WORLD TRADE
ORGANIZATIONWT/WGTCP/W/165
26 July 2001
(01-3722)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM THE CZECH REPUBLIC
The following is the final text of a paper received from the Permanent Mission of the Czech
Republic which was circulated as an advance copy for the Working Group's meeting of
22-23 March 2001.
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A. INTRODUCTION
To contribute to a discussion on a possible WTO framework agreement on competition, the
Czech Republic hereby presents a submission addressing some of the questions that have been raised
by some Members of the Working Group and which are incorporated in the Chairman's note dated
24 January 2001.  In particular, the submission focuses on those questions which relate to
international cooperation and on this basis explains why a framework agreement within the WTOwould be desirable and in the interest of all WT O Members.  It also contains the Czech Republic's
view regarding some of the possible elements of such an agreement and offers a number of comments
and recommendations with respect to technical assistance among competition authorities.
B. T
HE MAIN REASONS FOR INTERNATIONAL COOPERATION
The Czech Republic, in its previous written1 and oral contributions to the Working Group, has
repeatedly argued in favour of negotiating a multilateral agreement on competition policy.  The main
reasons for adopting such a multilateral approach are as follows:
- anticompetitive practices of an international dimension, such as "hard-core" cartels, involving
price fixing, market divisions, output restrict ions and abuses of a dominant position, have the
potential to nullify or impair benefits arising from open, rule-based trading system;
- though business activities have become increasingly globalized and complex, too many
countries all over the world lack competition laws. In today's legal practice, extraterritorial
application of national rules treating the protection of competition is gaining ever more power.
It gives force to national regulations regardless of whether business is carried out within orbeyond the relevant country's borders.  To justify the application of national law, it is
sufficient that the economic activities have an effect on domestic markets.  However, this
extraterritorial application of the domestic law gives rise to considerable problems of state
sovereignty, in particular it does not allow to enforce the decisions and prohibitions abroad.
The Czech Republic concurs with the view that effective action against anti-competitive
practices requires the adoption of a domestic competition legislation, setting up an authority
responsible for enforcement of competition law and establishing the principles of cooperation among
the competition authorities both at various levels.
                                                     
1 Document WT/WGTCP/W/71, dealing with some core terms related to the issue and describing the
legal basis for protection of the economic competition in the Czech Republic and its institutional framework.WT/WGTCP/W/165
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THE CZECH REPUBLIC'S APPROACH TO COOPERATION WITH OTHER COMPETITION
AUTHORITIES
The Office for the Protection of Competition (the national competition authority in the
Czech Republic) supports active international cooperation among national competition
authorities  on competition matters.
The Competition Act, which provides the legal basis for protection of economic competition
in the Czech Republic, is based on the effect principle  (Article 2, par. 3).  As a result, the Act applies
not only to activities within the Czech Republic but also to those activities abroad  which have effects
on the Czech market.  A good example is a situation when two foreign undertakings supply the Czech
market with a certain product and divide the market  and the buyers between themselves.  In doing so,
they eliminate competition and deprive local consumers from making their choice from among
independent suppliers.
Practical application of this principle, however, faces the problem of state sovereignty.  The
major issues include (i) finding documents for the de cisions, where there is a rule that investigations
by a local state administrative authority abroad are not allowed and are only possible on the voluntary
basis, or on the basis of an international agreement; and (ii) performance of authorised decisions,
which is impossible under current conditions.  To overcome those problems it is necessary to
conclude a competition cooperation  agreement.
On the other hand, the Act does not apply to activities affecting foreign markets.  This
procedure is conditioned by absence of prohibition by international agreements binding on the Czech
Republic (Art.2, par. 4).
The Czech Republic signed such agreements with a number of countries, members of the
European Union, EFTA, CEFTA, and also with Latvia, Lithuania, Estonia, Israel and Turkey.
In negotiating these agreements, which provide for free trade between parties concerned
and the Czech Republic, the Office has been consis tent in including a clause on protection of
competition  which prohibits, in harmony with Articles 81 and  82 of the Treaty establishing the EC,
in the wording of the Treaty of Amsterdam, practi ces distorting  competition and abuse of dominant
position.  All of the agreements also provide for solution of competition rules violation.  In the Europe
Agreement, it is manifested by the Implementing Rules , approved by the EU-CR Association
Council on 30 January 1996.  The Implementing Rules stipulate which types of cases will be
discussed, which principles will be applied to their solutions, which bodies will be competent to carry
out discussion and how to protect information that has been provided.  As to other international
agreements, no special implementing rules have been adopted but a solution of concrete cases is
possible through consultations between competition authorities or within Joint Committees exercising
surveillance over the relevant agreements.
