coordination of investigations. The ‘memorandum of understanding’ is less substantial and aims to establish a channel for regular dialogues with third states.
Box 2.2: The positive comity principle embedded in the 1991 EU-US competition- dedicated cooperation agreement
The ‘positive comity’ princple has been developed by the OECD since the 1970s, though it was not yet called so at that time. According to the OECD’s definition (2014: 13), ‘[p]ositive comity involves a request by one country that another country undertakes enforcement activities in order to remedy an allegedly anti-competitive conduct that is substantially and adversely affecting the interests of the referring country’. This principle was codified for the first time in the EU-US competition enforcement cooperation agreement of 1991, Article 5, in the following terms:
(2) If a Party belives that anticompetitive activities carried out on the territory of the other Party are adversely affecting its important interests, the first Party may notify the other Party and may request that the other Party’s competition authorities initiate appropriate enforcement activities.
(3) If the notified party initiates enforcement activities, it must inform the notifying party of their outcome.
The principal limitation of this positive comity mechanism is to be found in the fourth paragraph of this article, which puts significant constraints on cooperation under the principle of positive comity.
(4) Nothing in this Article limits the discretion of the notified Party under its competition laws and enforcement policies as to whether or not to undertake enforcement activities with respect to the notified anticompetitive activities.
Despite this weakness, this principle was adopted by many subsequent bilateral agreements of the EU and other countries.
The bilateral agreements of the EU with the US and Switzerland are particularly noteworthy. The EU-US cooperation agreement signed in 1991 is the first agreement of this kind concluded by the EU. The timing of this agreement was important. The Council of the
44 EU legislated the first EU merger regulation in 1989, and it came into effect in 1990. It was not a coincidence that the EU-US cooperation agreement was signed soon after that. Both EU and US competition authorities were aware that they had to cooperate and coordinate with each other more closely than ever in order to minimize the risk of interjurisdictional conflicts resulting from contradictory decisions (Klein 2000: 1). Notably, Articles 5 and 6 of this agreement are concerned with positive comity and negative comity doctrines respectively.
Negative comity is more traditional than the other and means that a country may refer a case relevant to its jurisdiction to another country, respecting the latter’s significant interests.
Positive comity refers to a country’s right to request another to investigate a competition case, which is occurring in the latter country but also adversely affects the former’s market.
Despite some problems of enforceability, this bilateral agreement provided a template for future bilateral agreements between competition authorities (for details, see Box 2.2 above).
The competition-dedicated cooperation agreement between the EU and Switzerland was signed in 2013 and came into force in 2014. This is the first ‘second-generation’ cooperation agreement for both parties, and it allows the European Commission and the Swiss
Competition Commission to strengthen enforcement cooperation and to exchange information about certain competition cases under investigation. Unlike previous bilateral cooperation agreements (‘first-generation agreements’) signed by the EU, the one with
Switzerland includes detailed provisions for the exchange of information. Relevant provisions with this regard are Articles 7 (exchange of information), 8 (use of information), 9
(protection and confidentiality of information) and 10 (information of the competition authorities of the EU member states and the EFTA Surveillance Authority) of the agreement.
Under certain conditions11, these provisions allow (but do not oblige) the EU and Swiss
11 One of the conditions is that the EU and Swiss competition authorities are investigating ‘the same or related conduct or transaction’ (Article 7, paras. 3 and 4). Acknowledging the political sensitivity of the
45 competition authorities to exchange information that they obtained during investigation.
(European Commission 2013: 2).
In all of these ways, the EU has built a network of bilateral informal cooperation agreements with its major trading partners in the last twenty five years. This is a brief explanation for the internationalization of EU competition policy, so it is by no means a comprehensive description of the EU’s various international channels for competition cooperation. External relations of the EU in this policy field will be studied in greater detail in Chapters 6 and 7. The point here is that EU competition policy has been internationalized since the 1990s, though this policy used to focus on intraregional economic governance.
2.2 Substance of policy: introducing the four policy components
Competition policy is one of the only five areas wherein the EU possesses exclusive competence under the Lisbon Treaty (Article 3 (1) TFEU). The four key elements of EU competition policy - namely (1) restrictive practices, (2) abuse of dominance, (3) mergers, and (4) state aid - are interlinked and essentially complementary. Yet, they are concerned with distinctive categories of economic activities, and rest on different rules and procedures, as summarized in Table 2.3. It is therefore important to briefly explain each of them in terms of legal basis, a gradual expansion of scope, and policy instruments.
confidentiality issue, the agreement sets many other conditions in Articles 7 to 10. Notably, Article 7 Paragrah 4 states that ‘Neither competition authority is required to discuss or transmit information obtained by investigative process to the other competition authority, in particular if it would be incompatible with its important interests or unduly burdensome’.
46 Table 2.3: Legal sources and targets of EU competition policy, by policy component
Primary law Key secondary law Target Restrictive practices TFEU Article 101 Council Regulation 1/2003 Action of firms Abuse of dominance TFEU Article 102 Council Regulation 1/2003 Action of firms Mergers n/a Council Regulation 139/2004 Action of firms Action of State aid TFEU Article 107-109 Council Regulation 734/2013 member state governments
2.2.1 Restrictive practices
The regulation of restrictive practices is widely thought of as the most developed one among the four. Its primary legal source is general rules codified in Article 101 of the Lisbon Treaty
(ex Art. 81 TEC). The first paragraph of this article (hereafter, Article 101 (1)) declares that business agreements ‘which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market’ shall be prohibited because they are incompatible with the internal market12. Thus, the EU can handle only those cases that have effects on ‘trade between member states’, whereas member states retain power to deal with purely domestic cases. Business agreements on cartel conduct such as price fixing, production restriction and market sharing are listed in this paragraph as typical competition-restricting business practices13. Moreover, Article 101
(2) TFEU states that those practices prohibited in the first paragraph are automatically void.
An important qualification to the general principle of the prohibition of anticompetitive business agreements is written in the third paragraph of the same article. Article 101 (3) states
12 There is a large body of legal literature on the interpretation of this very abstract definition. See, for example, Korah (2007: 66-90) for the precise meaning of key phrases such as ‘which may affect trade between Member States’ and ‘as their object or effect’. 13 Here ‘agreements’ include both formal and informal ones. See a judgement of the Court of Justice of the EU, ACF Chemiefarma NV v. Commission, Case 41/69, [1970] ECR 661 (ECLI:EU:C:1970:71).
47 that Article 101 (1) does not apply when agreements between, or concerted practices among firms ‘contribute to improving production or distribution of goods, or promoting economic progress’. These non-harmful collusions defined in Article 101 (3) include business cooperation in the areas of technology transfer, and research and development (for various possibilities for business cooperation under Article 101, see Lorenz (2013) Chap. 3). The
European Commission had long been the sole administrative body which had the competence to apply Article 101 (3), but this system was decentralized by Council Regulation 1/2003, which came into force in May 2004 (see also the next section on the Modernization Reform).
Council Regulation 1/2003 authorizes both the European Commission and the competition authorities of the member states to issue ‘block exemptions’, which categorically exempt pro- competitive business activities from EU competition law. By clarifying a line between legal and illegal business agreements under EU law, block exemptions increase legal certainty, while reducing the administrative burden of the supranational competition regulators.
The priority of the EU’s restrictive practices control has changed over time. The EU initially focused on ‘vertical constraints’, that are agreements between companies operating at different stages of a supply chain. It is difficult to explain this policy orientation from a purely economic viewpoint because horizontal agreements (i.e. agreements between companies at the same stage of a supply chain) may well be more harmful than vertical ones in terms of economic efficiency and consumer welfare. One explanation for this is that, in light of the goal of market integration, the supranational competition regulators regarded the geographical fragmentation of the common market by vertical constraints as particularly problematic (Gerber 1994: 101-102).
48 One famous example of illegal vertical agreements between companies is the Consten-
Grundig case14, which involved a German electronics manufacturer, Grundig, and a French retailing company, Consten. In this case, the Commission prohibited their agreement of 1957 which decided that Consten would be an exclusive dealer of Grundig products in France.
Later, the European Court of Justice upheld this decision on the ground that the two parties impeded European market integration by nationally dividing the market concerned. Taking advantage of the strong support of the court, in the first few decades the Commission extensively tackled various kinds of vertical restraints, for example, in the automobile and pharmaceutical sectors, wherein producers were often powerful enough to impose various conditions on distributors.
The Commission’s focus has gradually shifted, however, from vertical agreements to horizontal ones, especially cartels between companies competing in the same markets15. This shift occurred partly because, after the completion of the single market in 1992, the EU increasingly relied on the discourse that the promotion of market competition in itself is beneficial for consumers (Gerber 1994: 144-145). In terms of consumer welfare, horizontal agreements are often more problematic than vertical business agreements because the former easily reduces the number of effective competitors in a market concerned. Another key reason for the stricter control of horizontal agreements is the development of the EU’s capacity to detect and prove cartels.
14 Cases 56 & 58/64, Consten and Grundig v. Commission [1966] ECR 299 (ECLI:EU:C:1966:41). 15 Notwithstanding this general trend, there are some relatively recent cases concerning vertical constraints. See, for example, two cases related to Volkswagen: Case IV/35.733, VW, Commission decision of 28 January 1998, OJ L124/60, 25 April 1998; Case COMP/F-2/36.693, Volkswagen, Commission decision of 29 June 2001, OJ L262/14, 2 October 2001.
49 EU competition regulators have recently developed their regulatory capacity of cartel control, and the amount of fines has dramatically increased in the last two decades. Two major developments at the level of policy programs are noteworthy here.
(1) The leniency program
In 1996, the EU introduced the ‘leniency program’ in order to improve its ability to detect cartels. This is a mechanism which gives an incentive to cartel participants to confess their involvement in illegal conduct to the competition authority. ‘Whistle blowers’ will be granted exemptions from or a reduction of fines, if they cooperate with investigators by providing detailed information about the cartels in which they participated16. The program was first established by the US competition authorities, and then spread to other jurisdictions, including the EU and most of its member states, with varying degrees of local adaptation. By incorporating private actors (i.e. those cartel participants who confessed their illegal conduct) into the policy enforcement process as information providers, the leniency program has significantly improved the cartel-detection capacity of competition authorities such as the
EU’s one. It was updated in 200217 and 200618. In principle, under the current rule, the first whistle blower would obtain immunity from fines, whereas others will be granted certain levels of reduction of fines (30-50% for the second one, 20-30% for the third one, and up to
20% for subsequent ones).
16 Commission Notice on the non-imposition of fines in cartel cases, OJ C207/04, 18 July 1996. 17 Commission notice on immunity from fines and reduction of fines in cartel cases, OJ C45/3, 19 February 2002. 18 Commission notice on immunity from fines and reduction of fines in cartel cases, OJ C298/17, 8 December 2006.
50 (2) The new Commission guideline on fines calculation
Another key change is the Commission’s adoption of a new guideline on the calculation of cartel fines in 200619, which replaced the previous guideline issued in 199820. In brief, the new guideline allows the Commission to impose higher amounts of financial penalties for severe infringements of EU competition law on restrictive practices and abusive dominance.
For example, the fine would be significantly increased if the firm concerned has a record of previous infringements of EU competition law (‘repeat offenders’). In addition, the duration of infringements carries a greater weight now. Under the 1998 guideline, the basic amount of fines was increased by 10% for each additional year of infringement (e.g. 50 % increase if the illegal conduct continued for five years), while under the current rule the basic amount will be multiplied by the number of years of infringement (e.g. 500% increase for five years long infringements).
The impact of these two policy developments is considerable. Table 2.4 below shows that there was a sharp increase over the period 2000-2004 in the number of cases concluded, the total amount of fines, and the average fine per case. It is also clear that the total amount of cartel fines per period soared again in the period 2005-2009, indicating the impact of the
2006 Commission guideline. This trend is confirmed in Table 2.5, which lists the top ten cartel fines (per case) in the history of EU competition policy. All the ten cases are those concluded in the last fifteen years. As these sets of quantitative data suggest, the EU’s enforcement capacity in cartel control, which is a flagship component of EU restrictive practices policy, has considerably developed in the past few decades.
19 Guidelines on the method of setting fines imposed pursuant to Article 23 (2) (a) of Regulation No 1/2003, OJ C210/2, 1 September 2006. 20 Guidelines on the method of setthing fines imposed pursuant to Article 15 (2) of Regulation No 17 and Article 65 (5) of the ECSC Treaty, OJ C9/3, 14 January 1998.
51 Table 2.4: Cartel fines for the infringement of Article 101 TFEU, period 1990-2014 (as of 2 April 2014)
Period Number of cases Amount (€) * Average amount per case (€) 1990-1994 10 34,428,255,000 3,442,825,500 1995-1999 10 27,096,350,000 2,709,635,000 2000-2004 30 315,734,871,000 10,524,495,700 2005-2009 33 818,225,166,250 24,794,702,008 2010-2014 25 841,655,557,900 33,666,222,316 Total 108 2,037,140,200,150 18,862,409,261 Source: adapted from DG COMP’s website, ‘cartel statistics’ (European Commission 2015b). Note: The amounts are those adjusted after court judgements.
Table 2.5: Top 10 cartel fines under Article 101 TFEU, by cases (as of 2 February 2015)
Rank Year Case Amount (€) 1 2012 TV and computer monitor tubes 1,470,515,000 2 2008 Carglass 1,185,500,000 3 2013 Euro interest rate derivatives 1,042,749,000 4 2014 Automotive bearings 953,306,000 5 2007 Elevators and escalators 832,422,250 6 2010 Airfreight 799,445,000 7 2001 Vitamins 790,515,000 8 2013/2015 Yen interest rate derivatives 684,679,000 9 2007/2012 Gas insulated switchgear 675,445,000 2009 E.ON 640,000,000 10 2009 GDF 640,000,000 Source: adapted from DG COMP’s website, ‘cartel statistics’ (European Commission 2015b).
2.2.2 Abuse of dominance
Another core element of EU competition policy is the abuse of dominant positions. Article
102 of the Lisbon Treaty (ex TEC Art. 82) states that ‘[a]ny abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it should be prohibited’. Specifically, this article outlaws four types of anticompetitive conduct of dominant market players: (1) imposition of ‘unfair’ purchasing and selling prices on others;
52 (2) limitation of production for the maintenance of a high price; (3) application of different conditions to equivalent economic transactions in order to disadvantage competitors; (4)
‘tying’, which means the conclusion of contracts whereby trading partners of the dominant player are subject to certain commitments not only in the market concerned but also in other unrelated markets. As in the case with restrictive practices, Article 102 applies only when the abuse of dominance affects trade between member states. Articles 101 and 102 define the policy scope, whereas Regulation 1/2003 sets out implementation rules concerning restrictive practices and the abuse of dominance. The details of this implementing regulation will be explained later in this chapter.
The EU’s abusive dominance policy has developed more slowly than its restrictive practices policy. Since Article 102 does not provide a clear definition of market dominance, the Commission found it difficult to enforce the law. It is therefore no surprise that the development of EU monopoly control was incremental and essentially rested on the accumulation of case law. While the EU made some important decisions on restrictive practices in the 1960s, it was only in 1971 that Article 102 was applied for the first time21.
The definition of market dominance was not clarified until the late 1970s, when the court made key judgements on the Hoffman-La Roche case22 and the United Brands case23. In addition to the vagueness of the concept of market dominance, the complexity of monopoly cases has been a major challenge for the EU competition regulators. Generally speaking, the control of abusive dominance under EU law requires extensive economic and economic analyses since it takes into account not only market structures (‘dominance’) but also the behavior of firms (‘abuse’) (Wilks and McGowan 1996: 228). Hence, the EU’s investigation
21 Case 45/71 R, GEMA v. Commission, 45/71 R, [1971] ECR 791 (ECLI:EU:C:1971:90). 22 Case 85/76, Hoffman-La Roche v. Commission [1979] ECR 461 (ECLI:EU:C:1979:36). 23 Case 27/76, United Brands v. Commission [1978] ECR 207 (ECLI:EU:C:1978:22).
53 of market dominance cases tends to be a lengthy process, let alone appeals to the EU courts by firms.
The EU’s monopoly control significantly developed in the last two decades, both qualitatively and quantatively. A major qualitative change is the widening of the regulatory scope. Article 102 outlaws the abuse of a monopoly position ‘by one or more undertakings’, but in practice the Commission initially hesitated to address the controversial issue of oligopoly (or ‘collective dominance’ in EU terms). In other words, the EU’s regulation of abuse of dominance was for a long time restricted to the area of monopoly – a market structure which is of great significance from the competition policy perspective but, nonetheless, much rarer than oligopolies. The applicability of Article 102 to oligopolists was finally confirmed in 1992 by the General Court’s judgement on the Italian Flat Glass case24, and this decision increased the political salience of EU regulation on the abuse of dominance
(Wilks and McGowan 1996: 228).
In quantitative terms, it is increasingly common that penalties for the infringement of EU monopoly rules account for hundreds of millions of euros. For example, in March 2004, the
European Commission charged 497 million euros as a penalty on the American computer software company, Microsoft, for the infringement of Article 102 TFEU25. And it was merely the beginning of the long fight between the two parties. Microsoft was imposed additional fines of 899 million euros in 2008, and 561 million euros in March 2013, for non-compliance with Commission decisions26. In May 2009, another US-based multinational company Intel
24 To be precise, the court accepted the notion of collective dominance in the Continental Can case, and reversed its own position in a subsequent judgement on Hoffman-La Roche. Then, the idea was again accepted in the Italian Flat Glass case (Joined cases T-68, 77 and 78/79, SIV v. Commission (Italian Flat Glass), [1992] ECR II-1403 (ECLI:EU:T:1992:38)) (Cini and McGowan 2009: 102). 25 Case COMP/37.792. For details about the Microsoft and Intel cases, see Chapter 5. 26 Case COMP/39.530.
54 was levied a record-breaking fine of 1.06 billion euros for the abuse of its dominant position in the computer chips manufacturing industry 27 . High-profile cases in EU monopoly regulation often involve American companies, though it does not necessarily mean that the
EU targets non-EU base companies (for an analysis of this issue, see Chapter 5). The point here is that the EU competition regulators are increasingly confident in the regulation of the abuse of dominance, even when they foresee direct confrontation with third states.
2.2.3 Mergers
The third area of EU competition policy is the control of mergers. EU merger control aims to regulate cross-border mergers, acquisitions and joint ventures (or, altogether, ‘concentrations’ in EU terms), which would decrease the number of market players and significantly reduce competition in certain markets28. In this sense, merger policy, including the EU’s one, has a characteristic of pre-emptive monopoly policy. EU merger regulation is a recent development, and the EU acquired competence in this area only in 1990 when Council Regulation 4064/89 came into force. This first merger regulation was replaced in 2004 by Council Regulation
139/2004, which introduced a more flexible timetable for the review procedure and alleviated various technical problems. The launch of EU merger control in 1990 is widely regarded as a major empowerment of the European Commission and DG COMP, which made them competent watchdogs with a wider range of regulatory instruments (McCann 2010: 52). The mandatory pre-notification system laid down in the Council Regulation is relevant here,
27 Case COMP/37.990. 28 Council Regulation 139/2004 (EU Merger Regulation) applies to all ‘concentrations’ with a Community dimension as defined in Article 1 (2) of the regulation. The concept of ‘concentration’ within the meaning of this regulation covers not only mergers of two more previously independent firms, but also acquisitions and joint ventures (Article 3 (1)).
55 because it allows the Commission to prevent anticompetitive mergers from taking place in the first place. The Commission possesses power to investigate notified merger plans, and to impose legally binding conditions on their merger or prohibit them. This can be done without a pre-authorization from EU courts.
Yet, the EU is only competent to regulate mergers with an ‘EU dimension’ (formerly, ‘a
Community dimension’), defined as those whose aggregate turnover exceeds thresholds specified in Article 1 of Council Regulation 139/2004 (see Box 2.3 below). Mergers whose aggregate turnover are below the thresholds will be dealt with by one or more member states.
In other words, EU merger control is not a mere coordination of national merger policies. It is a supranational policy which provides a ‘one-stop shop’ review system, in which transnational merger plans need to be notified only once to either the Commission or member states, depending on the combined size and geographical areas of operations of the potential merging parties (Council Regulation 139/2004, introduction, point 8).
Box 2.3: Thresholds for mergers over which the EU has exclusive jurisdiction
Council Regulation 139/2004, Article 1 (2)
A concentration has a Community dimension where:
(a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5000 million; and
(b) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million,
Unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.
56 While this system may not be surprising from a legal perspective because it is consistent with the principle of subsidiarity, the political importance of this line drawn between national and supranational jurisdictions should be underlined. As will be discussed in great detail in the next chapter, this legal structure significantly constrains the ability of member states to utilize their competition policies in neomerchantilistic ways, for example by hindering or prohibiting foreign bids with the objective of protecting their national champions.
Regarding investigation procedures, EU merger control is based on a two-stage system, which allows the European competition regulators to center on the most serious cases. Over the last two and a half decades, the European Commission cleared more than 90% of notifications in the first stage with no condition or with conditional ‘remedies’ (i.e. legally binding commitments to measures agreed by the authority and merging parties, such as the divestiture of certain branches)) (European Commission 2013: 1). Since merger activities are particularly time-sensitive, Regulation 139/2004 sets out a general rule on merger review period (European Commission 2013: 1-3). According to this, the first stage should last no longer than 25 working days, while it may be prolonged in case of remedy negotiations. If competition concerns remain unresolved at this stage, filed cases would be subjected to an extensive investigation which in principle ends within 90 working days. At this point, the
Commission typically gathers more detailed information from the merging parties, other companies in the same or related markets, and consumers, while conducting an in-depth economic analysis. Most cases are approved with or without conditions, as in the case of the first stage, and it is rare that the Commission prohibits proposed mergers – the fact that is often overlooked both in the media and the academic literature (for statistics with this regard, see Appendix 4: the number of notifications and decisions under EU merger regulation, 1990-
2013).
57 Having said that, prohibition decisions of the Commission on mergers are neither unimportant nor uncontroversial. On the contrary, the blockage of mergers by the supranational authority often attracts a wide media coverage, while causing a burning resentment of the companies involved and politicians who support them. Merger cases can be highly controversial because ‘they affect thousands of jobs, transform household name companies, make or break fortunes in the financial markets and establish or destroy the reputations of captains of industry’ (Wilks 2010: 141). It is not uncommon that leaders of member states publicly criticize the Commission for not fully taking into account industrial policy considerations in merger review. Moreover, since EU merger control has an extraterritorial reach, this has been an area in which confrontation between EU and US competition agencies often occurs. In short, merger policy is ‘the most potent weapon at DG
Competition’s disposal’ (Cini and McGowan 2009: 127), and at the same time a heavily criticized element of EU competition policy mainly due to the frequent politicization of the decision making process (McCann 2010: 52-53: Cini and McGowan 2009: 159-161).
2.2.4 State aid
The fourth and final component of EU competition policy is state aid control, which is based on Articles 107-109 TFEU (ex Art. 87-89 TEC). In contrast to the other three, the target of state aid control is the action of member state governments rather than that of companies.
Thus, EU state aid control is ‘inherently supranational with no direct counterpart at the national level save in federal systems’ (Büthe 2007: 189). It does not enjoy much political support from the member state governments, whose subsidies and other special treatments to particular sectors, companies and regions could be challenged by the EU competition authorities. Regarding procedures, member states in principle need the Commission’s
58 approval of state aids in advance (Art. 108 (3) TFEU), and this supranational, ex ante review system for state aid control is distinctive to EU competition policy29 (Warlouzet 2010: 1).
Treaty provisions are quite vague concerning the definition of ‘state aid’ and admissible state aid. Article 107 (1) states that:
Save as otherwise provided in the Treaties, any aid granted by a Member State or
through State resources in any form whatsoever which distorts or threatens to distort
competition by favouring certain undertakings or the production of certain goods shall,
in so far as it affects trade between Member States, be incompatible with the internal
market.
Since the term ‘anticompetitive aid from states “in any form whatsoever”’ leaves plenty of room for interpretation in secondary law, the definition has gradually been clarified in
Commission decisions and guidelines as well as court judgements. In response to member states’ attempts to circumvent EU state aid control by granting ‘creative’ forms of state aid, the Commission incrementally incorporated various forms of indirect financial support into the definition of unlawful aid (Blauberger 2009: 721: Whishlade 2006). In consequence, in
EU competition law, the concept of ‘state aid’ has become encompassing, and it covers not only state subsidies, but also other public support such as tax breaks, preferential purchasing, loans and loan guarantees.
Notwithstanding this broad regulatory reach of the EU, European state aid rules exempt various categories of public grants, as in the case of restrictive practices. According to Article
107 (2), aids which shall be compatible with the internal market are those that (a) have a social character and are granted to individual consumers; (b) compensate damages caused by natural disasters or exceptional occurrences; or (c) promote the economy of certain areas of
29 For example, the WTO’s subsidy control takes an ex post review approach.
59 Germany affected by the division of the country. In addition, Article 107 (3) lists four categories of cases which may be considered as compatible with the internal market, depending on more precise implementation rules spelled out in Council regulations and
Commission guidelines: (a) aid to abnormally underdeveloped regions; (b) aid to ‘promote the execution of an important project of common European interest’ or to ‘remedy a serious disturbance’ in the economies of member states; (c) ‘aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest’; (d) aid to promote culture and heritage conservation; and (e) other categories specified by the Council. Among the five, Article 107 (3) (c) has been the most controversial category of exemption because of its extraordinary ambiguity (Wishlade 2006: 245), whereas 107 (3) (b) is of increasing importance since the global financial crisis of 2007-8 (see Chapter 4).
EU state aid control only ‘developed gradually from scratch’ (Commission 2010: 16) since
1957 because member states had complex existing schemes of direct and indirect subsidies.
Despite the exclusive competence of the EU in this field, member state governments have markedly been reluctant to comply with EU state aid rules and to abandon their discretion in state aid, which is a key instrument for national industrial policies. It was not until 1973 that the Court of Justice confirmed the Commission’s power to request member states to repay illegal state aid in the Commission v Germany case30. EU state aid control remained largely ineffective until the end of the 1980s, and the annual report of the Commission on competition policy in 1989 had to restate a basic rule that ‘even if tolerated or accepted in the
30 Case 70/72, Commission v Germany [1973] ECR 813 (ECLI:EU:C:1973:87). This power to recover illegal state aid was reconfirmed in the judgement on Commission v France (Case 301/87, [1990] ECR 307 (ECLI:EU:C:1990:67)).
60 past, [state aid] compatibility with the common market must be re-examined’ (European
Commission 1989: 14).
The fact that soft law is more frequently used in this area than in the other three also underlines the political sensitivity of European state aid control. Since the Council rejected two drafts of state aid regulation in 1966 and 1972, the Commission had no choice but to take a soft law approach in the early stage of the development of state aid control (Cini 2001: 199).
The gradual shift towards a hard law approach is a relatively new trend, with the procedural
Regulation 659/1999 being a prime example 31 . On the one hand, this development of
European state aid law is largely in line with the organizational interest of the European
Commission. While soft law has a merit of flexibility to accommodate exceptional situations, the Commission has generally been in favor of a rule-based approach in order to insulate itself from strong political pressures from member states (Smith 1998: 57). On the other hand, even the incremental policy development would have been difficult without (1) various judgements of the European courts in favor of Commission decisions, and (2) increasingly frequent complaints by non-state actors, such as competing individual firms and business associations, who are willing to provide the Commission with information, independently from their national governments (Büthe 2007: 190-191; Smith 1998: 66-73).
Summing up, EU competition policy has a solid legal basis in primary and secondary EU law, and the accumulation of case law over the last 60 years has significantly contributed to the clarification of key legal concepts. And such a development helped EU competition regulators to enforce the law increasingly strictly. Major legally binding coercive measures of the EU in the field of competition policy are summarized in Table 2.6. The brief overview of the substance of EU competition policy in this section has also demonstrated different speeds
31 To be precise, the hard law approach complemented, and not replaced, the soft law approach (Cini 2001: 202-204).
61 of development of the four areas. This indicates that the levels of political salience significantly vary across the four. In fact, the reluctance of member states to introduce any secondary legislation in the areas of merger and state aid control is a main reason why this policy has made major development only since the 1990s.
Two additional points cutting across the four areas should also be noted for the analysis in later chapters. First, EU competition policy is transversal, meaning that it applies to most economic sectors, with very few exceptions such as agriculture. Second, the analysis above has already indicated the crucial role that supranational actors, especially the European
Commission, DG COMP and EU courts played in policy development. The power balance between institutional actors in this area will be explained in greater detail in the next section.
Table 2.6: Major legal measures of the European Commission in EU competition policy
Major legal Policy areas Types of decisions instruments for sanction Fines on firms Restrictive practices Commitment decisions Prohibition decisions (up to 10% of their worldwide turnover)
Fines on firms Abuse of dominance Commitment decisions Prohibition decisions (up to 10% of their worldwide turnover)
Conditional approvals Prohibition decisions Blockage of mergers Mergers (either in the first or (only in the second (including the breakup second phase review) phase review) of merged entities)
Ex-ante prohibition of unlawful state aid Fines on member State aid Legal requests for member states to make firms states which failed to pay back illegal state aid granted to them recover illegal state aid (those member states which fail to recover illegal state aid may be levied fines by EU courts) Source: TFEU Articles 101-109, Council Regulation 1/2003 and Council Regulation 139/2004.
62 2.3 Evolving supranational characteristics
In order to explain the evolving supranalionality of EU competition policy, this section analyzes the power balance between two groups of institutions, one supranational and the other intergovernmental. It will be argued that the European Commission and the EU courts are very strong in this policy field, especially at the level of individual cases. The Council of the EU retains strong legislative power under the special procedure laid down in the Lisbon
Treaty, but intergovernmental institutions such as the advisory committees play only a marginal role in individual cases.
2.3.1 The centrality of supranational actors in individual cases
The European Commission has extensive competence in the formation and implementation of
EU competition law, as many scholars pointed out (Cini and McGowan 2009; Goyder and
Llorens 2009; McGowan and Wilks 1995). In the case assessment process, DG COMP initiates and conducts investigations, and the European Commission (i.e. the college of
Commissioners) decides, on a simple majority basis, whether a case examined is compatible with the EU internal market or not. In practice, the Commission makes decisions on a consensus basis in almost all cases. The Commission also has exclusive power to propose secondary legislation.
As noted above, TFEU Articles 101 and 102 are applicable to those cases which affect trade across member states. These articles are very general, and detailed rules are laid down in the implementing regulations of the Council of the EU. Council Regulation 17/62 of 6
February 1962 was the first secondary law implementing Articles 85 and 86 of the Rome
Treaty (now 101 and 102). The regulation provided practical, detailed guidance for the
63 Commission’s enforcement regarding the application of Article 101 and 102. These legal foundations had been the primary source of autonomy for DG COMP and the Commission in this policy area, while the system was decentralized to some extent in 2004 (see below).
Another crucial rule was established in 1965. In the early 1960s, the pre-notification system of Regulation 17/62 caused a flood of notifications to the Commission and serious overload.
In response, the Council enacted Regulation 19/65, which granted the Commission the competence to issue ‘block exemptions’ (i.e. exemptions to certain categories of companies under Article 101 (3)), without the Council’s further authorization. According to a lawyer D.
Gerber (1994: 107), the Commission has such a quasi-legislative prerogative only in competition policy.
Major players other than the Commission in competition policy are the Court of Justice of the European Union and the General Court (formerly the Court of First Instance). Since the
EU has exclusive competence in this policy domain, all decisions of the European
Commission on individual cases and secondary legislations are potentially subject to judicial reviews by the General Court and the Court of Justice. They have promoted and consolidated policy developments through a series of benchmark decisions. The legislative process of the first European merger regulation exemplifies such judicial activism. It is well known that the
EU Council. It rejected Commission proposals for EU merger regulation three times in the
1970s and 1980s. This regulation was adopted only after transnational economic activities within the EU expanded considerably as a result of the Single European Act. In the
Continental Can judgment4 in 1972 and Philip Morris judgment5 in 1987, the Court of
Justice ruled that TEC Articles 85 and 86 (now 101 and 102) on restrictive practices and the abuse of dominance were applied to certain cross-border mergers with the community dimension. These judgments increased legal uncertainty and led large multinational
64 companies and many member states to support the establishment of a community-level merger rule (McGowan and Cini 1999, 179-180).
In contrast to the European Commission and EU Courts, the European Parliament has very limited power in this field. In the history of European integration, the European Parliament has gradually gained legislative power in many areas as a result of treaty reforms. However, in competition policy, the European Parliament does not have co-decision power. It merely consults with the Council in the legislative process, and plays no formal role in state aid control. The Parliament publishes reports in response to the Commission’s annual competition policy reports, but neither of them are legally binding.
2.3.2 Marginal roles of intergovernmental actors in individual cases
Intergovernmental actors relevant to competition policy are the EU Council (in this case, the
Competitiveness Council) and the advisory committees. The Council has competence to pass regulations and directives on a Qualified Majority Voting basis, in consultation with the
European Parliament. However, in practice, main concerns of the Council are industrial and
R&D issues, and it plays only a marginal role in competition policy. It should also be noted that the Council has no formal power in individual competition cases.
In terms of competence, state aid control is an exception in EU competition policy. In this sub-area, the Commission is entitled to monitor public subsidies only ‘in cooperation’ with member states. According to the Lisbon Treaty, the Council may unanimously decide that certain state aid is compatible with the internal market and hence immune from Articles 107-
109, ‘if such a decision is justified by exceptional circumstances’. Additionally, in case the investigation procedure is already initiated by the Commission, a member state involved may
65 suspend that procedure by application to the Council (TFEU Article 108 (2)). But, these procedures are seldom used because they require a Council decision based on unanimity.
As for comitology, committees relevant to competition policy are the Advisory Committee on Concentrations, and the Advisory Committee on Restrictive Practices and Monopolies.
These groups consist of officials from national competition authorities. During the negotiation on Council Regulation 17/62, the French government proposed giving advisory committees competence to approve DG COMP’s case decisions on a simple majority basis.
However, in the end, they were granted merely an advisory role. In other words, the
European Commission consults with them but retains exclusive power to make final decisions on individual cases (Council Regulation 17/62 Article 10). This decision-making procedure remains the same until today. Thus, it is quite safe to say that the part these committees play is quite limited.
2.3.3 Limited impacts of recent institutional and treaty reforms
It is worth analyzing two relatively recent events which concern the evolving supranationality of EU competition policy, namely the modernization reform, and the treaty reforms. In the early 2000s, foreseeing the eastern enlargement and the consequent administrative overload of DG COMP, then European Commissioner for Competition Mario Monti proposed and conducted the modernization reform, aiming for more efficient and effective regulation. A central idea behind this proposal was partial decentralization of the enforcement system.
While the EU previously had exclusive competence over the enforcement of EU competition law, this highly centralized system does not exist any longer. In 2004, Council Regulation
1/2003 came into force and decentralized the enforcement of restrictive practices and abusive dominance rules codified in TFEU Articles 101 and 102. Notably, national competition
66 authorities were granted power to issue block exemptions to EU-wide restrictive practices by private actors based on Article 101 (3). However, even after this reform, the European
Commission is still at the center of the EU competition enforcement system (Suami 2012;
Wilks 2005). When initiating cases under EU competition law, national competition authorities must notify the European Commission and authorities of the other member states.
More importantly, under Regulation 1/2003, the Commission can preempt national action by opening its investigation to cases.
Another change relevant to competition policy is concerned with treaty provisions for the objectives of the EU (Martin 2010: 650). In the Treaty of Rome, ‘undistorted competition’ was codified as one of the central goals of the community, because the maintenance of market competition was though of as essential for the completion of market integration
(Article 3). Similarly, the Constitutional Treaty signed by the Member States in 2004 referred to ‘free and undistorted competition’ in Article 1 (3) as one of the major objectives of the EU.
However, the constitutional treaty was rejected in French and Dutch referenda in 2005 and remained inborn. At the European Council meeting 21-22 June 2007, on the initiative of then
French President Nicolas Sarkozy, the member states agreed to remove the phrase ‘free and undistorted competition’ from a list of EU objectives in the new treaty. Therefore, the Lisbon
Treaty has no such reference in its main text. This open attack of France to the market competition principle during the negotiation of the Lisbon Treaty hinted a possible scenario of substantially weakened EU competition policy. Sarkozy and many other politicians of
France called for the reform of EU competition policy at times, arguing that it should not restrict national industrial policies too much. The novelty of the incident is that the French government went as far as demanding an amendment of the treaty in order to downgrade EU competition policy. Yet, the Lisbon Treaty turned out to be mostly intact from such pressures, as long as substantive competition rules are concerned (Lianos 2012; Sierra 2012). TFEU
67 Article 106 which touches on a sensitive issue of services of general economic interests remains untouched. TFEU Articles 119 and 120 explicitly address the member states’ continuing commitment to the open market economy. In short, the treaty reforms had little direct effect on the substance of EU competition policy. The Lisbon Treaty did not change the decision-making system either, as far as competition policy is concerned.
In summary, this section has shown that EU competition policy was and remains highly supranational in the sense that its initiation, formulation and enforcement are predominated by supranational institutions. As for other regulatory policies, the European Parliament plays only a marginal role. Nevertheless, the European Commission supported by DG COMP possesses considerable power in this area. More often than not, European courts support decisions of these bodies and accelerate market regulation at the supranational level.
Moreover, since the court decisions take precedence, their establishment of competition principles has cumulative consequences. These observations lead to a conclusion that EU competition policy is still exceptionally supranational. As a political scientist Francis
McGowan (2000: 116) commented one and a half decade ago, ‘European competition policy is one of the most developed and successful areas of policy-making in the EU, in terms of both its practical significance for governments, firms and consumers, and its analytical significance for students of European integration’. This is still the case, despite the empowerment of national competition authorities in the 2004 modernization reform.
Conclusion
This chapter attempted to provide an overview of the international dimension of EU competition policy in a systematic and critical manner. Drawing on key policy documents of the EU as well as secondary sources, the chapter presented the development of this policy
68 from three interlinked and yet distinctive angles – namely, policy objectives, substantive law, and the role of supranational institutional actors in the policy-making process.
Four conclusions can be drawn from the analysis. First, two major goals of EU competition policy are the maintenance of market competition and market integration. They have been at the center of this policy throughout its history. Second, notwithstanding this continuity at the level of policy goals of primary importance, there have been several subtle changes. For example, the European Commission and its DG COMP increasingly rely on competitiveness- oriented policy packages such as Europe 2020 for the justification of their policy. Another change is the incremental development of the external dimension of this policy. Its political implications will be analyzed in greater detail in Chapters 5, 6 and 7. Third, the section on four substantive areas of regulation showed a significant development of EU competition policy in the 1980s/1990s. It goes without saying that the four sub-areas developed at different speeds. Finally, the supranational institutional setting established by the treaties and case law remains largely intact. Institutional and treaty reforms in the last fifteen years reallocated competences among national and supranational authorities, but did not fundamentally affect the centrality of the European Commission in the policy-making process.
Taking these points into account, the next chapter will develop a theoretical framework for the analysis of EU competition policy from a regulatory states perspective.
69 Chapter 3: Theoretical Framework
While EU competition policy has long been a typical case study of European integration and
Europeanization research with a clear focus on the intraregional political and economic dynamics, the literature increasingly focuses on the external dimension of this policy. Both theoretical innovation in EU studies and policy development in EU competition policy have contributed to this trend. The considerable influence of EU competition policy on non-
European multinational companies is one major research agenda, whereas several works focus on the EU’s capacity as a regulatory power. Yet, the existing literature insufficiently addresses the question of whether EU competition policy is discriminatory against non-EU based firms operating within and outside the union. Nor does it directly link this issue to the wider theoretical debate over the potential tension between competition and competitiveness goals in this policy field.
