RESTRICTED
WORLD TRADE WT/WGTCP/W/61
6March 1998
ORGANIZATION(98-0904)
Original: French Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM THE EUROPEAN COMMUNITY
AND ITSMEMBER STATES
Thefollowing communication, dated 16February 1998, hasbeenreceived fromthePermanent
Delegation oftheEuropean Commission withtherequest thatitbecirculated toMembers.
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Replies totheQuestions putbytheMember States
attheMeeting of16and17September 1997
Thisdocument provides answers toquestions asked bytheWTO Group ontherelationship
between trade andcompetition policy. These answers onlyrelate totheECrules anddonotinclude
references tothenational lawsorthecompetition authorities ofthemember States.
1. Howareguidelines helping tofacilitate theimplementation ofnational competition policies?
TheCommission usestheinstrument ofcommunications tobring itscompetition lawupto
date. Itsconcern istoadapt legaltoolstotheeconomic realities oftoday andtotherequirements of
aneffective policy, taking intoaccount theneeds ofbusiness (legally, these communications express
onlytheCommission 'sview).
With thisinmind theCommission hasintroduced reforms ofvarious aspects ofCommunity
law.Initially, thisinvolved theissuing ofcommunications relating toagreements ofminor importance,
which falloutside thescope ofCommunity law,thedefinition oftherelevant market andcooperation
between theCommunity andnational competition authorities.
2. Coexistence ofaregional economic integration agreement andnational laws.
Community experience demonstrates thattheobjective ofregional economic integration does
notpreclude theadoption bythevarious member States oftheirownnational competition laws.
Oneofthecharacteristics ofcompetition lawwithin theCommunity isinfactthecoexistence
oftwolevels oflegislation andthecomplementary nature oftherolesplayed bytheauthorities ofthe
member States andthose oftheCommission.
- Coexistence oftwolevels oflaw: Community lawcoexists withthenational laws
introduced ineachmember State. Themajority ofmember States haveintroduced,
orareintheprocess ofintroducing, anational competition lawheavily based on
Community law,which facilitates coexistence. Fortheother member States different
rules mayexist buttheobjectives arethesame: optimum allocation ofeconomicWT/WGTCP/W/61
Page2
resources andthewelfare ofconsumers inparticular. Theprinciple oftheprecedence
ofCommunity lawalsoensures consistency between thetwolevels oflaw.
Animportant characteristic ofCommunity lawinrelation tonational lawsistheobjective of
integration ofthesingle Community market. Community lawonagreements andabuses ofadominant
position onlyapplies infacttopractices which mayaffect trade between member States. Likewise,
thecontrol ofconcentrations onlyapplies tooperations withaCommunity dimension.
- Thecomplementary rolesoftheauthorities ofthemember States andtheCommunity
authorities.
Whereas national lawsaretheexclusive responsibility ofnational authorities, Community law
maybeapplied bothbytheCommunity andbythenational authorities.
Theproper functioning ofcompetition ontheinternal market therefore requires effective
cooperation between these various authorities:
- When theCommission conducts investigations intoundertakings itmayrequest the
assistance ofthenational authorities;
- inthecourse ofproceedings instituted bytheCommission, themost important
documents, including confidential documents, aresenttothenational authorities by
theCommission. Thenational authorities arealsoconsulted within theframework
ofadvisory committees;
- thenational courts mayrequest information from theCommission ontheexistence
ofproceedings atCommunity level.
Moreover, theconcern toensure theproper management ofitslimited resources hasledto
theCommission 'sdecision toletnational authorities assume responsibility forinvestigating practices
which, although falling within thescope ofCommunity law,arenotofsufficient Community relevance.
3. How important isthepromotion ofcompetition asanelement ofcompetition policy,
particularly inacountry moving towards amarket economy?
