RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTCP/W/62
5 March 1998
(98-0882)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English/
French/Spanish
COMMUNICATION BY THE EUROPEAN COMMUNITY
AND ITS MEMBER STATES
The following communication, dated 23 February 1998, has been received from the
Permanent Delegation of the European Commission with the request that it be circulated to Members.
_______________
Impact of Anti-competitive Practices on Trade
Introduction
The successive cycles of negotiations over five decades in the framework of the GATT have
resulted in a substantial reduction of the barriers erected by governments to protect their national
markets.
Although further efforts remain necessary to re duce government obstacles to trade, business
practices can have a similar effect and deserve attention.  It is timely to examine how to ensure that
anti-competitive practices carried out by business do not nullify benefits arising from trade
liberalization.
A key purpose of WTO rules is to protect the expectations of contracting parties as to the
competitive relationship between their products and services and those of other contracting parties.
There are strict disciplines which seek to ensure that government measures with an impact on trade do
not upset the equality of competitive opportunities and that measures at the border are only applied in
accordance with multilateral rules.  It is clear, however, that anti-competitive practices by businesscan, under certain circumstances, have a foreclosure effect or raise barriers to entry into a market
thereby upsetting the equality of competitive opportunities in a similar manner to government
measures. Such anti-competitive practices could undermine the security and predictability of trading
conditions which is essential for firms seeking access to a market through trade and foreign
investment.  They could also have a negative impact on consumer welfare and therefore are a matterof primary concern for competition law enforcement. There is therefore a strong case for the WTO to
explore the scope for identifying how existing WTO disciplines on government measures could be
effectively complemented by disciplines on those anti-competitive practices which have a significant
impact on trade and investment.
These objectives could be reached if each WTO Member adopts domestic competition
regimes, based on agreed common principles relating both to substantive competition law and its
enforcement, and through instruments of international cooperation to tackle anti-competitive practices
with a significant international dimension.  These practices include horizontal and vertical
agreements, abuse of a dominant position and mergers.
This fourth submission further develops ideas included in the submission presented to the
November meeting of the Group and will mainly analyse each of these types of practices in order toWT/WGTCP/W/62
Page 2
assess their impacts on trade (II).  As we have done in our previous submissions, particular
consideration will be given to the concerns of the developing countries. In the first place however, this
note will analyse a few key concepts of competition law and their relationship with trade (I).  The note
will, in conclusion, list areas that require further discussion in the WTO (III).
I. KEY CONCEPTS OF COMPETITION LAW OF ANTI-COMPETITIVE PRACTICES AND
THEIR RELATION TO TRADE
I.1 Barriers to entry and market access
The objective of competition policy is not the protection of individual firms but of the
competitive process.1  This explains why, in the EC, for example, competition law is applicable only
to practices that have an appreciable impact on the functioning of the market.
The promotion of the competitive process is also of much relevance for the work of trade
authorities.  Even if competition and trade authorities may use different concepts when assessing the
competitive process - barriers to entry and market access respectively - there is a strong interfacebetween the two concepts.
Barriers to entry can take a private or regulatory form and they can be of legal or economic
nature.  Barriers to entry can have an impact both on competition and market access.
2
While competition law, which is the focus of this submission, applies primarily to
anti-competitive practices by business, government barriers to entry also need to be taken into accountfor the assessment of a market.
Effective market access can only be achieved by combining the elimination/reduction of tariff
and non-tariff obstacles to trade with ensuring that internal government measures do not distort the
equality of competitive opportunities and that the market is not foreclosed by anti-competitive
practices.  Effective market access is an important element in securing competition on a market.  TheCommunity is committed to this objective both as regards the opening of its own market and the
active enforcement of competition law, and through an overall market access strategy, which is
developed in close cooperation with European business.
Barriers to entry are used in assessing the relevant geographic and product market and their
impact is important in detecting anti-competitive pr actices. Trade barriers may constitute barriers to
entry and, where they do so, they need to be taken into account in competition analysis.
For example, whereas the geographic market of a product is global as far as consumers of a
given country are concerned, one can imagine that in another country the market of this product,
because of trade barriers, might be limited to the national territory. It is thus obvious that, in these
circumstances, market power will be easier to esta blish on the national market of the latter country.
                                                     
1 Competition law may also pursue other competition related goals, for instance market integration in
the case of the EC.
2 In fact, there are traditionally three types of barriers to entry:
- natural barriers, which result from market structure or technological advantage;- strategic barriers, which consist in anti-competitive practices with the purpose of eliminating
potential or present competitors;  and
- legal or regulatory barriers.WT/WGTCP/W/62
Page 3
In the same way, if a national norm must be respected by the product distributed in a country,
this norm can affect assessment of the relevant market, especially the product market.