Accordingly, this chapter tries to provide a theoretical framework for the analysis of the international dimension of EU competition policy, which would help to directly address the issue of (non-) discrimination in terms of the nationality of firms. Insights from both the study of EU public policies and the study of international political economy are particularly important for this attempt. Specifically, in order to make balanced arguments in a dialectic way, the chapter develops two distinctive models, namely ‘stringent competition policy’ and
‘strategic competition policy’. The former is an original contribution of this research, while the latter has been discussed to some extent in the competition law and economics literature in a rather unsystematic manner.
Furthermore, the second half of the chapter aims to develop a theoretical framework for the analysis of the EU’s role in global competition governance. It argues that the literature on the
EU as an incipient regulatory power does not fully take into account systemic variables that
70 fundamentally constrain and shape the external dimension of EU competition policy. To fill this second gap in the literature, it is essential to define the concept of regulatory power first, and then provide a list of key systemic variables with special reference to the rise of the ICN.
The organization of the chapter is as follows. The first section overviews the study of EU competition policy and identifies gaps in the literature. Next, it defines key terms and presents empirical observations, which indicate strategic characteristics of EU competition policy. Then, it proceeds to the identification of potential policy instruments from this perspective. Yet, since this model of strategic competition policy seems to have a problem with explaining policy development and the supranational institutional setting of EU competition regulation, the subsequent section develops a new model of stringent competition policy as an alternative. It will constitute the heart of the theoretical framework of this research. As in the case of strategic competition policy, empirical observations guide the conceptualization of stringent competition policy, and in addition the theory of regulatory states brings in key insights from the literature on EU regulatory policies. The chapter concludes by connecting this theoretical consideration to the wider literature on the role of the EU in global regulatory governance.
3.1 Gaps in the literature
While the study of EU competition policy was dominated by competition lawyers and economists until the 1980s, political scientists started to explore this technical and yet politically important public policy of the EU. Competition policy has long been a case study of European integration research, both for political scientists and lawyers (Goyder and
Llorens 2009; Büthe 2007; Majone 1996; McGowan and Wilks 1995; Gerber 1994). Some scholars studied the formative years of this policy based on extensive archival research
71 (Leucht 2009; Seidel 2009), while others analyzed the political process of adoption of landmark laws such as Council Regulation 4064/89, which established the EU’s supranational merger control (Chari and Kritzinger 2006; McGowan and Cini 1999), and
Council Regulation 1/2003 which changed competence allocation between the EU and member states in areas of restrictive practices and abuse of dominance (Suami 2012; Wilks
2005). In response to policy development over time, EU competition policy drew attention of the students of (top-down) Europeanization research in which regional integration is analyzed as an independent variable rather than a dependent variable (McCann 2010; Cases 1996).
These studies of EU competition policy from regional integration and Europeanization perspectives centered on intraregional dynamics.
The revitalization of EU competition policy in the late 1980s / early 1990s heightened scholarly interests in the external implications of this internal regulatory policy. This change was reflected in a set of works, which focused on potential tensions between the competition and competitiveness goals of EU competition policy (Blauberger and Krämer 2013; Bruzzone and Prosperetti 2009; Dewatripont and Legros 2009; Sugiura 1994). Roth (2006) proposed a new concept of strategic competition policy in order to systematically analyze this issue (for a critical review of this new idea, see the next section). Yet, existing works have not sufficiently addressed the question of whether the EU uses its competition policy in a discriminatory way, and how the supranational institutional setting affects the orientation of this EU policy in external relations. This is the first missing point in the theoretical debate.
The second gap in the literature also concerns the gradual shift of research focus from the internal aspect to the external aspect of this policy. A study of the EU’s regulatory power in competition policy has emerged, especially in the last fifteen years, inspired by the EU’s international activism in this field, and by intense theoretical debate over EU external
72 governance (Lavenex and Schimmelfennig 2010). On the one hand, some works focus on an external regulatory impact of EU competition policy (Aoyagi 2012; Wigger 2010; Raines
1985), with special reference to the issue of extraterritoriality (Morgan and McGuire 2004;
Dabbah 2003; Damro 2001; Jacquemin 1993). On the other hand, the literature increasingly focuses on the EU’s capacity as an exporter of competition rules both in its near and far abroad (Aydin 2012), whereas the failed attempt of the EU to create a mechanism of competition rule making at the WTO is another major research topic (Papadopoulos 2010;
Woolcock 2003; Davison and Johnson 2002). There are also a number of works on the rise of the ICN as a crucial institutional component in global competition governance (Lugard 2011;
Aydin 2010; Damro 2006c; Bode and Budzinski 2005), but the implications of the rise of the
ICN from the EU’s perspective are not discussed in depth yet. This is the second black spot that is going to be explored in this research.
Before proceeding to further theoretical considerations on these missing points in the literature, a strand of research on competition policy from the critical political economy perspective is worth mentioning here. The main contribution of the critical political economy approach is that it sheds light on the influence of macro-socioeconomic trends on EU competition policy (Buch-Hansen and Wigger 2011; Wigger and Nölke 2007). Despite the provision of this fresh idea and extensive empirical research, its analysis of EU competition regulation as a neoliberal (-ized) competition policy has conceptual problems. It seems that
EU competition policy primarily reflects regulated capitalism than neoliberalism. The next section develops two competing models tailored to the analysis of the (non-) discriminatory issue, and then comes back to this point.
73 3.2 Strategic competition policy: a neomercantilist perspective
The incipient model of strategic competition policy is relevant to the analysis of (non-) discriminatory issue in EU competition policy. Since the term strategic means very different things in different contexts, it is important to define this keyword beforehand. In this research, it is regarded as an adjective which denotes the instrumental use of competition rules for industrial policy purposes. In line with this understanding, Wulf-Henning Roth (2006: 39) defines strategic competition policy as ‘a policy that goes beyond merely shaping a favorable environment for competition by fostering an attractive infrastructure (in all its dimensions) and sustaining innovation and technological innovation, and conceives and uses competition law as an instrument to assist European competitors on world markets’. It should be noted that this conceptualization clearly reflects a neomercantilist perspective, which prioritizes domestic firms’ international competitiveness and the maximization of the total welfare.
Being applied to the context of competition, neomercantilism refers to practices of state intervention, which aims to foster national champions and to protect selected sectors based on broadly defined public interest criteria (Buch-Hansen and Wigger 2011: 22-23). In contrast to the original idea of mercantilism, which is basically the pursuit of international trade surplus for military and security spending, the ‘neo’ version prioritizes state-driven economic development. Neomerchantilism does not presuppose the primacy of industry over agriculture. Rather, its focus is the promotion of competitiveness of indigenous enterprises.
Three empirical observations
There are three empirical observations, which indicate the EU’s strategic use of competition policy. The first empirical phenomenon is the general trend in EU governance towards enhanced coordination among its economic and social policies. The Lisbon Agenda and the
74 Europe 2020 program noted in the introductory chapter typify the method of policy packaging in EU governance, particularly in economic and regulatory areas. There is a possibility that this general trend has an impact on EU competition policy. Bruzzone and
Prosperetti (2009: 82-83) point out that ‘the quest for integration of policies entails the risk that industrial policy objectives will systematically prevail over the objective of maintaining an open market economy based on undistorted competition.’ As the EU increasingly puts various economic policies together for the sake of better coherence and greater external impacts, there is a possibility that industrial policy considerations significantly influence EU competition policy.
While the current controversy over EU competition policy and the influence of the Lisbon
Strategy and Europe 2020 on it may give an impression that the issue of competition and competitiveness is quite new, it is actually a recurrent topic in the study of international political economy. Following the gradual removal of on-the-border control such as tariffs and quotas through multilateral trade negotiations, the importance of behind-the-border regulation
(e.g. competition policy) for the international competitiveness of firms drew considerable attention in the 1980s and 1990s, not only in the EU, but also in other market economies such as the US and Japan (Ostry 1990). In the European context, political scientists S. Wilks and L.
McGowan (1996: 255) already anticipated in the mid-1990s that ‘[t] he concept of integration as a motive force behind competition policy has lost its pre-eminence as “1992” has come and gone. The next challenge facing the European Union, and the main candidate for the
“European vision” of the 1990s, is the concept of competitiveness’ (emphasis in the original).
While the integration ethos behind EU competition policy has never disappeared32, it may be
32 One reason for this is that the EU’s single market program is not completed yet, especially in service and other formerly protected sectors. It is in this context that a report from a former European Commissioner Mario Monti to a former Commision President Barroso, which was entitled ‘A New Strategy for the Single
75 a case that the logic of competitiveness increasingly informs this policy, as these scholars said.
The second case which gives hints of the EU’s strategic competition policy is the failed plan of the establishment of a European Cartel Office, which would have been a supranational, independent regulatory agency. While the idea of the European Cartel Office appeared as early as in the 1960s, serious debates on it began in the late 1980s. Advocates of this proposed institutional reform, including the German government, were concerned about the European Commission’s increasingly critical role as the decision maker in competition cases (Cini and McGowan 1998: 220-223). They argued that independent regulatory agencies rather than the group of politicians such as European Commissioners should be in charge of day-to-day decision-making, in order to prevent the politicization of the competition issue.
Heads of member states discussed this issue at the intergovernmental conference of the EU in
2000, but the subsequent European Council in Nice made no proposal in this regard, partly because of the strong opposition of then-European Commissioner for Competition Karel Van
Miert. He opposed the German plan, saying that the creation of the new agency could undermine efficiency and policy coherence by establishing a dual, complex regulatory system
(Van Miert 1996: 3-4). While the main reason for this could be his opposition against the reduction of the Commission’s competence in competition, what is more important here is that the failure of this institutional reform left some administrative discretion. Therefore, it is not impossible for the European Commission to use its competition policy instrumentally for industrial objectives. It is DG COMP which investigates competition cases, analyzes them and makes preliminary decisions. Yet, the European Commissioners are the final decision- makers, and they could vote based on their own national governments’ preferences.
Market’, proposed the revitalization of market integration for greater competitiveness, and emphasized the role of competition rules for this purpose (Monti 2010: 86-88).
76 The third and final empirical case goes back further in time. The Paris Treaty establishing the European Coal and Steel Community (ECSC) gave extensive power to the High
Authority, including competence over competition control. It is noteworthy that the ECSC had the potential of creating a neomercantilist style of competition policy, although in reality the High Authority seldom exercised its considerable power in this area (Swann 1983: 14-16;
McLachlan and Swann 1967, 76-78). When the Paris Treaty was drafted soon after the
Second World War, the idea of market integration in strategically important markets such as coal and steel was really novel, and its prospect was extremely uncertain. Tariffs, quotas and other various governmental regulations prevailed in these industries in the war period.
National and international cartels were also common, particularly in the steel industry.
Against this background, the founders of the ECSC not surprisingly put safeguards on free market competition to control the radical transformation process.
An important element of ECSC provisions on competition was economic planning. The
High Authority, a supranational executive and policy-making body of the community, had competence to set minimum and maximum prices, production quotas, and consumption priorities. It is extremely rare that competition authorities have such a broad range of policy instruments for market regulation, including proactive policy instruments rather than prohibitive ones. It was therefore not without basis that the then US Secretary of State Dean
Acheson read an early draft of the Shuman Plan in May 1950, and was worried that the
ECSC’s competition rules could be a cleverly disguised European cartel, substituting private ones (Harding and Joshua 2010) (for the American influence in the formative years, see
Section 2.1.1 above). The Paris Treaty reflected the French tradition of economic planning to a certain extent, and the influence of Jean Monnet, a key French diplomat in European integration history, was evident here. He believed that, without some safeguards against market competition, a sudden opening of markets through international economic integration
77 could trigger a flood of investment, excessive competition and even dumping, and ultimately foster public support for the recartelization of the coal and steel industries (Swann 1983: 14).
As a matter of fact, under the Paris Treaty, there was ample room for proactive industrial measures within the framework of supranational competition control.
Taken together, there seems to be some ground for the emergence of strategic competition policy in the EU. Such a form of EU competition policy, if it really exists, would be in conformity with the persistent tradition of neomercantilism. Buch-Hansen and Wigger (2011:
22-23) calls the utilization of EU competition policy for the neomercantilist purposes
‘Euromercantilism’33. According to them, its primary goal would be to foster ‘European champions’ which possess the capacity to compete in the European single market, and eventually the global market. Supranational institutions would have far-reaching discretionary power so that they could apply competition rules in a flexible way for the purpose of welfare maximization.
In order to clarify ideas behind this model, the underlying rational choice institutionalist logic should be revealed. Basically, rational institutionalism assumes the prefixed and narrowly defined (in this case, material) preferences of rational actors. In addition, it understands regional integration in the functional rather than ideological sense. For example,
Robert Gilpin (2001) asserts that economic regional integration is an instrument of states to enhance the international competitiveness of their companies based on the economies of scale34, and to increase their bargaining leverage vis-à-vis third states (the politics of scale).
33 It should be noted that Buch-Hansen and Wigger use Euromercantilism as a typology and do not make arguments for it. 34 Consider an example of the computer industry. Many European states tried to create national champions which could compete with the giant American computer manufacturer, IBM, but no European country succeded to do so. It follows that EU-wide multinational companies rather than national ones may have
78 For rational choice institutionalists, the functional substitution of national industrial measures with supranational ones is a decision that the member states would make based on clear cost- benefit calculation.
Potential policy instruments
The existing literature identifies several potential policy instruments which may be used by competition authorities and other governmental bodies for industrial policy purposes
(Jacquemin 1993). First, the relaxation of competition law, especially for target industries, may be used as de facto public subsidies. Second, competition authorities could apply their competition law to foreign firms more strictly in order to give advantage to domestic ones.
The active extraterritorial application of competition law could have similar effects.
Competition regulators may even utilize protectionist measures such as the hindrance of the acquisition of domestic firms by foreign competitors, although there is a possibility of counterattacks by affected countries.
It should be noted that there is an assumption behind the model of strategic competition policy that weak competition law and policy could substitute industrial policy. Such an argument is incompatible with orthodox economic liberalism. The orthodox or traditional theories of international trade assume perfect competition. Thus, in terms of both import and export, it is assumed that no national government is large enough to significantly influence international prices. In such a situation, deviation from the equilibrium price would result in the loss of national welfare, so there is no room for manoeuvre by the governments. By contrast, the ‘strategic trade theory’ takes into consideration oligopolies in the global market, better prospects for competition with non-European rival companies because of the large market size and potential reduction of production costs per unit as a result of the economies of scale.
79 in which governments have some space to increase the international competitiveness of their firms in those markets characterized by increasing returns. Despite many criticisms by leading economists (Krugman 1986), the theory of strategic trade had a significant impact on the trade policies of such countries as the US during the Clinton Administration, which prioritized the promotion of international competitiveness of their firms (Tyson 1993). This academic and policy debate on the possibility of proactive, competitiveness-oriented trade policies seems to have provided intellectual backbones for the model of strategic competition policy.
3.3 Stringent competition policy: a regulatory state perspective
Although the interpretation of EU competition policy as the strategic one is not without basis, it seems to have analytical problems when examined more closely. An alternative viewpoint, stringent competition policy, provides a more coherent account for this core policy of the EU.
It should be noted that the word ‘stringent’ implies not only strict enforcement, but also the narrowness of what is allowed to do. The theory of regulatory states provides a theoretical basis for this model.
3.3.1 Limitations of the first model
One problem with the strategic viewpoint concerns the relevance of the Paris Treaty to the current form of EU competition policy. The Rome Treaty provided general principles for competition control and did not grant the same policy tools to the community as the Paris
Treaty did. The main reason for this difference is that Western European economies started to recover by the late 1950s, and there was therefore a general climate of optimism about the
80 market economy (McLachlan and Swann 1967: 78). So, the shift from the Paris Treaty to the
Rome Treaty was of great importance for European competition policy.
Furthermore, the relative autonomy of supranational competition regulators from political pressures casts doubt on the neomercantilist understanding of the EU as a mere agent of the principal, that is, the member states. National leaders occasionally intervene in EU-level competition decisions through informal channels, but these attempts proved unsuccessful in many cases (Levy 2005: 131). A good example is the Schneider/Legrand case35. While a
French electrical equipment manufacturer Schneider acquired its major French competitor
Legrand on 25 July 2001 with 7.2 billion euros, the European Commission ordered the prohibition of the merger on 10 October 2001, suspecting that this merger would substantially reduce market competition in this sector (European Commission 2002). Importantly, despite extensive lobbying by then French President Jacques Chirac to then Commission President
Romano Prodi, in the hope of creation of another national champion, the Commission decision dismissed any reasoning for the merger on grounds of the international competitiveness of European companies (The Economist, 11 October 2001). The fact that the
Commission resisted this high political pressure from the large member state suggests its considerable autonomy, although the General Court turned over the Commission decision later, primarily due to problems with the economic analysis. Two more specific points should be also highlighted to understand the context and political importance of the case. First, it is extremely rare that the Commission orders the abandonment of a merger that has already taken place36. Thus, the use of this radical legal measure clearly shows the Commission’s determination to resist political interference from member states in the enforcement of EU
35 Case COMP/M.2283, Schneider/Legrand, Commission decision of 30 January 2002, OJ L101/134, 6 April 2004. 36 Another case of this is Tetra Laval/Sidel. See European Commission (2002).
81 competition law. Second, since the Commission blocked the GE/Honeywell merger only a few months earlier, it seems that the EU considered the Scheneider/Legrand decision as an opportunity to send a political message to third countries (especially the US) that it takes a tough stance, even against European firms.
As this case suggests, for the better understanding of this policy, one should pay attention to the relative autonomy of supranational regulators from national and sectoral interests, and it is exactly what the theory of regulatory states emphasizes. Thus, its main features as well as the relevance to this research are going to be discussed, before generating hypotheses which directly correspond to the first two research questions addressed in the introduction.
3.3.2 External implications of the regulatory state
The theory of regulatory states is a theory for the analysis of development, dynamics and normative implications of public regulation. This theory has been mainly developed in the field of comparative public policy. It is a middle range theory, which attempts to explain regulatory policies such as competition, environmental, health, and work safety policies. It does not aim to analyze other kinds of public policies such as distributive and redistributive ones, which are based on very different rationales. This cautious stance against generalization is not necessarily a disadvantage. Rather, this analytical framework is of great value, especially for the study of European politics, because of the prominence of regulatory policies both at national and supranational levels in Europe. The theory of regulatory states takes material interests of political actors seriously. At the same time, it explicitly takes into account the role of institutions in all stages of the policy cycle, and incorporates ideational factors such as credibility and legitimacy to its core arguments. Hence, despite the manifest influence of public economics in the early stage of development, this theory can be regarded
82 as a distinctive and cohesive set of contentions about public regulations, which is based on a sound analysis of interests, ideas and institutions.
The regulatory state is a state ‘which attaches relatively more importance to processes of regulation than to other means of policy-making’ (McGowan and Wallace 1996: 563). Unlike other images of states such as welfare providers or owners of public enterprises, the main function of regulatory states is rule-making based on the rule of law and judicial review. In this context, public regulation can be defined as the governmental rule-based correction of market failures such as information asymmetry, negative externality and the insufficient supply of public goods. This function is narrower than that of interventionist states such as developmental states.
Nevertheless, the rise of regulatory states does not necessarily mean a reduction of public regulation. On the contrary, as Giandomenico Majone (1994) pointed out, the wave of privatization and market liberalization in Europe in the 1980s paradoxically resulted in more regulation. This is because the majority of the privatized and liberalized markets has eventually been re-regulated in different forms. As the governance mode of economic interventionism (i.e. active political interference in the market by socioeconomic departments of the government with considerable administrative discretion) gradually declined over time, the statutory control of the market by independent, non-majoritarian agencies has become pervasive both in the US and in Western Europe.
The theory of regulatory states is insightful for this research in two aspects. Firstly, this theory is useful to explain the importance of regulatory policies such as competition policy in
European governance, particularly at the supranational level. Secondly, this theory is of great value in explaining the seeming nationality-blind competition regulation of the EU. At the
EU level, regulatory policies are generally more developed than other ones, such as
83 redistributive policies. EU internal market policy and competition policy are classic examples of supranational regulatory policies. By contrast, EU competences are relatively limited in areas which involve direct public expenditure, such as taxation, education and social security.
This selective integration - a point which neo-functionalism fails to explain - is primarily attributable to the European Commission’s organizational interests defined as a task expansion (Majone 1994). As Majone argues, since the EU budget is limited and dominated by a small number of items such as common agricultural policy (and more recently, EU regional policy), the Commission recognizes that regulatory policies are the most feasible venue for its task expansion. For regulators such as the European Commission, regulatory policies are the cheapest because the regulated rather than regulators cover the large proportion of administrative costs, for example by adjusting to the rules and paying penalties for law infringements.
As for the policy development process, the theory of regulatory states has its own contention concerning institutional arrangements and interest representation. First of all, according to the regulatory state perspective, independent regulatory agencies play a key role in regulatory policies. Take an example of the central bank to illustrate this argument. In most countries, the relative independence of central banks is legally secured so as to protect them from sectoral interests and politicians who might be short-sighted because of the electoral cycle (Majone 1996a: 40-41). If majoritarian bodies are responsible for public regulation, they are likely to use it for redistributive purposes (Hix 2005: 237). For example, when a left- wing political party is in power, it would redistribute wealth to workers from others. When a conservative party wins an election, then the policy would swing in the opposite way. In either case, political parties are likely to benefit their main supporters at the expense of the others for electoral considerations. This is why independent agencies rather than majoritarian
84 governmental institutions are pervasive in regulatory policies for the assurance of policy continuity and the credibility of regulators as independent referees.
Another issue which is relevant to the autonomy of regulators is interest representation.
According to the economics literature on regulation, the ‘regulatory capture’ is thought of as essential and persistent. For example, G. Stigler (1971) argues that diffused interests tend to be underrepresented in regulatory policies because of the collective action problem. By contrast, according to him, the private sector has big stake in socioeconomic regulation and is generally better prepared to spend a lot of financial and human resources on rent-seeking activities. Yet, this argument cannot be simply applied to individual competition cases. While the existing literature points out that business interests played key roles in the formation of key competition legislation such as the EU merger regulation 4064/89 (Buch-Hansen and
Wigger 2011; Chari and Kritzinger 2006; McGowan and Cini 1999), this does not necessarily mean that Commission decisions always advantage firms in comparison with other stakeholders. This is because individual cases involve not only those firms which infringed
EU competition law, but also those competing in the same or closely linked markets. This makes it difficult for business associations to take collective action, even if they have abundant resources.
Taking stock of all these theoretical debates over the functions and distinctive institutional settings of regulatory states, one may generate two hypotheses corresponding to the first and second research questions addressed in the introductory chapter. The first one is related to the internal aspect of EU competition policy, while the second one is concerned with its external implications. Regarding the first research question, ‘Does EU competition policy foster
European flagship companies even at the expense of competition-protection purposes?’, this research hypothesizes that:
85 Hypothesis 1: Supranationally institutionalized competition policy such as the EU’s one is relatively autonomous from national and sectoral interests, and therefore most likely to make decisions on the grounds of competition protection rather than the enhancement of the international competitiveness of indigenous companies.
Politically sensitive sectors would provide good case studies to test this hypothesis because the EU competition regulators are likely to face heavier lobbying in these areas by member states and other interested parties (see Sections 4.2-4.3). State aid control is also relevant here because it is closely linked to the issue of international competitiveness and directly deals with EU-member state relations. The history of the oil crises in the 1970s showed that, during economic crises, national governments demand more flexible state aid control in order to rescue certain industries or companies in difficulty. The real issue is therefore whether supranational regulators try to limit the range, scope and time span of emergent national rescues (stringent competition policy), or they relax competition rules for industrial policy purposes (strategic competition policy). The recent economic crises in Western countries would be a litmus test for this theoretical debate (see Section 4.4).
This argument leads to the second research question addressed in the introductory chapter, namely ‘Is EU competition policy discriminatory against third-country based companies?’
Because of the institutionally guaranteed distance from parliamentary control and partisan politics, the legitimacy of non-elected independent agencies such as EU competition authorities heavily relies on their transparency and impartiality regarding the nationality of regulated parties (credibility as a ‘fair referee’). Extending this argument about the non- discriminatory nature of this policy to relations with third countries, one may hypothesize that:
86 Hypothesis 2: The supranational institutional polity of the EU assures nationality-blind regulation, even when non-EU based firms are involved.
This is not to say that non-discriminatory enforcement is assured mainly for the benefit of non-EU based companies. With little doubt, the main concern of EU competition policy is still cross-border economic activities across its member states. Yet, once non-discrimination among member states’ companies is assured, multinational companies from third states would also benefit from it. Otherwise, the credibility of regulators - in this case, the European
Commission and its DG COMP - would be seriously undermined.
In order to clarify the difference between the two competing models, it is important to reveal neoinstitutionalisms underpinning them. In contrast to the model of strategic competition policy which draws on rational choice institutionalism, the argument developed here rests on sociological institutionalism, which contends that institutions embed ideas and norms as well as interests. Specifically, according to sociological institutionalism, the preference of actors are not based on pure cost-benefit calculation. Rather, they are deeply influenced by a set of ideas, norms and cultures widely accepted in a certain institutional context (for a classic comparative study of neoinstitutionalisms, see Hall and Taylor 1996). If one regards the overarching goal of regional (economic) integration as an idea which serves as a guideline for the action of supranational EU institutions, it is possible to understand why
EU competition regulators commit to its peculiar goal of the maintenance of a level-playing field (even after the completion of the single market) rather than the promotion of international competitiveness of European firms.
Regarding the relevance of other neoinstitutionalisms, rational choice institutionalism seems ill-equipped to explain why the EU keeps prioritizing the goal of maintenance of a level-playing field, in which EU based and non-EU based firms enjoy equal treatment in
87 principle. Such a style of competition policy (stringent competition policy) may constrain national industrial policies and deteriorate the international competitiveness of European firms, at least in the short run. Thus, the conceptualization of supranational regulators such as the EU’s ones as pure agents of member states for utility maximization does not capture the reality very well. Historical institutionalism might be useful to explain why the highly supranational institutional setting of the EU in competition policy established in the 1950s remains essentially the same, even after a series of treaty reforms since then. However, it is not very helpful to explain why such an institutional structure was built in the first place. For those reasons, one may argue that sociological institutionalism is more relevant than these two neoinstitutionalisms to the explanation of the link between the EU’s ideational context
(regional integration), the particular goal in competition policy (the creation of open, competitive and level markets), and policy practices (seeming nationality-blind regulation, even with regard to non-EU based firms).
Some preliminary findings of the commitment of EU competition regulators to non- discriminatory regulation are to be found in official documents of the European Commission and speeches of European Commissioners, as presented below. The European Commission’s annual report on competition policy 2010 (2011:11) states that competition policy is well placed to contribute to the goals of the Europe 2020 program because:
[Competition policy] is a key driver for making markets work better through an efficient
allocation of resources and increased productivity and innovation. It therefore underpins
the competitiveness of the EU economy, which is more important than ever to maintain
economic and financial stability (emphasis added).
Thus, arguably, greater emphasis on competitiveness in EU discourse does not necessarily result in the discrimination of non-EU companies as the strategic competition policy
88 anticipates. This point is evident in the following statement made by former European
Commissioner for Competition Joaquín Almunia (2011) with special reference to merger control:
[F] oreign takeovers do not threaten competitiveness nor do they threaten growth and
jobs. They are a fact of life in the global economy, and it is a fact that European firms
invest in joint ventures abroad. So I do not agree with those that would want to reduce
vital investment flows into the European Union. In effect, when we examine mergers and
acquisitions, we do so regardless of where the capital or business comes from.
The commitment to enforcement without regard to nationality has been expressed by other
European Commissioner for Competition, too. For example, soon after the commencement of her term as European Commissioner for Competition, Margrethe Vestager made the following statement in her speech that she addressed to a US audience at the Peterson
Institute for International Economics in Washington DC on 16 April 2015.
In all our cases, we are indifferent to the nationality of the companies involved. Our
responsibility is to make sure that any company with operations in the territory of the EU
complies with our Treaty rules (Vestager 2015b).
She was motivated to make this statement partially because she recognized how large EU competition policy’s impact on third states is. It was also because she felt obliged to reassure the non-discrimination of non-European companies in front of the American audience. It should be noted that one of the themes Vestager picked up in the speech was the Google case.
The Commission formally initiated soon after her arrival a formal antitrust investigation to an
American IT giant company Google, so the public statement quoted above was of great political importance.
89 Four days later, again in front of an American audience at New York University,
Commissioner Vestager underlined that competition authorities should resist temptation to use their competition laws for protectionist purposes, for example by discriminating foreign companies.
We need to be vigilant that competition enforcement does not become a cover for
camouflaged protectionism […] We need to recall that if a jurisdiction rig the game to
the advantage of its own companies, it is not only a losing economic strategy, it will also
‘poison the well’ of the antitrust cooperation (Vestager 2015c: 8, emphasis in original).
This set of speeches of Commissioner Margrethe Vestager on 16 and 20 April 2015 indicates her recognition of widespread criticisms that the EU’s competition enforcement should be more transparent and accountable37.
In Chapter 5, the question of whether EU competition policy is really nationality-blind will be empirically studied. One thing which can already be said at this stage is that EU competition policy is by no means interest-free. For example, the 1995 White Paper of the
European Commission on Enlargement (European Commission 1995: 11) stated that the adoption of competition laws was compulsory for candidate states so as not to disadvantage existing businesses with heavier costs. Nevertheless, one could argue that the EU’s interests are generalized to some extent though intraregional multilateral negotiations.
37 In this specific case, it seems that Vestager was bearing in mind criticisms against the EU competition regulators with regard to on-going high-profile cases such as Google and Gazprom. At a more general level, the EU devotes more efforts to justification of its policies, especially since the breakout of the Eurozone crisis.
90 3.3.3 Differences and commonality between the two competing models
A comparison of the strategic and stringent readings of EU competition policy makes their key features clearer (see Table 3.1 below). The stringent competition policy perspective assumes strict and nationality-blind enforcement, the narrowness of exemptions, and the relative autonomy of the regulator. The main policy goal is the protection of market competition through the correction and deterrence of market failures. By contrast, the strategic form is characterized by flexible enforcement depending on socioeconomic situations, the wide coverage of exemptions, particularly in target industries, and the objective of promoting European champions. From this perspective, the supranational institutional setting results from the member states’ welfare-maximizing strategy rather than their commitment to non-discriminatory policy enforcement.
Table 3.1: A comparison of the main and rival models
Stringent competition policy Strategic competition policy (main model) (rival model) Policy style Strict enforcement Administrative discretion
Resilience in the face of economic Sensitivity to socioeconomic crises conditions
Non-discrimination regarding the Tendency to foster / protect national nationality of firms and European champions
Policy objectives Maintenance of market competition; Promotion of indigenous correction of market failures companies' international competitiveness
Exemptions Minimum Wide coverage
Image of the Independent referee Promoter of economic welfare regulator
Underlying theories Sociological institutionalism Rational choice institutionalism of institutions (Institutions embedding norms as (Supranational institutions as the well as interests) instrument of rational actors) Source: developed from Jacquemin (1993), Majone (1996) and Roth (2006). An earlier version of this table appeared in Yoshizawa (2015).
91 Despite these differences, there is one thing that the two models have in common. They both acknowledge that economic globalization does not necessarily result in the marginalization of governments. According to the literature on regulatory policies, deregulation in Europe was followed by reregulation through agency-based control rather than public ownership (Majone 1994). A relative decline of economic interventionism and a rise of regulatory governance are a general long-term trend since the 1980s and 1990s in most
OECD countries, including European ones (OECD 2002).
This point is directly related to a critical assessment of the ‘neoliberal’ competition policy perspective. According to Buch-Hansen and Wigger (2011: 138-140), EU competition policy experienced in the 1980s and 1990s what they call neoliberal transformation. On the one hand, their study contributed to the literature by contextualizing EU competition policy in long-term macro socioeconomic trends (from the interwar period, through Keynesian and post-Keynesian eras, to the current economic crises). On the other hand, their argument seems to have a conceptual problem. Competition policy itself is by definition in conflict with neoliberalism, which assumes self-regulating capacity of the market, and prescribes small governments (e.g. privatization and deregulation). Thus, even if the rise of a neoliberal ideology and policy programs affect competition regimes, neoliberal competition policy is a contradiction in terms. To put it differently, neoliberals’ prescription would be simply the abolishment / downgrading of competition policy.
At the level of policy programs, there are three concrete manifestations of neoliberalism, namely liberalization, privatization and deregulation (Steger and Roy 2010), and this breakdown of the concept is useful to assess the relevance of the neoliberal competition policy perspective further. As for liberalization, the creation and maintenance of competitive markets with competition policy would directly result in lower entry barriers to the market, so competition policy and market liberalization can go hand in hand. As far as this aspect is
92 concerned, there is no conceptual problem to say that competition policy promotes an element of neoliberal policy programs. By contrast, the argument of the neoliberal turn is not persuasive at the level of privatization. To begin with, private litigation mentioned in these works has nothing to do with the issue of privatization, which is concerned with the ownership of enterprises. Moreover, while privatization is by definition a transfer of ownership from a public body to a private one, the prevalence of private litigation does not necessarily mean less public regulation. On the contrary, the deterrence effect of private litigation against anticompetitive business conduct may complement public regulation, and public and private regulations are therefore not mutually exclusive in this aspect. In short, the enhancement of private litigation neither fits into the logic of privatization (private or public) nor validates the argument that the neoliberal ideology predominates EU competition policy.
The concept of neoliberal competition policy is even more problematic with regard to deregulation because the EU strengthened rather than weakened competition regulation in the
1980s and afterwards at both national and EU levels. Competition regulation which could be considered neoliberal is probably that of the US during the Reagan era. In the 1980s, the
Reagan administration of the US relaxed competition law, in line with its general goal of a small government. This policy shift reflected the rise of the Chicago School in competition law and economics in the 1970s and onward. The Chicago School placed emphasis on economic efficiency rather than the legal protection of market openness, and criticized active market intervention by competition regulators without sufficient economic reasoning.
However, even the Reagan administration did not go so far to abandon its antitrust law itself.
In short, there has been a scope limitation for European competition systems, despite the swings between minimalist and maximalist approaches to public regulation in post-war
Western countries. After all, post-World War II European countries never went as far as to
93 deny competition policy as a key element of economic governance, even in the 1980s and
1990s.
3.4 Further debate: EU competition policy in a global context
The introductory chapter posed the third research question concerning the role of the EU in global competition governance. This section briefly sets out key concepts related to this issue.
Specifically, the aim of this section is to explain what the concept of ‘regulatory power’ means, why it is useful for the analysis of EU competition policy, and which aspect of the
EU’s regulatory power is more likely to be constrained by systemic factors. This is not a place to examine the whole range of concepts of EU power. Instead, in order to clarify the analytical focus of regulatory power, it will be compared with two closely linked concepts in the EU external relations literature, namely ‘trade power’ and ‘market power’.
3.4.1 Not only a trade and market power, but also a regulatory power?
In the political science literature on international economic and trade relations, the EU is widely regarded as a ‘trade power’. Trade power is apparently a concept developed in the study of (EU) trade policy. S. Meunier and K. Nicolaïdis (2006) contend that the EU is a trade power, though it is a conflicted one (i.e. a trade power with various constraints and contradictions). Additionally, they make a distinction between ‘power in trade’ and ‘power through trade’ (Meunier and Nicolaïdis 2005). Power in trade means the external influence of a political entity in the area of international trade itself, whereas power through trade means the entity’s ability to export its internal rules (e.g. labor standards) and values (e.g. human rights) to others through bilateral and multilateral trade agreements. A closely linked concept
94 is ‘market power Europe’ developed by C. Damro (2012). This concept places emphasis on the external impact of the EU’s internal socioeconomic policies, and the importance of the
EU’s origin as a single market, even in its external relations38. As a conceptual framework, market power Europe identifies three key factors which determine the EU’s capacity of international policy transfer (‘externalization’) of internal regulatory rules – namely the EU’s market size, its legal and institutional setting, and interest constellation among European business and societal actors (Damro 2012: 686-689). The third concept, regulatory power, has been studied by several scholars who pay particular attention to the EU’s ability to set international regulatory standards, as well as its ability to exert regulatory influence on private actors such as firms. For example, in their collective volume, K. Endo and K. Suzuki
(2012) examined the EU’s regulatory power across various issue areas, and provided evidence of its relative strength in areas of economic and other market-related regulatory policies, such as competition, environment and air transportation, to name a few.
These three concepts of power developed in EU studies are not mutually exclusive. On the contrary, they all underline the same features of the EU as an international actor: its comparative advantage in socioeconomic policies; the large size of the EU market as a crucial source of power; relatively frequent use of coercive measures (e.g. trade retaliation and the extraterritorial application of competition law), which are not sufficiently recognized in the normative power Europe literature; and the institutional complexity of the EU (which is not necessarily a disadvantage in international negotiations).
That being said, these concepts have different analytical focuses, and this point should not be overlooked. By distinguishing power through trade from power in trade, the notion of
38 This concept should not be confused with the concept of ‘market power’ in economics. In the literature on competition economics, and microeconomics more generally, market power refers to producers’ control over the market price under the situation of monopoly or oligopoly.
95 trade power helps to address the question of how the EU exerts its influence in foreign economic policies. By contrast, the study of market power Europe highlights the growing external implications of the EU’s ‘internal’ socioeconomic policies39, and aims to analyze under what conditions the EU succeeds in exporting its own market-related regulatory rules to third countries. So, how does the concept of regulatory power differ from these two? Three key merits of this concept are worth noting here. First, it succinctly captures the EU’s regulatory state feature, especially at the supranational level, and its relevance to EU external relations – the point noted earlier in this chapter. While the EU’s redistributive policies are severely constrained by its limited budget (merely 1% of the combined GDP of the member states), regulatory policies of the EU are less constrained by this factor. The administrative cost of regulatory policies such as competition policy is paid not by the regulator, but by the regulated (firms). This point is crucial to compherend the EU’s strong regulatory capacity, despite its relatively limited budget. Second, the concept underlines the fact that the sheer market size is not the only factor which determines the international regulatory influence of a politica actor. The legal and institutional capacity of an international actor is also important, and it is the factor which largely explains the variation of EU regulatory power across policy areas (Bach and Newman 2007). Finally, regulatory power explicitly points to the EU’s extensive engagement in global governance with behind-the-border issues (or ‘deep’ trade issues (Young and Peterson 2007)) such as environmental regulation, labor rights, intellectual property rights, investment, public procurement, and last but not least, competition policy.
39 The significance of socioeconomic policies of the EU in external relations is stressed in many other studies, too. For example, see Telò (2009).
96 3.4.2 Two aspects of regulatory power
Assessments of the EU’s regulatory power largely depends on which aspects of this power people are looking at (Young 2015a). It is important to distinguish an actor’s ability to influence behavior of firms through regulation, and its ability to shape international regulatory rules, standards and norms. This distinction is important because subjects of and resources for these two aspects of power are not identical.