(a) Thetransition towards afree-market economy presupposes theimplementation notonlyof
acompetition policy butalsoofasetofstructural policies essential forthecompetitive functioning
ofmarkets. Inparticular thisinvolves:
- Theintroduction offreeprice formation, through theprogressive reduction ofcases
inwhich prices areofficially determined, astherigidities likely tocreate inflationary
pressures areeliminated;
- theintroduction ofasystem ofownership fortangible andintangible property -
intellectual property rights;
- thecreation ofacommercial lawproviding economic operators withalegalframework
favourable totheemergence ofnewentities;
- theadoption ofalawapplicable tothefinancial sector geared totheintroduction of
competition under conditions governing access tocredit andcapital;WT/WGTCP/W/61
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- theinstitution ofasystem permitting thedevelopment offoreign investment;
- thechallenging ofmonopolistic regimes, particularly forimport andexport activities
(cf.below);
- thelisting ofoccupations governed byspecial provisions likely torestrict freedom of
competition -regulated occupations -andofactivities relating tomarkets towhich
access iscontrolled. Careshould betaken toensure thattherestrictions laiddown
insuchprovisions, which meetlegitimate requirements inthepublic interest, donot
exceed whatisnecessary toensure compliance withsuchrequirements;
- ensuring protection forconsumers bymeans oftheappropriate legislation.
(b) Itisdesirable toinclude thebody responsible forcompetition:
- Generally, inthedefinition ofthesetofsuchstructural policies, byproviding, for
example, thatismust beconsulted every timeatextamends partoftheeconomic
legislation theimplementation ofwhich affects freedom ofcompetition;
- inprivatizations,especiallywhentheyareaccompaniedbyworktobreakupmonopolies,
since theobjective oftheeffective opening upofasector tocompetition entails the
definition ofalegalandinstitutional framework fortheregulation thereof. Inorder
toprevent theformation ofcartels, there-establishment ofadefacto monopoly or
thenegative effects ofoligopolistic structures andvertical integrations, thecompetition
authorities have adualroletoplay: byparticipating upstream ofprivatization
procedures andtechnical discussions onregulation procedures, anddownstream, in
theimplementation ofsuchregulation.
(c) Theproblems, interms ofallocation ofresources, posed bymonopolistic undertakings
demonstrate theimportance ofpromoting competition.
Theprotection ofnational champions, which hadbeenwidely permitted inthecountries which
havemoved towards amarket economy inthecourse ofthisdecade, poses twoproblems interms of
allocation ofresources. Firstly, prices under monopolies aregenerally higher thanonacompetitive
market, since theydonotalways takeaccount ofactual costs. Demand maytherefore suffer.
Theresult ofthisisthatmonopolies donotfullyexploit economies ofscale, since theiroutput
isnotatanappropriate level: output maybebelow thelevelwhich could beachieved onacompetitive
market. Moreover, amonopolistic undertaking oftenusesinefficient andcostly methods ofproduction,
since ithasnoincentive toreduce itscosts.
Thedisadvantagesofmonopolieshaverepercussionsonothermarkets.Forexample,lowoutput
levels imply arestriction ofdemand forfactors ofproduction. Onemight saythat,contrary towhat
issometimes claimed, theprotection ofnational champions indeveloping countries partly explains
weak levels ofemployment.
Inaddition, producers downstream bearhigher costswhich haverepercussions ontheirselling
prices, thusaffecting theircompetitiveness onworld markets.
Lastly, when monopolies supply thenational market, thehighprices which theycharge press
heavily onthepurse ofconsumers andaretherefore going tohaverepercussions ondemand forother
products.WT/WGTCP/W/61
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Monopolies alsocreate serious problems interms ofdynamic efficiency insofar astheyhave
noincentive toinnovate, whereas innovation brings major gains forsociety andconsumers.
4. What istheappropriate degree ofinvolvement intheprivatization process forabody
responsible forcompetition?
Itisnotforacompetition authority tosaywhether anundertaking should bepublic, mixed
orprivate. AsfarastheCommunity isconcerned, suchaninitiative would becontrary toArticle 222
oftheTreaty, which affirms theneutrality ofthelatter withregard tothesystem ofownership of
undertakings. Community lawdoesnottherefore require theprivatization ofpublic undertakings.
However, thecompetition authority must exercise vigilance inorder, inter alia,toprevent anti-
competitive conduct (cf.previous question).