Abuses of market power, by which firms charge abnormally high prices, are normally
associated with additional barriers to entry which isolate markets.  Otherwise, such practices would
normally attract entry.
Moreover, certain anti-competitive practices can create barriers to entry.  These include
certain horizontal practices (boycotts, import cartels, etc.), but also certain vertical restraints (e.g.
discriminatory access to an association of enterprise s, when joining this association is necessary for
market entry;  exclusive dealing agreements) or some abuses of a dominant position (predatory prices,
refusal of access to essential facilities, etc.).
I.2 Dominant position
The concept of a dominant position relates to a position of economic strength enjoyed by an
undertaking which enables it to prevent effective competition being maintained on the relevant market
by affording it the power to behave to an appreci able extent independently of its competitors, its
providers, its customers and ultimately of the consumers.
The position of one or more undertakings is appreciated on the relevant market, which
comprises a product and a geographic dimension.  The relevant product market comprises all thoseproducts and/or services which are regarded as interchangeable or substitutable by the consumer, by
reason of the products' characteristics, their prices and their intended use.  The relevant geographic
market comprises the area in which the undertakings concerned are involved in the supply and
demand of products or services, and where the conditions of competition are sufficiently
homogeneous so that they can be distinguished from neighbouring areas because the conditions ofcompetition are appreciably different in those areas.
In order to establish the existence of dominant position, competition authorities can refer to
market shares.  However, this is only one criterion and these authorities usually resort to an analysis
based on multiple criteria.  For example, they can also take into consideration elements of the
structure and functioning of the market (the presence of barriers to entry, the expansion or decline ofmarket;  the number and size of competitors in co mparison with the company subject to investigation;
turnover increases or decreases; price-elasticity of demand, potential competition). They can also take
into consideration quality factors in relation to the company (comparative advantage in management,
innovation, commercial action, etc.) or the ability of the victims of alleged practices to react to the
abuses.  These criteria show that market definition is crucial in assessing whether a dominant positionexists.
The mere existence of a dominant position is not condemned by the competition law of the
European Community and its member States.  Howe ver, the competition authorities can carry out a
dual control:  with respect to mergers, an a priori  control, to make sure that such operations do not
create or strengthen a dominant position as a result of which effective competition would be
significantly impeded.  With respect to abuses of dominant position, an a posteriori control to ensure
that firms do not abuse of their dominant positions (such abuses may inter alia  consist in predatory
prices, refusals to supply, discriminatory practices or tying).WT/WGTCP/W/62
Page 4
I.3 Comprehensiveness of coverage
All entities engaging in economic activities should be subject to competition rules.  Yet an
OECD study has revealed that many countries have substantial gaps in the coverage of their
competition laws. Anti-competitive practices carried out in these areas are therefore admitted by the
authorities, which can also result in barriers to market access.
Competition rules should also apply in the same way to private and public undertakings,
including those entrusted with the operation of services of general economic interest or having the
character of a revenue-producing monopoly, in so far as the application of such rules does not obstruct
the performance, in law or in fact, of the particular tasks assigned to them.
The authorization3 and encouragement of conduct by a public authority, even a foreign one,
should not by itself preclude application of competition law.  Furthermore, the fact that national
regulations may authorize anti-competitive behaviour does not exempt enterprises from compliance
with competition rules.
Some developing countries, for instance Egypt (communication of 19 June 1997) and
Madagascar (UNCTAD Trade and Development Boar d, 44th session, 23 October 1997) have raised
the problem of applicability of competition law to small and medium-sized enterprises.  This is indeed
a justified concern since certain agreements or mergers have an insignificant impact on competition
and trade and should be excluded from the scope of application of competition law.  From acompetition viewpoint, what matters most is not the absolute size of an undertaking, but its size with
respect to the relevant market.  In this perspective, the Commission holds the view that horizontal
agreements which do not represent more than 5 per cent of the total market (10 per cent for vertical
agreements) do not fall under the prohibition of anti-competitive practices.  Moreover, the European
Community Merger regulation does not apply when th e turnover of the involved companies is below
certain thresholds, although national laws of member States can then apply.
II. ANTI-COMPETITIVE PRACTICES WITH A SIGNIFICANT INTERNATIONAL
DIMENSION
II.1 Horizontal agreements
As was mentioned in the last contribution on behalf of the European Community and its
member States, horizontal agreements, that is agreements between actual or potential competitors, can
have a significant impact in limiting effective competition and thereby limit market access.  When
there is market power such agreements should be prohibited unless they have redeeming features.
Certain types of horizontal agreements deserve maximum enforcement efforts.  This is the case, for
example, of horizontal cartels involving price fixing, bid rigging, and market sharing.  This is the area
where the greatest consensus exists among those actively involved in the enforcement of competition
rules.