Regulatory influence on firms
As far as competition policy is concerned, the EU’s regulatory power is particularly strong at the level of influence on individual firms. There are two major power resources, namely the market size, and legal foundations for stringent law enforcement. As pointed out by many scholars, one of the major sources of regulatory power of the EU is its market size. Few multinational companies would give up business opportunities in the large economy of the
EU with half a billion wealthy citizens, just because of its comparatively stringent competition law. In other words, firms have an economic incentive to comply with EU law in order to start or continue their operations in the EU market. The market size is a major source of power in external economic and regulatory policies, but it is not always translated into regulatory power. As noted above, the capacity of regulators and legal foundations are at least as important as the market size. The European Commission and its DG COMP have strong investigation powers in individual cases (e.g. dawn raids; legally binding requests for information; cartel detection under the leniency program). These competition regulators also possess strong coercive instruments for enforcement, such as cartel and antitrust fines (within the limits set by EU law), and the blockage of mergers (see Chapter 2). In addition to these administrative penalties, those firms which infringed EU competition law may be subject to
97 private litigation at national courts. These potential economic penalties based on private enforcement have a strong deterrence effect on firms operating within the EU (Aoyagi 2012).
Table 3.2: Cartel fines of 20 selected countries in 2010
Country Cartel fines (€ million) Average (per case) European Commission 2900.0 410.0 Brazil (CADE) 1000.0 257.3 Japan 600.0 3.5 France 440.3 36.7 Korea 373.0 10.7 US (DoJ) 372.8 21.7 Germany 267.0 22.0 UK (OFT) 255.0 255.0 The Netherlands 137.0 11.4 Italy 121.2 24.2 South Africa 71.5 n/a Poland 40.0 n/a Spain 40.0 8.0 Hungary 26.9 n/a Russia 21.7 1.0 Greece 20.2 6.7 Mexico 10.9 3.6 Australia 6.8 3.4 Canada 5.9 5.4 Switzerland 5.6 2.8 Source: adapted from Global Competition Review (2011: 18).
There is ample evidence of the actual impacts of EU competition law on firms. Take an example of cartels. Table 3.2 shows amounts of cartel fines in 20 major jurisdictions in 2010.
The data is taken from an issue of the Global Competition Review (2011), which is a journal published by a London-based law firm, and provides useful data of various sorts related to competition policy. While the country coverage is limited, it includes most jurisdictions
98 whose competition enforcement is comparatively active40. The amount of the EU’s cartel sanctions in the year accounted for 2.9 billion euros, and no other jurisdiction imposed a comparable level of fines. One qualification is that criminal sanctions on competition law infringers are possible in some countries such as the US and the UK, but not in the EU.
Nevertheless, the statistics clearly shows a considerable regulatory impact of EU competition policy on companies.
The ability to set international rules, standards and norms
While the direct regulatory influence of the EU on private actors is significant, it is not the only element which constitutes regulatory power. Another aspect of this power, namely the ability of an actor to set international regulatory rules, standards and norms, is also important in global governance. Political scientist Kazuto Suzuki (2012; 21-28) pointed out four sources of standard-setting / norm-setting power: (1) agenda setting power, especially in the context of multilateral negotiations; (2) persuasiveness (e.g. the quality of scientific justification for the selection of particular standards); (3) the ability to act collectively
(internal cohesiveness); and (4) the market size (‘gravity of the market’). He adds that the EU is in a privileged position to set international standards. This is because complex multilateral negotiations within the EU are likely to produce ‘rounded’ regulation, which is more generalized than national regulation41. However, this is a general argument, and it is not
40 While this issue of the Global Competition Review (2011: 18) provides data of 32 jurisdictions, the table above shows only the data of top 20 countries among them for the sake of simplicity. The other 12 jurisdictions are Belgium, the Czech Republic, Pakistan, New Zealand, Austria, Lithuania, Israel, Slovakia, Portugal, Chile, Finland, Ireland. Their cartel fines in 2010 were lower than 5 million euros respectively. 41 This is not to say that the regulation of the EU is neutral / value-free. There is a possibility that EU institutions are more affected by certain values and ideologies than national governments.
99 guaranteed that the EU’s regulatory power in this second aspect is strong in competition policy, too.
Unlike regulatory influence on individual firms, the ability to shape international standards would be directly affected by change in the international environment. In the area of competition, an explosive diffusion of competition laws and institutions on a global scale has occurred in the last twenty years, and this resulted in greater diversity across jurisdictions
(see Chapter 7). This would make it difficult to build consensus on a multilateral basis, unless there is a hierarchical institution which allows politically and economically large member states to impose their own rules on others. Thus, one may propose the following hypothesis, which corresponds to the third research question of this study.
Hypothesis 3: In the absence of a relevant multilateral institution with a majoritarian voting system, an increase in the number and heterogeneity of competition regimes around the world would constrain the ability of the EU to shape international regulatory rules, standards and norms in this policy field.
The table on the next page summarizes the theoretical framework presented in this chapter.
It shows the relationships between the dependent variable and independent variables. The three hypotheses generated above will be empirically tested in the following chapters.
100 Figure 3.1: Summary of the theoretical framework
Supranationally institutionalized polity
Constrain
Stringent competition policy Constrain Minimalist or maximalist trends in public market - Strict regulation with few exceptions, regulation, depending on regardless of the nationality of firms prevailing politics and - Priority on the creation and maintenance of macroeconomic situations a level-playing field
- The international promotion of competition policies in order to alleviate the competition/competitiveness dilemma
Constrain Systemic variables
- A rapid increase in the number and heterogeneity of competition regimes around the world
- The rise of transgovernmental networks such as the ICN / the absence of a majoritarian multilateral institution in competition policy
Conclusion
While EU competition policy was originally designed as an internal economic policy which would play a key role in the creation of the common market, one should not underestimate the increasing importance of its external implications. This policy has a tremendous impact on third states, their companies, and ultimately their consumers. Some scholars have studied the regulatory impact of this policy on third states, whereas others have attempted to explain
101 the process of international transfer of EU competition law. Despite this body of research focus on the analysis of external policy implications, few works adequately address the question of whether EU competition policy discriminates non-European companies on a nationality basis. Accordingly, this chapter developed a set of models tailored to the analysis of nationality-based discrimination issues in competition policy.
The model of stringent competition policy takes into account the regulatory state feature of the EU and its supranational institutional setting. This model helps to understand the restriction of neomercantilist measures of member states by supranational regulators, and the nationality blindness of their competition law enforcement. This is not to say that EU competition policy is value-free or interest-free. When competition issues are addressed in the context of trade policy, for example, the EU manifests its intention to export its own competition law models and associated values to third parties. The point here is that the EU competition regulators seem to place emphasis on the maintenance of a level-playing field rather than the creation of industrial champions. EU based and non-EU based firms are treated equally, as long as they compete and innovate in the European internal market. But this is still a hypothesis, which needs to be tested in subsequent chapters.
102 Chapter 4: Dynamics between National and European Regulation – How
Does Supranational Action Hinder National Neomercantilist Policies?
This chapter addresses the question of how and to what extent the EU ensures the enforcement of its competition law, despite occasional political pressures from member states.
There are four sections. The first section outlines persistent neomercantilism in some member states and explains that merger control is a typical area in which the EU’s supranational competition policy and neomercantilist competition policies of some member states often clash with each other. The second and third parts focus on selected merger cases in two politically sensitive areas, namely motor vehicle and energy sectors. These sectors are more heavily regulated than many other sectors, and EU member states tend to retain strong influence on major firms in these sectors, especially former public companies, despite on- going market liberalization across countries. This is why these two sectors make a relevant case study of tensions between national governments and EU competition regulators concerning the question of whether industrial policy considerations should be taken into account more in EU competition cases. The final section briefly explains the recent evolution of state aid control and analyzes how resilient this policy is to a protectionist momentum, arising from the global financial crisis of 2008 and the subsequent Eurozone crisis.
4.1 Merger control as a typical area wherein national and supranational policies clash
The content and institutional settings of competition policy significantly differ across jurisdictions, even within the EU. For example, Germany generally prefers constitutionally constrained competition regulation, reflecting the influence of ordoliberalism (see Section
2.1.1). While this German ordoliberal understanding has had significant influence on EU competition policy, it is not an idea shared by all member states. Most notably, France has a
103 dirigisme / state interventionist tradition, which allows ‘governmental agencies to play a major role in directing private economic activity’ (Gerber 1994: 104). This interventionist approach to competition policy was taken not only by some other original member states, but also by many new members. For example, the 1963 Spanish Competition Law was designed to be relatively weak because of industrial policy considerations, although the new law in
1989 granted more autonomy to Spanish competition authorities (Cases 1996: 185-187).
Potential tensions between these two approaches, one more legal and the other more political, exacerbated in as early as the 1960s. While the French governmental change and West
Germany’s early economic recovery reduced that tension by the late 1960s (Gerber 1994:
104), it is never resolved completely. The UK system is distinctive in the sense that it is influenced by both American and European traditions of competition regulation. For example, its enforcement heavily relies on criminal law, reflecting the style of US antitrust law. On the other hand, the Secretary of State has competence to intervene in case decisions relating to
‘public interest’ rather than competition grounds. While the Thatcher administration’s attempt to minimize such political discretion in the 1980s proved largely unsuccessful, the
2002 Enterprise Act limited public interest considerations to two elements, namely, national security and media plurality. After the financial crisis in 2008, this political shift reversed to some extent (see Section 4-3).
In short, national diversity among member states is not negligible. One may map the members along a line between the German legal approach and the interventionist approach of
France and some postcommunist countries. Nevertheless, such categorization should not be understood in absolute terms. First, some cases such as the UK do not fit well to this simple, single dimension mapping. Second, not surprisingly, country positions vary over time due to elections and other factors. Third, even the German system has larger room for administrative discretion in some areas such as mergers, as the following sections show.
104 In EU member states, merger regulation was widely regarded as a crucial instrument of national industrial policies at least until the 1980s. By contrast, there is a general consensus that cartels and other restrictive practices are illegal per se unless they fall within the categories specified in TFEU Article 101 (3). Taking into consideration this variety of levels of political salience across regulatory areas, the following sections are going to analyze the political dynamics/tensions between national and European competition regulation, taking some cases of merger and state aid control as examples.
Merger control is an area where disagreements often occur between supranational and national authorities, and even among national ones. The fact that the EU initially lacked competence over merger control is a good indication of the sensitivity of this issue for member states. Until the 1980s, a majority of member states considered that the regulation of mergers could be a serious impediment to the rise of national champions with the ability to compete on the world stage. Therefore national competition authorities were generally reluctant to use their power of merger control extensively. As explained in the previous chapter, it was only when the Council Regulation 4064/89 came into force in 1990 that the
EU acquired competence in this area. Regarding legal constraints, Article 21 (3) of the current EU legislation on mergers, Council Regulation 139/2004, sets out that ‘No Member
State shall apply its national legislation on competition to any concentration that has a
Community dimension’. Notwithstanding this principle, member states may take appropriate measures to protect their ’legitimate interests’, but these measures are justifiable only if they directly relate to public interests such as public security, the plurality of the media, or prudential rules (Article 21 (4)).
The failed merger between Aerospatiale, Alenia and De Havilland provides an excellent example of such a friction between neomercantilist national regulation and supranational action against it. This is the very first case in which the Commission prohibited a cross-
105 border merger plan, and it is still one of the landmarks in the history of European merger regulation. In May 1991, ATR - a consortium of two private companies in the aerospace industry, Aerospatiale (France) and Alenia (Italy) - notified an acquisition of De Havilland, a
Canadian branch of Boeing. DG COMP assessed that the new merging party could ‘act to a significant extent independently of its competitors and customers on the world markets as defined for commuters of 40-59 seats and 60 seats and over (European Commission 1991: para. 72). At the stage of final decision by the college of Commissioners, they nearly split between supporters of industrial policy, including French and Italian Commissioners and
Commissioner for Industry Martin Bangemenn, and those of strict competition regulation led by then Competition Commissioner Sir Leon Brittan (Cini and McGowan 2009: 154).
Nevertheless, in the end the Commission resisted the strong opposition from French and
Italian governments and decided to prohibit the deal by 9 to 7 with Commission President
Delors’s abstention (Cini and McGowan 2009: 155). This case should not be regarded, in a somewhat journalistic way, as a ‘triumph’ of competition policy against industrial policy. On the contrary, this first merger prohibition at the European level highlighted two persistent perspectives which are often incompatible: French and Italian governments and their ‘own’
Commissioners put emphasis on international competitiveness, whereas DG COMP and
Brittan rejected the merger on grounds of adverse effects on the European internal market.
Some people argue that this case is a good example of the EU’s stringent merger regulation.
This is because the Commission decision focused on the potential effects of the merger on market competition and did not put weight on industrial and social concerns. Chari and
Kritzinger (2006: 94) go so far as to say that this prohibition of the merger based on competition-only criterion ‘blocked any possibility that the Merger Control Regulation could be used in the future as a means to strengthen the European industry by the creation of
European “champions”’ (emphasis in the original). However, one may also argue that the
106 Aerospatiale case merely illustrated the tension between competition and competitiveness objectives, which is usually under the surface. Accordingly, the next section takes a case of mergers in the motor vehicle sector in order to contribute to this on-going debate.
4.2 Motor vehicle sector
Innovation and productivity in high-tech industries are particularly relevant to the international competitiveness of economies. Thus, if EU competition policy is closer to the model of strategic competition policy than the model of stringent competition policy, the evident that the EU prioritizes the international competitiveness of indigenous firms is likely to be found in the sector of high-tech industries. Accordingly, this section focuses on cases from a typical high-tech industry, namely the motor vehicles sector, in which many EU member states have a large stake.
Volvo/Scania and Volvo/Renault cases
Volvo and Scania are Swedish truck, bus and coach producers. Scania notified an acquisition of Volvo to the EU in 1999. The European Commission started an in-depth investigation to this plan in October 1999, and drew a preliminary conclusion that the combined market share of Volvo and Scania would be very high in the Nordic countries in the truck and bus production markets, as well as the UK and Ireland concerning the bus market (European
Commission 1999). It was reported that, after the initiation of the in-depth investigation, then
Swedish Prime Minister Goran Persson extensively lobbied in Brussels in favor of the merging parties (Europolitics, 19 Feb 2000). Despite this political intervention at the highest level, and concessions offered by the two firms in an eleven-hour meeting between them and
107 DG COMP staffs (Europolitics, 11 March 2000), then Competition Commissioner Mario
Monti announced a prohibition of the proposed merger on 14 March 200042. The decision declared that the merger would create a dominant position of Volvo and Scania in the sectors of heavy trucks and buses, especially in northern European countries (Sweden, Norway,
Finland, Dembark, Ireland and the UK).
It should be noted that the Commission decision made a distinction between city buses, intercity buses, and touring coaches. This market definition was crucial for the assessment of whether the merger would create a dominant position of Volvo/Scania. Had the Commission argued that they constitute one single bus market, combined market shares of these two firms would have been much lower. This is because their combined market share was relatively low in the market for tourist coaches (see Table 4.1, which shows combined market shares of
Volvo and Scania in these markets at the time of 1998). The merger could have been approved in that case43.
Table 4.1: Combined market shares of Volvo and Scania in selected Northern European countries in 1998
City buses Intercity buses Touring coaches Sweden 80% to 90% 80% to 90% 20% to 30% Finland 90% to 100% 80% to 90% 80% to 90% Norway 60% to 70% 80% to 90% 40% to 50% Denmark 80% to 90% 70% to 80% 30% to 40% United Kingdom 60% to 70% n.a. 50% to 60% Ireland 90% to 100% n.a. 60% to 70% Source: OJ L143/113, 29 May 2001 (Case COMP/M.1672, Volvo/Scania, Commission decision of 14 March 2000).
42 Case COMP/M.1672, Volvo/Scania, Commission decision of 14 March 2000, OJ L143/74, 29 May 2001. 43 Of course, in that case, the Commission would still have to provide economic reasoning for such a definition of the market.
108 In other words, it seems that the Commssion did not fully utilize its administrative discretion in order to support the creation of a European champion (leading European industrial firm). Therefore, the model of strategic competition policy is ill-equipped to explain the Commission’s prohibition decision on the Volvo/Scania case. The decision makes sense from the perspective of stringent competition policy, which hypothesizes that EU competition regulators prioritizes the maintenance of a level-playing field. It should be clarified that the EU approves the majority of notified cross-border mergers. For example, soon after the prohibition of Volvo/Scania merger plan, the Commission approved the
Volvo/Renault Vehicule Industriels (RVI) merger plan with several conditions44. That being said, the prohibition of the Volvo/Scania merger was one of the most politicized competition cases and, and it helps to understand the motivation of the Commission behind its decisions, which is not always explained explicitly. The next section turns to the energy sector and conducts further analysis of the relationship between national neomercantilism and supranational action by EU competition regulators.
4.3 Energy sector
4.3.1 Salience of network industries
The enforcement of EU competition law in network industries is a politically sensitive issue in Europe. A majority of key players in European markets such as gas, electricity, water, telecommunications, railways and airlines are public companies or newly privatized companies on which governments retain strong influence, and EU member states have a general tendency to protect them in the name of public interests, which mean the universal
44 Case COMP/M.1980, Volvo/Renault V.I., Commission decision of 1 September 2000, OJ C301/23, 21 October 2000.
109 supply of essential services to citizens at reasonable prices. When member states go as far as taking protectionist measures (e.g. the blockage of foreign takeovers of domestic network suppliers) in breach of EU competition law as well as various rules relating to the European internal market, that could result in political frictions between member states and even supranational judicial action. In other words, there is a potential tension between the promotion of public interests and the enhancement of free market competition. EU competition policy directly addresses this sensitive issue.
Notwithstanding such political salience, the European Commission is increasingly using its competition policy tools against member states and network operators that distort market competition in the internal market. It is the market structure of European network industries that has been worrying EU competition regulators for the last few decades. Primarily because of the legacy of the pre-liberalization era, European network industries are more concentrated and geographically fragmented than many other sectors. Moreover, incumbents in these markets tend to hinder new market entries using various tools such as long-term contracts. As a consequence, intercorporate agreements and mergers in these markets can easily cause the problem of monopoly and oligopoly, which is a major concern of most competition regulators including the EU’s one.
It should be remembered that competition policy had little relevance to the EU’s regulation of network industries when they were still largely closed and nationally divided. Until the
1970s, most European countries, let alone former Communist states, restricted market competition in network industries, primarily using the method of public ownership and the exclusive license of operations. A key economic justification for such interventionism is that network facilities (e.g. energy generation, transmission and distribution systems) require a massive amount of initial investment, while the production cost per unit would be relatively small or even negligible once the networks are established. Accordingly, according to this
110 line, few companies would take a risk to enter such markets without a good prospect of profits at least in the long run. Put differently, those services which are widely considered as essential for citizens (e.g. water, electricity, gas, telecommunications and public transport) may be undersupplied unless governments restrict market entries and access to existing network infrastructures to a certain extent, while privileging a limited number of incumbents.
This argument enjoyed wide public support in Europe (and many other regions of the world) in the Keynesian era, and it is evident in the fact that many European governments tolerated or even created monopolists and oligopolists in network industries at that time.
Public ownership and governmental protection of European network operators became highly contentious in the 1980s, however. There was a growing recognition among Western
European citizens that those companies owned or backed by governments were relatively ineffective due to the absence of market competition. Rent-seeking activities of the companies often became scandals, reinforcing that public perception. Meanwhile, the Reagan administration of the US (1981-8) launched neoliberal policy programs favoring a small government, and this momentum of opening of public sectors soon found an echo in Western
Europe as well as many other regions. Under the leadership of former British Prime Minister
Margaret Thatcher (1979-90), the UK liberalized and privatized various formerly regulated sectors faster than many other member states of the EC (see, for example, Steger and Roy
2010: 38-45 for Tatcherism). When a socialist François Mitterrant became French President in 1981, France seemed to be a country which would resist, if not reverse, the neoliberal trend in Western Europe. Yet, Mitterant’s flagship economic policy, the nationalization program, was short-lived and proved largely unsuccessful in less than two years. In parallel with the neoliberal momentum at the member-state level, the EU introduced a series of market liberalization programs for network industries in the 1980s and 1990s as an integral part of the ‘1992’ project that was the creation of the European single market.
111 In the history of liberalization of European network industries, energy proved one of the most controversial areas because of the rigid opposition of some member states to liberalization, and the security aspect that energy policy has. It is therefore no surprise that the speed of opening the gas and electricity markets had significantly differed across member states until the EU’s legislative packages passed in the mid-1990s and 2000s were incrementally implemented at the national level. The process of energy market liberalization in the EU was long and hard-fought (Eberlein 2007: 75-76; Eising 2002: 92-95). Because of resistance from some member states including France and Germany, the EU spent nearly a decade on the legislation of the first electricity liberalization directive (Directive 96/92/EC) and the first gas liberalization directive (Directive 98/30/EC) which were passed in 1996 and
1998 respectively. While the first set of directives only partially opened the gas and electricity markets and left significant discretion of implementation to the member states, the second package of liberalization directives put into place in 2003 (Electricity Directives
2003/54/EC and Gas Directive 2003/55/EC) obliged all member states to complete the market opening by 2007. The second package also concerned the legal ‘unbundling’ (i.e. separation) of management of power generation and supply networks, whereas the third legislative package of 2009 (Electricity Directive 2009/72/EC and Gas Directive
2009/73/EC) required the member states to ensure that even the ownership of electricity and gas generators is separated from that of networks.
While energy market liberalization itself is an integral part of the EU’s energy and internal market policies, DG COMP is becoming increasingly active in the energy sector regulation.
One reason for this is that the liberalization has stimulated cross-border business activities, which significantly affect market competition within the European internal market. Another reason why DG COMP increasingly engages in energy regulation is the persistence of protectionism in some member states. It is not uncommon that member states hinder cross-
112 border economic activities for the protection of domestic firms, violating EU competition law as well as rules relating to the internal market. Such situation keeps the EU competition regulator busy.
It was in the mid-2000s that the European Commission and DG COMP identified energy markets as one of their top priorities for competition regulation. In particular, former
European Commissioner for Competition Neelie Kroes (2004 to 2009) considered this sector as a highly problematic area from the competition policy perspective. Under her leadership,
DG COMP launched an energy sector investigation in 2005 and published a detailed report in
2007 (European Commission 2007a). The report argued, among others, that European gas and electricity markets were highly concentrated, and vertically and geographically fragmented. Commissioner Kroes vocally express her concerns about this situation (Kroes
2007) and took action. Using comprehensive data of this report about energy market structures and business practices, DG COMP conducted a number of dawn raids (i.e. surprise inspections) to target companies. This aggressive strategy demonstrated the European competition regulator’s commitment to the promotion of market competition in the energy sector.
In short, energy markets such as electricity and gas exemplify both the long-term trend of market liberalization in network industries and persistent national protectionism in Europe.
As the liberalization of energy markets progressed in the 1990s and 2000s, competition policy became one of the major regulatory instruments of the EU in these markets. For example, the European Commission and DG COMP often confront member states who protect domestic network operators from foreign capital in violation of EU merger rules.
Recent competition cases in the energy sector best illustrate this dynamic going on between member states and supranational institutions. The next section will therefore examine three concrete examples: (1) the approval of the E.ON/Ruhrgas merger by the German government;
113 (2) the prohibition of E.ON/Endesa merger by the European Commission; (3) the
Commission’s appeal at the European Court of Justice concerning the Spanish government’s infringement of EU competition law.
4.3.2 National protectionism and supranational mitigation
(1) E.ON/Ruhrgas merger
The first case study is a merger between E.ON and Ruhrgas, two German energy companies.
On 15 August 2001, E.ON notified the German Federal Cartel Office its intended merger with Ruhrgas by obtaining a majority stake of Gelsenberg and Bergemann, which were both held shares in Ruhrgas. The Federal Cartel Office prohibited the acquisition of Gelsenberg on
17 January 2002 and that of Bergemann on 26 February 2002 arguing that those mergers were very likely to reinforce a dominant position of the merging companies in the German gas and electricity markets45.
In order to request a ministerial approval which could overturn the competition agency’s prohibition decision, E.ON referred the case to the Federal Ministry of Economy and
Technology insisting on several public interests merits of this merger: increased security of energy supply through the creation of the national champion; improved international competitiveness of the new merging party; a higher level of employment in the energy sector; further support in achieving environmental policy goals (Henriksson 2005: 23). A non- binding evaluation of the Monopoly Commission of Germany supported the Federal Cartel
Office decisions and rejected all justifications that E.ON made. Yet, the minister of economy and technology overturned the prohibition decision of the Federal Cartel Office on 5 July
2002 and granted a conditional approval taking into account two justifications in favor of the
45 Cases B8 - 109/01 and B8 - 149/01.
114 merger, namely the international competitiveness of domestic firms and the security of electricity and gas supply (Henriksson: 23-24). While several competitors of E.ON referred the case to the Düsseldorf High Court later and the court annulled the ministerial authorization in August due to procedural faults, the minister provided the second authorization in September.
Despite the great importance of the merger for the European energy market, the European
Commission was not able to intervene in this case because of a lack of competence. The two- thirds threshold mentioned in Chapter 3, which is a borderline between national and
European merger control, should be reminded here. The intended merger would have created a new party with more than 5 billion euro worldwide turnover and 250 million euro EU-wide turnover, but both E.ON and Ruhrgas had more than two-thirds of their EU turnover in a single member state that is Germany. Therefore, this case was investigated exclusively by the
German authorities. Interestingly, E.ON was acquiring another energy company, Powergen of the UK in parallel. According to R. Green (2007: 298), were the PowerGen acquisition quicker, the European Commission would have dealt the E.ON/Ruhrgas case in accordance with the two-thirds rule and taken a different line from the German government.
(5) E.ON/Endesa merger plan and the Commission v. Spain
Regarding merger cases which fall within the EU-level control, there is less political discretion even for large member states. This is by no means obvious. In fact, it is an outcome of a long, complex process of restructuring of nationally fragmented energy markets. Two tactics of the European Commission were important in the process. First, the Commission successfully linked in discourse the energy liberalization issue with a core European project, namely, market integration. Secondly, the Commission promoted legislations on energy
115 market liberalization, and the enforcement of EU competition law in the energy industry in parallel.
On 16 March 2006, E.ON notified to the European Commission the acquisition of Endesa, a Spanish energy firm, through a public takeover bid 46. Endesa is a Spanish electricity company, which was at that time operating in Spain and also in some other EU countries, particularly in Portugal, France, Italy, Germany and Poland. Endesa also had branches in
South America and North Africa, while being active in the Spanish gas market. The European
Commission approved the acquisition on 25 April 2006 under the EU merger regulation. The
Commission’s argument is three folds (European Commission 2006a). First, according to the
Commission, E.ON and Endesa had only minor overlap in the five member states. Secondly, the market analysis of DG COMP showed that E.ON was unlikely to enter the Spanish market in the near future. Thirdly, the merger would not have a significant impact on natural gas procurement prices because the two companies had essentially different suppliers. E.ON relied on natural gas from Russia, Norway, the Netherlands, Germany, UK and Denmark, while Endesa was purchasing gas from Spanish wholesale markets, Algeria, Nigeria and
Qatar. Therefore, the Commission concluded that ‘it is considered unlikely that the proposed operation would have a significant adverse impact on competition in the energy markets in
France, Italy, Germany, Poland and Spain in particular, or in the EEA as a whole’ (European
Commission 2006a).
The European Commission’s approval of the merger did not please the Spanish government. Despite this clearance, the Spanish National Energy Commission imposed a series of substantial conditions on the merger, for example divestiture of Endesa’s major assets. This case is very interesting because the Spanish competition authority cleared another deal in the same industry, a bid for Endesa by a Spanish company Gas Natural (Cini and
46 Case No COMP/M.4110, E.ON / ENDESA, OJ C068/9, 21 March 2006.
116 McGowan 2009: 152). The Commission warned Spain that the orders of the National Energy
Commission and the Ministry of Industry to E.ON would be regarded as a violation of EU law. An argument of the European Commission was that such national measure infringed EU competition law which granted the Commission an exclusive power to regulate merger cases with a union dimension. The Spanish Minister of Industry on 3 November 2006 modified the decision. Since the Spanish government did not withdraw the ruling, the Commission resorted to a formal judicial procedure under Article 258 TFEU (ex Art. 226) on 13 October
2006 (European Commission 2006b). On 6 March 2008, the Court of Justice of the EU supported the European Commission’s decision and ruled that the Spanish government’s imposition of conditions on the deal was an infringement of Article 21 of EU merger regulation 139/2004 and should be withdrawn 47 . It is rare that the Commission brings infringements of EU competition law by member states to the courts. Nevertheless, as Cini and McGowan (2009: 153) state, the E.ON/Endesa case serves as ‘a major warning to any other EU member state which might be tempted to prevent flagship companies from falling into foreign hands.’
To sum up, this empirical analysis of the electricity and gas industries regulation provided several interesting findings. The main finding is that supranational competition regulators hinder national governments’ discrimination of enterprises based on nationality, even in a politically sensitive area. The E.ON/Endesa case and the subsequent legal action of the
European Commission against the Spanish government are prime examples of this supranational constraint. By contrast, when cases fall within national jurisdictions, it is more likely that national industrial considerations override the principles of competition law. The
E.ON/Ruhrgas case illustrates this point.
47 Case C-196/07, Commission v Spain, ECLI:EU:C:2008:146 (6 March 2008).
117 4.4 Sensitivity to prevailing politics: state aid control after the global financial crisis
EU state aid policy is at least as contentious as its merger policy. Unlike the other three areas of EU competition policy, state aid rules directly involve supranational action against national governments. As explained in the previous chapter, the central goal of EU state aid control is the hindrance of wasteful public aid (especially subsidy) races among member states which may distort competition in the European internal market. This supranational regulation is widely considered as significant constraints on national industrial policies of the
EU member states.
State aid control is especially sensitive to macroeconomic situations, and to maximalist or minimalist trends in public regulation at the national level. In times of recessions, states have a general tendency to provide more financial support to firms in difficulty in order to rescue them and their employees. So, economic downturns pose a major challenge for state aid control such as the EU’s one. When the global financial crisis broke out in 2007-08, numerous firms, business associations and politicians from EU member states called for the relaxation of EU state aid rules. Accordingly, DG COMP and the European Commission as a whole had to face a difficult question of how to take a balance between short-term interests of
European firms and EU member states on the one hand, and long-term goals such as the consistency and effectiveness of EU competition policy on the other hand.
The European Commission took several extraordinary measures in face of the global financial crisis. Notably, under the leadership of then European Commissioner Neelie Kroes, the Commission issued four crisis communications between 2008 and 2009. They addressed the following issues respectively: the application of state aid rules to crisis-related measures for financial institutions; the recapitalization of financial institutions; the treatment of impaired assets in the banking sector; and, the return to viability and the assessment of
118 restructuring measures in the financial sector (European Commission 2008; 2009a; 2009b;
2009c). These communicaitons clarified procedures and analytical tools for EU state aid control with special reference to the financial sector. In addition, based on TFEU Article 107
(3) b which allows for extraordinary measures in the time of economic difficulties, the
Commission issued a communication on a ‘temporary framework for state aid measures to support access to finance in the current financial and economic crisis’ in December 2008
(European Commission 2009d). Before the crisis, all state aid below 200,000 euros were exempted from the EU’s scrutiny, and the temporary framework raised this threshold to
500,000 euros. This gave more discretion to the member states to take budgetary and financial measures to tackle the crisis, while helping firms and sectors in difficulty. The original expiry date of the temporary framework was December 2012. It was prolonged for one year, but there was no additional extension. In short, the EU managed to keep the temporary framework actually temporary. The EU was able to terminate these crisis-related temporary measures relatively fast because the powers of supranational institutions in state aid control had been specified and confirmed through various case law and secondary legislation over time.
Politicians of France and some other member states have continually attempted to downgrade EU competition policy these few years, especially since the breakout of the global financial crisis and the subsequent Eurozone crisis. Probably the most notable case of this is an open attack on EU competition policy by a former French Minister for Industrial Revival
Arnaud Monterbourg, who was in charge of this position between May 2012 and August
2014. In an interview conducted by a news agency EurActiv in October 2013, he argued that
EU competition policy is ‘stupid and counter-productive’. Basically, he made three points
(Robert 2013). First, this policy of the EU is hindering the emergence of Europe-wide companies with the ability to compete in the global market. Second, since the governments of
119 the EU’s major trading partners such as the US and China actively subsidize various sectors and individual firms (e.g. telecom companies), it is a bad idea to maintain rigorous supranational competition rules. Third, for these reasons, EU competition policy is outdated and does not fit into the global political economy. Even after a news article on this interview was published, he continued to criticize EU competition policy, especially its state aid rules, and went as far as making confrontational arguments with then EU Competition
Commissioner Almuia through open letters (Robert 2014). In addition, in 2014, a member of the French Parliament Isabelle Bruneau produced a policy report on EU competition policy and heavily criticized it from the industrial policy perspective (Barbière 2014). She demanded the European Commission publish reports on the ‘costs’ of their decisions, including job losses, and recommended the establishment of an advisory body for European
Commissioners. She also asked the Commission to take more seriously the situation of
European firms in difficulty, by sayint that ‘I challenge the European Commission to make its officials carry out long term internships in companies devastated by their decisions’. Overall, her argument is that the EU competition regulators insufficiently take into account negative impacts that EU competition policy could have on European industries, and that a more political approach to this policy should be taken in order to alleviate this problem.
These attempts of the French government to downgrade EU competition policy have had little impact on the actual policy so far. However, it does not necessarily mean that the concerns of French politicians about international competitiveness are completely ignored by the EU. It seems that the Commission is trying to alleviate the competition/competitiveness dilemma by promoting competition policy internationally, as will be discussed in Chapters 6 and 7. Another response of the EU to this problem is the revision of its state aid rules. It was a former European Commissioner for Competition J. Almunia, who proposed a ‘state aid modernization’ program at the Commission’s annual competition policy conference in
120 Brussels in 2012. According to the Commission’s communication published soon after the speech, this policy package aims to encourage less but better targeted state aid by the member states (European Commission 2012a). More specifically, the communication addressed three key objectives closely linked to each other: to foster growth in a strengthened, dynamic and competitive internal market; to place more emphasis on cases with comparatively large impacts on the European internal market; and to streamline the rules for faster and more efficient regulation. (European Commission 2012a: 4-9). Whether this so-called modernization process would result in watered-down regulation or simpler, faster and more efficient regulation is not very clear yet. Potential long-term effects of the crises on this policy remain to be seen.
Conclusion
The main empirical finding of this chapter is that EU competition policy prioritizes the maintenance of a level-playing field rather than the creation of dominant national and
European companies. It was also shown that this supranational policy significantly constrains the ability of member states to use their competition rules for neomerchantilist and protectionist purposes. These points were illustrated by the study of selected cases from two controversial areas, merger control and state aid control, in which preferences of national and supranational actors often contradict with each other. Regarding merger control, even in politically sensitive areas such as motor vehicle and energy, the EU actively takes supranational action against national measures for the creation and protection of national and
European champions, if they infringe EU competition law. In the wake of the global financial crisis, the Commission took extraordinary measures in order to relax its state aid rules and to help national governments to rescue their firms in difficulty in a timely manner. Yet, the
121 measures are mostly temporary ones, and the Commission has largely been resistant to the calls for more flexible (if not watered-down) EU state aid control. On the whole, the analysis in this chapter verifies the first hypothesis generated from the model of stringent competition policy.
122 Chapter 5: A Rhetoric or a Reality? The Equal Treatment of Firms Based
inside and outside the EU
The issue of (non-) discrimination is seldom discussed in the political science literature on
EU competition policy, but it is crucial especially for firms and consumers from third states.
In order to fill this gap in the literature, this chapter empirically ascertains whether EU competition policy is really nationality-blind, as anticipated by the model of stringent competition policy. The first section briefly explains a legal basis for the EU’s extraterritorial application of competition law, whereas the other three sections aim to answer the research question by looking at areas of cartels, abusive dominance, and mergers respectively48.
On the one hand, an overview of enforcement records in each of these areas is necessary in order to draw a credible conclusion on the issue of discrimination. On the other hand, major cases with considerable political and economic impacts tend to be highly complex and involve detailed technical debate, so these cases require an in-depth analysis. Taking these points into consideration, the chapter conducts both case studies and an assessment of aggregate data. Most cases examined here are from the period between September 1990 and
August 2015 because of the availability of data from the online database of DG COMP.
Furthermore, in order to make balanced arguments, the chapter aims to engage with academic and policy debates in Japan and the US on the external dimension of EU competition policy.
48 State aid control is excluded here because its primary concern is the action of governments of EU member states rather than that of companies, as explained in Chapter 2.
123 5.1 EU competition policy beyond its borders: a legal basis
Regarding legal foundations of the EU’s jurisdictional reach beyond its borders, there are two important elements. The first one is concerned with the liability of parent companies. In EU case law, parent companies are responsible for anticompetitive activities of their subsidiaries
(Lorenz 2013: 338-339). This is called the group economic unit doctrine 49. Technically speaking, when a parent company owns 100% of the shares in its subsidiary, the European
Commission will presume that the former controls the behavior of the latter and therefore responsible for it. If this is not the case, the Commission needs to ascertain whether the parent company has effective control over the behavior of its subsidiary. This liability issue is particularly relevant to multinational companies operating not only in Europe, but also in the global market. When their European subsidiaries violate EU competition law and are imposed fines, the fines will be calculated taking into account both the global and EU turnovers of their parent companies. Therefore, this rule regarding the liability of parent companies has a considerable effect on multinational companies, which have headquarters in third states.
The second, more contentious issue is extraterritoriality. Traditionally, most states applied national competition laws only to behaviors of firms based within their own national territories. In other words, states generally respected the principle of territoriality, and did not run a risk of interjurisdictional conflicts. However, anticompetitive business conduct often has economic effects on multiple countries. Consequently, in some jurisdictions, the idea of extraterritoriality has recently been developed in order to manage international economic issues with national competition law.
49 Case 48/69, ICI v. Commission [1972] ECR619 (ECLI:EU:C:1972:70).
124 The US is the country which extraterritorially applied its competition law for the first time, and most actively (Dabbah 2010: 432-452). As early as in 1945, the US Supreme Court established the effects doctrine in its Alcoa judgement. According to this doctrine, all business practices which adversely affect competition in the American market are subject to
US antitrust law, regardless of where they take place. The US Supreme Court revisited and generally confirmed the effects doctrine in the Timberlane cases in the 1970s and the
Hartford Fire case in the 1980s, among others. Moreover, the US can impose even criminal sanctions on foreign individuals extraterritorially50, though this is rare (and this is impossible under EU competition law). Over time, the effects doctrine was accepted by some other states in Europe (e.g. Germany) and other regions. There are certain constraints on the extraterritorial application of national competition based on the effects doctrine. For example, it is widely accepted in the US and some other countries that competition authorities can assert extraterritorial jurisdiction only when they prove ‘direct, substantial and foreseeable’ anticompetitive effects of certain business conduct on their economies (Dabbah 2010: 426).
Nevertheless, in the absence of world competition law, states unilaterally assert the applicability of the effects doctrine to individual cases.
The EU adopted a similar legal doctrine called the implementation doctrine in the late
1980s, and this establishment is widely regarded as a breakthrough in the international dimension of EU competition policy (Dabbah 2010: 452-461; Goyder and Llorens 2009: 578-
585). Together with the group economic unit doctrine, it provides a legal foundation for the
EU’s extraterritorial competition law enforcement. According to the implementation doctrine,
EU competition law is applicable to anticompetitive business practices (e.g. cartels and abuse of dominant positions) implemented in the EU market, regardless of the location of those
50 For example, in the Nippon Paper case, the US imposed criminal sanction on several executives of a Japanese multilateral company, Nippon Paper, whose American subsidy infringed US antitrust law.