The procedure envisaged by the Implementing Rules for application of competition provisions
of the Europe Agreement has been applied to three cases of mergers.  The Office notified the
European Commission twice about a case it had been  dealing with.  In one case, the reason for the
notification was the effort to ensure identical assessment by both competition authorities resulting in
identical decisions about the same case in the future.  The reasons for another two cases were to
inform each other about the acquisition and the merger.  With regard to other international
agreements, respective competition-related provisions  have not been invoked yet.
In the year of 2000, the Office further enhanced its effort to promote informal cooperation
with experts from foreign competition authorities with a view to solving specific cases.  This
cooperation  concerned Cable TV cases, investigation on the fuel market and possibility of the
insurance companies  to cover a specific category of risk.WT/WGTCP/W/165
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Bilateral agreements on enforcement of competition legislation are particularly useful  in
ensuring close cooperation between competition authorities of the parties to the agreements.  On the
other hand, this form of cooperation can not effectively promote cooperation of competition
authorities at a global level.  Moreover, the costs of administering such a complex "network" of
competition authorities would be enormous.
In order to create a level-playing-field for the multinational companies operating in a world-
wide scale, the Czech Republic supports negotiations on a multilateral agreement on competition
policy and believes that the system of bilateral agreements on competition and a WTO framework
agreement can develop in parallel, as both initiatives are complementary and mutually supportive.  A
WTO agreement should not in any way hinder bilateral relations between competition authorities and
enforcement of competition law under the bilateral agreements.
C. BASIC PRINCIPLES FOR A FRAMEWORK MU LTILATERAL AGREEMENT ON COMPETITION
Without making any attempt to prejudice results of future negotiations, the Czech Republic is
of the view that a WTO framework agreement could and should be based on the principles of non-
discrimination, transparency and cooperation among the competition authorities.  Provision fortechnical assistance and capacity building in favor of developing countries have to be included as
well.
The principle of non-discrimination is central to the application of competition law and is a
fundamental principle of the whole WTO system.  The Czech Republic shares the view that a WTOframework agreement on competition law and policy should contain a provision defining a binding
principle on the need to avoid any discrimination on the basis of nationality of undertakings within the
domestic competition law framework.
There is a clear connection between the principle of non-discrimination and transparency.
Transparency is the best guarantee of the non-discriminatory application of competition law and
should be a key concern of competition authorities.  Most competition laws prohibit certain types of
conduct, which are defined in very general terms.  Publication of the basic legal framework seems to
be an essential condition for ensuring legal certainty for undertakings.  Moreover, transparency should
be seen as a guarantee of due process in the enforcement of competition law.  In this regard, it seems
to be necessary to ensure that the undertakings concerned have the right to seek redress against
anti-competitive practices before competition authorities, that each individual decision containreasoning and that the decision can be appealed to the court.WT/WGTCP/W/165
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TRANSPARENCY OF THE OFFICE'S ACTIVITIES
The Office's priorities include transparency of decision-making.  The measures to that effect
include publication of all decisions  within the powers of the Office in Office's Collection of
Decisions and on internet pages www.compet.cz.  Another manifestation of the Office's effort to
increase the transparency of their decisions has been publication of the Guidelines for
Entrepreneurs on control of concentration  in accordance with the Competition Act. Currently, the
Office is working on other methodological materials  for businessmen and lawyers active in the
relevant areas.  The Office is also ready to provide copies of their earlier decisions and other
informative documents on request.
On the basis of Act No. 106/1999 Coll., of 11 May 1999, a new responsibility arose for the
Office as a state body, effective from 1 January 2000, namely to provide applicants, including both
physical and legal persons, with free access to information .  From 2001 on the Office is going to
publish information about their activities in the area of information provision according to Act
No. 106/1999 Coll. as a separate section of its Annual Report for the Government.
The aim of these measures taken by the Office is to increase the awareness of citizens that
the protection of competition is a powerful and efficient tool to secure protection of their
interests  as consumers, users of services, employees and taxpayers.  When the people are aware of
they will also support the activities of the Office.  The contacts with consumers or their associations
can be very helpful for identification and assessment of possible anti-competitive practices.  Therefore
every notice about possible anti-competitive behaviour can lead to effective action by the Office.
The experience of the Czech Republic shows that any framework agreement should contain
provisions on following measures:
1. Competition legislation prohibiting the most harmful anti-competitive practices
It is important for the parties to a WTO framework agreement to adopt domestic competition
legislation, which would provide for the punishment of the most serious breaches of the competition
law.  Particular priority should be given to so-called "hard-core cartels" which are agreements on
price-fixing, bid rigging or allocation and market  division.  Such horizontal agreements between
competitors have an evident negative impact on competition and consumers and are considered as the
most serious breaches of competition law.