Under Community law and the legislation of most of the member States, such horizontal
cartels  are null and void whenever they appreciably distort competition and, in the case of
Community law, affect trade between member States.  Moreover, companies parties to such
                                                     
3 Joined cases 89, 104, 114, 116, 117 and 125 to 129/85 "Woodpulp" (1988) ECR 5193.WT/WGTCP/W/62
Page 5
agreements usually have heavy fines imposed on them.4  For instance, the following fines have been
imposed on undertakings which took part in a horizontal cartel:
- in the carton board industry - fines totalling 132,000,000 ECU5 (US$143,452,295);
- in the cement industry - fines totalling  248,000,000 ECU6 (US$269,516,433)
imposed on 23 cement producers and nine associations of producers;  this is thebiggest fine ever imposed by the European Commission for a cartel;
- in the steel industry - fines totalling 104,000,000 ECU (US$113,023,020).
Examples:  The carton board, cement, steel and FNK-SCK cases are examples of practices resulting
from a horizontal agreement and affecting trade:
The Cement Case
European cement producers and their trade associations coordinated their market conduct from
1983 onwards in a whole series of multi- and bilateral market-partitioning, market-protection and
market-regulation arrangements.
For instance, the members of the European Ceme nt Association decided not to tranship into
other members' markets and to regulate sales from one member State to another.  Moreover, a coalitionwas formed to deal with the threat of Greek cement exports to a number of member States.
The Cartonboard Case
Almost all European producers of cartonboard participated in setting up a clandestine cartel to
fix prices and regulate their market.  They agreed to bring into balance supply and demand.  The main
producers contributed by reaching a consensus on their respective market shares and by setting up
machinery to collude on temporary plant stoppages so as to avoid excessive production.  All
participants helped to develop a comprehensive system for the reporting and monitoring of production,
sales volume and capacity utilisation.  After a certain balance between supply and demand had beenreached, participants started to increase prices in 1987 and continued to do so every six months until
1990.  In order to keep customers from looking for alternative sources of supply and taking advantage
of price differences between member States, cartonbo ard producers aimed at achieving a uniform price
level across the Community.
                                                     
4 The Commission is granted discretion to set fines within the limit of 10 per cent of overall turnover
(this rule is valid for horizontal and vertical agreemen ts and for abuse of a dominant position).  This discretion,
however follows a coherent and non-discriminatory policy.  The basic amount of the fine is determinedaccording to the gravity and the duration of the infringement.  The basic amount is also increased where thereare aggravating circumstances (repeated infringement, refusal to cooperate with the Commission, etc.) orreduced, where there are attenuating circumstances (an exclusively passive role in the infringement, non-implementation in practice of the offending agreements or practices, etc.).
5 Com CE Dec.94/601, 13.7.1994, OJ L243, 19.9.94 TPI, T-295/94
6 Com CE Dec.94/815, 30.11.1994, OJ L343, 30.12.94, TPI, T-25/95WT/WGTCP/W/62
Page 6
The Steel Beam Case
The cartel detected in the European steel industry showed similar features to both the cement
and the cartonboard cases.  Steel beam producers attempted jointly to preserve the traditional pattern of
trade within the Community and to agree on price increases in various member States.  A monitoring
system to make transparent orders and deliveries for each individual supplier and member Stateprovided the basis for market-sharing arrangements between producers.  Another system was set up in
order to match supply and demand at the agreed price.  Furthermore, steel beam producers regularly
agreed on and applied increases in the basis price and quality extras for steel beams throughout the
Community.  The price-fixing arrangements also included efforts to align prices in the different member
States in order to prevent increases in the flows of trade.  All these restrictive practices occurred in the
late 1980s after the anti-crisis regime of the Community had come to an end and steel beam producers
enjoyed favourable market conditions.
The FNK/SCK Case
FNK is an association of Dutch firms which hires out mobile cranes.  SCK was set up on the
initiative of FNK in order to guarantee, through a certification system, the quality of cranes used in the
crane-hire business.  Most of the firms which participate in SCK are also members of FNK.  They
account for a large part of the Dutch market.  The Commission has attacked the ban on SCK certificate-holders hiring cranes from firms not affiliated to SCK because this system did not fulfil the conditions
of openness:  foreign competitors for instance were not free to enter the market.
7
Certain categories of cartels need special attention.  This is the case, for instance, in relation
to international price-fixing or market-sharing.  These cartels are particularly difficult to tackle
because they involve several companies located in  different countries whereas investigative powers
are usually limited geographically.  This might explain, for instance, why the heavy electricequipment cartel, consisting mainly in bidding coordination, has prospered around the world for
decades, from the 1930s until the 1980s.  An international framework of competition rules could help
address this type of cartel in a more efficient way.