125 firms’ registered offices and production facilities. In other words, firms which are not physically present in the EU would be subject to EU competition law if, for example, they arrange cartels in third states, and then sell products to the EU market at a high price. This extension of the jurisdictional reach significantly contributed to the EU’s regulatory power and its presence on the international scene.
With regard to the establishment of the implementation doctrine, it is important to note two landmark judgements, namely those concerning the Wood Pulp cartel and the Gencor/Lonrho merger plan. In the Wood Pulp case, the European Commission detected a price-fixing cartel formed by pulp producers and associations of pulp producers whose headquarters were outside the union51. The Commission decided that the cartel violated EU competition law because the producers intentionally exported high-price products to the European market either directly or through their subsidiaries within the union. Subsequently, the firms appealed to the Court of Justice of the EU. In its judgement in 198852, the court made a threefold argument (para. 16). First, conduct prohibited by Article 101 (ex. EEC Article 85) consists of two elements, namely the formation of an anticompetitive agreement and its implementation. Second, if the applicability of the law solely depends on where agreements are formed, it would allow firms to very easily. Third, ‘[t] he decisive factor is therefore the place where it is implemented’. While the Commission referred to the effects doctrine for the justification of its decision, the court did not discuss this issue in the judgement. The court simply underlined that the place where the firms sold their products was crucial. In 1999, the
51 They had registered offices in Finland, the US and Canada. Finland was not a member state at that time. 52 Joined Cases 89, 104, 114, 116, 117 and 125 to 129/85, A. Ahlström Osakeyhtiö and others v Commission (Woodpulp), [1988] ECR 5193 (ECLI:EU:C:1988:447).
126 implementation doctrine was applied for the first time to the area of mergers in the Gencor judgement of the General Court53.
In the absence of comprehensive international competition law, the extraterritorial application of competition law) seemed to be an effective response to international anticompetitive business practices. But, it is a unilateral action of the government, and many people regard it as an aggressive measure. Thus, the extraterritorial application of competition law has a risk of triggering interjurisdictional political conflicts. In order to alleviate this problem, many bilateral and multilateral agreements have been concluded between leading competition authorities over the last twenty five years. For example, competition agencies from the US, the EU, Canada, Australia, Japan and South Korea are very active in this regard. However, there is still no single international system for coordination among competition law enforcers. Subsequently, international economic activities are often subject to two or more competition laws.
The European Commission is increasingly confident to apply its competition rules beyond its borders, and made several controversial decisions on mergers between American companies in the late 1990s and early 2000s. These decisions have severely been criticized by both European and non-European experts and policy makers, but whether the Commission had any intention to discriminate non-European companies for industrial policy objectives is a moot point.
53 Case T-102/96, Gencor Ltd v. Commission, [1999] ECR II-753 (ECLI:EU:T:1999:65). For details of this case, see Dabbah (2010: 457-460).
127 5.2 Cartel control
Statistics show that the internationalization of EU cartel control has been intensified in the last fifteen years. According to a recent competition policy issued by the OECD (2014a: 33), few cartel cases revealed by the EU involved non-EU based firms until the 1990s. Only around one third of EU cartel cases in the period 1990-1999 involved one or more firm(s) based outside the EU (9 cases out of 26). The proportion increased to around 55% in the
2000s (36 out of 65), according to the same report. Given the high level of openness of the
European single market, this trend of internationalization of EU cartel enforcement is unlikely to reverse in the near future.
That being said, whether EU competition regulators systematically target non-EU based companies is a separate question. Even today, very few cartel cases of the EU exclusively involve firms based outside the EU 54 , so the data presented just above does not prove nationality based discrimination. Also, in these ‘hybrid’ cases involving both European and non-European companies, EU competition authorities may be equally tough on these two groups. Those who criticize EU cartel policy, especially companies of third states, often confuse these two different issues – internationalization and nationality-based discrimination
(although other criticisms that they make may well be reasonable). This is why an empirical research on the (non-) discriminatory nature of EU cartel control is of great importance for the better understanding of this contested policy.
54 Only one case in the 1990s and three in the 2000s involved exclusively non-EU origin firms (OECD 2014: 33).
128 5.2.1 A political commitment to non-discrimination
The EU makes a political commitment to competition law enforcement without regard to the nationality of firms. This is to be found in various policy documents that the European
Commission published in order to enhance the accountability and legal certainty of its decisions on competition cases. For example, the Commission’s guideline of 1998 on the method of calculation of fines under TFEU Articles 101 and 102 (restrictive practices and abuse of dominance) states in its first introductory paragraph that ‘the principles outlined here should ensure the transparency and impartiality of the Commission's decisions’ (European
Commission 1998: 3, emphasis added). It is also said that the Commission shall ‘follow a coherent and non-discriminatory policy which is consistent with the objectives pursued in penalizing infringements of the competition rules’ (European Commission 1998: 3, emphasis added). These points are reiterated in Article 3 of the second and latest guideline on the method of calculation of fines published in 200655. These guidelines are not legally binding, but it is still worth noting that the Commission voluntarily restricts its own policy in these ways.
The commitment to non-discrimination laid down in the two Commission guidelines might be primarily meant to assure the equal treatment of companies based within the EU.
Nevertheless, it seems that non-EU based companies operating within the European single market also benefit from enforcement without regard to nationality. It is the task of the following sections to empirically test this point by examining actual cartel cases.
55 See footnote 17 in Chapter 2.
129 5.2.2 Nationality-blind enforcement in practice
There is ample evidence which proves that the commitment to nationality-blind enforcement stated in the European Commission guidelines is not a mere slogan, at least in the area of cartel control. Two categories of data will be presented below: (1) aggregate data of the proportion of EU based and non-EU based firms involved in cartel cases, and (2) a more specific study of cases on which the ten highest cartel fines were imposed.
Figure 4.1: Number of cartel members penalized by the European Commission, period
2003-2009, by country
250
200
150
100 Number of firms 50
0
Source: adapted from the report of METI (2010: 10).
The aggregate data can be found in a recent study of the Japanese government on EU competition policy. In 2008, the Japanese Ministry of Economy, Trade and Industry (METI) appointed a Study Group regarding Competition Law Compliance. The setup of this Study
Group reflected the concerns of the Japanese business community about increasingly strict
130 and assertive EU competition policy (see the next section). Interestingly, the Study Group’s final report of 2010, entitled ‘Anticartel Measures by Japanese Corporations and Trade
Associations in Light of Enhanced Global Enforcement of Competition Law’ (2010: 10) revealed – perhaps surprising to many Japanese business persons and policy makers – that there was no clear evidence of nationality based discrimination by the EU competition authorities. According to the report, among 278 firms which were involved in cartels and fined by the European Commission during the period between 2003 and 2009, EU based firms accounted for 217. This number overwhelms that of American firms (23), Japanese ones (23), Swiss ones (11) and others (4) (see Figure 2 above). In other words, 78 percent of the firms have headquarters within the EU, whereas those from third states account for only
22 percent.
Supplementary and more updated data were provided in a recent speech of European
Commissioner Vestager (2015a: 6). During the period between 1 January 2010 and 18 June
2015, 195 companies were involved in the EU’s cartel decisions. 120 of them (around 60%) were companies based in the EU, whereas 75 were from third states (around 40%). While the proportion of EU based companies has decreased compared with the period 2003-2009, they are still a majority. In short, these two pieces of data from Japanese and EU sources confirm the hypothesis that the EU does not target firms from any particular third states.
This argument can be strengthened by examining concrete cartel cases, especially the most damaging ones. Table 5.1 below lists top ten cartel fines (by firms) in the history of EU competition policy. A majority of the firms in the list are European companies, such as
German, French and Dutch ones, while only two firms out of ten, namely LG Electronics of
South Korea and Hoffman-La Roche of Switzerland, have headquarters outside the EU. Even if one counts Pilkington as a non-European company, which is British but wholly owned by a
Japanese business group NSG, there are only three from non-EU countries. This makes a
131 sharp contrast with other jurisdictions whose main targets are foreign companies. For example, in the case of the US, all top-ten cartel fines were levied on foreign companies and their subsidiaries56.
Table 5.1: Top 10 cartel fines under Article 101 TFEU (by firms) as of August 2015
Year Company Case Amount in Euro Nationality of the firms 2008 Saint Gobain Car glass 896,000,000 French 2012 Philips TV and computer monitor tubes 705,296,000 Dutch 2012 LG Electronics TV and computer monitor tubes 687,537,000 South Korean 2013 Deutsche Bank AG Euro interest rate derivatives 465,861,000 German 2001 F. Hoffman-La Roche AG Vitamins 462,000,000 Swiss 2013 Société Générale Euro interest rate derivatives 445,884,000 French 2007 Siemens AG Gas insulated switchgear 396,562,500 German 2014 Schaeffler Automotive bearings 370,481,000 German 2008 Pilkington Car glass 370,000,000 British* 2009 E.ON Gas 553,000,000 German 2009 GDF Suez Gas 553,000,000 French
Note*: Pilkington is a wholly owned subsidiary of a Japanese business group NSG since 2006. Source: adapted from the European Commission (2015: 3).
A remark should be made that the Vitamins case57 and the TV and computer monitor tubes case58, which concerned LG Electronics and Hoffman-La Roche respectively, involved many
EU based companies as well. The vitamins cartel is one of the most severe international
56 According to a report of METI (2015: 10), the following companies were imposed the top-ten cartel fines by the US competition authorities: (1) AU Optronics Corporation of Taiwan (Taiwan), (2) Hoffmann- La Roche (Switzerland), (3) Yazaki Corporation (Japan), (4) Bridgestone Corporation (Japan), (5) LG Display (South Korea) and its American subsidiary, (6) Société Air France (France) and Koninklijke Luchtvaart Maatschappij (Netherlands), (7) Korean Air Lines (South Korea), (8) British Airways (UK), (9) Samsung Electronics Company and its American subsidiary, and (10) BASF (Germany). 57 Case COMP/E-1/37.512, Vitamins, Commission decision of 21 November 2001, OJ L6/1, 10 January 2003. 58 Case COMP/39.437, TV and computer monitor tubes, Commission decision of 5 December 2012, OJ C303/13, 19 October 2013.
132 cartels that the EU ever detected, and it was implemented by thirteen European and non-
European companies between 1989-1999 in the field of various vitamin products (e.g. those for health supplements, cosmetics and animal feed), mainly in European, North American and Japanese markets. Hoffmann-La Roche played a central role in organizing and maintaining this cartel, whereas a German company BASF and a Japanese company Takeda
Chemical Industries also played the role of junior coordinators. In cooperation with US and
Canadian competition authorities among others, the European Commission conducted an intensive investigation of this case and levied huge amounts of fines in 2001 on eight companies, consisting of both EU and non-EU ones.
Table 5.2: Fines in the vitamins cartel case (2001) (after reduction under the leniency notice)
Company Country Reduction of fines based Total fines names of origin on the leniency notice
Hoffmann-La Roche Switzerland 50% 462,000,000 BASF Germany 50% 296,160,000 100% (the vitamin A and Aventis France vitamin E markets) and 5,040,000 10% (the other markets) Merck KgaA Germany 15% 9,240,000 Solvay Pharmaceutical Netherlands 35% 9,100,000 Daiichi Pharmaceutical Japan 35% 23,400,000 Eisai Japan 30% 13,230,000 Takeda Chemical Industires Japan 35% 37,060,000
Source: The European Commission decision of 21 November 2001 on the Vitamins case (COMP/E- 1/37.512), OJ L6/1, 10 January 2003, points 768 and 775.
133 Table 5.2 shows company names, their countries of origin, and amounts of fines for each company involved in this case. While Swiss and Japanese companies had a strong presence in this case, four European companies – namely, BASF (Germany), Merck KgaA (Germany),
Solvay Pharmaceutical (Netherlands) and Aventis (France) – also had to pay a penalty of more than 300 million euros in total. Given this fact and the major roles that Hoffmann-La
Roche and Takeda played in the cartel, this case does not provide any clear evidence that
Swiss and Japanese companies were imposed disproportionately high amounts of fines because of their nationality.
Table 5.3: Fines in the case of TV tubes and computer monitor tubes cartels (2012)
(after reduction under the leniency notice)
Fines (the TV tubes cartel Company Country Reduction based on the & computer monitor names of origin leniency program tubes cartel combined)
Chunghwa Taiwan 100% 0 Samsung SDI South Korea 40% 150,842,000 Philips Netherlands 30% 313,356,000 LG Electronics South Korea 0% 295,597,000 Philips & South Korea 30% 391,940,000 LG Electronics* & Netherlands (reduction only for Philips) Technicolor France 10% 38,631,000 Panasonic Japan 0% 157,478,000 Toshiba Japan 0% 28,048,000 Panasonic, Toshiba & Japan 0% 86,738,000 MTPD*
Panasonic & Japan 0% 7,885,000 MTPD*
Source: European Commission (2012b).
134 The same can be said about the TV and computer monitor tubes case, which was concluded in 2012. This is a case in which the highest cartel fines ever for a single case (a total of 1.47 billion euros) were imposed on major European, Japanese and Korean electronic manufacturers. Between 1996 and 2006, the cartel participants committed to various anticompetitive conduct (e.g. price fixing, market sharing, and customer allocation) worldwide in the sector of ‘cathode ray tubes’ used for TV and computer screens. While
Asian companies were deeply engaged in this cartel, the two participants were from EU member states – namely, Philips of the Netherlands and Technicolor of France. The penalty imposed on Philips was as heavy as that on LG Electronics, as presented in Table 5.3 above.
It should also be noted that a company from outside the EU, namely Chunghwa Picture Tubes of Taiwan, was granted full immunity (i.e. 100% reduction of fines) under the leniency program, despite its central role in the cartel. Considering these points, one may say that the
EU strictly applied its competition policy rules to both EU and non-EU based firms.
Overall, it is safe to say that there is no clear evidence of discrimination by the EU of companies based in third countries. Furthermore, the primary target of EU cartel control is still European companies, notwithstanding the internationalization trend of EU cartel policy.
In order to further examine these points from the perspective of third states which are generally critical of EU competition policy, the next part engages with contemporary academic and policy debates in Japan on this subject.
5.2.3 Unpacking entangled complaints from the Japanese business community
EU cartel control, which is increasingly stringent, has drawn a wide media coverage in Japan since 2007/2008. It was because of the comparatively frequent involvement of Japanese companies in cartels detected by the EU, and huge amounts of fines imposed on them. By the
135 year 2015, seven Japanese companies were imposed fines of more than 100 million euros
(see Table 5.4 below). The cases included those concerning the automobile sector, namely the car glass cartel59 and the automotive bearings cartel60. These cases in the politically sensitive sector made this subject even more visible and politically salient. Subsequently, major
Japanese newspapers such as the Nikkei has frequently highlighted these cases and underlined how powerful EU competition regulators are. Meanwhile, JETRO (Japan External
Trade Organization), which is an agency of the Japanese government and consults export- oriented companies, published various reports on EU cartel policy in the late 2000s. For example, one report of JETRO (2006) analyzed the content and potential external impact of the European Commission’s 2006 guideline on the method of fines calculation, whereas another report was a study of major EU cartel cases involving Japanese companies (JETRO
2007). Since international competition policy issues seldom become a major agenda point of
Japanese government institutions except for the Japanese competition authority (JFTC), the
JETRO reports indicated a strong interest of trade policy actors in EU competition policy.
Table 5.4: Top 7 cartel penalty fines imposed by the EU on Japanese companies (as of
April 2015)
Rank Year Company Fines (million €) Market concerned 1 2012 Panasonic 250 TV monitor tubes 2 2014 NTN 200 Automotive bearings 3 2007 YKK 150 Fasteners 4 2013 Yazaki 130 Wire harnesses 5 2007 Mitsubishi Electric 120 Gas insulated switchgear 6 2012 Toshiba 110 TV monitor tubes 7 2008 Asahi Glass 110 Car glass Source: METI (2015: 8).
59 Case COMP/39.125, Car glass, Commission decision of 12 November 2008, OJ C173/13, 25 July 2009. 60 Case COMP/39.922, Bearings, Commission decision of 19 March 2014, OJ C238/10, 23 July 2014.
136 A scandal increased the salience of this issue even further. In 2008, it was reported in the media that the European Commission did not notify its investigation of the Gas Insulated
Switchgear cartel 61 to the JFTC. The cartel involved Japanese companies (Mitsubitshi
Electric, Toshiba, Fuji Electric, Hitachi, and Japan AE Power Systems) as well as European ones (most notably, Siemens), so DG COMP of the EU was supposed to notify the initiation of an investigation of this case when it started in 2004. However, the JFTC got to know the case only when the EU made the final decision in January 2007 to impose fines on the companies involved (Yomiuri Shinbun, 15 April 2008). This behavior of the EU seems to have violated the obligation of notification to the other party written in Article 2 of the EU-
Japan cooperation agreement concerning anticompetitive activities, signed in 2003 62 .
Although this inter-agency non-treaty agreement is essentially voluntary and has no mechanism for sanction, the Commission’s neglect of the notification obligation created/strengthened some distrust of EU competition authorities among the Japanese business community, practitioners and competition officials63.
All of these factors contributed to the reinforcement of a widespread suspicion among
Japanese citizens that EU competition policy was unfairly tougher on non-EU based companies. Consequently, senior officials of EU competition authorities felt it necessary to explain their policy to the Japanese audience more clearly. For example, in 2009, a former
61 Case COMP/39.966, Gas insulated switchgear, Commission decision of 24 January 2007, OJ C5/7, 10 January 2008. 62 According to Article 2 (1), ‘The competition authority of each Party shall notify the competition authority of the other Party with respect to the enforcement activities that the notifying competition authority considers may affect the important interests of the other Party’. According to Article 2 (2), typical enforcement activities which ‘affect the important interests of the other party’ include those involving companies based in the territory of the other party. 63 At the ICN’s annual conference in Kyoto in April 2008, the JFTC reportedly demanded senior competition officials of the EU to improve its readiness to notify case initiations to partner countries (Yomiuri Shinbun, 15 April 2008).
137 European Commissioner for Competition Neelie Kroes touched on the issue of (non-) discrimination in EU competition policy in an interview conducted by staff members of the
EU Delegation to Japan. The interview was published in an issue of Europe, which is a paper-based magazine that the EU Delegation to Japan used to publish quarterly.
Commissioner Kroes (2009: 7) asserted that EU competition policy is impartial with regard to the nationality of firms, while taking the car glass cartel case of 2008 as an example. She underlined the fact that the company which was imposed the highest cartel fine ever (880 million euros) was a European one - Saint-Gobain of France, operating in the glass industry64.
Four years later, a former Director-General of DG COMP Alexander Italianer revisited this issue in his speech at a Keidanren (Japan Business Federation) meeting in Tokyo on 22
November 2013. His argument is threefold (Italianer 2013: 11-12). First, while Japanese companies have been fined in 26 out of 82 cartel cases of the EU during the period between
January 1999 and November 2013, this relatively frequent involvement of Japanese companies in the EU’s cartel cases should be no surprise given the large volume of trade and investment between the EU and Japan. Second, the total amount of fines imposed in these decisions on Japanese companies is 1.6 billion euros, and it represents only nine percent of the total fines imposed by the Commission on cartel participants during the same period.
Finally, he took the above-mentioned TV and computer monitor butes cartel65 as an example to illustrate that the EU is ‘just as tough on European companies that break the rules’.
64 At the time of writing (August 2015), the amout remains the record. The heavy sanction is primarily due to the central role that Saint-Gobain played in the international car glass cartel. It is also noteworthy that the fine on Saint-Gobain was increased by 60% because it was a repeat offender. For a list of top 10 cartel fines under Article 101 TFEU (by firms) , see Table 5.1 above. 65 Italianer emphasized that the company which received the largest fine (705 million euros) in the TV and computer monitor tubes cartel case is a European one, Philips, whereas smaller fines were imposed on three Japanese companies, namely Toshiba (114 million euros), Panasonic (252 million euros) and their joint venture MTPD (94 million euros). For greater details about this case, see the previous section.
138 While there are still widespread concerns in Japan about EU competition policy, some recent studies provide evidence which supports the EU’s argument. For example, as noted above, the Study Group regarding Competition Law Compliance appointed by METI examined the issue in its report of 2010 and concluded that EU competition authorities do not target companies from particular countries, at least in the area of cartels. Since then, neither
METI nor the JFTC problematized the issue of discrimination.
Main complaints of the Japanese business community
It seems that actual problems and challenges for Japanese firms operating in the European single market are concerned with other aspects of governance. Specifically, common complaints from Japanese companies and business associations are the following three points.
(1) Huge amounts of cartel fines
One of the most common complaints of Japanese companies about EU competition policy is that the EU’s cartel fines are unreasonably high66 (interview with a First Secretary of the
Japanese Mission to the EU, Brussels, 23 May 2014). Many of these companies are also concerned about the international activism of the EU, especially since the arrival of a former
Competition Commissioner Neelie Kroes in 200467.
66 Note that there are very different views on this matter. Note that some experts, especially economists, argue that even the current level of EU cartel fines are not high enough to have sufficient deterrence effects. 67 EU cartel policy was significantly strengthened during the term of Neelie Kroes from the Netherlands, who served as a European Commissioner for Competition from 2004 to 2010. As noted above, the Commission issued a new cartel guideline in 2006, which amended the method of the calculation of cartel fines. The new guideline allowed the Commission to impose larger amounts of fines on cartels, especially most serious ones (for details, see Appendix 3).
139 (2) The issue of transparency
Another common complaint closely related to the first one is that DG COMP is granted too much discretion. For example, the Japan Business Council in Europe (JBCE), which represents the interests of over 70 Japanese companies operating in Europe, acknowledged in its annual that the Commission guidelines clarified to some extent the method of calculation of fines for competition law infringements, and yet requested the Commission to enhance the transparency of its decision-making process even further (JBCE 2011: 21). Specifically, the degree of cooperation by cartel participants with EU authorities is important in the calculation of fines, but it is often said that how they measure ‘cooperation’ is not very clear.
(3) Comparatively slow case handling
Generally speaking, the cartel review process is slower in the EU than in many other jurisdictions. It often takes three to four years, whereas cases in Japan usually end in one year or two years (interview with a First Secretary of the Japanese Mission to the EU, Brussels, 23
May 2014). Furthermore, it is potentially very time-consuming and costly for firms to appeal
Commission decisions to the General Court and the Court of Justice of the EU.
Real challenges for Japanese companies
If EU cartel policy is not discriminatory, why are Japanese firms involved in EU cartel cases relatively frequently? There are two main reasons for this – namely, the insufficient public awareness of differences between EU and Japanese competition laws, and comparatively underdeveloped compliance programs of Japanese firms operating in the European single market.
140 (1) Divergent rules
Multinational companies of Japanese parentage often break EU competition law partly because many of them overlook important differences between Japanese and EU competition rules (interview with a First Secretary of the Japanese Mission to the EU, Brussels, 23 May
2014). For example, few people from Japanese companies know that the EU’s definition of the ‘cartel’ is broader than that of the Japanese competition authority68. Also, it is not widely recognized that the EU has a strict rule concerning ‘requests for information’ (METI 2015;
2010). A failure to provide information requested by the Commission may result in economic sanction, and the deadline specified in the request is usually non-negotiable. So, it is important for firms to understand this rule, and it is equally important for them to know that the Commission sometimes sends the letter to irrelevant sections of companies (JBCE 2015:
45). Another thing that surprises many Japanese firms is that EU competition authorities often impose large amounts of fines on those firms which do not have registered offices in the
European internal market, for example in the case of market-sharing cartels 69 . The implementation doctrine and the group economic unit doctrine explained above provide legal foundations for this action of the EU beyond its territory.
(2) Compliance programs
Second, Japanese companies tend to have relatively underdeveloped competition law compliance programs. (METI 2015; 2010). A comprehensive understanding of EU
68 Under Japanese Antimonoply Law, the competition authority can prohobit agreements between firms only when their anticompetitive effects are proven, whereas the EU outlaws not only the distortion of market competition ‘by effect’, but also the distortion of market competition ‘by object’ (TFEU 101 (1)). 69 In certain circumstances, extraterritorial enforcement is possible under Japanese competition law, too. Yet, the JFTC is hesitant to exercise this power against foreign firms, and the fine tends to be much smaller compared with that of the EU. For a comprehensive comparison of EU and Japanese competition laws, see Kameoka (2014).
141 competition rules is essential if multinational enterprises want to succeed in the European market, but few Japanese companies have experts of EU competition law. The importance of compliance programs of firms was illustrated by the professional videotapes cartel case closed in 200770. In this case, DG COMP found that European subsidiaries of three Japanese companies, Sony, Fuji Film and Hitachi Maxell committed price fixing concerning professional video tapes. Fuji Film and Hitachi Maxell were granted partial reduction of fines because of their cooperation during investigation. By contrast, Sony refused to provide some documents requested by the authority, and its employees discarded crucial papers by a shredder. In consequence, DG COMP decided to raise the cartel fine on Sony by 30%
(European Commission 2007b). In the domestic market, they do not pay much attention to competition law because Japanese competition laws have not been strictly enforced until quite recently.
To sum up, the nationality of the parties makes no difference in EU cartel control. While third states and their companies do have various complaints about this powerful supranational policy, the central issues are the transparency, accountability and efficiency of the European supranational authorities rather than impartiality.
5.3 Monopoly Control
5.3.1 The relatively frequent involvement of US firms
During the period between 1999-2014, the EU made seven prohibition decisions in the field of abuse of dominant market positions. Table 5.5 provides a list of these cases. It shows that companies of non-EU parentage were involved in four cases, namely Microsoft,
70 Case COMP/38.432, Professional videotapes, Commission decision of 20 November 2007, OJ C57/10, 1 March 2008.
142 Prokent/Tomra, Intel, and Motorola, whereas the other four cases exclusively involved companies based within the EU.
Table 5.5: Prohibition decisions in the area of abuse of dominance under Council
Regulation 1/2003, 1999-2014
Case title Case No Decision year Company nationality Fines (€) Microsoft 37.792 2004 US *497 000 000 PO/Clearstream 38.096 2004 Luxembourg None Prokent/Tomra 38.113 2006 Norway 24 000 000 Telofonica S.A. (broadband) 38.784 2007 Spain 151 875 000 Intel 37.990 2009 US 1 060 000 000 Telekomunicacja Polska 39.525 2011 Poland 127 554 194 Romanian Power Exchange / OPCOM 39.984 2014 Romania 1 031 000 Motorola - enforcement of GPRS standard essential patents 39.985 2014 US None Source: The case search engine of the website of DG COMP, http://ec.europa.eu/competition/elojade/isef/index.cfm, accessed 18 September 2015. Note: In the online database of DG COMP, the Microsoft case is classified as ‘Penalty payments to comply with Commission’s Decisions’, whereas the other cases are classified as ‘Prohibition Decision (Art. 102 ex 82)’. *In 2008, Microsoft was imposed an additional penalty of 890 million euros for non-compliance with the Commission decision of 2004.
During the same period, 26 commitment decisions were made by the EU. As explained in
Chapter 2, the Commission’s decisions under Article 9 of Council Regulation 1/2003 legally bind companies concerned to certain commitments, so prohibition and commitment decisions are two key forms of administrative intervention to the market by the EU. Among the 26 cases, 16 cases (or 62% of all cases) exclusively involved EU-based firms. There were also 8 cases exclusively involving non-EU firms (31%), and 2 cases involving both EU and non-EU firms (8%). Since only one third of the commitment decisions are purely against non-EU firms, it is hard to see any systematic discrimination against them. That being said, firms
143 from one particular non-EU country, the US, are involved in both prohibition and commitment decisions relatively frequently, so it is important to ascertain whether there were neomercantilist objectives behind these EU decisions against American firms.
Table 5.6: Commitment decisions in the area of abuse of dominance under Council
Regulation 1/2003, 1999-2014
Case title Case No Decision year Company nationality DSD 34.493 2001 Germany Distrigaz 37.966 2007 Belgium REPSOL CPP 38.348 2006 Spain ALROSA, DBCAG, City and West East 38.381 2006 Luxembourg Rambus 38.636 2009 US Coca-cola 39.116 2005 US Rio Tinto Alcan 39.230 2012 Canada ENI 39.315 2010 Italy GDF foreclosure 39.316 2009 France E.ON gas foreclosure 39.317 2010 Germany Swedish interconnectors 39.351 2010 Sweden Long term electricity contracts in France 39.386 2010 France German electricity wholesale market 39.388 2008 Germany German electricity balancing market 39.389 2008 Germany RWE gas foreclosure 39.402 2009 Germany Ship classification 39.416 2009 UK Microsoft (Tying) 39.530 2009 US Standard and Poor’s 39.592 2011 US Continental/United/Lufthansa/Air Canada 39.595 2013 US/Canada/Germany BA/AA/IB 39.596 2010 UK/US/Spain Reuters Instrument Codes 39.654 2012 Canada IBM (Maintenance services) 39.692 2011 US CEZ 39.727 2013 Czech Republic Deutsche Bahn I 39.678 2013 Germany Deutsche Bahn II 39.731 2013 Germany Samsung (Enforcement of UMTS standard essential patents) 39.939 2014 South Korea Source: The case search engine of the website of DG COMP, http://ec.europa.eu/competition/elojade/isef/index.cfm, accessed 8 June 2014. Note: In the online database of DG COMP, the Microsoft (Tying) case is classified as ‘Fines Decision for failure to comply with Commitment Decision’, whereas the other cases are classified as ‘Commitment Decision (Art. 102, ex 82)’.
144 5.3.2 The Microsoft cases
In order to answer this question, this section and the next one examine major cases involving two US firms in the computer industry, namely Mirosoft and Intel, respectively. The
Microsoft cases concluded in 2004 and 2009 attracted probably the widest media coverage in the history of EU competition policy, and triggered huge public debate. The 497 million euros fine imposed by the EU on Microsoft in 2004 was record-breaking until the Intel case was concluded in 2009. Furthermore, Microsoft was imposed an additional fine of 890 million euros in 2008 for non-compliance with the 2004 Commission decision. This is so far the only case in which a penalty for non-compliance was fined. Thus, the Microsoft cases would make a good case study to ascertain whethe the EU is discriminating non-EU firms for industrial policy purposes.
The Commission decision on 24 March 2004 concluded that Microsoft, a leading
American firm in the computer software market, violated Article 102 TFEU (then Article 82
EC) on the abuse of dominance by conducting two business practices concerning the issues of interoperability and tying (or ‘bundling’)71. The issue of interoperability was initially raised by a private firm. One of the major competitors of Microsoft at that time, Sun Microsystems, made a formal complaint to the Commission in 1998 that Microsoft, a near monopolist in the market of client PC operating systems (OS), was abusing its monopolistic position to exclude its competitors from this market. Specifically, Sun claimed that Microsoft violated EU competition law by refusing to provide interoperability information of its OS product,
‘Windows’, to other PC manufacturers and software developers. Since then, the Commission conducted extensive investigation on this issue. In parallel, the Commission started another, closely linked investigation with its own initiative suspecting that Microsoft illegally tied its media player software ‘Windows Media Player’ to Windows for the maintenance and
71 Case COMP/C-3/37.792, Microsoft, Commission decision of 24 May 2004, OJ L32/23, 6 February 2007.
145 consolidation of its dominant market position. For many years the Commission gathered information from major competitors of Microsoft such as Sun, Time Warner, Real Networks and Lotus, concerning the issue of interoperability, and Netscape (famous for its Internet browser ‘Real Player’), especially in the context of tying. In the end, the Commission reached a conclusion that Microsoft abused its dominant position in the client PC operating systems market (more than 90% market share) by refusing to provide interoperability information to other PC manufacturers, and by making it impossible for them and end users to purchase
Windows without Windows Media Player. As noted above, Microsoft was fined 497 million euros and orderd to stop said anticompetitive measures. Microsoft appealed to the General
Court (then the Court of First Instance), but its judgement on 17 September 2009 upheld most arguments of the Commission decision with regard to both interoperability and tying issues.
Almost the only part rejected by the court was the order that Microsoft should establish a monitoring body for at its own costs (Kramler et al. 2010)72. In addition, Microsoft was imposed as large as 890 million euros in 2008 because it did not comply with the 2004 decision of the Commission.
The fight between the EU and Microsoft continued. On 14 January 2009, the European
Commission sent a statement of objections to Microsoft and official announced its preliminary finding that Microsoft was potentially violating Article 102 TFEU by tying its two major products, namely Windows and ‘Internet Explorer’ (a web browser). As for the case of tying of Windows and Windows Media Player, the Commission argued that Microsoft abused its monopolistic position in the OS market by prohibiting PC manufacturers and end users from purchasing Windows without Internet Explorer (Buhr et al 2010). In order to avoid potentially severe penalties, Microsoft offered the EU several commitments which would remedy the alledged problem of abusive dominance noted above. In particular,
72 The court argued that the European Commission does not have competence to impose such a penalty on firms which infringed EU competition law.
146 Microsoft committed to allow PC manufacturers and end users to turn off Internet Explore and to choose web browsers freely from various options (e.g. Firefox). On 16 December 2009, a Commission decision on 16 December 2009 made these commitments legally binding.
It is important to note that the European Commission’s prohibition of the tying of
Windows OS to Windows Media Player and Windows Internet Explorer was inspired by the
American competition regulator’s decision against Microsoft in the 1990s. The US case problematized Microsofts’s abuse of dominance by tying its two products, namely its Internet browser Internet Explore and Windows OS. In other words, American authorities have been at least as stringent as their European counterpart as far as the regulation of computer software markets are concerned, so it is wrong to say that only the EU is taking a tough position against large US IT firms such as Microsoft. Moreover, the large majority of competitors of Microsoft at that time such as Sun Microsystems, Time Warner and Netscape were also from the US. Opera Software, a company which made a formal complaint about the tying of Internet Explorer to Windows, is from Norway, which is also not a member of the
EU. So, it is hard to understand the Commission’s 2004 and 2009 decisions against Microsoft from the neomercantilist perspective. So far, there are no European firms which could effectively challenge the dominant market position of Microsoft, especially in the client PC operating system market. Thus, it does not make sense to argue that the purpose of the
European Commission was the creation of national and European champions at the expense of non-EU firms.
5.3.3 The Intel case
On 13 May 2009, the Commission made a landmark decision to prohibit Intel’s anticompetitive conducts in the computer industry while imposing the company a record-
147 breaking fine of 1.06 billion euros (European Commission 2009e: 1). The specific market concerned is the one for computer chips, which are called x86 central processing units
(CPUs). The decision first established that throughout the period October 2002-December
2007 Intel had a dominant position in the worldwide x86 CPU market with no less than 70% market share (European Commission 2009e: 1). In addition, the decision stated that Intel violated EU rules on the abuse of dominance by taking advantage of its dominant market position and committing to two forms of anticompetitive conduct, namely ‘conditional rebates’ and ‘naked restrictions’ (European Commission 2009e: 2-3):
(1) Conditional rebates: Intel offered wholly or partially hidden rebates to four personal
computer and server manufacturers (Dell, HP, NEC and Lenovo) on condition that they
only use Intel’s x86 CPUs. Intel also made a direct payment to a computer retailer,
Media Markt, on condition that it sells only those personal computers which contain
Intel’s x86 CPUs.
(2) Naked restrictions: furthermore, Intel disadvantaged its competitor with more direct
measures. Specifically, Intel granted a direct payment to HP, Acer and Lenovo, and
demanded them delay or halt the launch of products containing x86 CPUs made by AMD,
the only effective rival of Intel in the market concerned. The three manufacturers were
also asked to limit the sales channels for these products.
Based on these factual findings, the Commission ordered Intel to pay a fine of € 1.06 billion within 3 months and to immediately stop the exclusionary practices to the extent that they were still ongoing.
The Commission never hesitated to publicize this action against the giant American company. Upon the announcement of the decision, then Competition Commissioner Neelie
Kroes commented that ‘Intel has harmed millions of European consumers by deliberately
148 acting to keep competitors out of the market for computer chips for many years. Such a serious and sustained violation of the EU's antitrust rules cannot be tolerated’ (European
Commission 2009e: 1). The EU took this tough position partly because the computer chips market is huge and it has a massive impact on the EU economy. It was also because the case fitted to the Commission’s priority on high-tech industries such as the computer sector. The fact that the Commission spent nearly 10 years on the investigation of Intel shows the former’ commitment as well as the complexity of this case.
Intel quickly denied all accusations made by the Commission. Then Intel President and
CEO Paul Otellini said ‘We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace, characterized by constant innovation, improved product performance and lower prices. There has been absolutely zero harm to consumers.
Intel will appeal.’ As a matter of fact, Intel made an appeal to the court arguing, inter alia, that the rebates offered to the four manufacturers were unconditional. Intel argued that tough competition forced down chip prices and that offering price discounts and rebates is normal business practice. AMD and the Commission believe otherwise: Although below-cost or predatory pricing may be good for consumers in the short term, ultimately it harms them by killing off rivals that would offer more choice and set a faster pace for innovation in the long term, they argue. Yet, on 12 June 2014, the General Court fully upheld the Commission decision on the ground that the Commission effectively demonstrated the abuse of dominance by Intel while ordering the amount of fines which was proportionate to the severity of the illegal business conduct73.
Some commentators, especially economists, criticize the decision for not fully taking into account the dynamic market structure. ‘The big concern for large firms with this ruling is that the top European antitrust enforcer is not required to show actual, or even potential, harm to
73 Case T-286/09, Intel v Commission, [2014] (reports not published yet) (ECLI:EU:T:2014:547).
149 competitors or consumers in dominance cases’, said Paul Lugard, a partner in Brussels with the law firm Baker Botts and the former head of antitrust for Philips, the Dutch electronics company. ‘What businesses are now looking at is a formalistic standard essentially based on case law from the 1970s that doesn’t reflect modern-day economic insights’, Mr. Lugard, who does not represent any of the companies involved in the judgment, said on Thursday.
Notwithstanding these criticisms, there is no clear evidence of nationality-based bias in this case. Three pieces of information support this point. First, the only potential competitor of
Intel in the competition chips industry was also an American company, AMD. Thus, the
Commission decision cannot be regarded as the promotion of a European champion, even a potential one. It was not a European company, but rather AMD who reported the Intel’s practices to the EU. In fact, the Commission’s investigation followed complaints from AMD in 2000, 2003 and 2006 – the last one being sent to the German competition authority first, and then transferred to the European Commission (European Commission 2009e: 4).
European Consumers Organization, BEUC, also played a key role during the investigation as an official complainant.
Second, Intel challenged the Commission’s arguments, but did not find a nationality bias.
Intel’s chief lawyer D. Bruce Sewell told two things to the International New York Times
(May 13, 2009).
(1) Competition agencies within and outside Europe had not yet established a consensus
about what forms of rebates were permissible. ‘The law is in now flux’, Sewell said.
Referring to the flurry of investigations into Intel’s business practices in recent years, he
added that ‘I think what you see here are agencies beginning to test the boundaries of the
law.’
150 (2) Mr. Sewell’s strongest objection was to the Commission’s finding that Intel had
effectively coerced computer makers and retailers with inducements, and he insisted had
Intel had never paid to prevent AMD products from reaching the market in Europe. ‘At
no point has there ever been any kind of naked payment by Intel,’ said Mr. Sewell. ‘The
issue is whether the rebates we offered were conditional, and our position very definitely
is that they were not.’ But he also said that he did not see ‘an inherent anti-U.S. bias in
the commission’s enforcement practices’ in the Commission decision (Internationl New
York Times: May 13, 2009).
Third, the amount of fines is eye-opening, but it should be noted that it could be even higher according to EU law. The amount, 1.06 billion euros, is 4.15% of Intel’s turnover in
2008, whereas the council regulation allows the Commission to impose a penalty of 10% of companies’ worldwide turnover.