In relation to other anti-competitive practices which also may distort international trade and
foreclose access to markets (i.e. certain vertical restraints or abuses of a dominant position),
competition authorities need to undertake an assessment of the situation in a market.  The Czech
Republic supports the view that the adoption of a common principle prohibiting certain types of
practices would be too rigid. Instead, the Czech Republic would prefer further considering the
possibility of developing common criteria for the assessment of these practices.
2. Competition authority with sufficient powers
The Czech Republic believes that mere existence of competition law without the possibility of
its efficient enforcement would fail to guarantee that the anti-competitive practices would be punished
without any discrimination on grounds of the nationality of firms.  Thus, the future Agreement shouldbind the parties to set up an administrative or other authority responsible for supervision of
competition.WT/WGTCP/W/165
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The obligation to set up a national competition authority could be defined in a flexible manner
so that different Members can establish the institution suitable to their circumstances.  Also, the
obligation to endow the competition authority with sufficient powers s hould be laid down in a flexible
way.  The Czech Republic supports the EU standpoint and believes that it would be appropriate in a
WTO framework agreement to include a general reference to the powers of investigation ofcompetition authorities and to provide that sanctions should be established at a sufficient level to
constitute effective deterrence.
3. Provisions on cooperation between competition authorities
International cooperation is one of the important elements that will contribute to the practical
application of an agreement.  The Czech Republic fully supports the inclusion of the negative comity
principle (when investigating a case legitimate intere sts of the third party involved should be taken
into account) into a framework agreement,  and supports the establishment of the positive comity
principle (a party negatively affected by anti-competitive behavior of a company in the market of
another party may ask the other party to take relevant measures in accordance with its competition
rules).  An agreement should contain the obligation to notify a third party of proceedings or an
investigation if that could having bearing on its legitimate interests.
The Czech Republic supports the introduction  of the positive comity principle in the proposed WTO
Agreement, since the  potential benefits outweigh its disadvantages.
The main limits of the positive comity  principle are as follows:
1) Positive comity is available only with respect to conduct that is illegal in the requested country.
2) The requested country's competition authority has to have the legal tools, resources and
independence necessary to remedy illegal conduct.
3) There is need for the requested county to agree to investigate.
The main benefits  of the positive comity principle are as follows:
1) Application of  the positive comity principle can improve effectiveness; by invoking a requested
country's laws, positive comity can provide a remedy for illegal conduct that the requesting
country cannot remedy due to jurisdictional problems.
2) Application of the positive comity principle can improve efficiency; positive comity results in an
investigation by the county in the best position to gather necessary facts.
An agreement should also contain provision for the exchange of information.  The Czech
Republic supports the proposal that the multilateral agreement on competition should includeprovisions that would allow exchanges of case-related non-confidential information and evidence.
From our perspective, useful factual and legal information is crucial to a foreign competition authority
when dealing with a specific case, even if it does not include information which is confidential from a
business point of view.
4. Applicability of the Dispute Settlement Understanding
The Czech Republic holds  the view according to which the DSU should not apply to
individual decisions of competition authorities and should be limited to the obligation to adopt a
domestic competition law and apply it in accordance with agreed core principles.WT/WGTCP/W/165
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5. Technical assistance
We believe that any discussions and subsequent negotiations on a framework agreement
should be complemented with considerations of a common strategy regarding technical assistance to
be provided to developing countries.
At present, technical assistance in this field is provided by individual competition authorities
and by international organizations (as for example OECD or the World Bank).  However, the
assistance is provided on an ad hoc basis, which may lead to duplication or a lack of coordination of
offered assistance.  There is no permanent basis for the technical assistance which would respond to
specific requirements of individual competition authorities based on their achieved stage of
development, i.e. from the stage of drafting of the competition law, to the stage of competition
authority establishment, and to the stage of a new competition authority staff training andqualification increase.
Technical assistance should be conditioned by a clear commitment by all recipients to give
greater priority to cooperation in the competition field and to improve this coordination.  Also, there
should be a commitment by all development partners to give greater support to technical assistance.
In the opinion of the Czech Republic, the following would be useful for effective coordination
of international cooperation in the area of technical assistance:
- a survey of technical assistance that has been or is being provided;- a survey of the requirements of individual countries concerning needed technical
assistance;
- a list of experts competent to provide technical assistance at an expert level.The Czech Republic suggests the main advantages of international coordination of technical
assistance to be summed up as follows:
- prevention of duplication in provided technical assistance;- projects tailored for each particular country needs;- wider range of technical assistance possibilities.We are aware of the fact that the establishment of such international cooperation in the field
of technical assistance will be very demanding and time-consuming and will require considerablefinancial and staff resources.  However, it is our believe that the benefits of such system will outweigh
the costs and efforts involved.  Needless to say that  the Czech Republic is ready to take an active part
in establishing such a system of technical assistance.
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