Export cartels also require the same attention.  Such cartels have a clear impact on
international trade, but in the exporting country ma y be subject to exemptions from the application of
competition law or fall outside the scope of competition law under general rules of jurisdiction.  At
the same time, although such cartels are covered by the legislation of most importing countries, they
are hard to tackle due to difficulties in collectin g evidence (they are usually located abroad).  The
GE/DeBeers case for instance is a good illustration of this difficulty.  A United States court entered
judgement of acquittal after observing that much of the missing evidence presumably was locatedabroad.  However, it must be stressed that the missing evidence could have had a confidential
character, which would have prevented its communication.
On the other hand, horizontal cooperation among firms is in some cases economically
desirable and does not present difficulties for competition or trade policy.  In this respect, the
European Commission has adopted two exemption regulations for certain categories of agreements on
                                                     
7 The Commission's decision was approved by the Court of First Instance of the European Community:
CF1 22 October 1997, "Dutch cranes" (T-213/95 et T-18/96).WT/WGTCP/W/62
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research and development and on specialization.  Th is means that, in conformity with competition
rules8, and if the conditions of the exemption regulations are met, they are presumed to contribute to
improving the production or distribution of goods or to promoting technical or economic progress.
Therefore, such agreements are presumed legal.  This rule strengthens legal certainty and reduces
costs to competition authorities and business alike.
II.2 Abuse of a dominant position
Certain practices, which are lawful on a competitive market, can be forbidden under EC
competition law, and under the legislation of most of the member States, if carried out by a firm or a
number of firms with a collective dominant position.  As already pointed out, in our November
contribution, abuses of dominant position can have a significant impact on both trade and
competition.  These practices are usually heavily fined, for example, the following fines have been
imposed:
- Tetra Pak (packaging industry) - 75,000,000 ECU (US$81,506,986)for various
practices, including predatory prices and tying agreements 9;
- Akzo (chemical industry) - 10,000,000 ECU (US$10,867,598) for predatory prices10;
- Hilti (fastening systems industry) - 6,000,000 ECU (US$6,520,558) for tying
agreements.11
Examples:  The following two examples show that such practices can hinder entry to a market:
                                                     
8 These agreements must allow consumers a fair share of the resulting benefit, and must not impose on
the undertakings concerned restrictions which are not indispensable to the attainment of these objectives, orafford such undertakings the possibility of eliminating competition in respect of a substantial part of theproducts in question.
9 Com CE Dec.92/163, 24.7.1991, OJ L258, 16.9.1991; CJCE 14.11.96
10 Com CE Dec.85/609, 14.12.1985, OJ L374, 31.12.85, CJCE C-62/86
11 Com CE Dec.88/138, 22 Dec. 1987, OJ L65/19, 11.3.88; CJCE 2 March 1994WT/WGTCP/W/62
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Abuse of a dominant position in  international transport - CEWAL12
The Court of First Instance of the European Union has recently heavily condemned a case of
"fighting ships".  This is a practice by which a group of shipping companies with a dominant position
resort to a very low price on a particular shipping line (in this case, between Northern Europe and the
Republic of Congo) in order to eliminate a competitor.
This example shows how an abuse of a dominant position or by several firms having a
collective dominant position on international markets can affect the interests of developing countries:
- they can affect their imports:  once the competitor has been eliminated, these practices
result in higher transport cost, which will affect the price of the products bought by
their consumers.  The final outcome is therefore a transfer of wealth from thedeveloping countries to the owners of foreign firms;
- they can affect their exports:  higher transport prices make the products exported by the
developing countries more expensive, and therefore affect their competitiveness.
Beyond this particular case, this type of practice shows the interest for a developing country
in adopting and enforcing effective competition law in order to address the anti-competitive practices
carried out by companies located abroad, without having to depend on other competition authorities.
Hoffmann-La Roche Case13
Roche, a multinational group with its headquarters in Switzerland and the world's leading
vitamin manufacturer, had entered into exclusive or preferential supply contracts with a number of
major bulk vitamin users who incorporated the vita mins into their own medicines, foods and feeding
stuffs.
Whether to compensate for the exclusivity or to  encourage a preferential link, the contracts
provided for fidelity rebates based not on differences in costs related to the quantities supplied by Roche
but on the proportion of the customer's requirement s covered.  Furthermore, the rebates were not
calculated separately for each group of vitamins but were aggregated across all purchases from Roche,
so that Roche was able to benefit from fidelity arra ngement even in respect of those vitamins for which
it does not hold a dominant position on the market.