The Commission decision in the Intel case has been criticized by many experts not because it was discriminatory, but because it relied on a controversial theory of predatory pricing. The discount is a basic business strategy in liberal economies. It is difficult to distinguish
‘predation’ and competition-driven discounts. A dominant firm can make profits by setting a predatory price (i.e. a very low price, which is set by a company in order to exclude other players from the market) only if it has financial muscles to cover in the short run a loss which results from the lowered price. The Intel case underlines how difficult it is to apply this economic theory to cases in the real world.
To sum up arguments of this section, US companies are comparatively frequently involved in the abuse of dominance cases in the EU, but this is not due to nationality-based discrimination. It is mainly because of US companies’ huge direct investment in Europe, and their international competitiveness deriving from numerous factors (e.g. innovation, skilled
151 workers, and abundant financial resources). While some cases such as Microsoft and Intel were highly contested, the controversy was primarily because of divergent analytical frameworks between the EU and the US, and the complexity of economic issues considered in the cases, such as discounts and bundling. It should also be noted that in many cases, especially those in the IT sector, the main competitors of US companies with dominant positions are also from the US, whereas European companies have smaller market shares. In such markets where EU based companies have marginal market positions, the goal of creation and protection of European champions hypothesized by the model of strategic competition policy does not make sense. As in the area of cartels, the model of stringent competition policy is more useful to explain the EU’s enforcement of its antimonopoly rules without regard to the nationality of firms.
5.4 Merger Control
5.4.1 The relatively frequent involvement of US firms
As regards EU merger control, it is essential in the first place to underline the fact that prohibition decisions are more the exception than the rule (for figures presented in this paragraph, see Appendix 4). During the period between January 1990 (i.e. the time when the first EU merger regulation came into effect) and September 2013, the European Commission received 5,340 merger notifications. It cleared nearly 90% of the notifications without conditions. 328 cases were authorized with conditions (6%), and the number of prohibited merger plans was only 24, which accounted for less than 4.5% of all cases74. So, the
74 The percentage points in this paragraph are the author’s own calculation based on the data presented in Appendix 3.
152 European Commission gives the green light to the lion’s share of cases notified under EU merger regulation.
Table 5.7: Prohibition decisions under Article 8 (3) of Council Regulation 139/2004 (EU merger regulation), 1990- 2014
Year Case title Company nationality* Involvement of non-EU companies 2013 UPS/TNT Express US, Dutch Yes 2013 Ryanair/Aer Lingus III Ireland No 2012 Deutsche Börse/NYSE Euronext US, German Yes 2011 Olympic/Aegean Airlines Greek No 2007 Ryanair/Aer Lingus Ireland No 2004 ENI/EDP/GDP (4064) Portuguese, Italian No 2001 SCA/Metsä Tissue Swedish, Finnish No 2001 CVC/Lenzing US, Austria Yes 2001 General Electric/Honeywell US Yes (both non-EU) 2001 Schneider/Legrand French No 2001 Tetra Laval/Sidel Dutch, French No 2000 Volvo/Scania Swedish No 2000 MCI WorldCom/Sprint US Yes (both non-EU) 1999 Airtours/First Choice UK No 1998 Deutche Telekom/BetaResearch German No 1998 Bertelsmann/Kirch/Premiere German, Luxembourger No 1997 Blokker/Toys"R"us (II) Dutch, US Yes 1996 Gencor/Lonrho UK, South Africa Yes 1996 Saint Gobain/Wacker Chemie/ NOM French, German, Dutch No 1996 KESKO/TUKO Finnish No 1995 Nordic Satellite Distribution Norwagian, Danish, Swedish Yes 1995 RTL/Veronica/Endemol ('HMG') Luxembourger, Dutch No 1994 MSG Media Service German No 1991 Aerospatiale/Alenia/De Havilland French, Italian, US Yes Source: DG CO M P W ebsite N ote: W hen m erging parties have parents com panies, only the nationality of the latter is written. Source: The case search engine of the website of DG COMP, http://ec.europa.eu/competition/elojade/isef/index.cfm, accessed 8 June 2014.
Note: When merging parties have parent companies, only the nationality of the latter is written in the table.
Having said that, it is still worth examining the prohibition decisions because their political and economic impacts are massive, and also because these leading cases directly reflect policy orientations of the EU. Table 5.7 provides a list of the 24 merger prohibition decisions
153 made by the European Commission during the period between 1990 and 2014. 15 decisions
(63%) exclusively concerned firms based in EU member states, while 9 cases (38%) involved firms from third states (the US, South Africa and Norway). Since nearly two thirds of prohibited cases exclusively involved EU based firms, the data does not show clear evidence of discrimination based on the nationality of merging parties.
This observation reinforces an argument made by Mark Thatcher (2014) in his recent study on EU merger control. He took the energy, telecommunications and banking sectors as case studies and tested whether EU merger control is as constraining as many people claim. His central argument is twofold. First, during the period between 1990 and 2009, the EU cleared the vast majority of merger notifications. Second, many European incumbents in these three sectors which were formerly owned by states have benefited from cross-border mergers, so it implies that proactive EU merger regulation does not necessarily prevent the emergence of national champions and their expansion to other European markets. As a by-product of this statistical analysis, Thatcher (2014: 453) also found that ‘[t]here is no evidence of greater use of powers for mergers involving EU and non-EU firms than for cross-border EU ones’. His finding of non-discrimination of non-EU firms in EU merger policy is important because in the three sectors EU member states have a general tendency to protect leading European firms for industrial purposes.
As in the case of abuse of dominance, American firms have been involved in EU merger cases relatively frequently, compared with other non-EU countries. The EU vetoed four merger plans between one American firm and one or more EU-origin firms. Furtheremore, the EU blocked two merger plans between US firms, namely MCI WorldCom/Sprint75 and
75 Case COMP/M.1741, MCI Worldcom/Sprint, Commission decision of 28 June 2000, OJ L300/1, 18 November 2003.
154 GE/Honeywell76. The latter case was particularly politicized because the EU and the US made contradictory decisions on it despite intensive communication between the authorities.
Therefore, the next section studies this case with regard to the issue of nationality-based discrimination.
5.4.2 The GE/Honeywell case
The failed merger of two American manufacturing companies, GE and Honeywell, is a high- profile case which confirmed the EU’s ability to apply its competition law extraterritorially.
GE (General Electric Company) is a diversified firm involved in numerous business activities such as the production of aircraft engines and electronics, and financial services. Honeywell is a leading manufacturer of avionics (i.e. aerospace controlling computer systems), who also produces various items such as automobile products and chemical material. Their 42 billion dollars merger plan was first cleared by the US Justice Department with minor conditions
(some divestitures), but it was blocked by the European Commission later. Generally speaking, when multinational companies plan a merger, they usually have to notify it to competition authorities in multiple jurisdictions. There is no uniform global system for coordination among national and supranational competition authorities, so they sometimes make contradictory decisions on notified mergers. The failure of the GE/Honeywell merger plan illustrated such a risk.
Based on Council Regulation 4064/89 on merger control, the European Commission initiated an in-depth investigation to this case on 28 February 2001. On 14 June 2001, which was the legal deadline for the submission of remedies, GE made a set of proposals including
76 Case COMP/M.2220, General Electric/Honeywell, Commission decision of 3 July 2001, OJ L48/1, 18 February 2004.
155 the divestiture of several sections on aircraft manufacturing and avionics. Yet, the
Commission considered that these proposals were inadequate to solve concerns over the dominant market position that the two parties would strengthen in the aerospace sector.
Subsequently, then US president George W. Bush expressed his concern over this case, which would have a huge impact on American aerospace and other industries (The New York
Times, 16 June 2001). Despite such political interference at the highest level, then EU
Competition Commissioner Mario Monti and DG COMP (in particular, then Merger Task
Force) maintained their opinion of this case. On 28 June 2001, GE proposed some additional remedies, but these post-deadline proposals were also considered insufficient by the EU. On
3 July 2001, the European Commissioners unanimously decided to prohibit the merger declaring that it was incompatible with the European internal market.
This is a very complex case, and the European Commission decision addressed numerous issues relating to potential competition restriction that the merger might bring about. In essence, the Commission declared that the merger would have horizontal, vertical and conglomerate effects on competition in the commercial aircraft engines market and the avionics and non-avionics electronic market among others. Specifically, The Commission’s decision was based on two core arguments (Vives and Staffiero 2008: 1). First, the merger was alledged to strengthen GE’s dominant position in large commercial aircraft engines, regional aircraft engines, and corporate jet engines. Second, it was suspected to establish
Honeywell’s dominant position in areas of avionics and non-avionics aerospace components, and marine gas turbines. This conclusion took into account information provided by two major rival firms of GE and Honeywell, namely Rolls-Royce (UK) and Rockwell (US). GE appleaded to the EU’s General Court (then Court of First Instance), but in 2005 the court upheld the decision of the European Commission and rejected GE’s request for the annulment of the prohibition decision.
156 The Commission decision on this merger proposal was severely criticized both in Europe and in the US. One of the major criticisms is that the Commission’s arguments were inconsistent over time (Morgan and McGuire 2004: 46). In the initial assessment, the
Commission’s concerns about the proposed merger placed emphasis on the possibility of bundling (tying) strategies that the merged entity may take in order to establish/strengthen its dominant position in various aerospace industries. However, in the final decision, the
Commission put less emphasis on this point, most likely because its theoretical fundations and applicability to the specific markets concerned were questioned by many experts and policy makers77. The argument put forward in the final decision was that the combination of financial strength of GE (especially its financial arms, namely GE Capital and GECAS) and a dominant position of Honeywell in the market of various aerospace manufacturing products such as avionics and non-avionics components that would make it difficult for other aerospace manufacturers to continue their production (‘foreclosure’)78.
It should also be noted that the General Court denied the majority of claims made by the
Commission. In fact, in its judgement on 14 December 2005, the General Court criticized the
Commission’s decision on this case severely 79 . The controversial argument of the
Commission concerning vertical integration effects and conglomerate effects of the merger was rejected. For example, the judgement stated that the Commission’s evaluation of the case overlooked the deterrent effect of Article 102 TFEU (then Article 82 TEC) on abusive dominance practices such as tying (para. 387), and this was one of the ‘manifest errors of assessment’ (para. 364). Therefore, according to the court, the Commission’s argument that
77 Some American politicians such as then Senator Ernest Hollings (then Chairman of the Senate Commerce Commitee) claimed that the EU decision was biased, while others said that it relied too much on an economic model of tying developed by Choi, who served as an advisor to Rolls Royce (Gerber 2003: 88). But these comments seem to overlook the fact that the Commission’s central argument in its final decision on GE/Honeywell concerned the model of tying much less. See above. 78 See, for example, an article on this case written by officials of DG COMP (Giotakos et al. 2001). 79 Case T-210/01, General Electric Company v. Commission, [2005] ECR II-5575 (ECLI:EU:T:2005:456).
157 the merging parties would abuse their vertically integrated dominant market position is flawed. The only major point upheld by the court was that the merger would have anticompetitive effects as a result of horizontal market integration (Vives and Staffiero 2008:
32).
Leaders of US competition authorities, most notably Charles James (then Assistant
Attorney General for Antitrust of the US Department of Justice), also pointed out various weakenesses of the Commission decision (James 2001a, 2001b). Yet, they did not argue (at least officially) that it was a discriminatory measure of the EU against non-EU based firms.
Rarther, US competition authorities attributed main causes of the opposing conclusions of the
EU and themselves to divergent competition laws and analytical methods. This view was shared by many practitioners and academics, both EU and non-EU. For example, E. Morgan and S. McGuire (2004) argue that EU and US competition authorities communicated extensively in this case, and that the main reason why the two parties made opposing decisions is not inadequate communication. According to them, an important reason for the disagreement was significant differences between EU and US competition laws. In particular, differences between the analytical method of US competition authorities and that of EU ones for the assessment of potential anticompetitive effects of mergers were one crucial factor which resulted in this disagreement (Gerber 2003). The US used the ‘significant lessening of competition test’, which put emphasis on economic efficiency, whereas the EU used the
‘dominance test’, whose focus is the market structure80. Another thing which looked unusual to US competition officials was that the GE/Honeywell decision of the European
Commission took into account long-term effects of the merger (e.g. the possibility that GE might choose the business strategy of tying) which were less certain than short-term effects.
80 Later, the new EU merger regulation of 2004 (Council Regulation 139/2004) incorporated some ideas of the significant lessoning of competition test, whereas the check of possibility of domination remains an important element in the EU’s merger review.
158 This led X. Vives and G. Staffiero (2008: 32) to make a more general remark that ‘a major difference between the US and EU approaches is that the EU authorities are willing to venture into looking at the long-term consequenses of a merger while in the US more long- term possibilities are discounted more heavily’. In other words, the main criticism of the
EU’s decision by US competition authorities was that it was speculative to some extent and relied too much on economic models whose applicability to the markets concerned was questionable.
Putting the GE/Honeywell case in context
For a better understanding of this controversy over the GE/Honeywel case concluded in 2001, it is important to underline the fact that EU merger policy (and EU competition policy more generally) was in transition in the late 1990s and early 2000s. EU merger control had been severely criticized since its inception in 1990 for various reasons such as slow case handling and the use of outdated economic models. Acknowledging these criticisms, the European
Commission, especially its DG COMP, took various initiatives throughout the 1990s in order to revise and update its merger policy. One of their priorities was the incorporation of up-to- date, internationally recognized microeconomic theories into case analysis. During this transitional period, the Commission made a couple of particularly controversial decisions with procedural and analytical problems, and this led the General Court and the Court of
Justice to exercise their power to scrutinize Commission decisions more actively. In 2002, the
General Court (then the Court of First Instance) annulled three prohibition decisions of the
Commission in the area of mergers – namely, those decisions on Airtours/First Choice81,
81 Case COMP/M.1524, Airtours/First Choice, Commission decision of 22 September 1999, OJ L93/1, 13 April 2000.
159 Schneider/Legrand82 and Tetra-Laval/Sidel83 cases. This was a big shock for the European
Commission because the EU courts had widely been regarded as the Commission’s major ally in the European integration process in competition policy (see Chapter 2). Moreover, this series of court judgements seriously damaged the credibility of the Commission, especially its DG COMP, as competition authorities. Consequently, DG COMP took many initiatives to improve the quality of economic reasoning for its merger decisions. For example, in 2003, it appointed a chief economist with a supporting team of experts who specialize in competition economics and econometrics.
Judicial activism is a trend not only in EU merger control, but also in EU competition policy in general. A good example is to be found in the area of state aid. In 2004, the
Commission made a decision to prohibit a part of Belgian subsidy given to Ryanair for the establishment of its bases at Charleroi Airport84. Ryanair was asked to reimburse the subsidy which was considered incompatible with EU state aid rules. However, this decision was overturned by the General Court (then First Court of Instance) on 17 December 2008 mainly because the market economy investor principle 85 in EU state aid law was not correctly applied to this case by the Commission.
82 Case COMP/M.2283, Schneider/Legrand, Commission decision of 30 January 2002, OJ L101/134, 6 April 2004. 83 Case COMP/M.2416, Tetra Laval/Sidel, Commission decision of 30 October 2001, OJ L43/13, 13 February 2004. See also the Commission decision of 30 January 2002, OJ L38/1, 10 February 2004.
84 Case COMP/SA.14093, Advantages granted by the Walloon Region to Brussels South Charleroi Airport and the airline Ryanair, Commission decision of 12 February 2004, OJ L137/1, 30 April 2004. 85 Under EU competition law, state aid is assessed based on the ‘market economy investor principle’. According to this principle, public aid supplied by member states are compatible with the European internal market only if the states can prove that private investors would have behaved in a similar manner (Johnson and Turner 2006: 103).
160 It should also be noted that Commission decisions overturned by the court included those in favor of merging parties. An example of this is the Sony/BMG merger case86. In January
2004, Sony (Japan) and Bertelsmann (Germany) notified a plan to establish a joint ventured which was to be called ‘SonyBMG’. To be precise, they proposed a merger of their subsidiaries, Sony Music Entertainment and Bertelsmann Music Group (BMG), which were leading players in the field of recorded music market worldwide. After a one-month routine review, the Commission opened an in-depth investigation in February 2004. It approved this merger on 20 July 2004, saying that it would not create or reinforce a collective dominant position of major players in the global recorded music business, namely SonyBMG,
Universal, Warner and EMI. Yet, the General Court overturned this decision on 13 July 2006 and ordered the Commission to re-examine the case87. The judgement severely criticized the
Commission decision, saying that it relied on insufficient evidence and weak assessments with manifest errors. Consequently, the Commission re-opened the case and conducted one of the most complex, thorough analyses under the merger regulation, until it finally confirmed clearance of the notified merger on 3 October 2007 (European Commission 2007c).
The argument here is that the Commission makes mistakes (e.g. the prohibition of lawful business practices, the omission of unlawful ones, and poor case analyses) regardless of the nationality of firms. For example, as noted above, the Commission initially denied the merger of two British firms, Airtours and First Choice, and another merger between two French firms,
Schneider and Legrand. This shows that some Commission decisions overturned by EU courts exclusively involved European firms. In particular, the merger between Schneider and
Legrand already took place by the time when the prohibition decision was made, so the
Commission’s order to break it up (e.g. through a divestiture of some departments of the
86 Case COMP/M.3333, Sony/BMG, Commission decisions of 3 October 2007, OJ C94/19, 16 April 2008. See also the Commission decision of 19 July 2004, OJ L62/30, 9 March 2005. 87 Case T-464/04, Impala v Commission, [2006] ECR II-2289 (ECLI:EU:T:2006:216).
161 merged firm) have had a huge impact on their business88. This case typifies errors that EU competition regulators make occasionally.
Summing up, extraterritoriality has been a central issue in transatlantic cooperation and conflicts in merger control. The EU and the US signed two bilateral cooperation agreements on competition, but the voluntary mechanism for communication and coordination set up by these agreements did not prevent political confrontations between the two parties in high- profile merger cases. In fact, the EU’s extraterritorial enforcement of competition policy, which is widely regarded as an aggressive policy instrument, caused interjurisdicitonal political conflicts in the (in) famous GE/Honeywell case. Yet, the EU-US disagreement in this case is primarily due to their different legal and economic approaches, and there is no clear evidence that the Commision’s prohibition decision prioritized industrial policy considerations over the goal of promotion of market competition and market integration.
Conclusion
In her speech of 20 April 2015 in New York, European Commissioner for Competition
Margrethe Vestager (2015c: 8) remarked that ‘Den Xiaoping was famous for his saying that it doesn’t matter whether a cat is black or white as long as it catches mice. The antitrust enforcer version of this saying should be that: it doesn’t matter where the company comes from, as long as it competes - by the rules’. As summarized in this statement, the European
Commission’s official line is that the EU enforces its competition law without regard to the nationality of firms. According to this argument, what is important for the EU competition regulators is to keep the European market open, competitive and level because that would
88 See a press release of the EU (European Commission 2002) on the prohibition of the proposed merger between two French firms, Schneider and Legrand.
162 lead to greater competitiveness and more innovation, at least in the long run. By using data from both EU and non-EU sources, the chapter empirically investigated whether EU competition policy is actually nationality-blind, as the EU has consistently been claiming.
The analysis focused on three relevant areas in this respect, namely cartels, the abuse of dominance, and mergers.
On the whole, one may conclude that the equal treatment of EU based and non-EU based firms is not a mere political declaration, but a real practice in EU competition policy, at least during the period studied here (i.e. since the 1990s to the present). This is most likely because, as hypothesized in Chapter 3, the EU’s priority is the combat of anticompetitive business practices across borders rather than the protection of companies which are based in the EU.
Regarding the control of cartels, EU competition regulation has been attracting a wide media coverage in third states, particularly in Japan, because of the unprecedented level of fines in these years. However, quantitative data do not indicate any discrimination of firms from third countries by the EU. The sharp increase in fines is a general trend in EU cartel control since the 1990s, and not only in cases involving firms from third states. It should also be noted that
EU and Japanese cartel rules significantly differ, causing confusion to many Japanese companies operating in the European internal market. In the area of abuse of dominance, a substantial number of American companies have been subjected to commitment decisions or prohibition decisions of the EU. Yet, as the Microsoft and Intel cases exemplify, the main rivals of those American companies penalized by the Commission are often American ones, too. Thus, the neomercantilist/strategic competition policy viewpoint is not persuasive here.
As for merger control, the European Commission has cleared more than 90% of merger notifications in its history, so the number of prohibition decisions is comparatively small.
There are some controversial prohibition decisions, and they often involve American companies. Some people argue that the European Commission prioritizes industrial policy
163 considerations, but these arguments are seldom based on hard evidence. As illustrated by the analysis of the GE/Honeywell case, the real issue is not discrimination, but divergent rules across the Atlantic, the Commission’s governance issues (transparency, judicial reviews), and the quality of its economic analysis. It should be noted that many of the controversial merger decisions were made during the transitional period during which DG COMP was trying to shift from its original legal approach to a more economic approach to the case analysis.
Interestingly, in both Japan and the US, many recent studies of EU competition policy conducted by policy makers and experts came to the conclusion that discrimination is not the real problem that firms from their countries are facing when operating in the European market. Major challenges for these firms identified in the analysis above fall within two categories. The first one is the EU’s governance problems in competition policy, such as insufficient transparency in the decision-making process, comparatively slow case handling, and poor analysis and documentation in some cases despite recent policy and organizational reforms. The second one is divergent analytical frameworks and procedures across jurisdictions, even among developed countries whose competition officials regularly meet at the OECD, the ICN and other occasions.
To sum up, the empirical findings support the hypothesis that supranationally institutionalized polities such as the EU’s one assures competition law enforcement without regard to the nationality of the firms. The Commission’s goal is more likely to be the maintenance of a level-playing field than the creation/protection of ‘European champions’ with dominant market positions at the EU level.
164 Chapter 6: Commitment to Multilateral Rule Making as an Initial
Response to Cross-border Issues
Nowadays, goods, services and capital cross national borders relatively easily, but competition laws remain largely national. Many efforts have been made by states and international organizations over the past few decades in order to alleviate this fundamental problem in the partially globalized political economy. With great enthusiasm, the EU has been searching for suitable international fora and effective policy instruments in order to deal with cross-border competition matters. From the mid-1990s to the early 2000s, the EU advocated the establishment of a general legal framework for competition policy cooperation in the WTO, until the Cancun Ministerial Conference in Mexico on 10-14 September 2013.
Regarding the selection of venues for international cooperation, the EU’s initial commitment to multilateralism rule-making at the WTO is understandable, if not reasonable, because the
EU itself experienced the creation of binding multilateral economic rules in its process of market integration. But of course, how successful the European initiative was is a separate question, which will be investigated at length in this chapter.
The first section of the chapter presents an incremental development of international norms and standards in the area of competition. It will be explained that the WTO, the OECD and
UNCTAD have made modest contributions to international cooperation in competition policy, but none of them provide a comprehensive and effective legal framework for international competition regulation. So far, there is only a patchwork of international competition law.
The second section pays special attention to one of the three international organizations, the
WTO, because it is the forum in which the possibility to establish world competition law was examined most seriously. Prior to and during the Doha Round of negotiations, the EU insisted on creating binding multilateral competition rules. Despite its self-perception as a
165 leader in this policy field, the attempt failed spectacularly. The section identifies key structural reasons for the failure of this EU plan, such as the decision-making procedure, preferences of major negotiating partners, and controversy over other issues such as trade in agriculture. The final part provides further evidence that the WTO is unlikely to become the main venue for multilateral cooperation in this policy field in the foreseeable future. It examines the WTO’s two dispute settlement cases, which are concerned with both competition and trade issues. Both cases remain important case laws, but have had little impact on the Doha Round negotiation on competition policy.
6.1 Incremental development of international competition law during the post-World
War II period
Supranational competition law is highly developed in Europe, but this is not the case at the global level. Any serious consideration about the international dimension of competition policy should take into account the absence of comprehensive multilateral competition law with a global reach. When talking about international competition rules, one may soon recall a tragedy of the WTO’s failure to commence official negotiation on the competition issue in the Doha Round (‘the Doha Development Agenda’). Yet, the creation of international competition law has been a recurring theme in international relations for more than half a century.
The first serious attempt to create multilateral competition law was made in the 1940s in the context of the International Trade Organization (ITO) plan. Back in 1948, 53 states signed the Havana Charter in Cuba for the foundation of the ITO as a special agency of the United
Nations in trade relations, expecting that it would complement the Bretton Woods institutions dealing with monetary and financial matters. The Havana Charter is a very ambitious text
166 covering not only traditional trade issues such as tariffs and quotas, but also the regulation of international cartels and monopoly among others. It was possible to agree on this international treaty for trade liberalization because the leaders of the states still had a fresh memory of the devastating damages brought about by pervasive international cartels and the
Great Depression in the late 1920s and 1930s. Chapter 5 of the Havana Charter is devoted to the issue of restrictive business practices. Article 46 of the chapter states that each member state shall, in cooperation with the ITO, take appropriate measures to prevent ‘business practices affecting international trade, which restrain competition, limit access to markets, or foster monopolistic control’. This article also provides an indicative list of restrictive business practices such as price fixing and market sharing, whereas Article 50 specifies various obligations of the member states.
Ironically, the ITO remained inborn primarily because of its sophisticated organizational structure and detailed rules. The main advocate of this new organization, the US government, had to confront domestic resistance at the stage of ratification. The US Senate dismissed the
ITO plan twice, even without voting, in the face of a huge number of requests for amendments from senators. Many of them had general fears of a loss of state sovereignty as a consequence of the establishment of binding international trade law, which was associated with a dispute settlement mechanism89 (Wilcox 1949: 195-196). The opponents were also dissatisfied with the fact that the ITO adopted the ‘one country, one vote’ principle despite the huge discrepancy between its member states in terms of economic, political and military power (Wilcox 1949: 196-197). Eventually, the issue of ratification of the Havana Charter was marginalized in Western countries’ political debate because the Cold War in Europe
89 The charter codified a dispute settlement mechanism, in which law enforcement would have ultimately been guaranteed by the International Court of Justice. However, in reality, areas to which the dispute settlement mechanism applys were quite limited in scope.
167 came to the surface by the end of the 1940s, and also because the Korean War broke out in
1950 (Diebold 1952: 6).
In parallel to the negotiation on the ITO, multilateral negotiation on trade with a smaller number of participants took place in the mid-1940s, and consequently 23 countries, mostly
Western ones, signed the General Agreement on Tariffs and Trade (GATT) in Geneva in
1946. GATT, which came into effect in 1947, was originally designed as a temporary framework whose core task of trade liberalization was supposed to be taken over by the ITO once established. Yet, after the failure of the ITO plan, GATT evolved into a major forum for multilateral trade negotiation. Nonetheless, GATT (now, the WTO) is less ambitious than the
Havana Charter in terms of scope 90 , and lacks a general regulatory framework for competition policy matters up to the present.
While the conclusion of binding multilateral agreements on competition issues was therefore politically unrealistic in the post-World War II period, with the only exception of the ECSC/EEC, the importance of international cooperation in this field eventually increased in the 1960s and 1970s because of accelerated free trade and international economic interdependence. Against this background, some international organizations, above all
UNCTAD and the OECD, started to develop soft law incrementally in this area. Their soft law aims to establish core principles of enforcement, to standardize procedures and analytical frameworks, and to alleviate potential interjurisdictional conflicts as well as the problem of duplicate enforcement efforts by national and regional competition authorities.
In line with a broader agenda of the United Nations (UN) at that time (i.e. stricter public control of multinational companies), studies conducted by UNCTAD resulted in the UN
90 The agenda of the GATT/WTO has been expanding but is still narrower than that of the ITO. For example, the Havana Charter includes provisions on investment, competition and employment.
168 resolution in 1980 on competition policy, entitled Set of Mutually Agreed Equitable
Principles and Rules for Control of Restrictive Business Practices (United Nations,
Resolution 35/63, 5 December 1980). This resolution, commonly referred to as ‘the Set’, provided a list of general principles and rules for cartel control among others. The principles identified in the Set were widely recognized by competition authorities, and served for decades as a major reference point, if not a model, especially for those states which were preparing the establishment of domestic competition rules and institutions.
Similarly, in the 1960s, the OECD began to facilitate the identification and dissemination of best practices for competition enforcement, while conducting peer reviews and promoting general guidelines for international cooperation among competition authorities. The
Competition Committee (formerly, Competition Law and Policy Committee) and the Trade
Committee of the OECD have been responsible for these tasks. Their work products cover a wide range of areas and generally more specific than those of UNCTAD. One of the earliest and most famous policy recommendations of the OECD in this field is a recommendation on international cooperation among competition authorities issued in the 1960s (OECD 1967), which has been revised occasionally since then91. After this publication, the area of work has diversified. Typical recommendations of the OECD focus on specific regulatory areas, especially cartels and mergers, and enjoy an international recognition by competition policy officials, practitioners and experts92. Many of these publications have been updated several times, taking into account more recent ideas and international environments in competition
91 It was revised in 1973, 1979, 1986, 1995 and 2014. 92 There are many other important publications of the OECD Council such as the Recommendation of the Council on Hard Core Cartels (1998), the Recommendation of the Council on Merger Review (2005), and the Best Practices for the Formal Exchange of Information between Compeititon Authorities in Hard Core Cartel Investigations (2005), to name a few. A concise overview of OECD work products on competition policy matters is to be found in the OECD (2014a: 12).
169 relations. Furthermore, over the past few decades, the OECD has been publishing country reports on selected jurisdictions’ enforcement records and their major policy developments.
The country reports aim to enhance the transparency of competition authorities’ work through peer-review exercises, while putting international pressures on those whose enforcement is less active than others. Overall, the work products of the OECD and UNCTAD concerning competition policy made some contributions to experience sharing and benchmarking exercises among competition authorities on a multilateral basis.
Having said that, it is important to note that all these recommendations, reports and resolutions of the OECD and UNCTAD are non-binding. And it is just one of the many limitations of these two organizations in this policy area. As for UNCTAD, it is often criticized that the Set is too vague and not much more than the lowest common denominator
(Hollman and Kovacic 2011: 69). These weaknesses are primarily due to its quasi-global membership and consensus-based decision-making process. The OECD is more active in this policy field, but its work products have a problem of enforceability and legitimacy. As for enforceability, the 1986 recommendation of the OECD Council introduced a consultative mechanism concerning competition regulation (OECD 1986), but it has never been used.
Although it is difficult to identify the causes of this non-action of the member states, at least two factors seem to be relevant here (ICPAC 2000: 286-287). First, the initiation of the consultation requires consent of both parties involved in a given dispute, meaning that any member state retains veto power in this respect. Second, it seems to be the case that the adversarial nature of legal disputes is considered by many members as incompatible with the general consensus-binding orientation of the OECD. As for the legitimacy issue, the OECD’s membership is strictly limited to developed countries, and its work products are largely based on the experience of these countries. Thus, many developing countries share a belief that any prescription offered by this organization is biased (or, at best, not universally applicable) and
170 should not be automatically regarded as global standards (Hollman and Kovacic 2011: 68).
This is a major shortcoming of the OECD when promoting its recommendations on competition policy globally. More recently, a collapse of the OECD’s negotiation on the
Multilateral Agreement on Investment in 1998 damaged its credibility as a facilitator of multilateral treaty negotiation in general (ICPAC 2000: 258). On the whole, the OECD has developed a wide range of international standards and norms in the area of competition, but it does not play any significant role at the level of rule making and dispute settlements.
In contrast to these two international organizations, the WTO established in 1995 possesses some binding rules on competition issues, but their coverage is very limited. The WTO’s
General Agreement on Trade in Services (GATS), which complements WTO rules on trade in goods (i.e. GATT), includes provisions on competition-restricting public measures of the member states. However, these provisions apply only to financial and telecommunication sectors (for details, see Section 6.3.2 below). Overall, it is fairly safe to say that none of the three international organizations possess a general legal and institutional framework for international coordination and cooperation in competition relations.
Meanwhile, the 1990s witnessed a diffusion of competition laws on a global scale as well as the increasing cross-national heterogeneity of these rules. This change increased the possibility of interjurisdictional conflicts. In fact, the issue of competition occasionally arose in international trade disputes. One example of this is the Structural Impediments Initiative
(SII) negotiation between Japan and the US from 1989 to 1990. In this bilateral negotiation, the US government requested, among others, the empowerment of the Japan Fair Trade
Commission, which was in the eyes of American policy makers influenced too much by other departments of its government, most importantly the Ministry of International Trade and
Industry (currently called the Ministry of Economy, Trade and Industry) (Sekiguchi 1993). It is debatable whether the Japan Fair Trade Commission was really empowered as a result of
171 this negotiation, but SII is a good example, which vividly illustrated how closely competition and trade issues are linked to each other. Another well-known example of the linkage between trade and competition issues is a photographic film trade dispute at the WTO in the late 1990s, again between the US and Japan. This will be discussed in detail later, together with another WTO dispute case (see Section 6.3.1 below).
In this circumstance, many states and regional entities have attempted to reduce the risk of international conflicts by concluding bilateral enforcement cooperation agreements (e.g. the agreement between EU and US competition authorities signed in 1991). Yet, few international cartels and other anticompetitive business practices involve only two jurisdictions, so bilateral agreements soon proved to have a clear limitation. Therefore, many political leaders, especially those from European countries, were in the opinion that further cooperation and coordination in competition relations should be fostered on a multilateral basis.
6.2 The deadlock of WTO negotiation on competition law
It is in this context that the issue of international competition law was raised at the WTO in the mid-1990s. At the WTO ministerial conference in Singapore in 1996, a number of developed countries, including the most enthusiastic advocate, the EU, proposed a package of four new issues as a potential agenda of the next round of negotiations (i.e. the one which will be named the Doha Round a few years later). These four items are (1) competition, (2) investment, (3) transparency in public procurement, and (4) trade facilitation93. These items, often referred to as the ‘Singapore issues’, commonly concern behind-the-border regulatory
93 In essence, the ‘trade facilitation’ agenda concers the issue of costs and procedural complexity at customs checkpoints on national borders.
172 issues. This proposal of an agenda expansion derived from some developed countries’ strong concern about non-tariff barriers to international trade, though opinions of these countries on the Singapore issues were not monolithic. Since a patchwork of international rules already existed in each of the four areas at bilateral, regional and/or multilateral levels, the Singapore issues were not entirely new in international economic and trade relations (Woolcock 2003:
255). As noted above, the OECD and UNCTAD had incrementally developed non-binding rules and norms for competition regulation over decades, whereas WTO rules on trade in services also partially addressed the issue of competition. A real question raised by the proposal of the Singapore issues was, therefore, whether to complement these fragmented competition rules with binding and more comprehensive international law within the WTO’s legal framework.
6.2.1 The EU initiative under the leadership of Karel Van Miert
Competition policy issues were proposed primarily by the EU, so it is important to understand the internal dynamics which allowed the EU to take such action. From a theoretical point of view, the EU’s activism on the international stage is consistent with the argument made in previous chapters that one way to mitigate the competition / competitiveness dilemma arising from the EU’s stringent competition policy is the promotion of competition policy in third states. The strong commitment of the EU to binding multilateralism at that time is principally attributable to its own experience of rule-based market integration and the creation of supranational competition law (Damro 2006a; Fox
1997). By the end of the 1990s, the EU already had some experience in transferring its competition law to third states using the method of enlargement (1973, 81, 86, 95), and this
173 also seems to have made the EU more confident than otherwise to pursue the creation of binding international competition rules.
Concerning the EU’s initiative, two key factors which should be explained are the leadership of European Commissioners and intellectual support from experts, especially competition lawyers. The importance of external aspects of EU competition policy was recognized in the early 1990s by Commission officials, including Leon Brittan, who served as a European Commissioner for Competition between 1989-1993. Yet, a key figure who strongly advocated competition rule making at the WTO was a former Vice President of the
European Commission Karel Van Miert, who was responsible for competition policy from
1993 to 1999. He not only repeatedly affirmed the Commission’s commitment to multilateral trade cooperation in his various speeches, but also facilitated, on his own initiative, internal policy discussion on the intensification of international cooperation in competition relations.
In 1994, he appointed a Wise Men Group consisting of three external experts, including the chairperson, Frédéric Jenny, and six Commission officials94. This group of experts was assigned a task of designing an ‘institution of international competition rules, as well as the creation of effective implementation procedures once foreseen in the Havana Charter’, while developing ‘a European community approach - based largely on [the EC’s] past experience on the integration of the internal market’ (European Commission 1995: 24). These terms such as ‘implementation procedures once foreseen in the Havana Charter’ and an approach based on the ‘experience on the integration of the internal market’ indicated that the Commission was committed to binding multilateralism, and that the WTO was therefore presumed as the
94 The external specialists are professors Frédéric Jenny, Ulrich Immenga and Ernst-Ulrich Petersmann, whereas the internal ones are Claus-Dieter Ehlermann and Jean Francois Pons from then DG IV (competition policy), Roderick Abbott from then DG I (external relations), François Lamoureux and Jean- François Marchipont from then DG III (industrial policy), and Alexis Jacquemin from the Forward Studies Unit.
174 main institutional body for competition governance. Nonetheless, the Wise Men Group was granted some degree of independence when conducting research for the production of credible and concrete policy recommendations.
After extensive research and discussion, the Wise Men Group submitted the final report in
1995 to the European Commissioner. This report was entitled Competition policy in the new trade order: strengthening international cooperation and rules - a document which is often referred to as the ‘Van Miert Report’. After explaining the importance of international cooperation in competition law enforcement, the report made three principal recommendations (European Commission 1995: 21-22):
(1) Countries and groups of countries should be encouraged to introduce competition laws,
while assuring effective law enforcement. Where necessary, developed countries,
including the EU and its member states, should provide technical assistance to less
experienced countries, especially developing countries.
(2) On the one hand, bilateral cooperation between competition authorities should be
maintained and strengthened. On the other hand, a plurilateral framework should be
established, building on bilateral cooperation experience between major competition
agencies. Such a framework should acknowledge basic principles of competition
regulation, set up an effective dispute settlement mechanism, and have a limited
geographical coverage at the beginning while keeping the membership potentially open
to other countries.
(3) The bilateral and plurilateral efforts noted above are complementary and mutually
supportive. Therefore, they can be and should be developed in parallel.
175 Overall, as a former Deputy Director-General of DG COMP (then DG IV) Jean- François
Pons (1999) noted in his speech, this influential report set ambitious long-term goals for the
EU on the one hand, and suggested more cautious, smaller steps towards these goals on the other hand.
Specifically, the report strongly recommended a ‘building block’ method, which contains two closely linked and yet analytically separate elements: a two-track approach and an incremental approach. The former is already evident in the second and third recommendation points explained above. In respect to the latter, it is noteworthy that the report consistently used the term ‘plurilateral’ rather than ‘multilateral’ in order to emphasize the restrictive membership of the proposed international competition forum (European Commission 1995:
14-17; 21-22). As indicated in this choice of words, the expert group claimed that the idea of making binding competition rules in the WTO was premature and unrealistic at that time.
Referring to the WTO implicitly, the report stated that it would be ‘counterproductive’ to propose the creation of a multilateral structure, which fully depends on ‘the willingness to participate of all potential partners’ (European Commission 1995: 22). What the report suggested instead was building a bridge between smaller regional blocks within which international cooperation in competition policy enforcement was already active (e.g. the US and Canada; Australia and New Zealand; the EU itself). This effort would be, according to the report, an important step towards the creation of a multilateral cooperation framework, which has potential to accommodate the OECD countries as well as other interested parties.