5. What istheappropriate degree ofinvolvement inmonitoring theposition ofcapital markets
forabody responsible forcompetition?
Operations oncapital markets maybethemeans ofacquiring control ofanundertaking and
must therefore beexamined bytheauthority responsible forassessing thenegative effects of
concentrations.
6. Whatmeasuresmaybeappropriateinrelationtotheeliminationofeconomicundertakings?
Themeasures which mayaccompany theelimination ofinefficient undertakings should not
come within theremit ofacompetition authority.
7. How cancountries ensure theharmonization ofnational lawsoncompetition withthe
other elements oftheir legal system?
Such consistency maybeachieved intwoways: firstly, byreducing asfaraspossible the
exceptions totheprinciple oftheuniversality ofcompetition law(cf.contribution of10November 1997
oftheEuropean Community anditsmember States), andalsobyintroducing anappropriate consultation
procedure. Thecompetition authority could, forexample, beconsulted bytheGovernment, Parliament
andlocalauthorities ondraftstatutory orlegislative textsrelating tocompetition law,andalsoonany
competition matter. Consultation withthecourts mayalsobeconsidered when thecases referred to
them raiseissues covered bycompetition law.
8. Canthepositive comity procedure beusedagainst apractice which isnotprohibited in
therequested country?
Suchacaseofinitiating apositive comity procedure isnotcontemplated. Moreover, itwould
poseserious legalproblems relating toinvestigating powers.
9. Towhat extent cancountries skipstages inthelearning process relating totheformulation
andimplementation ofnational competition regulations?
Itisclearthatcountries which nowintend toequip themselves withinstruments ofcompetition
maybenefit fromtheexperience ofcountries which havecoped withteething troubles several decades
ago.
Itisundoubtedlyeasiertoadaptprinciplesalreadyacceptedbydozensofcountriestothenational
context thantocreate newinstruments from scratch.
Technical assistance willalsobeadecisive factor inthelearning process.WT/WGTCP/W/61
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10. Theanti-competitive practices authorized, tolerated orimposed bypublic authorities.
InCommunity lawitisestablished case-law thatwhile theprohibitions laiddown inArticles 85
and86oftheTreaty ofRome concern theconduct ofundertakings andnotthemeasures taken bythe
authorities ofthemember States, Article 5oftheTreaty requires them torefrain from taking any
measures which enable undertakings toescape therestrictions imposed bycompetition law.Thisrule
alsoresults from Article 90oftheTreaty.
Moreover, thefactthatanti-competitive conduct isauthorized bynational regulations despite
theprohibitionlaiddowninArticle5doesnotexemptundertakingsfromcomplyingwiththeregulations.
Lastly, ifanti-competitive conduct isimposed onundertakings byanational laworifthelatter
creates alegal framework which itself eliminates anypossibility ofcompetitive conduct bysuch
undertakings, Articles 85and86donotapply. However, Articles 85and86oftheTreaty mayapply
ifitturns outthatthenational lawleaves open thepossibility thatcompetition could beprevented,
restricted ordistorted bytheautonomous conduct ofundertakings (seejudgements of29October 1980,
VanLandewycke etal/Commission ,209/78to215/78and218/78,ECR,p.3125;of10December1985,
Stichting Sigarettenindustrie etal/Commission ,240/82, 241/82, 242/82, 261/82, 262/82, 268/82 and
269/82, ECR, p.3831, of17July1997, Ferriere Nord/Commission ,C-219/95 P,notyetpublished
intheECR andof11November 1997, Commission/France, C-359/95 Pand379/95 P.
11. What istheoptimum balance between compliance andnon-compliance withthelawson
competition?Howdotheauthoritiesresponsibleforcompetitionpreventthemselvesfrombecoming
justonemore regulatory body?
Thecompetition authorities havelimited resources andmusttherefore, without discrimination,
focus theirefforts onthemost serious practices.
TheEuropeanCommissionhas,forexample,decidedtoconfineitselftopracticesofCommunity
relevance. Those which arenotofCommunity relevance arenevertheless likely tofallwithin theremit
ofthemember States.