The Commission considered that Roche was abusing its dominant position by concluding the
contracts, since their effect was to tie the most important buyers of bulk vitamins and to prevent its
chief competitors from supplying these products.
                                                     
12 TPI T-24/93, 8 October 1996
13 Com CE Dec. 9.6.76, OJ L223, CICE 13.2.79, n° 85/76, Rec. 1979, P; 461WT/WGTCP/W/62
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II.3 Vertical restrictions
Most producers use specialized distributors to reach their final consumers.  These vertical and
distribution relationships are needed to distribute efficiently, since producers do not always have the
necessary skills or knowledge of distribution, and specialized distributors can often gain economies of
scale and scope by distributing many products simultaneously.  They are also needed to penetrate newmarkets, since a relationship with a local distributor with specialist knowledge of the markets in
which the product is to be launched can increase the chance of success and reduce risks.
Insofar as vertical restraints, such as exclusive agreements, tend to increase the profits
obtained by these relationships, they will also stimulate entry by other potential distributors and
producers and this will promote efficiency in the long run.  This is the reason why, under Community
law, certain categories of agreements benefit from a block exemption regulation.
On the other hand, in addition to promoting efficiency and market integration, these vertical
restraints can also give rise to concerns for competition policy.  For example, if some manufacturers
collectively having significant market power tie up a large part of the distribution outlets in a country
by exclusive contracts, this could result in market foreclosure negatively affecting competition and
access to the market.  The presence of regulatory barriers to entry would also need to be assessed, in
particular as regards the possibility to develop alternative distribution systems.
Competition authorities' action is not limited to a separate examination of the different
agreements set up by different undertakings.  For instance, competition law in the European
Community and in many member States provides that even when the different distribution networks
on a market are in line with antitrust law, they can be condemned where access to the market is
restricted by the cumulative effect of parallel networks of similar agreements.  As already noted,exclusive distribution can also be a matter of concern for competition authorities when undertaken by
a dominant firm.
Langnese and Schöller Cases (1995)
These cases show how vertical restraints can be  used as instruments of foreclosure.  In 1992,
the Commission took a negative decision against Langnese and Schöller, which were in a duopolisticposition on the German impulse ice cream market.  The Commission acted against "sales outlet
exclusivity" arrangements, under which a retailer undertakes to sell only the products of the
manufacturer with whom he has a contract.  The Co mmission decided that the cumulative effect of the
agreements in question amounted to an appreciable restriction of competition by Langnese and
Schöller.
14  A key element of these cases was the fact that each of the two producers provided freeze
cabinets, which made access to the market more difficult.  Any new competitor entering the market had
to either persuade the retailer to exchange the fr eezer cabinet installed by the applicant for another,
which involved giving up the turnover in the products from the previous supplier, or had to persuade the
retailer to install an additional freezer cabinet, which might have proved impossible, particularly
because of lack of space in small sales outlets.  Moreover, if the new competitor would have been able
to offer only a limited range of products, it might have proved difficult for it to persuade the retailer to
terminate its agreement with the previous supplier.15
                                                     
14 CFI 8 June 1995, case T-7/93 Langnese-Igol Gmbh c. Commission (1995) ECR II - 1533 and case
T/9/93 Schöler Lebensmittel GmbH c. Commission (1995) ECR II-1611
15 CFI 8 June 1995, case T-7/93 Langnese-Iglo Gmbh c. Commission (1995) ECR II-1533, pt. 108WT/WGTCP/W/62
Page 10
Volkswagen case (28 January 1998)
The European Commission has imposed a 102,000,000 ECU fine (US$111,000,000) on the car
maker Volkswagen which has systematically forced its Italian distributors not to sell cars to foreign
customers.  The company has threatened to cut the di stributors' supply.  Such a threat has been carried
out in twelve cases.  The company has also reduced profits of distributors which have accepted to sell
out of their allocated territory, limited the number of cars delivered, etc.  This fine, the highest ever
imposed by the Commission on a single company, is justified by the duration of the infringement (ten
years) and by the fact that the company has maintained its practices even after the Commission has
ordered to stop them.  The fine is not definitive since the case may still be subject to appeal.
The European Commission published a Green Paper on vertical restraints on 22 January 1997
in order to prepare the revision of its competition policy.  This paper shows that the Commission
wishes to adopt a more favourable position with regard to the less harmful vertical agreements.
However, agreements with the most harmful effects on competition will not be affected by the reform.This could be achieved by introducing more economic analysis in the assessment of vertical restraints
and focusing enforcement efforts on the most harmful practices.
II.4 Mergers
The increasing liberalization of the world economy has resulted in major corporate
reorganizations, particularly in the form of mergers.  Such a development must be welcomed as being
in line with the requirements of dynamic competition, and being capable of increasing the
competitiveness of industry, improving the conditions of growth and raising the standard of living.