This reservation made in the Van Miert Report was noted but not fully taken into account by EU policy makers. Instead of the building block approach proposed by the selected experts, the Commission pursued a more radical and risky option – namely, a proposal of competition law making at the WTO. Put differently, the Commission utilized the report to
176 legitimize its international competition policy, while cherry-picking some recommendations such as the two-track approach.
6.2.2 Initial exploratory discussion: from Singapore (1996) to Doha (2001)
Based on a proposal of the EU and some other developed countries, the WTO member states decided at the Singapore Ministerial Conference in December 1996 to set up the Working
Group on the Interaction between Trade and Competition Policy. Similar working groups were established in areas of investment, and transparency in public procurement, too95. It should be noted that this institutional arrangement did not presuppose an initiation of official negotiation afterward. Paragraph 20 of the Singapore Ministerial Declaration clarified this point in the following terms.
It is clearly understood that future negotiations, if any, regarding multilateral disciplines
in these areas, will take place only after an explicit consensus decision is taken among
WTO Members regarding such negotiations (WTO 1996, para. 20, emphasis added).
On the one hand, this sentence means that the member states postponed a decision on whether the competition issue should be officially added to the WTO’s agenda for negotiation. On the other hand, the quoted sentence sets the criteria of an ‘explicit consensus’ among the members. In other words, all WTO member states, around 140 at that time, reserved veto power. It should be noted that this condition is much more demanding than the WTO’s normal decision-making procedure, which is called ‘implicit consensus’ in opposition to
95 The Working Group on Trade and Investment and the Working Group on Transparency in Public Procurement were also established soon after this ministerial conference, whereas the issue of trade facilication, which was less controversianl than the others, was examined by an existing body, the WTO Committee on Trade in Goods.
177 ‘explicit consensus’. Implicit consensus means that a proposal will be accepted unless there is any clear opposition from member states. So, this procedure does not require votes from all member states in favor of the proposal. Although the mention of the Singapore issues in the
Singapore ministerial declaration drew much attention both in the media and academia, it became extremely difficult already at this stage to incorporate the issues into the WTO’s negotiation agenda because of the ‘explicit consensus’ criteria.
Paragraph 20 also stated that the WTO General Council shall review the work of the
Working Group on the Interaction between Trade and Competition Policy. Under the chairmanship of a French professor of economics, Frédéric Jenny, the newly established working group conducted a preliminary study of how to address trade-related competition issues at the WTO. Based on discussion at its regular meetings, the working group submitted annual reports to the General Council each year from 1997 to 2003. The reports summarize the discussion’s key findings and major controversies. The following analysis of the WTO’s discussion over competition issues largely depends on these reports as well as occasional communications submitted by WTO member states.
The working group’s activities can be analytically divided into two phases: a period of initial exploratory discussion for agenda setting and experience sharing from 1996 to the
Doha Ministerial Conference in 2001, and a following period of more focused discussion from 2001 to 2003. In the first period, delegates focused on the study of the following three broad topics addressed in A Checklist of Issues Suggested for Study, prepared by the chairperson (WTO 1997: 3). (1) Stocktaking and analysis of existing instruments, standards and activities regarding trade and competition policy. (2) Relationship between the objectives, principles, concepts, scope and instruments of trade and competition policy. (3) Interaction between trade and competition policy. The first point, stocktaking, was less controversial than the other two, so the working group soon started an extensive survey of national
178 competition laws of the member states as well as international competition laws and standards of such organizations as the OECD, UNCTAD, the EU, APEC and Mercosur. This comparative study provided a basis for subsequent discussion of the working group. By contrast, the second and third points were blur and needed revision. The 1998 annual report made them more specific and claimed that the working group should pay special attention to two issues – namely, whether the WTO’s core principles such as national treatment, transparency and most-favored-nation treatment are applicable to the area of competition, and how and under what conditions competition policy can contribute to the WTO’s goal of international trade promotion (WTO 1998: 50)96.
Once discussion on these substantial issues started in the working group, it soon became clear that the WTO member states had very divergent views on them (WTO 1999a: 10-12).
On the eve of the Ministerial Conference of 1999 in Seattle, many states expressed their opinions in written communications. From the perspective of the EU and its member states,
‘the time has come for the WTO’ to officially start a negotiation on ‘a basic framework of binding principles and rules of competition law and policy’ (WTO 1999b: 1). In spite of this rather optimistic view, only very few countries such as Japan and South Korea explicitly joined the EU to call for the initiation of formal negotiation in view of establishing binding competition rules and core principles (WTO 1999c; 1999d)97. The main trade parter of the
EU, that is the US, was initially against this proposal and gave a lukewarm support for it only after the EU submitted a more modest plan at the Doha Ministerial Conference (for details about the US position, see below). Furthermore, a large majority of WTO member states
96 The report also raised a new question of how to promote international enforcement cooperation among competition agencies. This discussion point never became a top priority of the working group, however, primarily because the OECD, and more recently the ICN, already covered it to some extent. 97 It should be noted that, like the EU, both Japan and South Korea strongly committed to binding multilateralism at that time, though they would shift their focus to bilateral and regional free trade agreements in the early 2000s.
179 were against the EU’s initiative or very suspicious of it. Generally, they were in the view that
‘exploratory’ discussion should be continued in the working group without presupposing the start of negotiations, whereas more emphasis should be put on technical assistance programs for developing countries (see, for example, communication from Cuba, WTO 1999e: 1-2).
After the Seattle Ministerial Conference in 1999, this disagreement proved fundamental and irreconcilable. When discussing a draft ministerial declaration for the Doha Ministerial
Conference in 2001, delegates of some member states used strong words to criticize the EU’s initiative. For example, Prabir Sengupta, then Commerce Secretary of India, made a statement at the WTO General Council meeting in late 2001, and claimed that ‘the manner in which the four Singapore issues are dealt with’ is ‘extremely disturbing’ (WTO 2001a: 1).
The Indian delegation to the WTO repeatedly expressed its inability to agree on the commencement of negotiation on the Singapore issues, but the EU and its supporters still attempted to put the commencement of negotiation as the only option in the draft ministerial declaration. In Sengupta’s opinion, this was ‘surprising’, ‘upsetting’, and clearly unacceptable (WTO 2001a: 1).
The Doha Ministerial Declaration adopted on 14 November 2001 (WTO 2001b) officially announced the commencement of a post-Uruguay Round negotiation, the Doha Round, but fundamental disagreements on competition and many other issues remained unresolved. The issue of competition policy was noted in Paragraphs 23 to 25 of the Doha Ministerial
Declaration, and its Paragraph 23 repeated the reservation made in the Singapore Ministerial
Declaration of 1996. The WTO member states agreed that, according to this paragraph, negotiations will ‘take place after the Fifth Session of the Ministerial Conference [in Cancun in 2003] on the basis of a decision to be taken, by explicit consensus, at that Session on modalities of negotiations’. Consequently, hurdles for the inclusion of the competition issue in the WTO’s negotiation agenda remained very high.
180 As for specific areas for further preliminary studies, Paragraph 25 of the declaration stated that further work in the working group would focus on the clarification of ‘core principles, including transparency, non-discrimination and procedural fairness, and provisions on hard core cartels; modalities for voluntary cooperation; and support for progressive reinforcement of competition institutions in developing countries through capacity-building’. This set of agenda points was restrictive in the eyes of the EU. In particular, the EU dropped its initial proposal of tying new competition rules to the WTO’s dispute settlement mechanism, which would ensure the implementation of the rules agreed by the members states98. In spite of this compromise, it was still unclear whether a consensus among the member states could be built to officially commence the negotiation.
6.2.3 A collapse of the negotiation: the Cancun Ministerial Conference (2003) and onward
The Cancun Ministerial Conference in 2003 revisited the question of whether the Singapore issues should be officially incorporated into the agenda. This was one of the central agenda points of the conference, together with the issues of agriculture and market access to goods, among others. At this conference, a large majority of developing countries and some emerging economies such as India collectively and strongly reaffirmed their opposition to the commencement of negotiations on the Singapore issues in general, and competition and investment rules in particular. There were at least five major reasons why these countries were against the European proposal.
98 The working group continued discussion on potential mechanisms for the assurance of compliance of WTO rules by the member states. But, it merely clarified that they had very divergent views on this issue. See WTO (2003a: 79-100).
181 (1) Most developing countries shared a view that developed countries were insufficiently
cooperative with regard to the issue of trade in agriculture, and this partially explains
these developing countries’ opposition to the launch of negotiation on the Singapore
issues.
(2) They also believed that developed countries had a comparative advantage in these areas.
Specifically, they were afraid that developed countries with experienced competition
enforcement agencies, especially European and American ones, might set international
standards based on their own rules and values.
(3) There was also a question of implementation. It is important to remember that many
developing countries did not have competition law and institutions at that time. De jure
implementation of WTO rules on competition (i.e. domestic legislation in accordance
with WTO law) was therefore a potentially complicated matter for these states, whereas
de facto implementation of the rules could be even more difficult and costly because of a
lack or shortage of enforcement experience (Wookcock 2003: 252-253).
(4) There was a wide belief among developing countries that their priority should be
industrial policy, and that the establishment of competition law could hinder national
industrial policies (Papadopoulos 2010: 235-236).
(5) Many developing countries were in the view that the Working Group on the Interaction
between Trade and Competition Policy insufficiently addressed some competition policy
issues such as export cartels, which were particularly harmful for developing countries
(Papadopoulos 2010: 238-241; Bhattacharjea 2004: 299; see also Becker 2007 for the
issue of export cartels more generally).
For these reasons, a large majority of developing countries strongly opposed the commencement of negotiation on competition policy.
182 According to the literature, developing countries and emerging economies exerted more influence in the Doha Round than in the past rounds of WTO negotiations, not only because of the economic power shift in favor of them, but also because of their relatively successful coalition building. At the Doha Ministerial Conference in 2001, 14 developing countries formed the ‘Like Minded Group’99 and opposed the inclusion of the Singapore issues, while pushing for their own agenda such as development issues (Narlikar and Tussie 2006: 949).
The explicit consensus procedure noted above was adopted in the Doha Declaration primarily because of this strong position of the Like Minded Group. The ‘Core Group’ of developing countries, which initially comprised 12 countries100, basically followed the Like Minded
Group’s position and demanded at the Cancun Ministerial Conference in 2003 that the initiation of negotiation on the Singapore issues can be started only by explicit consensus101.
A similar position was taken by the African Group, the African Caribbean Pacific Group, and the Group of Least Developed Countries, which together formed a majority in the WTO
(Narlikar and Tussie 2006: 950). Under the leadership of some fast growing economies such as India, which was a member of both the Like Minded Group and the Core Group, these coalitions effectively blocked the inclusion of the Singapore issues in the Doha Round negotiation.
Likewise, the US government, especially its competition authorities, had a very critical opinion of the EU initiative since the very beginning for various reasons. At an OECD
99 The Like Minded Group members were Cuba, Dominican Republic, Egypt, Honduras, India, Indonesia, Kenya, Malaysia, Pakistan, Sri Lanka, Tanzania, Uganda and Zimbabwe. Jamaica and Mauritius participated as observers. 100 Bangladesh, Cuba, Egypt, India, Indonesia, Kenya, Malaysia, Nigeria, Pakistan, Venezuela, Zambia and Zimbabwe. 101 See a joint statement of the Core Group of 8 July 2003 (WTO 2003b) in response to the European Commissio’s earlier comment submitted to the WTO, which assumed the launch of negotiation on the Singapore issues after the Cancun Ministerial Conference.
183 conference in 1999, then Assistant Attorney General of the Antitrust Division of the US
Department of Justice Joel Klein (1999: 42-43) harshly criticized the proposal. In the speech, he provided three key reasons why the EU’s idea should be abandoned.
(1) His first criticism is that the EU’s proposal does not articulate what practical problems the
new WTO rules would actually solve. The fact that the EU uses in its proposal various
terms such as the establishment of ‘common rules’, ‘common criteria’, and ‘principles’,
indicates the ambiguity of its ideas.
(2) Second, even if problems are specified, it would be difficult to agree on binding
international competition rules. There are divergent views on what constitute sound
economic and legal principles for competition policy. Moreover, at the end of the 1990s,
nearly a half of the WTO member states (around 140 members in total at that time) did
not have competition laws, whereas many of the remainder possessed competition laws
but had little experience in enforcement. In such a situation, any competition rules agreed
by the WTO member states by consensus would be ‘the lowest common denominator’
with a very small impact on actual policy.
(3) Lastly, Klein argued that the linkage of the proposed competition rules to the WTO
dispute settlement mechanism would politicize competition issues. Since bureaucrats of
the WTO have no/limited experience in this policy field, the enforcement of international
competition law would be politicized in ways that are not based on economic rationality
and legal neutrality102.
102 The proposed legal framework for competition regulation had potential to constrain the practice of extraterritorial law enforcement, which was on the whole in the interests of both American companies and the US competition authorities. It is often said that this is another reasons why the US opposed the establishment of multilateral competition laws tied to the WTO’s dispute settlement mechanism.
184 In addition to these points made by Klein, there were at least two other reasons why the US was against the EU’s proposal.
(4) According to a former Deputy Director-General of DG COMP of the EU Jean-Fransois
Pons (1999), the US delegates to the WTO were afraid that negotiation on competition
matters might (re) open discussion over related contentious issues such as antidumping,
which was a potential agenda point that many developing countries wanted to raise at the
WTO.
(5) US competition authorities were in the opinion that competition issues should be
discussed among competition authorities in a consultative manner. This is most likely
because they thought that binding multilateralism underpinned by the WTO’s dispute
settlement mechanism was premature and inappropriate, and such attempt poses a threat
to the US competition authorities’ discretion both domestically and internationally (Fox
1997). The US preferred bilateral enforcement cooperation based on non-binding,
executive (i.e. non-treaty) agreements, which were, in their opinion, more feasible and
effective.
For all of these reasons, the US preferred the status quo, in which its competition agencies already exerted considerable international influence, while managing cross-border competition issues, primarily using non-binding bilateral cooperation agreements.
In the face of the reluctance of the US, and the strong opposition from many developing countries as well as some emerging economies, the EU made a concession at the Cancun
Ministerial Conference. It suggested to the others an option of de-linking the four items that it initially proposed as a package. Yet, this proposal confused Japan and South Korea, which had been supporting the EU’s plan, while failing to make any change to the developing countries’ negative opinion on the EU proposal. Because of this deadlock, the ministerial
185 conference was closed, even before starting substantial discussion on the other principal issues in this round of negotiations, agriculture and market access to goods.
It is important to note that, as far as competition policy is concerned, the EU was not monolithic when deciding its negotiation stance at the WTO. According to the literature, there was a divide within the European Commission, notably the one between DG TRADE
(the chief coordinator on the EU side) which was in favor of competition rule making at the
WTO, and DG COMP (a junior institution in the EU’s common commercial policy), preferring other channels which would not seriously undermine its administrative discretion by issue-linkage (Papadopoulos 2010: 242-245; Damro 2006b). It is not very clear to what extent divergent interests within the EU contributed to the failure of its initiative at the WTO, but at least it helps to understand why the EU adhered to the WTO option and welcomed the establishment of the ICN at the same time (for the ICN, see the next chapter).
Together with two other controversial issues, namely investment and public procurement, the EU’s initiative of competition rule making at the WTO was dropped from the Doha
Round’s agenda at this meeting in Cancun. Among the four Singapore issues, only trade facilitation remained on the negotiation table. Subsequently, the WTO General Council confirmed this agenda modification in its decision of 1 August 2004 (the ‘July 2004 package’). In the decision, the General Council clearly stated that the issue of competition policy ‘will not form part of the Work Program set out in that [Doha] Declaration and therefore no work towards negotiations on any of these issues will take place within the WTO during the Doha Round’. This declaration made the working group inactive, and it meant that the WTO stopped even studying the issue of interactions between trade and competition policies.
186 Since then, the Doha Round itself had been on the rocks for nearly a decade. The
Ministerial Conferences in Hong Kong (2005) and Geneva (2009 and 2011), and General
Council meetings between them did not result in any tangible achievement among the member states. After the 8th Ministerial Conference in Geneva in 2011, the member states acknowledged the stagnation of the negotiation and decided to take the ‘early harvest’ approach, meaning that they negotiate selected, relatively less controversial agenda points first, and discuss the rest later. Consequently, thanks to the early harvest approach, as well as the mediation by a new WTO Director General Roberto Azevêdo103 since 1 September 2013, the 9th WTO Ministerial Conference in Bali in Indonesia in December 2013 resulted in an agreement on a few selected topics. This very first concrete trade deal in the history of the
WTO (the Bali package) comprised of agreements on Least-Developed Country issues; some rules regarding trade in agriculture; and trade facilitation, which was probably the least controversial one among the four Singapore issues (WTO 2013). The agreement therefore partially rescued the Singapore issues. A broader political implication of the agreement was that the WTO demonstrated to the world its ability to conclude multilateral trade negotiations, at least in some selected areas, despite divergent preferences of the member states and emerging protectionism since the global financial crisis in 2008-2009 (Dee 2013: 13-14).
Nonetheless, competition policy remains off topic, and the divide between developed and developing countries regarding other contentious issues continues to exist. A bottom line is that the possibility of further legislation on competition policy matters at the WTO is still very slim.
103 He is a former Permanent Representative of Brazil to the WTO and has ample experience in multilateral trade negotiation. The fact that he is only the second WTO Director General from a developing country, and the very first from Latin America, was also a privilege for him as a mediator (Dee 2013: 5).
187 6.3 Two competition-related trade disputes at the WTO
Likewise, competition issues are unlikely to be fully addressed in the foreseeable future through the WTO’s dispute settlement mechanism. This point was demonstrated by two competition-related trade disputes brought up by the US to the WTO - namely the Japan -
Film case (Case DS44) in the 1990s and the Mexico – Telecoms case (Case DS204) in the
2000s. The former touched on some competition policy issues such as vertical constraints (i.e. exclusive distribution systems involving producers, wholesalers and retailers), as well as trade policy matters (e.g. the principle of national treatment). Yet, the US problematized only the existing competition legislation of Japan and did not go as far as condemning the non- application of the Antimonopoly Law by the Japan Fair Trade Commission (JFTC) to alleged anticompetitive practices of photographic film producers. The Mexican telecoms case is an interesting one in which the competition provisions of GATS were applied for the first time.
However, its impact was limited primarily because of the very narrow scope of the competition rules of GATS. On the whole, these cases are unlikely to (re) vitalize competition rulemaking and litigation at the WTO.
6.3.1 Japan – Film case (‘Japan – Measures affecting Consumer Photographic Film and
Paper’)
The Japan – Film case104 is a famous dispute between the US and Japan in which the US explored the possibility of raising international competition issues utilizing international trade law of the WTO. In other words, this case can be regarded as an attempt of the US government to ascertain to what extent competition issues can be addressed, despite a lack of
104 See Report of the Final, Japan – Film (‘Japan – Measures affecting Consumer Photographic Film and Paper’), WT/DS44/R, 31 March 1998.
188 comprehensive competition rules in WTO law. A root cause of this dispute was a rivalry between certain American and Japanese private companies, whereas their battle eventually evolved into the trade dispute between the two states.
During the post-World War II period, a major Japanese company in the film industry, Fuji
Film, established and consolidated its predominant position in the domestic market 105 .
Japan’s tariffs on imported consumer photographic film and paper allowed major Japanese companies, particularly Fuji Film and Konica, to grow without being fully exposed to international competition. Over time, however, the Japanese government reduced the tariffs on a step by step basis. The Kennedy and Tokyo Rounds of multilateral trade negotiations in
GATT led to the reduction of tariffs of Japan on photographic material, both black-and-white and color, and they were completely abolished in the 1990s as a result of the Uruguay Round.
In 1995, Fuji and Konica together supplied around 85 percent of the domestic photographic material market, whereas two foreign companies, Kodak (US) and Agfa (Germany) had roughly 10 percent and 5 percent market share respectively. Seeing the removal of tariffs as a huge business opportunity, Kodak attempted to increase its sales in Japan, using various promotional tools such as rebates and discounts. But it failed to expand its market share significantly. Kodak believed that the Japanese photographic film and paper market was not fully open to foreign companies because of Fuji Film’s exclusive agreements with distributors. Moreover, Kodak claimed that the Japanese government was not only tolerating, but also supporting such practices of Fuji Film. Accordingly, on the basis of Section 301 of
1974 US Trade Act, Kodak requested in May 1995 the Office of the United States Trade
Representative (USTR) to take action against Japan’s alleged exclusive governmental measures and competition-restricting business practices in the said market.
105 The chronological description in this paragraph largely draws on the panel report of the WTO (1998) and a recent report on the international dimension of competition policy produced by the OECD (2014: 16).
189 In response to this notification from Kodak, the USTR decided to investigate this market in
Japan, while requesting a bilateral intergovernmental consultation on this issue to the
Japanese government. When Japan refused this request, the US hinted the potential use of unilateral trade retaliation measures based on Section 301 of the 1974 Trade Act in order to counter the Japanese film industry’s alleged anticompetitive business practices and related public measures (Okada 2000: 297-298). Nevertheless, instead of taking such a political risky measure, the US brought this case to the WTO in June 1996 to settle it based on international trade law. Subsequently, a dispute settlement panel of the WTO in this case was established in October 1996.
Since WTO rules apply to the action of the governments rather than private actors, the US only problematized measures of the Japanese government, which, in the American view, tolerated and fostered anticompetitive vertical constraints (exclusive distribution system involving producers, wholesalers and retailers) by the Japanese manufacturers in this market 106 . The claims of the US primarily concerned the following three legal and administrative tools used by the Japanese government, especially the Ministry of Trade and
Industry (MITI), and the JFTC.
(1) Distribution countermeasures.
The US argued that various administrative guidelines of MITI such as the 1970 Guidelines for Rationalization of Transaction Terms aimed to streamline the distribution system in the market concerned, and also to facilitate the creation of market structures for photographic film and paper, in which imported goods were excluded from such traditional distribution channels (‘systemization of distribution’). Specifically, MITI promoted the use of transaction
106 See Okada (2000) for an explanation of how problems at issue evoloved during the period between the initial complaint by Kodak to the opening of the WTO dispute case brought by the US government.
190 terms such as discounts and rebates, and encouraged the domestic photographic industry
(manufactures, wholesalers and retailers) to share facilities such as joint warehouses and distribution routes. The US argued that, as a result of this policy of MITI, a single-brand distribution system which disadvantaged foreign companies became pervasive in the market
(the panel report107, paras. 4.2-4.5).
(2) The Large Stores Law enacted in 1973.
According to the US, large retailing stores had a tendency to provide a wider range of products, and to sell more imported photographic materials than small retailers. Thus, this law, which restricted the establishment of large retail stores hindered the growth of alternative distribution channels for imported photographic material (para. 4.14).
(3) Restrictions on premiums and misleading representations under the Premiums Law.
The Premiums Law and other ‘promotion countermeasures’ issued by the JFTC under the
Antimonopoly Law restricted sales promotion activities such as discounts, gifts, coupons and other innovative advertising campaigns. From the US perspective, these measures were taken to disadvantage foreign producers who tended to have ample financial and human resources, the ability to translate them into extensive and innovative commercial campaigns (paras. 4.16 and 4.18).
From the US perspective, the application of these actions taken by the Japanese government individually and collectively ‘nullified or impaired, within the meaning of
Article 23 (1) b, the tariff concessions that Japan made’ on consumer photographic materials in various GATT negotiation rounds (para. 1.2). Article 23 (1) b states that benefits of a member state resulting from multilateral agreements within the GATT framework must not
107 Japan – Film (‘Japan – Measures affecting Consumer Photographic Film and Paper’), Report of the Final, WT/DS44/R, 31 March 1998.
191 be impeded by countermeasures of another member state (see Box 6.1). The US also argued that the measures taken by Japan disadvantaged imported goods and therefore breached
GATT Article 3 (4) codifying the principle of national treatment (i.e. the idea that, in principle, imports and national products should be treated equally). Another minor point raised by the US is that Japan failed to make its administrative rulings on distributions publicly available, and that this was a violation of Article 10 (1) concerning the prompt publication of trade regulations by national governments for the sake of transparency.
Box 6.1: GATT Article 23 (Nullification or Impairment) (1)
If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as a result of
(a) the failure of another contracting party to carry out its obligations under this Agreement, or
(b) the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, or
(c) the existence of any other situation,
the contracting party may, with a view to the satisfactory adjustment of the matter, make written representations or proposals to the other contracting party or parties which it considers to be concerned. Any contracting party thus approached shall give sympathetic consideration to the representations or proposals made to it.
Not surprisingly, Japan had a very different opinion on this case. First of all, the aim of the
MITI’s various guidelines for distribution systems was to ‘modernize the Japanese distribution industry’, and not to disadvantage imported goods (para. 4.6). Furthermore, the choice of a single-brand distribution system was an autonomous decision of firms, and it did
192 not result from government policy (para. 4.9). Second, there is no clear evidence of correlation between the size of stores and the likelihood of selling foreign products, so the US claim concerning the Large Stores Law is flawed (para. 4.15) . Third, the Premiums Law restricts only excessive commercial promotions and makes no distinction between domestic and foreign products. Thus, the law does not discriminate foreing companies and their products (para. 4.17).
After one and a half years of intensive investigation and analysis, the panel adopted the final report in April 1998 and dismissed all core arguments of the US. First, according to the report, the US failed to provide sufficient evidence that Japan’s distribution measures, the
Large Stores Law, and the restrictions on premiums and commercial promotion individually or collectively caused an economic loss of the US interest in the meaning of Article 23 (1) b.
Second, both the distribution measures of Japan concerning the photographic market, and the other laws problematized by the US, are origin-neutral and do not discriminate imported products. Therefore, these administrative measures do not breach GATT Article 3 (4) concerning national treatment. Third, the US failed to demonstrate that Japan did not meet the obligation of publishing its administrative rulings adequately and promptly within the meaning of Article 10 (1).
In this way, the first attempt of the US to judicially settle a competition-related trade dispute in the WTO proved unsuccessful. The panel decision delivered a clear message to
WTO member states that a plaintiff must provide sufficient reasoning and evidence in order to request the application of existing WTO trade rules to competition-related cases. This was and remains a demanding condition for member states, given a lack of case law accumulation in this area. It is difficult to prove that legal and administrative measures taken by a certain country not only restrict market competition in its territory, but also discriminate foreign
193 products. After all, some domestic companies might be negatively affected by the policy, too, and therefore it might be compatible with the principle of national treatment.
6.3.2 Mexico – Telecoms case (‘Mexico – Measures Affecting Telecommunications
Services’)
Another WTO dispute which concerned issues at the intersection of trade and competition policies is the Mexico – Telecoms case108. In this case, the US made a complaint to the WTO, arguing that the Mexican government violated its commitment under WTO law by not taking action against anticompetitive business practices of a major Mexican telecommunications service supplier, Telmex. The US claimed that this was an illegal barrier to trade, which discriminated foreign firms such as American ones, which were providing telecommunications service across the border (from their home countries to Mexico). On request from the US, a WTO dispute settlement panel in this case was established on 17 April
2002 and adopted the final report on 1 June 2004.
Telmex is a formerly state-owned company in Mexico and one of the major telecommunications service providers there. Although Telmex’s practice of price fixing and market sharing was widely recognized, the Mexican competition regulator (Comisión Federal de Telecomunicaciones, COFETEL) did not take any action against these competition- restricting business practices. The US government insisted that Telmex’s cartel conduct and
COFETEL’s non-enforcement of Mexican competition law against it were in violation of the
108 Since the panel report on the Japan – Film case did not fully address competition issues at the WTO, some people regard the Mexican telecom case in 2004 as the first one in which a WTO dispute settlement panel decided on a competition case in effect (Fox 2006).
194 GATS Annex on Telecommunications, and its Reference Paper, which contained provisions on the prohibition of anticompetitive business practices by major telecommunications firms.
GATS is accompanied by several annexes on specific sectors, including the telecommunication. GATS Annex on Telecommunications concerns government measures affecting access to and use of public telecommunications transport networks and services. As stated in its Section 1, this annex was agreed by the member states in recognition of ‘the specificities of the telecommunications services sector and, in particular, its dual role as a distinct sector of economic activity and as the underlying transport means for other economic activities’. The annex consists of seven parts109, and its fifth section obliges WTO member states to ensure that existing networks of domestic incumbents are accessible to foreign firms.
To be precise, Section 5 (a) of the annex states that member states ‘shall ensure that any service supplier of any other Member is accorded access to and use of public telecommunications transport networks and services on reasonable and non-discriminatory terms and conditions’ (emphasis added).
Importantly, the Annex on Telecommunications is associated with Mexico’s Reference
Paper, which sets out specific commitments that Mexico made with regard to this sector. The most relevant provision is Section 1 of the reference paper, which says that member states must prohibit anticompetitive measures by major domestic telecommunications service providers. An indicative list of anticompetitive business practices is also provided in this section (see Box 6.2).
109 The GATS annex consists of the following seven sections: (1) objectives, (2) scope, (3) definitions, (4) transparency, (5) access to and use of public telecommunications transport networks and services, (6) technical cooperation, and (7) relation to international organizations and agreements.
195 Box 6.2: GATS Telecommunications Annex, Reference Paper, Section 1
1 Competitive safeguards
1.1 Prevention of anti-competitive practices in telecommunications
Appropriate measures shall be maintained for the purpose of preventing suppliers who, alone or together, are a major supplier from engaging in or continuing anti-competitive practices.
1.2 Safeguards
The anti-competitive practices referred to in the above paragraph shall include in particular
(a) Engaging in anti-competitive cross-subsidization
(b) Using information obtained from competitors with anti-competitive results; and
(c) Not making available to other services suppliers on a timely basis technical information about essential facilities and commercially relevant information which are necessary for them to provide services.
In the final report, the dispute settlement panel upheld claims of the US government and concluded that Mexico violated its commitments under the GATS Annex and the Reference
Paper110. While the findings of the final report are detailed and highly complex, a point here is that this case is an important contribution to WTO case law for two reasons. First, this was the very first case in which the competition-related provisions of GATS were applied to a particular dispute between WTO member states (Fox 2006). Second, the issue of non- enforcement of competition law as de facto trade barriers was directly addressed in this case, while it was not fully addressed in the Japan – Film case. The Mexican government was held liable, not for its own action, but for failing to take any measures against the action of a private firm (Telmex).
110 Mexico – Telecoms (‘Mexico – Measures Affectiong Telecommunications Services’), Report of the Final, WT/DS204/R, 2 April 2004.
196 However, an impact of this panel decision should not be exaggerated. The WTO’s competence over competition issues is still very limited. Even if WTO member states successfully conclude the Doha Development Round (which is unlikely in the foreseeable future), competition policy would be off the table. Furthermore, there is a problem of enforceability of the existing law because key terms used in the Reference Paper are vague.
For example, while the paper obliges governments to prevent ‘major supplier’ from engaging in or continuing anticompetitive practices, what major suppliers really mean is not defined
(Goyder and Albors-Llorens 2009: 598-602). The relationship between this term and the concept of ‘dominance’ in competition law needs to be clarified.
On the whole, the two WTO disputes are of great importance because they are so far the only case law with regard to the interface between trade and competition issues within the existing legal framework of the WTO. At the same time, one may conclude that they ironically clarified and vividly illustrated the WTO’s limited power to address competition issues. At both legislative and judicial levels, the WTO is not dynamic in competition policy.
Conclusion
One and a half decades ago, the Final Report of the ICPAC (2000: 35) made an observation that ‘[i]n considering competition policy and the international marketplace, a key challenge stems from the disjunction between national laws and international markets. In other words, law is national but markets can extend beyond national boundaries.’ As an initial response to international competition issues arising from this disjunction, the EU committed to multilateral rulemaking at the WTO, whose binding multilateralism was consistent with the
EU’s approach to market integration.
197 The EU’s ambition to create international competition law within the WTO’s legal framework proved unsuccessful. In summary, the chapter identified three key reasons why it failed despite the EU’s dedication.
(1) Preferences of other major players
The EU was a ‘preference outlier’, whose ambitious proposal was unacceptable for most negotiating countries. The EU’s failure to gain full support from the US was crucial, whereas developing countries and emerging economies, whose economic weight was much greater than in the past round negotiations, also contributed to the blockage of the EU plan by effectively forming coalitions.
(2) The decision-making procedure
Given the large number of WTO members, the ‘explicit consensus’ decision-making mechanism for the commencement of negotiation on competition matters was highly demanding. Each member state retained veto power, at least in theory, according to this mechanism. Not surprisingly, the rule was demanded by those countries which were against the commencement of negotiation on competition policy and the other Singapore issues.
(3) Disagreements on other controversial agenda points
Disagreements on other major issues such as agriculture (especially tariffs and subsidies) made the whole negotiation more difficult. The divide between developing and developed countries was and remains serious.
The failure of the EU initiative was momentous. Competition authorities, including those of the EU, shifted their focus to other international institutions dealing with cross-border competition issues. In particular, the ICN enlarged very fast and emerged as a chief
198 international forum for multilateral cooperation in this field, as the next chapter explains in detail.
199 Chapter 7: Systemic Constraints on the EU as a Regulatory Power
Over the last six decades, the EU has incrementally developed its competition policy and obtained strong policy instruments for enforcement. As demonstrated in previous chapters,
EU competition policy is becoming increasingly stringent, while effectively sanctioning member states’ infringements of EU competition law for industrial policy purposes, even in politically sensitive sectors. Consequently, both private and public actors conducting business across member states cannot ignore EU competition law any longer. Even firms operating outside the union can be subject to EU competition law, according to the practice of extraterritoriality underpinned by the implementation doctrine. Despite the ever greater presence and impact of this supranational policy in Europe and beyond, however, one should not underscore the importance of systemic/structural variables, which exogenously affect EU competition policy.
This chapter contends that the rapidly changing international environment significantly constrains the EU’s regulatory power in competition policy. Specifically, to pursue a better understanding of the EU’s evolving role in global competition governance, one should take into account not only the potential competition of the EU with other regulatory powers such as the US, but also some other interconnected trends at the systemic level, such as an explosion in the number of competition laws and institutions on a global scale, and the emergence of the ICN as a key venue for multilateral cooperation in competition policy.
When it comes to the international transfer of competition law, bilateral channels are more important for the EU than multilateral ones. This is partly because the WTO’s negotiation on competition law is stalled, and also because the ICN’s decentralized structure and focus on soft policy convergence does not allow an imposition of one member’s rules on another in a hierarchical way. It will be argued that the persistent trade-competition nexus in bilateral free
200 trade agreements between the EU and third states is of great importance in terms of international regulatory transfer. The EU-Korea FTA is going to be analyzed as an illustrative case, which shows how exactly the EU exports its competition rules – especially state aid rules, in the case of this FTA.
7.1 A rapid increase in the number and heterogeneity of competition laws
A striking change in competition policy in the last two decades is an explosion in the number of competition laws and institutions around the world. The modern idea of competition policy developed in North America in the late 19th century gradually diffused to Western
Europe in the 1920s, and again in the post-Second World War period, but this policy did not gain much support outside a small number of Western developed countries until quite recently. The situation changed in the late 1980s and early 1990s, during which competition rules and institutions spread to the world at an unprecedented speed. Competition policy was historically a luxury of developed countries, but today it is recognized in numerous developing countries and emerging economies as a useful way of rule-based economic governance. According to a recent report by the OECD (2014: 26), only 9 jurisdictions had competition laws at the end of the 1970s, and only 6 of them had competition authorities. In
1990, there were still only 23 jurisdictions with competition laws, and 16 of them had competition authorities. The numbers soared since then. As of October 2013, as many as 127 jurisdictions were equipped with competition laws, while 120 possessed functioning competition authorities 111 . This is a seismic change that enormously affects the EU’s
111 The jurisdictions include seven regional entities: the Andean Community, CARICOM (Caribbean Community), COMESA (Common Market for Eastern and Southern Africa), MERCOSUR (Southern Common Market), EFTA (European Free Trade Area), the EU and the WAEMU (West African Economic and Monetary Union).
201 international role in the area of competition. Therefore, the causes and consequences of this general trend worth a closer look.
The academic literature identifies three key reasons for this explosive diffusion of competition rules around the world in the 1990s and onwards (Aydin 2012; Papadopoulos
2010; Djelic 2005). The first two reasons concern increasing demand for competition law and institutions, especially in developing countries, whereas the last one is primarily a matter of supply of expertise by experienced competition authorities and international organizations. (1)
The fall of the Berlin Wall resulted in a gradual acceptance of market economies by former communist countries, and this transformation paved way for the introduction of essentially liberal economic policies such as competition policy in these countries. (2) A series of EU enlargement (1995, 2004, 2007, 2013) also contributed to the rapid spread of competition law and institutions because EU membership requires the adoption of competition law as an integral part of acquis communautaire on a take-it-or-leave-it basis. (3) The financial and technical assistance to developing countries by developed countries, especially the US, and more recently the EU, was important, too. Technical assistance in this context often takes the form of international training programs for competition officials, and even advice concerning the actual wording of legislation under preparation112. International organizations such as
UNCTAD also provide various kinds of technical assistance to developing countries which have limited or no experience in competition policy. These three factors are interconnected, especially the first two, whereas the continuing international diffusion of competition policy, even after the mid-2000s, is difficult to explain without taking into account the third factor.
A major consequence of the global diffusion of competition policy is increased cross- national diversity. Analytically, the growing diversity can be identified at four levels: policy
112 An example of this is the active participation of American, Japanese and EU competition officials among others in the drafting process of the Chinese Antimonopoly Law of 2007 (Gerber 2010: 227-233).
202 goals, legal frameworks, institutional designs, and enforcement records. (1) Competition policy may strictly center on the objectives of market efficiency and consumer welfare (i.e. the Chicago School style of regulation), but more often than not, it also takes into account industrial, social and/or development policy considerations. Another example of this is the market integration goal, which is a key concern in the context of European integration (see
Chapter 2). (2) Concerning the legal structure, many countries select more administrative ones granting a significant degree of discretion to executive bodies, whereas others have more court-driven, private litigation-based systems. (3) With regard to organizational designs, there might be a single competition authority or multiple authorities in a given country or region, depending on its preference and historical context, while competence allocation between competition authorities and sector-specific regulatory bodies is another area where cross-national divergence is persistent. (4) As for enforcement records, it is important to note that what is written in competition law and how competition regulators actually implement it often differ significantly. For example, until quite recently, developmental states such as
Japan and South Korea applied their competition rules relatively loosely to domestic companies, especially large ones under the pressure of international competition, whereas countries such as the US have a stronger record of competition regulation.
While diversity itself is not inherently a negative phenomenon113, it becomes problematic when economic globalization proceeds without any international convergence of competition rules. Specifically, the heterogeneity of national and regional competition rules poses three risks. First, given the absence of comprehensive global competition law, collusive and monopolistic anticompetitive business activities across borders may cause interjurisdictional
113 Budzinski (2008) regards the growing diversity as a generally positive trend and claims that it is a mere reflection of numerous schools of competition law and economics. According to him, any attempt to harmonize competition policies in a simplistic, top-down way is unrealistic and possibly counterproductive.
203 conflicts (see Chapter 6). Second, there is a possibility that companies operating internationally may maneuver the national discrepancy and start venue-shopping in order to maximize their interests (e.g. to notify a merger first to a competition authority which is most likely to make a favorable decision). This would result in greater legal uncertainty. Finally, differences in terms of investigative procedures and analytical frameworks would hinder international cooperation on competition. For example, the simultaneous investigation by competition authorities is a major way to effectively regulate international cartels, but it would be difficult to use this method if procedures for cartel control significantly differ across nations. Likewise, divergent rules on mergers would hinder competition authorities’ coordination of remedies (e.g. divestiture of some properties) that merging companies are required to comply. Without international coordination, the authorities may impose contradictory remedies on merging parties – a situation which could be against the interest of both the regulators and the regulated.