However, countries which adopt competition instruments want to be ensured that this process
of reorganization does not result in lasting damage to competition.  Therefore, they may include
provisions prohibiting mergers which create or strengthen a dominant position as a result of which
effective competition may be significantly impeded in their competition law.
Mergers often have an impact on more than one market and merging firms might therefore
have to notify their projects to different competition authorities.  It is usually acknowledged,
especially in business, that procedural harmonization would avoid unnecessary duplication of efforts
of firms and agencies, and would limit the potential for contradictory decisions.
The Commission has in many cases prohibited (or approved with conditions attached)
mergers with an international dimension.  It is worth noting that these cases involve non-Europeanfirms or their impact is not limited to the European market and therefore illustrate the importance of
cooperation among competition authorities.WT/WGTCP/W/62
Page 11
Gencor/Lonrho (1996)
In 1996, the Commission decided to prohibit the proposed merger in the platinum sector
between the South African company Gencor, and Lonrho Platinum Division (LPD), a South African
subsidiary of the British Company Lonrho PLC.  Bo th Gencor and Lonrho have substantial operations
in the European Union.  The Commission considered that the merger would lead to the creation of a
duopoly dominating the world market for platinum and rhodium as a result of which effective
competition would be significantly impeded in the common market within the meaning of Article 2(3)
of the 1989 Merger Regulation.
It is worth underlining that from the outset of the procedure, the South African authorities were
kept informed by the Commission of developments in this case and attended the hearings organized inBrussels.
Saint-Gobain/Wacker-Chemie/NOM (1996)
The Commission decided to oppose the creation of a joint venture in the silicon carbide sector
between the Saint-Gobain group, Elektroschmelzwerk Kempten  (ESK), part of the Wacker Chemie
group, and NOM,  an investment company owned by the Dutch State.
The proposed operation would have grouped together the two most important producers of
silicon carbide in the European Economic Area.  It would have enabled them to attain market shares of
more than 60 per cent in both markets concerning the European Economic Area for SiC intended for
abrasive and heat-resistant applications.  The three other remaining competitors would have had market
shares of less than 10 per cent.  These three European competitors (Navarro in Spain, MWK inGermany and Orkla-Exolon in Norway) are of relatively modest size.  In addition, the parties to the
joint venture are the technological leaders and the only ones able to provide the whole range of SiC
grades for abrasives and refractories.  For its pa rt, Saint-Gobain is also producing silicon carbide in
several regions of the world (China and North and South America).
The Commission examined the situation of potential competitors and in particular of the
companies based in Eastern European countries (Russia and Ukraine) and in China.  However, it
appeared that these companies do not have sufficient capacity to provide the whole range of the various
grades of silicon carbide required by European uses.  Moreover, it did not appear that these companies
could develop their production in the two or three year s to come in such a manner as to ensure sufficient
competition in the markets for silicon carbide for abrasive and refractory purposes.WT/WGTCP/W/62
Page 12
Boeing/McDonnell Douglas
The European Commission has found that the acquisition by the Boeing Company of the
McDonnell Douglas Corporation led to a signific ant strengthening of Boeing's already existing
dominant position in the worldwide market for large commercial jet aircraft as a result of which
effective competition could be significantly impeded in the common market.
Boeing, in the course of intensive negotiations with the Commission, has offered commitments
to resolve the competition problems identified by the Commission.  These include:  the cessation of
existing and future exclusive supply deals, the "ri ng-fencing" of MDC's commercial aircraft activities,
the licensing of patents to other jet aircraft manufacturers, commitments not to abuse relationships with
customers and suppliers and a commitment to report annually to the Commission on military and civil
aeronautics R&D projects benefiting from public funding.
These commitments have been considered adequa te to resolve the competition problems, and
the Commission has therefore decided to declare the operation compatible with the common market.
III. CONCLUSIONS AND ISSUES THAT REQUIRE FURTHER DISCUSSION IN THE WTO
In previous submissions to the Working Group, the EC and its member States have already
indicated that the progressive development and effective application by WTO Members of a
competition law framework can make a major contribution to enhancing national and global welfare
and improving market access.  In this connection, we suggested that the Group may eventually wish
to explore the scope for identifying within WTO common principles of competition law and policy
and its enforcement.  Such common principles could relate both to areas of substantive law andenforcement procedures and should recognise the need to envisage appropriate flexibility for
developing countries, in particular the least developed among them.  This submission has essentially
focused on issues relating to substantive law;  the EC and its member States would present ideas
relating to enforcement procedures in future submissions to the Working Group.  As regards
substantive law, an effective and efficient competition law regime would need to cover disciplines tocontrol anti-competitive behaviour arising from horizontal or vertical restraints, abuses of dominant
position, as well as procedures for merger review control, since anti-competitive practices in each of
these areas give rise to concern in terms of their impact on economic efficiency and consumer
welfare.  There is also a strong case for examining the scope for the reduction or elimination of
sectoral derogations to the application of competition law.