Given the increasing diversity of competition policies in multiple dimensions, it should not come as a big surprise that neither the method of harmonization (legalistic ‘one-size-fits-all’ approach) nor that of mutual recognition gained much support at the WTO and other international arenas (see Chapter 6, Section1). Instead, international convergence has come to the fore as an alternative response of states to the challenge of increasingly transnational anticompetitive business practices. Therefore, the next section focuses on the ICN, which is the main driver of international convergence in competition policy.
204 7.2 Engaging in and adapting to the ICN
7.2.1 The rise of the ICN as a main driver of international policy convergence
The ICN is an informal transgovernmental network of competition officials. It was established on 25 October 2001 by 16 competition authorities from 14 jurisdictions: Australia,
Canada, the EU, France, Germany, Israel, Italy, Japan, Korea, Mexico, South Africa, the UK, the US and Zambia. This network enlarged quite rapidly, and today it brings together most competition authorities in the world, both new and established. Remarkably, by the year 2010, the membership jumped to 114 authorities coming from 100 jurisdictions (Motta 2011: 219).
As of 25 April 2014, as many as 128 authorities from 115 jurisdictions belong to the ICN
(Weidner 2014: 1), and its membership is likely to continue increasing114. This rapid increase in the number of member agencies is a strong indication that the ICN has become a major platform for global cooperation in competition policy in the last fifteen years. Thus, to pursue a better understanding of the international environment which seems to be constraining EU competition policy, it is important to analyze what the ICN looks like, where it comes from, and what challenges it faces.
While the ICN has distinctive characteristics in numerous aspects, its key features are to be found in three aspects, namely policy goals, the institutional setting, and the mode of governance.
114 Notwithstanding this general trend, some countries, notably China, enacted competition law and still choose to stay outside the ICN. Thus, the membership is still far from universal.
205 Central goal
The ICN neither takes a ‘one size fits all’ approach to international policy harmonization nor aims to impose a particular country’s specific understanding of competition policy on others in a top-down way. Rather, as articulated in the Memorandum on the Establishment and
Operation of the International Competition Network (hereafter, the Memorandum) it aims to facilitate the international convergence of competition policy and law through the publication and dissemination of non-binding recommended practices among others (ICN 2001:1). In other words, the ICN is specifically designed to address the issue of growing diversity, which is occurring as a consequence of the explosive diffusion of competition policies on a global scale.
While some scholars highlight the ICN’s role as a platform for networking and socialization among competition policy officials (Djelic and Kleiner 2006; Djelic 2005), the global policy convergence of competition policies through benchmarking exercises has always been the top priority of the ICN. There is little doubt that the ICN facilitates networking and the building of mutual trust among member agencies. Yet, as articulated in official documents of the ICN, these goals are secondary and considered as a condition for information and experience sharing, which allows for effective benchmarking exercises by the members for policy convergence. In the words of the Chair of the ICN, Andreas Mundt
(2013: 1), ‘the building of mutual trust and understanding were welcome side effects’
(emphasis added) of those efforts which were put by member authorities into the formation of recommended practices. The continued focus on policy convergence was confirmed by the seminal document of 2011, the ICN’s Vision for its Second Decade, which set out the top priorities of this network in the following years, while taking stock of its experience in the first decade (ICN 2011: 5-9).
206 The slogan of the ICN, ‘It is all competition, all the time’ (ICN 2009: 1), summarizes the thematic focus of this network succinctly. Competition policy issues are always the main agenda of the ICN, and this issue specificity is what makes the ICN distinctive115. The
OECD’s Competition Committee deals with this policy too, but it is put into broader discussions over international economic policies such as trade policy. Likewise, although
UNCTAD has a small and yet specialized team of competition policy experts, the issue of competition is important in so far as it is connected to the top priority of UNCTAD, that is economic development.
Table 7.1: Chief characteristics of the WTO and the ICN in comparison
WTO ICN Representation Foreign and trade ministries Competition authorities only among others
Policy mechanism Harmonization based on hard law Voluntary policy convergence
Decision-making Bottom-up, consensus-based Rule-mediated bargaining Process benchmarking
Thematic focus Principles and norms Procedural rules and analytical methods
Structure Highly institutionalized and Informal and decentralized Judicialized Source: developed from Bode and Budzinski (2005: 10-15); Fox (2009: 157-165).
It should be noted that the agenda of the ICN is very different from that of the WTO’s
Working Group on the Interaction between Trade and Competition Policy, which was active from 2001 to 2004. The preliminary study of this working group explored the possibility of
115 This is not to say that the possibility of cooperation between the ICN and other competition-related international organizations is slim. See, for example, the ICN-OECD liaison project, in which the two bodies conducted joint research on competition policy advocacy (ICN 2013).
207 global competition law making, and focused on general principles and norms. Competition policy issues were placed in a broader context of trade policy. By contrast, as explained above, the ICN takes a soft approach to the promotion of policy convergence, while treating competition policy as such. It should also be noted that the ICN places emphasis on practical issues, especially investigation procedures and case analysis methods. Accordingly, ICN recommendations are often concerned with internal guidelines of competition authorities, which can be modified without potentially lengthy national legislative processes. Table 7.1 above summarizes these features of the ICN in comparison with the WTO.
Structure
The institutional setting of the ICN is distinctive. As the name ‘International Competition
Network’ indicates, it has a very decentralized structure, which is in stark contrast with that of traditional, more bureaucratic international organizations. The ICN is an informal network and has neither a legal personality nor the judicial power of arbitration. Furthermore, it does not have a permanent secretariat. The above-mentioned Memorandum that all ICN members need to endorse explains a rationale behind this institutional design (ICN 2001: 3): ‘Due to the project-oriented working group structure, it is not contemplated to establish a permanent secretariat for the time being. Logistical support for the conferences and meetings will be provided by the ICN member hosting the conference’. In a word, the ICN is a very ‘light’ institution.
It is equally important to notice that the ICN is project-oriented, and that its substantial work is primarily conducted by working groups co-chaired by a few (normally three) competition agencies. Four main working groups address issues of advocacy, cartel, merger, and unilateral conduct, respectively. As for overall management, the Steering Committee
208 elected by the member agencies plays an executive role, but its power is limited to a very few areas such as the facilitation of communication among member agencies, administrative support for working groups, and the management of a small number of its own initiatives116.
Box 7.1 shows a simplified structure of this emerging global network.
Box 7.1: A simplified structure of the ICN (as of April 2015)
Governing bodies - Steering Committee, including the Chair and three Vice Chairs - Unofficial, non-permanent secretariat – the Canadian Competition Bureau
Major activities Annual conferences - Project-based workshops, tele-seminars, and email-based discussion - Compilation and dissemination of work products - On-demand training programs
Major Projects Substantial Working Groups - Advocacy - Cartel - Merger - Unilateral Conduct Operational Working Groups - Operational Framework - Membership Steering Committee Initiatives - Advocacy and Implementation - Outreach - Non-Governmental Advisors (NGA) Liaison Source: adapted from ICN (2014 a: 2; 2009: 6-7).
116 The Steering Committee sometimes takes an initiative, for example in the area of outreach activities, but activities of this kind often remain ad hoc and heavily depend on the personal capacities of the Chair and two Vice-Chairs.
209 With regard to membership, the accession procedure of the ICN is extremely simple, and there are no membership fees. Moreover, the ICN does not have such a thing as formal criteria for accession. These are key factors which contributed to its rapid expansion. All a potential applicant has to do is to send a completed registration form, which is very short, and a one page letter to the chair of the Membership Working Group, stating an intention to join the ICN as well as the endorsement of the spirit of the Memorandum, which outlines the goals and working methods of the network117. The only de facto requirement is that a national or international institution seeking for the ICN membership needs to be specialized in competition policy118. Put differently, countries which are yet to establish competition law and institutions cannot join this network of competition authorities (notice the difference between the ICN and the OECD/UNCTAD in this respect). As long as the applicant is a competition authority which is legally competent to enforce competition law, it would be granted the membership, regardless of its level of economic development and competition law enforcement record. In short, the ICN’s legal and institutional structure is highly voluntary, flexible and open.
Working methods
Those three elements (the voluntary approach, flexibility, openness) are also to be found in the ICN’s mode of governance. As for the voluntary approach, this network issues non- binding recommendations on regulatory procedures and substantial analytical methods of cases, while taking a bottom-up approach based on information and experience sharing among the members. Those recommendations are first agreed by members of each working
117 See the ICN’s page on membership applications (ICN: no date). 118 According to the Memorandum (2001:1), ‘Members need to be national or multinational competition agencies entrusted with the enforcement of antitrust laws’.
210 group on a consensus basis, and then approved at annual conferences. Typical examples of this are Recommended Practices for Merger Notification and Review Procedures,
Recommended Practices for Merger Analysis, and Recommended Practices for
Dominance/Substantial Market Power Analysis, to name a few. The ICN also produces and disseminates various practical tools such as case-handling manuals (e.g. the Anti-Cartel
Enforcement Manual), toolkits (e.g. Competition Advocacy Toolkits I and II), and templates
(e.g. Leniency Waiver Templatels). Again, all of them are non-binding, and the member authorities are expected to implement them voluntarily. The work products of the ICN are vast and covers both substantive and procedural issues related to competition policy (for a comprehensive list of the output, see ICN 2014 b). The publication is particularly extensive in the area of merger, which was one of the top priorities of this network in the first few years.
The work products are less extensive in the areas of advocacy and cartels, and modest in the area of monopoly.
Regarding flexibility, the member agencies are free to choose which working groups they join. Some competition authorities attend all of the four substantial working groups, while others participate only in those groups which directly concern their interests. Flexibility is the main merit of this voluntary system, though it opens up the possibility of a free ride by inactive members, who can utilize the work products of others without any costs and efforts.
Concerning openness, the ICN aims to make its benchmarking exercises highly inclusive, in the hope that this would assure the implementation of agreed recommendations by member agencies. On the one hand, the positions of working group co-chairs are given to both developed and developing countries, although there is no formal rule for the distribution of these key positions. On the other hand, ‘Non-Governmental Advisors’ (NGAs) - stakeholders such as business groups, consumer groups, legal and economic professionals, academics, and international organizations - are invited to express their opinions at annual conferences, and
211 occasionally at working group events, be they online or offline. In other words, the ICN is not only transgovernmental, but also transnational. NGAs provide information and expertise, while reinforcing the ICN’s focus on case-oriented, procedural and analytical issues rather than broad principles119.
Historical context
The peculiar characteristics of the ICN identified above, notably its highly decentralized structure, inclusive membership, and focus on international policy convergence, result from both the international environment (the structure) and specific proposals of key national governmental actors (agencies). Because of the rapid increase in the number of competition laws and institutions around the world, as well as occasional interjurisdictional conflicts resulting from divergent national competition rules, there was an increasing recognition among competition policy officials in the late 1990s that international cooperation and coordination of some sort were necessary in this policy field. There was also a wide recognition among competition policy makers on both sides of the Atlantic that multilateralism is key to effective international cooperation on competition regulation because cross-border mergers, cartels and other anticompetitive business practices rarely involve only two jurisdictions.
This general political climate in the late 1990s was in favor of multilateral cooperation on competition, but did not predetermine its form. It was the US Department of Justice, particularly its Antitrust Division, that proposed the establishment of the ICN, while making substantial contributions to the international discussion about how to design it. In November
119 For concrete examples of contributions of NGAs to the ICN’s discussion, see Goldman, Kwinter and Joneja (2011: 383-393).
212 1997, the Department of Justice appointed an advisory group, the International Competition
Policy Advisory Committee (ICPAC), to address international competition matters. This advisory committee – the first committee of this kind arranged by the Justice Department – consisted of a dozen of competition policy and law experts and practitioners, with three key figures in the driving seat: Co-chairs James F. Rill and Paula Stern (senior competition law practitioners), and Executive Director Merit E. Janow (a professor of Columbia University).
The mandate of this group was to thoroughly examine the following three topics and make policy recommendations: (1) multijurisdictional mergers; (2) future directions in enforcement cooperation between US competition authorities and their foreign counterparts with special reference to international cartels; (3) the interface of trade and competition issues (ICPAC
2000; 34). After two years of extensive debate at the committee’s meetings as well as three public hearings involving experts, stakeholders, and competition officials from abroad, the
ICPAC submitted a wide-ranging Final Report - consisting of six extensive chapters - to then-
Attorney General Janet Reno and then-Assistant Attorney General for Antitrust Joel Klein of the US Justice Department in February 2000.
This report recommended that the US antitrust authorities should address a wide range of issues, both substantive and institutional, in its initiative. Regarding substantial ones, key proposals of this report are the following points (ICPAC 2000: 301): (1) deepen international cooperation by applying the positive comity doctrine on a multilateral basis; (2) facilitate the identification of best practices for merger control and hard-core cartel regulation; (3) develop rules for governmental actions with potential negative spillover effects, such as export cartels;
(4) consider and assess the scope of governmental exemptions; (5) consider new issues such as e-commerce and their implications for competition regulation; (6) conduct collaborative research on private and public anticompetitive conduct; (7) set up a system of dispute
213 mediation. This list of potential agenda points was acknowledged by senior officials of the
US antitrust authorities, and informed their international policy in the following years.
Yet, what really drew attention of policy makers both within and beyond the US was the suggestion of this report to set up a new institutional framework for international cooperation in competition relations. In chapter 6, the report called for multilateral efforts to ‘create a new venue where government officials, as well as private firms, non-governmental organizations and others can exchange ideas and work towards common solutions of competition law and policy problems’ (emphasis in the original) (ICPAC 2000: 300). The
ICPAC named this potential platform ‘Global Competition Initiative’, and in retrospect, it was the very first blueprint of the ICN.
At the same time, the ICPAC Final Report severely criticized the WTO’s competition law making project and stated that ‘this Advisory Committee sees efforts at developing a harmonized and comprehensive set of multilateral competition rules administered by a new supranational agency as not only unrealistic but also unwise’ (ICPAC 2000: 271). According to the report, the attempt to make binding competition rules at the WTO was politically unrealistic because there was a great degree of procedural and substantive divergence across jurisdictions, making the adoption of a one-size-fits-all approach (‘harmonization’) very difficult. The initiative was also thought of as unwise because agreements on core principles of competition regulation, such as the prohibition of hard-core cartels would not alleviate interjurisdictional conflicts deriving from more specific procedural and substantive differences among competition authorities (ICPAC 2000: 271). These criticisms posed by experts reinforced the American competition authorities’ skeptical view of the EU’s initiative of competition law making in the WTO.
214 The US government welcomed the ICPAC’s proposal of creating an informal decentralized network of competition authorities, and then-Assistant Attorney General of the Justice
Department Joel Klein took a leadership role in translating this recommendation into action.
He presented the idea of a new global competition forum at the EC Merger Control 10th
Anniversary Conference in September 2000. He expressed his determination in the following way:
Our Advisory Committee recognized the problem and called for Global Competition
Initiative. I have been giving this considerable thought and believe that, whatever
happens on antitrust at the WTO (I won’t belabor my own views on the subject, which
I’ve expressed often), we should move in the direction of a Global Competition Intiative,
cautiously and on an exploratory basis, but in the end I think such a development is
almost inevitable (Klein 2000).
On the next day of this conference, then-European Commissioner for Competition Mario
Monti welcomed the suggestion, while clarifying his understanding that such a new forum would be able to coexist with other multilateral efforts. He stated that:
[ … ] I warmly welcome the announcement made yesterday by Assistant Attorney
General Joel Klein. An opening to multilateralism in competition matters beyond OECD
by such an authoritative opinion is a very important development that we appreciate as a
constructive step (Monti 2000).
From EU perspective, one major merit of its preferred venue at that time, the WTO, was its comprehensive membership and multilateralism. It was therefore logically consistent for the
EU (especially DG COMP), as articulated in the above statement of Monti, to support the establishment of a Global Competition Initiative (renamed ‘ICN’ later), which was going to be multilateral and inclusive (open to both developing and developed countries). The US
215 Antitrust Division shared Monti’s idea that the OECD would not become a genuine ‘global’ competition forum because of its restrictive membership, notwithstanding the usefulness of various OECD work products related to competition policy (Klein 2000).
The EU’s support for the launch of the ICN had important political implications for EU-US bilateral relations. When the establishment of the ICN was under discussion, the EU still had a hope that the US would eventually endorse the idea of competition rule making at the WTO
(Davison and Johnson 2002: 246). Accordingly, the EU had little choice but to accept the
ICN plan while expecting that the US would in turn support the competition law making project at the WTO. It should also be noted that competition authorities of large economies, notably DG COMP of the EU and the Antitrust Division of the US Justice Department, had organizational interests in supporting a competition-dedicated global forum where they would be able to retain a relative autonomy from other departments of their governments such as foreign and trade ministries, while facilitating transgovernmental consultations without commitment to binding rules (Damro 2006c: 138). Regarding the EU’s representation in multilateral fora, member states possess the formal membership of UNCTAD and the OECD, whereas DG COMP is merely an observer in these organizations. While the European
Commission takes on multilateral negotiation at the WTO on behalf of the member states, the principal supranational body within the Commission that leads internal coordination and external negotiation is DG TRADE rather than DG COMP. Hence, DG COMP prefers the
ICN - the only global multilateral arena wherein it is formally represented.
More substantial discussion about the US initiative was made at an unofficial gathering of some 40 senior competition officials and experts at Ditchley Park in England in February
2001. At this meeting hosted by the International Bar Association, the participants agreed, among others, that the institution should be an informal network of competition policy officials with minimum budgetary implications; that the membership should be inclusive,
216 covering both developed and developing countries, while incorporating businesses and competition professionals; and that particular emphasis should be placed on open discussion and the publiation of non-binding best practices in such areas as merger control and competition advocacy (Janow and Rill 2011: 34).
Soon after his appointment in June 2001, a new Assistant Attorney General for Antitrust,
Charles James made it clear that the US government would keep its commitment to his predecessor’s initiative (James 2001c). Meanwhile, other competition authorities such as those from the EU, EU member states, Canada and Japan gave continuing support to this ambitious endeavor. Against this background, heads of the sixteen competition authorities coming from fourteen jurisdictions announced the launch of the ICN at Fordham University
Corporate Law Institute’s Annual Conference on International Antitrust Law and Policy on
25 October 2001.
In short, the idea of establishing an unofficial global network of competition officials originates in the ICPAC’s report, which highlighted the ineffectiveness of existing, highly institutionalized international economic organizations in addressing competition policy issues.
This proposal was accepted and developed by key competition authorities, most notably the
American antitrust agencies and their European counterparts. This historical context is essential to understand the distinctiveness of the ICN as an international forum for competition cooperation.
Old and new challenges for the ICN
As the ICN developed over time from a small club to a global network of competition enforcement agencies, its main challenges also evolved eventually. In the first few years, the
217 founding members focused on the establishment of this new network, its expansion, and the development of its working methods (Mundt 2013: 1). In order to set clear and focused agenda, it was also important to identify relevant issues which were common concerns of the member agencies. Ironically, new challenges arose precisely because of the ICN’s relative achievement in terms of its own objective, namely a rapid expansion in both membership and agenda.
One of the relatively new challenges for the ICN is that its publication of recommendations, templates, manuals and reports are so extensive that it is very difficult to have a thorough understanding of what has been done, even for those inside this network. The publication of the ICN Work Products Catalogue in September 2011, and its subsequent revisions, should be understood as a remedy, if not a solution, of this situation (for the latest version of the catalogue, last updated in June 2014, see ICN 2014b).
Another big issue is the implementation of best practices identified and agreed by the member authorities. While the ICN’s performance is relatively efficient in terms of output, whether it is successful in terms of impact is a moot point. On the one hand, it is remarkable that the ICN has already had a modest impact on national competition rules, despite the increasing membership, growing diversity among the members, and the low degree of institutionalization. Statistics concerning merger control provide some quantitative evidence for the impact of the ICN’s work products (Coppola 2011). Some country-specific case studies, though not comprehensive, provides further evidence for this, while tracing the causal link between ICN recommendations and changes in member authorities’ competition rules (for example, for the case of Mexico, see Motta 2011: 217-228). On the other hand, since ‘low-hanging fruits’ are already taken, the ICN would have to deal with tougher agenda points in the near future (Lugard 2011: 6). The formation of best practices in merger control in the early 2000s was relatively easy because the ICN was still small, and also because many
218 member authorities did not have competence to regulate mergers. Today, the network has been expanded exponentially and would have to tackle more controversial areas such as monopoly/unilateral conduct. Thus, whether the ICN can assure a high degree of implementation remains a crucial issue for the relevance of this network, and it largely depends on whether and to what extent the international standards promoted by the ICN empower its members in domestic politics when pushing for policy reforms for greater international convergence.
The third challenge for the ICN is to cope with its increasingly diverse and heterogeneous membership. The two major international organizations dealing with competition issues, namely the OECD and UNCTAD, focus on themes which are of particular interests of developed and developing countries respectively. Because of such specialization, these two organizations are not well placed to directly address the issue of growing diversity in competition policy. Furthermore, the OECD’s restrictive membership undermines the legitimacy of its recommendations as potential global standards, even if their quality is very high. In contrast to these two organizations, the ICN specializes in the facilitation of policy convergence, and this is one of the major advantages of this network. That being said, the
ICN has to cope with a dilemma: the more successful the ICN is in terms of inclusive membership, the more heterogeneous its members would be. In the words of the current head of the ICN Andreas Mundt (2013: 2), the ‘fast growing and diverse membership’ is a huge challenge because ‘Not only does the ICN consist of new agencies as well as mature agencies, it also brings together members with different resources, from different time zones, with different competences and with a vast number of different languages’. In order to deal with this dilemma, the ICN controls its agenda carefully and restrictively. Despite the rapid expansion of the network, its agenda hardly goes beyond the lowest common denominator of the member authorities’ concerns, namely cartels, monopoly, mergers and competition
219 advocacy. At the same time, the ICN keeps its members’ profiles homogeneous. Some officials come from developing countries, whereas others come from developed countries.
Yet, all of them are competition officials anyway. And this overarching policy orientation of the ICN, regardless of whether it is a proactive or reactive choice of this network, seems to constrain the EU’s international role greatly. This point will be elaborated in the next section.
All in all, one may argue that the ICN has become the most important venue for multilateral cooperation on competition regulation, despite some challenges it faces.
Although its membership is far from universal, the rapid increase in the number of member agencies confirms the relevance of this new network. Its unique institutional setting and working method reflect the recommendation of the ICPAC, the preference of major players such as the US, and the diffusion of competition policies on a global scale. Whether and how the EU engages with this young network of competition officials, ICN, is a question that is to be addressed in the next section.
7.2.2 Constraints on and opportunities for the EU
On the one hand, the process of the establishment of the ICN described above reveals the limited capacity of the EU to play a leadership role in global competition governance. With little doubt, the ICN would not have come into existence without the American initiative. For example, the initial focus of the ICN on such issues as the regulation of multijurisdictional mergers reflects a preference of the US (Botta 2014: 85). On the other hand, despite its initial preference over the WTO, the EU has been actively engaging with its second-best option, the
ICN, as one of the founding members. For example, DG COMP undertook the position of co- chairs of ICN working groups numerous times, while actively contributing to the formation and dissemination of best practices in competition regulation. Fifteen years ago, the EU did
220 not have clear ideas about what role it would play in the ICN because the latter was a new and quite original institution. And, up to the present, the EU still struggles to engage in and adapt to it.
At the beginning of the new millennium, few people could have imagined that the ICN would become a key platform for global cooperation on competition. Yet, the EU was at least aware of the usefulness of this network and supported its establishment and development.
Then, a question is, what opportunities and constraints does the ICN pose to the EU as an emerging international institution? Based on the analysis of the ICN in previous sections, one can identify several constraints on and opportunities for the EU.
The emergence of the ICN brings about opportunities for the EU, for instance, in the area of advocacy and outreach activities, to which the network is strongly committed since its inception. DG COMP has great potential to play a joint leadership role in this field in cooperation with other experienced competition authorities. While the US competition authorities also have ample experience in outreach activities, earlier studies show that developing countries tend to be more interested in the EU’s administrative model than in the more judicial, Anglo-Saxon model (Botta 2014: 87-88)120.
That being said, constraints arising from the ICN should be noted, too. The first one is that the exportation of the EU competition law model as a whole is unfeasible, at least in the context of the ICN. This is because any attempt to impose one party’s competition rules as a package on others would be hindered by this network’s highly decentralized structure, method of consensus-based bottom-up benchmarking, and voluntary/non-binding nature of the recommendations. What is occurring in reality is a more complex process in which DG
120 The Anglo-Saxon model requires an effective judicial system because the former heavily relies on private enforcement. According to Botta, This is one of the main reasons why many developing countries find this model difficult to follow.
221 COMP provides expertise on several areas (e.g. the area of merger remedies), while learning about other areas from its peers. Because of this working method, it is very difficult to establish which competition authority ‘uploaded’ its own rule to the ICN in which area.
The second constraint is the strong presence of developing countries and emerging economies in the ICN, which could possibly challenge the dominance of the EU and the US in this field. With regard to emerging economies, Mexico, for example, is one of the founding members of the ICN and actively engages in its activities. It was therefore not a coincidence that the former head of the Mexican Federal Competition Competition Eduardo Pérez Motta undertook the position of the ICN Chair from April 2012 to September 2013. This point is to be supported further by the fact that the head of the Brazilian competition authority (CADE),
Vinicius Marques de Carvalho, is one of the two current co-chairs of the network as of March
2015 121 . Some emerging economies such as India and Turkey also make important contributions to the ICN by co-chairing one of the working groups122, and Turkey has a seat in the Steering Committee123. This goes without saying that Western countries are well represented in this network, and that American legal and economic professionals seem to be disproportionately represented as NGAs (Djelic and Kleiner 2006). Nevertheless, at least in the context of the ICN, it is becoming more and more difficult to make a bold claim that the
121 The chairperson Andreas Mundt represents Germany, whereas the other vice-chairperson Bruno Lasserre represents France. 122 As of May 2015, the five major working groups are co-chaired by the following countries. (1) Advocacy: France, Italy and Mauritius. (2) Agency effectiveness: Finland, Norway and the US (Federal Trade Commission). (3) Cartels: the Netherlands, Germany and the US (Department of Justice, Antitrust Division). (4) Mergers: Canada, the EU and India. (5) Unilateral conduct: Sweden, Turkey and the UK (Competition and Markets Authority). 123 As of May 2015, the Steering Committee consists of 19 competition policy officials representing the following jurisdictions: Germany, Brazil, France, Russia, the US (two authorities), South Africa, the UK, the Netherlands, Barbados, Belgium, Turkey, South Korea, Canada, Mexico, Italy, Australia, Japan and Singapore.
222 US and EU competition policy models are the only source of inspiration for younger competition authorities.
The third and final major constraint is that the ICN’s agenda is very rigid and restrictive. In other words, the member authorities’ power to add their own agenda points is tightly circumscribed. There are two reasons why the ICN’s agenda is unlikely to see a significant expansion. First, since its members need to be competition authorities, the profiles of officials engaging with the ICN remain homogeneous, despite the continual accession of countries with varying levels of economic development and experience in competition regulation.
Therefore, a drift of the agenda to related policy domains such as trade and development is very unlikely. Second, in order to keep facilitating consensus-based benchmarking, even in the face of rapid enlargement and increasingly diverse membership, the ICN reinforces its concentration on the lowest common denominator – namely cartels, monopoly/unilateral conduct, mergers and competition advocacy. For example, the EU and some of its member states such as Germany suggested the issue of state aid as one of the future priorities of the
ICN (interview with International Relations Officers A and B of DG COMP, Brussels, 12
June 2014), and it was mentioned in the ICN’s Vision for its Second Decade published in
2011 (ICN 2011: 18) – an important document which reflected on this network’s experience of the first ten years, while setting out its long-term strategy for the first time124. Yet, this proposal failed to gain much support from other members not only because many competition authorities have no competence in state aid control, but also state aid, especially subsidies,
124 This document is a result of a special project proposed by the former Chair of the ICN Steering Committee, John Fingleton. At the ninth ICN annual conference in 2010, he pointed out a need to ’take stock of what we have done, where we are going, and how we are getting there’, and, in response, the Steering Committee initiated a consultation to all member authorities as well as selected NGAs on a comprehensive evaluation of ICN performance and the identification of potential areas for improvements (ICN 2011: 2).
223 are still widely regarded as a key instrument of industrial policy. Likewise, many other issues listed in the said document as potential agenda points125 are not discussed yet most likely because a majority of ICN members – especially those in the Steering Committee - thinks the network is already overloaded.
A deeper impact of this strict agenda control of the ICN is that it would reinforce the EU’s commitment to stringent competition policy. Since the issue linkage / spill-over is very unlikely to occur in the ICN in the near future, as explained above, the member authorities are generally encouraged to enforce competition policy without taking into account other policy considerations. It is noteworthy that such a single-purpose approach, which characterizes stringent competition policy, is often criticized within and outside the EU. For example, from a critical political economy perspective, Buch-Hansen and Wigger (2011) criticize the narrow objective of EU competition policy, and make a normative argument that the EU should fully take into account industrial and social goals even in the area of competition. Such a call for more multidimensional competition policy from a normative perspective is important, but does not have much external validity. The OECD and UNCTAD already take active roles in this area and connected competition with trade and development, but these international organizations are not well equipped to deal with growing diversity would not change unless their structure radically transform. Considering the central role of the ICN in the process of global policy convergence and the EU’s active participation in it, it is unlikely that the EU fundamentally challenges the trend towards the relative detachment of competition from other issues.
125 The potential ‘agenda points’ are those suggested by at least two competition authorities. Therefore, items in the list include minority views.
224 7.3 FTAs as a major instrument for international policy transfer?
7.3.1 Persistent trade-competition nexus in bilateral relations
The EU is strongly committed to multilateral cooperation in competition relations, but it is certainly not the only item in the EU’s toolbox for external competition policy. The EU takes a multitrack strategy in this field (Demedts 2012) and has been exploring the usefulness of diversified legal tools such as extraterritorial applications of EU competition rules, bilateral cooperation agreements with competition authorities of third states, FTAs which include competition policy provisions, and the formation and promotion of international standards at multilateral bodies. These policy options are not necessarily mutually exclusive. The EU uses them in combination.
While the issue-specificity of the ICN (the spirit of ‘it is all competition, all the time’) was emphasized in the previous section, it is also important to note that competition policy is by no means completely detached from other economic and regulatory policies such as trade policy. On the contrary, the linkage between competition and trade issues seems to be getting stronger rather than weaker as far as FTAs between the EU and third states are concerned.
This persistent trade-competition nexus in FTAs has an important implication for this chapter’s argument because it seems to provide the EU with an instrument to externally transfer its own competition policy model – an option that is unfeasible in informal decentralized multilateral bodies such as the ICN.
The EU’s international transfer of its own competition rules has been relatively effective in its relations with candidate states and neighboring countries (Aydin 2012: 673-675;
Papadopoulos 2010: 141-144; McGowan 2010: 178-182), but this pattern is likely to change in the long run. Since the speed of enlargement has slowed down after the accession of thirteen new countries during the period between 2004 and 2013, the strategy of international
225 policy transfer associated with membership offers is becoming less relevant to the EU’s external competition policy (Aydin 2012: 677). This increases the significance for the EU of international transfer of competition rules through bilateral trade agreements.
It is important to make a distinction between two categories of bilateral agreements, namely enforcement cooperation agreements between competition authorities (‘competition- dedicated agreements’), and more general free trade agreements between states containing competition rules. The content of competition-dedicated agreements and that of the competition provisions of FTAs are not inherently different. For example, the EU may use the former as a substitution for the latter when a political climate does not allow the conclusion of an FTA with a negotiating partner (interview with International Relations
Officer A of DG COMP, Brussels, 12 June 2014). That being said, these two types of agreements tend to place emphasis on different aspects of international cooperation, while involving different sets of governmental and societal actors.
Generally speaking, competition-dedicated agreements are usually non-binding and aim to provide a platform for regular meetings between senior competition officials of the signing parties, while facilitating information exchange. They also aim to facilitate international coordination between competition authorities. Typical examples of matters to coordinate are the timing of cartel investigations, and the conditions (‘remedies’) on mergers which legally bind merging parties. Such coordination efforts would reduce risks of interjurisdictional conflicts, though a problem of absence of dispute-settlement mechanisms remains in most cases. The EU uses this bilateral channel very sparingly (see Section 2.1.3). By the year 2015, it reached agreements with only five countries, namely the US, Canada, Japan, South Korea and Switzerland. DG COMP also started to explore the usefulness of ‘the memorandum of understanding on cooperation’ as a starting point for intensified dialogues (not negotiations) with emerging economies - Brazil, China, India and Russia. The memoranda are less
226 substantial than the EU’s standard competition-dedicated cooperation agreements. Provided that these four countries established competition laws and institutions only recently, it is understandable that DG COMP invented this new kind of cooperation agreements for a specific purpose of fostering mutual trust and mutual understanding through regular dialogues. While dedicated competition agreements remain an important instrument of the
EU for enforcement cooperation, it is not the main tool of the EU in bilateral competition relations. Up to the present, the EU has devoted more efforts to FTAs with competition provisions, as well as multilateral negotiations on competition issues.
FTAs can be regarded as a tool with which the EU exports its competition law or equivalent to third states. In contrast to many of the competition-dedicated agreements, FTAs are legally binding and usually associated with some kinds of dispute settlement mechanisms.
Additionally, competition issues are incorporated into a general framework of trade agreements, so the EU’s FTAs tend to contain rules on state aid – an issue which is at the intersection between trade and competition. This is almost impossible in the case of competition-dedicated agreements because the vast majority of competition authorities around the world do not have competence to regulate state aid. Partner countries of the EU’s
FTAs with competition rules fall within three broad categories (Papadopoulos 2010: 97). The first category is co-signing states wishing to join the EU. The second one is those from the neighborhood, including Southern Mediterranean and former Soviet Union countries, and the member states of the EEA. Finally, the EU also agreed on FTAs with some major trading partners far abroad. Competition provisions may be substantial or abstract, depending on the nature of the FTAs to which they belong, and the readiness of the signing parties to internationally cooperate in this particular policy field.
227 The ‘Global Europe’ initiative
A key to the understanding of ‘new generation’ FTAs signed by the EU is the ‘Global Europe’ initiative launched by the European Commission’ communication of 2006. The Global
Europe communication published during the term of a former European Commissioner for
Trade Peter Mandelson (2004-2008) is a very important document which laid out a grand trade policy strategy of the EU, with the aim of supplementing the renewed Lisbon Strategy of 2005 for economic growth and creating more jobs (European Commission 2006c: 1). The central goal of this key policy initiative is explained in the following sentence of the document:
The purpose of this Communication is to set out the contribution of trade policy to
stimulating growth and creating jobs in Europe. It sets out how, in a rapidly changing
global economy, we can build a more comprehensive, integrated and forward-looking
external trade policy that makes a stronger contribution to Europe’s competitiveness.
(European Commission 2006c: 2).
This statement emphasizes the potential of comprehensive trade policy to contribute to the
Lisbon Strategy’s goals of economic growth, the creation of jobs, and the promotion of international competitiveness. Thus, the Global Europe initiative can be regarded as an integral part of the EU’s broader socioeconomic strategy.
The communication first argued that the Lisbon Strategy, which primarily concerns the internal agenda of the EU, ‘must be complemented with an external agenda for creating opportunity in a globalised economy, encompassing our trade and other external policies.’
(European Commission 2006c: 2). Then, in accordance with this overriding goal, the communication made its core argument that the ‘rejection of protectionism at home must be accompanied by activism in creating open markets and fair conditions for trade abroad.’
228 (European Commission 2006c: 5). The idea is that the EU aims to combine internal and external trade liberalization to assure a level-playing field for European and non-European trading companies. As regards the selection of partners for new generation FTAs, the EU searches countries that have both ‘market potential (economic size and growth) and the level of protection against EU export interests (tariffs and non tariff barriers)’. Those partners that emerged as the EU’s priorities based on this criteria, as of 2006, are the Association of
Southeast Asian Nations (ASEAN), the Republic of Korea (South Korea), MERCOSUR,
India, Russia, the Gulf Cooperation Council, and China (European Commission 2006c: 9)126.
Three areas of top priority were identified: (1) the removal of non-tariff barriers; (2) better access to resources such as energy, metals and primary raw materials for agriculture and industry; (3) and the promotion of regulatory convergence in areas such as intellectual property rights, services, investment, public procurement and competition (European
Commission 2006c: 5-7). The inclusion of the third one, which is most relevant to the theme of this chapter, reflects an understanding that the elimination of behind-the-border barriers to international trade such as domestic socioeconomic regulation is of great importance for the promotion of international competitiveness of economies. In fact, the communication asserts that ‘As globalisation collapses distinction between domestic and international policies, our domestic policies will often have a determining influence on our external competitiveness and vice versa.’ (European Commission 2006c: 2). This explains why the EU intends to conclude with major trading partners ‘new generation’ or ‘deep’ FTAs which aim to achieve not only trade liberalization but also regulatory convergence.
A typical example of ‘activism in creating open markets and fair conditions for trade abroad’ noted in the Global Europe communication is the international transfer of EU
126 There is, however, a reservation that China ‘requires a special attention because of the opportunities and risks it presents’ (European Commission 2006c: 9).
229 regulation to third states via binding agreements such as FTAs. On the one hand, the general tendency to externalize internal rules, norms and values reflects the EU’s perception that what works in the union will also work outside. On the other hand, material interests are an equally important factor for the EU’s external economic policies, especially in the area of trade. The following sentences of the Global Europe communication clarify which material interests the EU is exactly trying to protect when transferring its competition rules, including state aid rules, to third states:
The EU has a strategic interest in developing international rules and cooperation on
competition policies to ensure European firms do not suffer in third countries from
unreasonable subsidisation of local companies or anti-competitive practices. There is
much to be done in this area. In most countries there is little transparency over the
granding of aids (European Commission 2006c: 8).
As this quotation clarifies, state aid control is included when the EU refers to competition provisions in FTAs. On the one hand, this understanding of competition policy is a reflection of the EU’s own legal system. On the other hand, state aid rules are considered by the EU as an essential element of FTAs (but not bilateral enforcement cooperation agreements) because the issue of state aid, including state subsidies, is at the very intersection of trade policy and competition policy.
A comprehensive survey of various FTAs of the EU with competition provisions is beyond the scope of this research. Rather, the next section aims to conduct a study of the EU-Korea
FTA as an illustrative case, which is economically significant and substantially far-reaching.
230 7.3.2 Externalizing state aid rules: the case of the EU-Korea FTA
The FTA between the EU and South Korea signed in October 2010 provides a typical example of the EU’s international transfer of competition rules. This FTA can make a good case study of the EU’s international regulatory transfer for three key reasons. First, as noted above, the EU-Korea FTA contains detailed competition rules, notably state aid rules. Since state aid control is a distinctive feature of EU competition policy, its inclusion in an FTA is a good indication of policy transfer from the EU to the other party. Second, this agreement is important in itself for EU common commercial policy. It is the first major outcome of the ambitious Global Europe initiative and therefore has the potential of becoming a reference point, if not a template, for future FTAs of the EU. This would be the case, especially in its relationship with other East Asian and Southeast Asian countries because South Korea is the first country from this region with which the EU signed an FTA. South Korea is a major trading partner of the EU, so the FTA is economically important. In 2011, South Korea is the
EU's tenth largest export destination, while the EU was South Korea's second largest export destination only after China (Harrison 2013: 57).