At the same time, from the WTO perspective, a particular concern relates to those
anti-competitive practices which have a significant international dimension.  This would primarily be
the case when an anti-competitive practice significantly raises barriers to entry into a market
(i.e. foreclosure effect) or is primarily aimed at export trade.  Such practices have a direct connection
with the basic WTO objectives of ensuring equality of competitive opportunities and avoiding tradedistortions.  Moreover, international cooperation would contribute to effectively tackling such
anti-competitive practices and avoiding jurisdictional conflicts and thereby result in significant gains
both from a trade and competition policy perspective.  A practice which has a foreclosure effect
would negatively affect consumer welfare in the country where the practice is being implemented and,
at the same time, affect the legitimate interests of the country whose producers are being denied
equality of competitive opportunities.  This is both a market access and a competition law problem,
where the only adequate remedy must be based on the application of sound jurisdictional andcompetition law principles on the basis of international cooperation.  Attempts to solve such problems
on the basis of the extra-jurisdictional application of competition law or without reference to a soundWT/WGTCP/W/62
Page 13
competition law framework are likely both to prove ineffective and be a source of international
conflicts.  In the case of practices primarily aimed at export trade (i.e. export cartels), there is both a
clear and direct connection to international trade and a negative impact on the consumer welfare of
third countries.  While there may be jurisdictional limits to the application of the competition law of
the country where the practice has been conceived, it would be reasonable at least to expect that suchpractices would not be facilitated and that a country would be ready to cooperate with the
enforcement efforts of competition authorities in the market where the impact of the practice is being
experienced.
In section II of this submission, a number of examples have been provided on the application
of competition law to different types of anti-competitive practices with an international dimension.
These cases illustrate three types of gaps that may arise for a more effective competition law
enforcement and enhanced market access:  (a) Examples have been given of a number of anti-competitive practices which can have a foreclosure effect such as exclusionary practices by domestic
cartels or by private or public firms with a dominant position in the domestic market or certain forms
of vertical restraints which significantly limit access to distribution channels.  While domestic
competition law provides effective remedies to tackle such practices, gaps can arise in the absence of
a competition law framework, an active enforcement policy or when certain sectors or practices areexcluded from the application of competition law.  (b) Other examples relate to anti-competitive
practices, such as international cartels or mergers or certain abuses of a dominant position, with an
impact on several jurisdictions.  Such cases raise the issue of the need for enhanced cooperation to
ensure effective competition law remedies and avoid the risk of jurisdictional conflicts.  (c) Finally, in
certain cases, notably export cartels, the anti-competitive impact of a practice or agreement isprimarily experienced in a different jurisdiction to that in which it has been conceived.  Cooperation
between competition authorities is again required for the effective application of competition law.
In its previous submission, the EC and its me mber States suggested that the Group may wish
to explore the scope for developing common approaches to tackle anti-competitive practices with a
significant international dimension.  Such common approaches could include options such as common
rules, principles, provisions for enhanced international cooperation or a combination thereof.  In order
to contribute to further discussion of the Group on this subject, the EC and its member States wish to
offer some initial suggestions on possible areas to further explore in future work in connection with
different types of anti-competitive practices with an international dimension:
Horizontal agreements:  The Group may wish to gi ve priority attention to exploring the scope for
developing a common principle or rule by which coun tries would treat "hard core" cartels as a serious
infringement of competition law and would cooperate with other countries in order to ensure an
effective enforcement.  The Group could also consider, in this context, the treatment under
competition law of export cartels.  As already stated, there is a strong case to review exemptions to
the application of competition law to export cartels and to promote international cooperation in
enforcement activities.
Vertical agreements:  There is a broad consensus that, at the international level, vertical restraints are
only a source of concern if such agreements have a foreclosure effect, which significantly raises
barriers to entry.  The Group may therefore wish to explore the scope for identifying an illustrative list
of factors to be considered by competition authorities when assessing whether vertical restraints have
such a foreclosure effect.  This may include such factors as the presence of market power in upstream
or downstream markets, collusion among upstream or downstream firms, cumulative impact ofrestraints, duration of restraints, role of government barriers to entry and overall structure of the
market, including openness to foreign trade and investment.  Such an illustrative list of factors could
facilitate international cooperation among competition authorities and reduce the scope for
disagreements about the trade impact of vertical restraints insofar as the decisions by competition
authorities in cases with international dimensions would be based on a detailed analysis of the market.WT/WGTCP/W/62
Page 14
Abuse of dominant position:  Certain practices by dominant firms have an exclusionary effect or
otherwise limit effective competition from other firm s, including foreign firms.  The Group may wish
to consider the scope for developing an illustrative list of such practices, taking into account the
experiences gained by countries in the enforcement of competition law.  The Group would also
benefit from further discussion on the criteria used by competition authorities to determine whether a
firm has a dominant position in the market.
Mergers:  The main issue that requires attention by the Group is the scope for reducing the risk of
conflicting decisions when mergers are subject to scrutiny by several competition authorities.  The
Group could in this context consider the scope for greater convergence of procedural requirements for
merger notification and how cooperation among competition authorities can promote greater
awareness of the competition concerns that a merger raises in different jurisdictions.  The Group
would also benefit from further discussion of the criteria used by competition authorities for the
assessment of the competitive impact of mergers.WT/WGTCP/W/62
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ANNEX
Examples of Anti-competitive Practices dealt with by member State Authorities
The competition law applicable within the European Union exists at two levels:  the
Community level and a national system in each member State.  The submission on the impact of anti-
competitive practices on trade provides examples of practices dealt with by the European Communityauthorities. The following are a few examples of a few practices that have been addressed by member
State authorities.
Horizontal agreements - Construction of the North TGV (1992)
In 1995, the French Conseil de la Concurrence condemned 31 private companies operating on
the civil engineering sector to a total 378 million fr ancs fine (US$63 million) for sharing the markets
of the construction of the Train à Grande Vitesse of the North of France.  One objective of the cartel
was to prevent foreign companies from entering the market.
Investigations were initiated following a co mplaint from a foreign company which believed
that it has been kept away by the cartel from the public procurement procedure.  The cartel had even
offered to pay the foreign company 75 million franc s for its commitment not to take part to this
procedure.
Vertical/horizontal restraints - Cardile Bros (1992)
In 1992, the Italian Competition Authority started an investigation concerning an agreement
on harbour and berthing services.
The agreement included provision for substantial discounts to three shipowners' associations
on the maximum charges for the services supplied in  each port.  It appeared to be anti-competitive
under the Italian Law.  Its purpose was to fix the prices for the services provided to the shipsbelonging to the members of the associations, which meant virtually all Italian-registered ships, while
different conditions were applied for the same services, with unjustified anti-competitive
disadvantages, to the users which did not qualify for the discounts, who were mostly foreign
shipowners.  During the investigation, the parties submitted a draft-document aimed at amending the
previous agreement, in order to remove all the po tentially anti-competitive aspects pointed out by the
Authority.  This consequently led the procedure being closed.
Abuse of a dominant position - Lilly France (1996)
In 1988, the French company Lilly France, subsidiary of the North-American pharmaceutical
group Lilly, attempted to preserve its dominant position by tying the sales of Dobutrex, used for heart
diseases, and for which this company enjoyed a monopoly, and Vancomycine, an antibiotic for whichthe company had a monopoly until the expiration of the patent.  Lilly granted substantial rebates to
hospitals for the purchase of Dobutrex, on condition that they also ordered Vancomycine.  The
Conseil de la concurrence considered that this practice sought to prevent hospitals from turning to
more competitive providers for their purchases of Vancomycine, and prevent foreign competitors
from entering the Vancomycine market, thus affecting the interests of the consumers.  Lilly France
has been fined 30 million francs fine (US$5 million).WT/WGTCP/W/62
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Mergers - Cemensud-Calcementi (1992)
The Italian Competition Authority started an in -depth investigation regarding the acquisition
by the Cemensud company of 100 per cent of the share capital of Calcementi Jonici which imported
cement from Greece.
After the merger, Cemensud, which already held a prominent position on the market, would
have had a total market share of 81 per cent.
The Authority was mainly concerned about the effects of the acquisition by Cemensud (and
indirectly its parent company Italcementi) of the Siderno wharf, which was the only channel for
importing bulk cement into Calabria.  About 9 per cent of Italian cement imports, and 20 per cent of
cement imports into Southern Italy, passed through that wharf.
Considering the market structure, the market en try barriers due to the high transport costs
over land, and the administrative difficulties which existed regarding the development of sea transport
(including the creation of a new equipped wharf) for this particular product, the Authority felt that theconcentration would have strengthened the dom inant position of Cemensud.  This would have
substantially and permanently reduced competition, because of the consequences connected with the
elimination of an independent company which previously guaranteed a significant flow of imports
through the Siderno wharf.
During the investigation, Cemensud changed the initial project in order to enable third
companies to continue importing cement through th e Siderno wharf.  The Authority accordingly
authorized the operation.
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