Both for the EU and South Korea, this FTA is one of the most ambitious ones in terms of scope, depth and institution building (Harrison 2013: 59-65). The scope of this agreement is vast, and it was clearly ‘the most comprehensive free trade agreement ever negotiated by the
EU’ (European Commission 2010: 1) when this FTA was signed by the two parties in 2010127.
It encompasses the elimination of tariffs on a wide range of industrial and agricultural goods; the removal of non-tariff barriers to those goods such as safety tests and industrial standards, primarily using the method of mutual recognition; and the lifting of non-tariff barriers to
127 This goes without saying that more recent FTA negotiations of the EU such as the Transatlantic Trade and Investment Partnership one with the US may go beyond the EU-Korea FTA in terms of coverage and depth.
231 service sectors such as finance, telecommunication, broadcasting and air transport. In addition, the agreement includes provisions on regulatory cooperation in such areas as intellectual property rights, public procurement, labor standards, environmental standards, and last but not least, competition policy. Concerning the depth, the provisions on regulatory cooperation go deeper than WTO law and International Labor Organization law in many areas, including competition (European Commission 2010: 1; 8-10). Regarding the institutional framework, this FTA launched the Trade Committee co-chaired by the Ministry of Trade of Korea and the European Commissioner for Trade as well as six specialized committees, seven working groups, and the Committee on Cultural Cooperation. This complex and comprehensive set of bodies serve as a platform for dialogue and mutual monitoring. To assure the effectiveness of this framework, the contracting parties built in two closely linked elements in the agreement, namely general provisions on greater transparency
(Chapter 12 of the agreement), and a dispute settlement mechanism (Chapter 14) with a timeframe stricter than that of the WTO.
Chapter 11 of the EU-Korea FTA is dedicated to competition policy matters, and it consists of two sections. Section A (Articles 11 (1) to 11 (8)) has a wide scope and covers three major areas of competition regulation - cartels, abuse of dominance, and mergers - as well as others concerning the control of public enterprises and state monopolies. As regards objectives, according to Article 11 (1), the contracting parties ‘recognise the importance of free and undistorted competition in their trade relations’ (para. 1) and agreed to ‘maintain in their respective territories comprehensive competition laws’ (para. 2). That said, the dispute settlement mechanism codified in the agreement is not applicable to this Section A. Article
11 (8) states that ‘Neither Party may have recourse to Chapter 14 (Dispute Settlement) for any matter arising from this Section.’ So, the rules on cartels, abuse of dominance, and mergers have a problem of enforceability.
232 What is really new is not Section A, but Section B of this competition chapter (Articles 11
(9) to 11 (15)), which sets out detailed rules for the control of state aid, including public subsidies. In contrast to Section A, these state aid rules are subject to the dispute settlement mechanism set up by Chapter 14 of this FTA. This legal mechanism, which guarantees enforcement at least in theory, distinguishes this bilateral agreement from all earlier FTAs of the EU with state aid provisions.
WTO+ elements
On the one hand, competition provisions laid out in the EU-Korea FTA and the WTO’s
Agreement on Subsidies and Countervailing Measures (SCM) resemble in many aspects. For example, the SCM’s definition of subsidies is used in this FTA (interview with International
Relations Officer B of DG COMP, Brussels, 12 June 2014). WTO law is a common ground for the EU and South Korea, so it is no surprise that they rely on it. On the other hand, the
EU-Korea FTA’s Chapter 11 is not merely a repetition of what is already codified in the
WTO (Sung 2013). According to the literature, the subsidy rules of this FTA have WTO-plus elements, at least in four aspects: transparency, monitoring and review mechanisms, the types of prohibited subsidies, and the scope of economic activities to which the rules apply (Jarosz-
Friis, Pesaresi and Kerle 2010). The influence of EU law is particularly clear in the last two aspects.
Regarding the types of prohibited subsidies, Article 11 (11) of the FTA prohibits two important categories of subsidies, which are regulated under EU competition law but not under the WTO’s SCM. The first category is unlimited public guarantees to debts or liabilities of certain companies, whereas the second one concerns subsidies granted to insolvent or ailing enterprises, which do not have clear and feasible restructuring plans. With
233 little doubt, this broad coverage of prohibited subsidies is a direct impact of EU competition law. As for the scope of application of Article 11, the first paragraph of Article 11 (15) states that the competition provisions in this article apply to subsidies for goods with the exception of fisheries subsidies and the ones related to certain agricultural products. Furthermore, the second paragraph says that both parties promise to make their best efforts to ‘develop rules applicable to subsidies for services, taking into account developments at the multilateral level’. While the SCM deals with subsidies and international trade, the state aid rules of the
EU-Korea agreement presented above clearly goes beyond this (Jarosz-Friis, Pesaresi and
Kerle 2010: 79-80). Notably, the SCM’s applicability is limited to subsidies for goods, whereas the FTA mentions the possibility of incorporating the regulation of subsidies for services into the legal framework. This inclusion can be regarded as the influence of EU law because EU state aid rules also apply to trade in services.
FTAs as a relatively new and yet major channel for international policy transfer?
The EU-Korea FTA provides a good example of the EU’s international policy transfer in the area of competition. Several conclusions can be drawn from this case study. First, the state aid/subsidy rules of this FTA is strongly influenced by EU competition law, but WTO law is also incorporated. This complexity should not be overlooked because the ability of the EU to transfer its regulatory rules externally is often exaggerated. Second, pressures from a particular sector were a major reason why the EU pursued the inclusion of detailed state aid rules, which were much stricter than those of the WTO. According to DG TRADE, ‘[t] he issue of subsidies in certain industrial sectors, such as shipbuilding, has been a matter of concern for European industry’ (European Commission 2011b: 4). While a comparative study of the EU’s FTA is necessary to identify various conditions for the effective international
234 transfer of EU competition law, this case provides a concrete example of how extensive lobbying by the private sector (in this case, the European shipbuilding industry) actually affects EU trade policy. Third, the state aid rules of this FTA are relatively flexible, so the issue of implementation is of considerable importance. Notably, it is still unclear whether the
EU and Korea would agree in the foreseeable future to expand the scope of subsidy rules to service sectors, based on Article 11 (15). As regards wider implications for the EU’s FTA policy, the EU-Korea FTA is uniquely comprehensive in the area of competition law, and this agreement would be a reference point when the EU negotiates FTAs with other parties, especially those in the East and South East Asia. After all, this is a single case, so it is impossible to draw general conclusions on the EU’s FTA policy. Nevertheless, this section at least provided a typical example of the EU’s international transfer of its competition rules through the FTA, which seems much more difficult to be done through non-biding competition-dedicated bilateral agreements.
Conclusion
This chapter has demonstrated in detail that the rapidly changing international environment has informed and constrained the EU’s ambition of global competition law making and, more recently, international convergence through bilateral and multilateral channels. Specifically, in order to better understand the EU’s ability to set international regulatory rules and standards, one should take into account four key systemic-level factors identified in this chapter.
(1) Competition for leadership between the EU and other regulatory powers, not only the US
but also other developed countries and emerging economies.
(2) The explosive diffusion of competition laws and institutions on a global scale.
235 (3) The deadlock of WTO negotiation on the competition issue (see also the previous
chapter).
(4) The emergence of the ICN that is a major driving force of policy convergence on a
multilateral basis.
These factors are closely related to each other and yet analytically separable.
Instead of resorting to strategic competition policy, the EU has been trying to improve its economy’s international competitiveness by promoting stringent competition policy internationally. Being committed to binding multilateralism, the EU, especially DG TRADE, initially selected the WTO as a forum for multilateral cooperation on competition issues.
However, even the preliminary study on competition matters within the WTO working group got on the rocks by the mid-2000s because of a fierce opposition from the US and many developing countries. This incident damaged the EU’s international credibility as a regulatory power in competition policy.
Yet, there is a window of opportunity that the EU may take. A large number of younger competition authorities are eager to learn from more experienced ones in order to improve their own competition laws and sophisticate their institutional approaches. In other words, the explosive diffusion of competition policies and laws around the world created huge demand for a ‘model’. Since the EU certainly has much more experience of competition law enforcement than many other countries, its model of competition regulation may fulfil such demand of younger enforcing bodies. That being said, it is still important to examine whether the EU has been able to translate its potential to actual regulatory power in terms of external policy transfer. In this light, this chapter looked into two key aspects of external competition policy, namely multilateral cooperation in the ICN, and bilateral FTAs which include competition rules.
236 With respect to multilateral cooperation, the EU aims to play a leadership role in its second-best option, the ICN. In order to promote international convergence while enhancing the diversity of its members, the ICN has opted for the decentralized institutional setting and the method of bottom-up benchmarking using non-binding recommendations. The ICN detaches the issue of competition from other ones, and restricts its agenda to a small number of issues. A big challenge for the EU is to make contributions to the policy convergence process in this issue-specific unofficial network.
While the ICN is dedicated to competition policy issues, the linkage between trade and competition is getting stronger in the EU’s bilateral relations. The EU’s new-generation free trade agreement with South Korea contains several WTO-plus elements in state aid control, though the implementation of these rules and the effectiveness of the dispute settlement mechanism largely depends on the political will of the signatories. This case illustrates that
FTAs are of increasing importance for the EU in terms of international transfer of competition law.
237 Chapter 8: Conclusions
It is worth re-emphasizing the point that the maintenance of market competition, and the promotion of competitiveness of economies and individual firms are two distinctive policy goals, which are not always compatible with each other. Specifically, stringent competition policy which prioritizes the creation and maintenance of a level-playing field could deteriorate the international competitiveness of domestic firms if the level of competition regulation is much lower in other countries. This is because firms which are not very much constrained by competition rules may obtain larger market shares at the domestic level and become better prepared to compete in the world market, though this could harm the welfare of consumers in their countries. Accordingly, Blauberger and Krämer (2013: 174) pointed out that ‘European competition and global competitiveness cannot always be reached at the same time, but the two goals have to be balanced against each other’.
This potential tension between competition and competitiveness is relevant not only to nation states, but also to regional organizations such as the EU which possess supranational competition law. Therefore, this study raised the question of how the EU copes with this challenge in competition policy internally and externally. In order to answer this broad question on a step-by-step basis, the research addressed two more specific questions:
(1) Does EU competition policy permit (and even encourage) the emergence of dominant
European firms, even at the expense of the competition-promotion goal?
(2) Is this policy discriminatory against firms which are based in third states?
In addition, given that the EU is one of the main promoters of competition policy on the international scene, the following question was posed in the introduction:
238 (3) How do systemic factors such as the growing diversity among competition regimes and
the rise of transgovernmental networks such as the ICN constrain the EU’s regulatory
power?
From a theoretical point of view, these questions correspond to the three levels of analysis consciously selected in this study – namely, the internal (intraregional) dimension, external consequences of internal dynamics, and external relations. While the preceding chapters already gave answers to these questions at various points, this chapter aims to summarize and synthesize main findings of the research. The chapter also attempts to concisely present (1) theoretical contributions of the research as well as its limitations; (2) distinctive features of
EU competition policy from a comparative perspective; and (3) further reflections on the question of why the EU is committed to stringent competition policy. At the end, several potential venues for future research will be pointed out.
8.1 Key empirical findings
As for the first research question, Chapter 4 on the dynamics between national and supranational regulation showed that the EU hinders the use of competition policies by member states for the creation and maintenance of national champions. Furthermore, the EU does not hesitate to take legal action when member states use their competition rules in a protectionist way (e.g. the prohibition of acquisition of leading national firms by foreign ones). The global financial crisis led to a temporary relaxation of EU state aid control, and this confirms the point that EU competition policy is affected by macroeconomic situations.
Yet, the impact was not as large as the one in the 1970s, and EU competition policy seems to remain stringent after all, despite the demand of some member states and businesses for more
‘flexible’ (i.e. less stringent) competition regulation. These findings validate the hypothesis
239 generated from the model of stringent competition policy that the EU’s supranational institutional setting is the primary reason why EU competition policy effectively hinders national neomercantilist and protectionist action in this policy field. As argued in Chapter 3, the supranational regulators are relatively independent from national and sectoral interests, and they prioritize the creation and maintenance of a level-playing field rather than the competitiveness of European firms.
Regarding the second research question, the analysis of aggregate data and selected cases in Chapter 5 casts doubt on a wide belief that the EU uses its competition policy to discriminate non-European companies, while helping European ones to cooperate with each other, to become larger, and to compete in the global market. On the contrary, it was proved that the enforcement of EU competition law has been nationality blind, at least since the
1990s. US and Japanese policy makers and firms are generally very critical of EU competition policy, but their central concern is not the issue of discrimination. Rather, they are concerned about such issues as the transparency of the European Commission decisions, the speed of case handling, and significant divergence across jurisdictions in terms of procedural and substantive competition law. This evidence of nationality-blind enforcement confirms the hypothesis generated from the model of stringent competition policy. Again, the supranational institutional setup is crucial here. From the EU’s point of view, the nationality of firms does not matter as long as they compete and innovate. The primary concern of the
EU competition regulators is the maintenance of an open, competitive and level market. It follows that non-EU based firms also benefit from this non-discriminatory policy enforcement.
The third research question concerning the EU’s external relations was addressed in
Chapters 6 and 7. These chapters showed that the EU’s ability to set international competition rules, standards and norms is greatly constrained by systemic factors such as the
240 increase in the number and heterogeneity of competition laws around the world, and the rise of transgovernmental networks such as the ICN. Specifically, these factors make it difficult for the EU to build consensus in multilateral negotiations, and translate its resources (most notably, the large market size) into influence. The EU became active on the international scene in the 1990s, and its initial primary goal was the creation of world competition law within the framework of the WTO. The failure of the European initiative became apparent at the Cancun Ministerial Conference in Mexico in 2003, and this tragedy vividly illustrated the limited capacity of the EU as an international rule maker. By actively engaging in the ICN as a founding member, the EU pursues to retain its influence on international standards and norms in the area of competition policy. Yet, the decentralized institutional structure of the
ICN and its method of policy convergence based on bottom-up benchmarking exercises do not allow a simple imposition of one state’s competition model on another. At the bilateral level, policy transfer/rule exportation to candidate states and neighboring states based on conditionality remains a relatively effective instrument of the union. FTAs with competition chapters are another channel through which the EU is comparatively successful in translating its trade and regulatory power into influence on third states. While this study paid particular attention to constraints arising from the global proliferation of competition policies, it might be an opportunity, too, for the EU. This is because the establishment of new competition regimes would increase demand for competition policy models/reference points. For example, many countries are interested in such questions as how to actually compose competition law, and which institutional design to select.
All in all, this research underlined the huge external consequences of EU competition policy on the one hand, and explained the institutional constraints on the other hand. The EU is not a state which is able and willing to use its competition policy as de facto trade and industrial policies for welfare maximization. Even after nearly sixty years since the coming
241 into force of the Rome Treaty, EU competition policy is still based on the understanding of supranational competition policy as a functional supplement to internal market policy. This market integration logic embedded in the supranational institutional setup is key to the analysis of both internal and external dimensions of EU competition policy.
8.2 Theoretical contributions and limitations
In addition to these empirical findings, main theoretical contributions of this study are going to be summarized here. The following three points are particularly noteworthy.
First of all, the main theoretical contribution is the original model of ‘stringent competition policy’, which was developed based on the theory of regulatory states and compared with the model of strategic competition policy. The empirical analysis showed that EU competition policy is much closer to the stringent one than to the strategic one, but this is not to say that
EU competition policy should be stringent. This set of models are not normative benchmarks.
Rather, they are analytical tools which help to understand and explain competition policies such as the EU’s one, especially with regard to the nationality-based discrimination issue. It is important to underline that neither model is perfect. Some people argue that stringent competition policy is too rigid and legalistic, and that it is inferior to strategic competition policy in terms of welfare maximization. Others argue that strategic competition policy is too confrontational and runs the risk of getting retaliatory measures by other players, so stringent competition policy is more beneficial for the economy in the long run. After all, the choice depends on policy objectives, so one cannot say which is better than the other in general.
Second, this research shed light on actual interactions between the internal and external dimensions of EU competition policy. Throughout the chapters, it was consistently argued
242 that the EU’s internal institutional experience matters even in its external governance.
Despite oppositions from numerous actors, the EU committed to competition rulemaking at the WTO in the late 1990s and early 2000s partly because the EU already had the experience of establishing a supranational competition regime based on binding multilateralism (Damro
2006a; Fox 1997). The legislative and judicial approach of the WTO was comfortable for the
EU also because it had the experience of exporting its competition law to candidate states and other neighboring countries based on treaties. This research also argued that the EU’s active international promotion of competition policies through bilateral and multilateral channels is partly attributable to the competition/competitiveness dilemma resulting from the EU’s stringent competition regulation within its territory. By encouraging legislation of competition rules in third states, the EU aims to ensure that EU-based firms have effective access to foreign markets and are not disadvantaged by heavier regulation. In all of these ways, the internal and external aspects of the policy affect each other.
Third, in order to avoid the potential pitfalls of making excessively pro-EU or anti-EU arguments, the empirical analysis (especially Chapter 5) explicitly took into account third states’ critical opinions of EU competition policy. Particularly, material from Japanese and
American sources were used because they are major trading partners of the EU. One may say that it is more important than ever to analyze EU competition policy with ‘foreign eyes’, not because their suspicion is always correct, but because this supranational policy has enormous impacts on third countries. This is a point which applies not only to competition policy, but also to other regulatory policies of the EU.
Several limitations of the study should also be noted. First of all, the research focused on the EU’s action, though the EU’s inaction in some cases may also be consequential. This is due to a methodological reason: it is very difficult to systematically collect information about potential anticompetitive cases which were omitted by EU competition regulators,
243 intentionally or unintentionally. The second qualification to the empirical conclusions is the time frame of the empirical analysis. As noted in the introduction, the vast majority of individual competition cases studied in Chapter 5 and some other parts are from the period between 1990 and the present (i.e. August 2015) because of the coverage of a comprehensive database on the DG COMP website. As for the period before this, only some selected cases were mentioned (e.g. those which led to landmark court judgements), mainly for the explanation of the policy development (Chapter 2). Third, since the research placed a particular emphasis on the international dimension of EU competition policy, Chapter 4 on the internal political dynamics relied on secondary sources more heavily than the other chapters. The small number of case studies in the chapter is of great importance, but they are limited to cases in specific sectors (motor vehicle and energy) in a particular area of regulation (merger).
8.3 The distinctiveness of EU competition policy: a comparative perspective
The introductory chapter emphasized the potential tension between two distinctive goals of competition policy, namely the maintenance of a level-playing field (a competition-oriented argument) and the promotion of the international competitiveness of firms (a competitiveness-oriented argument). It was shown in the subsequent chapters that the former logic prevails in the case of the EU. A brief comparison with its major trading partners, the
US and Japan, would help to place this finding in a broader context of global political economy.
As for similarities, the EU, the US and Japan share concerns about competitiveness. For many years they perceive international competitiveness as a key to their economic prosperity, and consider competition with emerging economies as a big challenge (Rodrigues 2009).
244 Some economists such as P. Krugman (1994) argue that this obsession with competitiveness is misleading because domestic production and consumption are still much more important than international trade for these economies128. Nevertheless, the three players are very likely to continue keeping competitiveness as their priority in the foreseeable future, not least because of their relative decline in the world economy in terms of GDP.
Having said that, as far as competition policy is concerned, they strike a balance between competition and competitiveness in very different ways. The relationship between competition policy and industrial and trade policies also differ. US antitrust policy is one extreme case. Internally, the US Fair Trade Commission and the Antitrust Division of the
Department of Justice are powerful competition regulators with strong investigation and sanction capacities (e.g. criminal sanctions as well as economic ones). Furthermore, active private litigations by business and consumer groups make the enforcement system even stronger. Externally, these regulators actively apply their rules to foreign firms (see Chapter 5 for the issue of extraterritoriality), and their cartel cases involve non-American firms very frequently (see footnote 47 in Chapter 5). In short, US antitrust policy is internally strict and externally assertive.
Another extreme case is the Japanese model, which was established after World War II and remained largely intact until the 1990s/2000s. Japan has one of the oldest competition laws, the Antimonopoly Act, which was enacted in 1947 under supervision of the allied occupation army led by the US. Generally, it covers all major areas of competition regulation and gives extensive competence as well as considerable autonomy to the competition agency, the JFTC.
128 Krugman (1994) openly criticized the Clinton Administration’s competitiveness policy. He argued that (1) while competitiveness is often understood as a matter of balance of payment, it should be actually measured by the productivity of labors. Furthermore, he contended that (2) the obsession with competitiveness is not only wrong, but also dangerous. Too much focus on the trade deficit issues may lead to a wasteful race for subsidies and confrontational trade policy. According to him, these policies may distort the quality of domestic economic policies on the one hand, and may become a source of political conflicts with other states, on the other hand.
245 However, despite this early establishment and the solid institutional basis, the Japanese government applied the Antimonopoly Act very sparingly (Sanekata and Wilks 1996: 102-
106). The JFTC seldom exercised its power to impose economic sanctions on firms, not to mention criminal sanctions. This reluctance derived from a wide belief among Japanese government officials at the time that industrial and trade policies should be superior to competition policy at least in an early stage of economic development. The famous approval of the Yahata-Fuji merger in the steel industry in 1969 is a primary example of lax enforcement129. The JFTC was empowered and became more active only in the 1990s.
US and Japanese competition policies look very different on the surface, but from neomercantilist perspective, both of them make sense. They are based on the competitiveness-oriented welfare-maximization logic. In the US case, strong external competition policy is used to secure the effective access of American firms to foreign markets.
In the case of Japan, weak competition policy was thought of as de facto industrial and trade policy. It seems that the current style of EU competition policy (‘stringent competition policy’) is different from both US antitrust policy and post-World War II Japanese competition policy. EU competition policy is less driven by trade policy considerations than the American one, and less driven by industrial policy considerations than the Japanese one.
Above all, the goal of market integration carries a great weight in the case of the EU, both internally and externally, and this is what makes the EU model quite distinctive. This point
129 The JFTC gave the green light to the merger without providing sufficient reasoning, most likely because it wanted to protect and foster domestic companies vis-à-vis foreign, rival multinational firms (Odagiri 1997: 81-83). Major non-Japanese origin multinational companies at the time in the steel industry in terms of the market share were US Steel, GM, IBM and DuPont.
246 may be developed and tested in future research, building on existing comparative studies of competition law and policy130.
8.4 Further reflections – are there any reasons for the EU’s stringent competition policy other than the institutional constraints?
Before closing the chapter, it is worth reflecting on the further and final question of whether there are any economic or political reasons for the EU’s stringent competition policy other than the institutional and legal constraints analyzed in this study. In other words, is stringent competition policy not just convenient, but also beneficial for the EU for some reasons? Or is the EU’s commitment to it just ‘stupid and counterproductive’ from the perspective of global economic competition, as a former French Minister for Industrial Revival Arnaud
Montebourg said131?
There are two potential reasons, one political and the other economic, though these are purely hypothetical and not tested in this study. (1) The political one concerns the issue of cooperation between competition agencies. In the age of economic globalization, the discrimination of foreign firms through competition law would hinder international enforcement cooperation, which is crucial for the effective regulation of cross-border competition problems. Moreover, nationality-based discrimination may lead to retaliatory
130 See, for example, a collective volume written by political scientists (Doern and Wilks 1996); another one written by economists and lawyers (Goto and Suzumura 1999); and a more recent comparative study by lawyers, which analyzes several developing countries as well as developed countries (Fox and Trebilcock 2013). 131 See Robert (2013), which is a news article of EurActiv. Montebourg criticized EU state aid control in particular. In his opinion, the EU’s strict control of state aid is harming the international comeptitiveness of European firms because the EU’s major trading partners do not have such a legal restriction on financial supports to the private sector. See also Robert (2014) for further debate.
247 measures (counter attacks) by affected countries, so it is a politically risky option for governments. In other words, given the increasing importance of international cooperation, non-discriminatory enforcement may be beneficial for the EU, at least in the long run. This might be one (unspoken) reason why the EU refrains from discriminatory competition policy vis-à-vis non-EU firms. (2) Another argument which is seldom made by EU competition officials, but might be relevant here is that impartial regulation attracts more foreign direct investment. From a methodological point of view, this causal effect is very difficult to prove because firms take into account a large number of factors when selecting a country for investment (e.g. the availability of cheap labor or skilled workers, natural resources, infrastructure, environmental and production regulation). Nevertheless, all other things being equal, firms may have a general tendency to favor a foreign country with non-discriminatory competition policy (and market regulation in general). So, if EU competition officials are really taking these reasons into consideration, the choice of stringent competition policy could be rational after all, economically and politically.
8.5 Venues for future research
Building on the findings of this study, future research may address the following three questions – one concerning the internal dimension of the policy, and the other two related to the external dimension.
The first important theme which may be explored further elsewhere is the impact of the global financial crisis and the subsequent Eurozone crisis. While EU competition policy in general seems to be less affected by these crises than some people speculated, it is important to observe their long-term effects, especially those on the state aid control. Some people argue that the ongoing ‘state aid modernization’ reform would result in a watered-down state
248 aid control, whereas others think that the reform would lead to a ‘better regulation’ (e.g. faster reviews by the EU, more focused state aid by member states) as the EU claims. Either way, an outcome of this reform would be a litmus test with regard to the resilience of EU state aid control.
The second remaining question is whether the EU would maintain its ‘stringent competition policy’, even if some of its major trading partners are inclined to ‘strategic competition policy’. For example, some people claim that, under the antimonopoly law which came into effect in 2008, Chinese competition authorities are using their merger policy mainly for the exclusion of foreign capital, though other people say that it is premature to draw such a conclusion based on only a few years of enforcement record. This is still an open question, but generally speaking, it is interesting to see how the EU would react if one or more emerging economies use competition policy for neomercantilist and protectionist purposes.
The final one is whether the EU continues to be a regulatory power in this policy field, despite the global diffusion of competition laws. At the level of international norm setting
(including technical ones such as administrative procedures and analytical methods), one potential benchmark against which the EU’s regulatory power can be tested is the ability to play a leadership role in the formation of recommended/best practices of the ICN – a key competition-dedicated forum for international cooperation. It should be noted that this process of norm setting is unlikely to be a simple imposition of one member’s model on others because the ICN is a decentralized transgovernmental network rather than a hierarchical, highly institutionalized organization for rule making. At the level of influence on firms, one way to ascertain the EU’s regulatory power is the analysis of future high-profile cases of the EU, involving firms from large economies. For example, at the time of writing
(September 2015), there is an ongoing investigation by the EU into an American IT company,
249 Google, in the area of abuse of dominance. The European Commission officially initiated proceedings of the Google Search case in November 2010 and sent a Statement of Objections
(i.e. an official warning letter) to the company in April 2015132. In brief, the Commission suspects Google’s preferential treatment of its own products in its Internet comparison shopping system, which is called ‘Google Shopping’. The final decision is likely to be made in the coming months. The Commission is also proceeding a case since April 2015 regarding
Google’s alleged exclusive practices in the mobile operating system market, ‘Android’133.
Another major case under investigation is the Gazprom case. After years of investigation, the
Commission sent a Statement of Objections to this Russian gas producer on 22 April 2015134.
The reason for sending this statement is that Gazprom is allegedly partitioning energy markets of Central and Eastern European countries (e.g. selling similar products to these countries at different prices, restricting products resale between the countries). This Gazprom case seems to provide another example of politicization of competition cases. The case also raises a question of what the EU would do when state-owned companies from economically and politically powerful countries violate EU competition law. These are just a few examples of key individual cases, which would make good case studies for further research on the EU’s regulatory power.
132 Case COMP/39.740, Google Search. See also a press release on this case (European Commission 2015c). 133 Case COMP/40.099, Google Android. See also a press release on this case (European Commission 2015d). 134 Case COMP/39.816, Upstream gas supplies in Central and Eastern Europe. See also a press release on this case (European Commission 2015e).
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276 Appendix 1: List of interviewees*
1. International Relations Officer A, Unit A5 (International Relations), DG Competition, interview
conducted in Brussels on 12 June 2014.
2. International Relations Officer B, Unit A5 (International Relations), DG Competition, interview
conducted in Brussels on 12 June 2014.
3. An official of the Belgian Competition Authority (a former representative of the authority to the ICN),
interview conducted in Brussels on 27 November 2013.
4. A First Secretary, the Economic Section at the Japanese Mission to the EU, interview conducted in
Brussels on 23 May 2014.
*Note: Job titles of the interviewees are those at the time of the interviews.
Appendix 2: List of current and former European Commissioners for
Competition
Name Country Period Hans von der Groeben Germany 1958-1967 Emanuel Sassen Netherlands 1967-1971 Albert Borschette Luxembourg 1971-1976 Raymond Vouel Luxembourg 1976-1981 Frans Andriessen Netherlands 1981-1985 Peter Sutherland Ireland 1985-1989 Leon Brittan UK 1989-1993 Karel Van Miert Belgium 1993-1999 Mario Monti Italy 1999-2004 Neelie Kroes Netherlands 2004-2010 Joaquín Almunia Spain 2010-2014 Margrethe Vestager Denmark 2014-present
277 Appendix 3: The European Commission’s method of fines calculation
under its 2006 guideline on the breach of TFEU Articles 101 and 102
Step 1: Setting a basic amount of the fine An estimated proportion of the value of sales directly related to the infringement (* As a general rule, the upper limit of the proportion is 30%.) × Duration (the number of years of infringement) ＋ 15-25% in the case of hardcore cartels (e.g. horizontal price-fixing, market-sharing and output-limitation agreements) Step 2: Making adjustments to the basic amount Increased by ●Record of previous infringements of EU competition law (‘repeat offenders’) ●Refusal/obstruction to cooperate with the Commission during its investigations ●Role of leader in the infringement (e.g. to coerce other companies to participate in a cartel; to take retaliatory measures against cartel breakers) Decreased by ●Cooperation with the Commission during investigations ●Termination of the anti-competitive conduct as soon as the Commission started a formal investigation (this does not apply to cartels and other secret agreements and coordinated practices) ● Provision of information under the leniency notice (100% reduction for the first applicant; 50% for next; 20-30% for the third; up to 20% for others) ●Cooperation with the Commission under the settlement procedure, which aims to speed up the investigation process (10% reduction) ●In case the anti-competitive conduct of the company concerned has been authorized by national authorities or legislation ●Financial inability of the offender to pay the fine (*This is applicable only in exceptional circumstances such as economic crises.) Step 3: Final (political) considerations The Commission retains power to deviate from this guideline and impose ‘a symbolic fine’ for the purpose of deterrence. The justification for doing that should be provided in its decision. Legal constraints ●A legal overall limit: as laid out in Article 23 (2) of the Council Regulation 1/2003, the final amount the fine shall not, in any case, exceed 10% of the offender’s total turnover of the predecing business year. ●Companies which are penalized by the Commission may appeal to the General Court of the EU and request a reduction of the fine. Source: developed from the European Commission (2011: 3) and its Guidelines on the method of setting fines imposed pursuant to Article 23 (2) (a) of Regulation No 1/2003, OJ C210/2, 1.09.2006.
278 Appendix 4: The number of notifications and decisions under Council
Regulation 139/2004 (EU Merger Regulation), 1990-2013
Year 1990-94 1995-99 2000-04 2005-09 2010-13 Total (%) Number of notifications Notifications 288 909 1400 1683 1060 5340 (100.0) Cases withdrawn (Phase I) 10 30 22 34 18 114 (2.1) Cases withdrawn (Phase II) 1 10 12 12 2 37 (0.7)
First phase decisions Out of Merger Regulation's scope 25 24 3 0 0 52 (1.0) Clearance 222 738 1238 1499 982 4679 (87.6) Clearance with conditions 9 33 70 78 36 226 (4.2)
Second phase decisions Clearance 5 7 14 20 7 53 (1.0) Clearance with conditions 10 24 36 21 11 102 (1.9) Prohibition 2 9 8 1 4 24 (0.4) Restore effective competition 0 2 2 0 0 4 (0.1) Source: DG COMP statistics on merger control, available at http://ec.europa.eu/competition/mergers/statistics.pdf, accessed November 3, 2013. Note: Data for the year 2013 is tentative (from January to September only).
279 Appendix 5: List of EU legislation (chronological)
Council regulations
Council Regulation (EEC) 17/62 of 6 February 1962 – First Regulation implementing Articles 85 and
86 of the Treaty.
Council Regulation (EEC) 4064/89 of 21 December 1989 on the control of concentrations between undertakings.
Council Regulation (EC) 659/1999 of 22 March 1999 laying down detailed rules for the application of
Article 93 of the EC Treaty.
Council Regulation (EC) 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.
Council Regulation (EC) 139/2004 of 20 January 2004 on the control of concentrations between undertakings.
Council Regulation (EU) 734/2013 of 22 July 2013 amending Regulation (EC) 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty.
Commission notices
Commission Notice on the non-imposition of fines in cartel cases, OJ C207/04, 18.7.96.
Commission Notice on immunity from fines and reduction of fines in cartel cases, OJ C45/3,
19.2.2002.
Commission Notice on immunity from fines and reduction of fines in cartel cases, OJ C298/17,
8.12.2006.
280 Commission guidelines
Guidelines on the method of setthing fines imposed pursuant to Article 15 (2) of Regulation No 17 and Article 65 (5) of the ECSC Treaty, OJ C9/3, 14.1.98.
Guidelines on the method of settingfines imposed pursuant to Article 23 (2) (a) of Regulation No
1/2003, OJ C210/2, 1.09.2006.
281 Appendix 6: List of cases (chronological)
European Commission decisions
Case IV/26.760, GEMA, Commission decision of 2 June 1971, OJ L134/15, 20 June 1971.
Case IV/M.877, Boeing/McDonnell Douglas, Commission decision of 30 July 1997, OJ L336/16, 8
December 1997.
Case IV/35.733, VW, Commission decision of 28 January 1998, OJ L124/60, 25 April 1998.
Case COMP/M.1672, Volvo/Scania, Commission decision of 14 March 2000, OJ L143/74, 29 May
2001.
Case COMP/M.1980, Volvo/Renault V.I., Commission decision of 1 September 2000, OJ C301/23, 21
October 2000.
Case COMP/M.1524, Airtours/First Choice, Commission decision of 22 September 1999, OJ L93/1,
13 April 2000.
Case COMP/M.1741, MCI Worldcom/Sprint, Commission decision of 28 June 2000, OJ L300/1, 18
November 2003.
Case COMP/F-2/36.693, Volkswagen, Commission decision of 29 June 2001, OJ L262/14, 2 October
2001.
Case COMP/M.2220, General Electric/Honeywell, Commission decision of 3 July 2001, OJ L48/1,
18 February 2004.
Case COMP/M.2416, Tetra Laval/Sidel, Commission decision of 30 October 2001, OJ L43/13, 13
February 2004.
282 Case COMP/E-1/37.512, Vitamins, Commission decision of 21 November 2001, OJ L6/1, 10 January
2003.
Case COMP/M.2416, Tetra Laval/Sidel, Commission decision of 30 January 2002, OJ L38/1, 10
February 2004.
Case COMP/M.2283, Schneider/Legrand, Commission decision of 30 January 2002, OJ L101/134, 6
April 2004.
Case COMP/SA.14093, Advantages granted by the Walloon Region to Brussels South Charleroi
Airport and the airline Ryanair, Commission decision of 12 February 2004, OJ L137/1, 30 April 2004.
Case COMP/M.3333, Sony/BMG, Commission decision of 19 July 2004, OJ L62/30, 9 March 2005.
Case COMP/C-3/37.792, Microsoft, Commission decision of 24 May 2004, OJ L32/23, 6 February
2007.
Case COMP/M.4110, E.ON/ENDESA, Commission decision of 25 April 2006, OJ C114/4, 16 May
2006.
Case COMP/39.966, Gas insulated switchgear, Commission decision of 24 January 2007, OJ C5/7,
10 January 2008.
Case COMP/38.432, Professional videotapes, Commission decision of 20 November 2007, OJ
C57/10, 1 March 2008.
Case COMP/M.3333, Sony/BMG, Commission decisions of 3 October 2007, OJ C94/19, 16 April
2008.
Case COMP/39.125, Car glass, Commission decision of 12 November 2008, OJ C173/13, 25 July
2009.
Case COMP/C-3/37.990, Intel, Commission decision of 13 May 2009, OJ C227/13, 22 September
2009.
283 Case COMP/39.530, Microsoft (Tying), Commission decision of 16 December 2009, OJ L36/7, 13
February 2010.
Case COMP/39.437, TV and computer monitor tubes, Commission decision of 5 December 2012, OJ
C303/13, 19 October 2013.
Case COMP/39.922, Bearings, Commission decision of 19 March 2014, OJ C238/10, 23 July 2014.
Judgements of the Court of Justice of the EU
Joined cases 56 and 58/64, Consten and Grundig v. Commission [1966] ECR 299
(ECLI:EU:C:1966:41).
Case 41/69, ACF Chemiefarma NV v. Commission [1970] ECR 661 (ECLI:EU:C:1970:71).
Case 45/71 R, GEMA v. Commission, 45/71 R, [1971] ECR 791 (ECLI:EU:C:1971:90).
Case 48/69, ICI v. Commission [1972] ECR 619 (ECLI:EU:C:1972:70).
Case 70/72, Commission v. Germany [1973] ECR 813 (ECLI:EU:C:1973:87).
Case 27/76, United Brands v. Commission [1978] ECR 207 (ECLI:EU:C:1978:22).
Case 85/76, Hoffman-La Roche v. Commission [1979] ECR 461 (ECLI:EU:C:1979:36).
Joined Cases 89, 104, 114, 116, 117 and 125 to 129/85, A. Ahlström Osakeyhtiö and others v
Commission (Woodpulp), [1988] ECR 5193 (ECLI:EU:C:1988:447).
Case 301/87, Commission v. France [1990] ECR 307 (ECLI:EU:C:1990:67).
Judgements of the General Court of the EU
284 Joined cases T-68, 77 and 78/79, SIV v. Commission (Italian Flat Glass), [1992] ECR II-1403
(ECLI:EU:T:1992:38).
Case T-102/96, Gencor Ltd v. Commission, [1999] ECR II-753 (ECLI:EU:T:1999:65).
Case T-342/99, Airtours plc v. Commission, [2002] ECR II-2585 (ECLI:EU:T:2002:146).
Joined Cases T-5/02 and T-80/02, Tetra Laval v. Commission, [2002] ECR II-4381
(ECLI:EU:T:2002:264).
Case T-310/01, Schneider Electric SA v. Commission [2002] ECR 4071 (ECLI:EU:T:2002:254).
Case T-210/01, General Electric Company v. Commission, [2005] ECR II-5575
(ECLI:EU:T:2005:456).
Case T-464/04, Impala v Commission, [2006] ECR II-2289 (ECLI:EU:T:2006:216).
Case T-196/04, Ryanair Ltd v Commission, [2008] ECR II-3643 (ECLI:EU:T:2008:585).
Case T-286/09, Intel v Commission, [2014] (reports not published yet) (ECLI:EU:T:2014:547).
WTO dispute panel reports
Japan – Film (‘Japan – Measures affecting Consumer Photographic Film and Paper’), Report of the
Final, WT/DS44/R, 31 March 1998.
Mexico – Telecoms (‘Mexico – Measures Affectiong Telecommunications Services’), Report of the
Final, WT/DS204/R, 2 April 2004.
285