Asfortheriskofacompetition authority becoming "justonemore regulatory body", thisis
theoretical ifitsdecisions arebased onstatutory textsandmaybesubject toappeal before anindependent
judicial authority.
12. How docountries promote a"culture ofcompetition" tocomplement andreinforce the
positive impact oftheimplementation oflawsoncompetition?
Thecompetition authority must promote thetransparency ofitsactivity, which implies the
publication notonlyofitsdecisions, butalsoofanactivity report.
Aconsultation procedure between government, parliamentary andjudicial authorities on
competition matters would alsohelptospread thisculture.
13. Inassessing mergers, howmuch importance isgiven tofactors other thanconsiderations
relating purely tocompetition (market integration oremployment)?
Market integration isoneoftheobjectives ofCommunity competition law. Itistherefore an
important criterion intheassessment ofmergers. Thecontrol ofconcentrations therefore onlyapplies
tooperations withaCommunity dimension.WT/WGTCP/W/61
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Thethirteenth recital ofthe"Concentrations" Regulation provides thattheCommission should
place itsappraisal within theoverall framework oftheachievement offundamental objectives such
asthestrengthening ofsocial cohesion. Todate,however, theCommunity courts havenotexpressed
anopinion onthismatter.
14. What conditions saidtohave "appreciable effects ontrade" have tobemetforthe
ECCommission toconcern itself withaparticular matter?
Intheinterest ofeasing theadministrative restrictions onundertakings andconsequently
improving theefficiency ofsupervisory services, theCommission hasrecently issued anew
communication which defines "deminimis "agreements oragreements "ofminor importance", i.e.
agreements which donothaveanappreciable effect oneither competition orintra-Community trade
andwhich aretherefore notcaught bytheprovisions ofArticle 85(1) oftheECTreaty, which prohibits
agreementsbetweenundertakings.Thiscommunicationispartofapolicytosupportsmall-andmedium-
sizedundertakings insofar asthesenewprovisions grant themfavourable treatment byexempting them
from certain notification requirements. Inaddition, thistexthelps tomake thepractice ofthe
Commission more transparent withregard totheapplication ofArticle 85oftheECTreaty.
Themajor changes introduced bytheprevious textsof1986and1994concern thethresholds
below which Article 85isnotapplied. Theamendments consist oftheabolition ofthecriterion of
turnover andtheintroduction ofadistinction between horizontal agreements andvertical agreements
withregard tomarket share thresholds.
Theturnover threshold ofECU 300million wasabolished. Large undertakings holding small
market shares willtherefore qualify forthebenefits conferred bythecommunication. Themarket
share threshold ismaintained at5percentforhorizontal agreements andincreased to10percentfor
vertical agreements.
Below thesethresholds Article 85isstillapplied toagreements which leadtocertain restrictions
oncompetition which remain incompatible withtheobjectives ofcompetition policy. These restrictions
arelisted inthecommunication andinclude, forexample, horizontal agreements which haveastheir
object thefixing ofprices orproduction ordelivery quotas orthesharing ofmarkets orsources of
supply andalsovertical agreements which areaimed atfixing selling prices orwhich contain territorial
protection clauses. Only "mortal sins", therefore, arecovered.
Itgoeswithout saying thatbelow thesethresholds suchreprehensible agreements willprobably
haveanimpact atnational rather thanCommunity level. ThisiswhytheCommission takes theview
thatbelow these thresholds itfallstothenational authorities totakeaction inthefirstinstance. The
CommissionwillonlyconcernitselfwiththeagreementsifitconsidersthattheinterestoftheCommunity
requires ittodosoandparticularly iftheyareaffecting thefunctioning oftheinternal market.
Lastly, newprovisions infavour ofindependent small- andmedium-sized undertakings have
beeninserted intothenewtext. Theagreements ofindependent SMUs whose current turnover or
balance-sheet totaldoesnotexceed ECU 40million orECU 27million respectively andwhich employ
nomore than250people willnotinprinciple bethesubject ofaction onthepartoftheCommission.
However, theCommission reserves therighttotakeaction ifthese agreements significantly impede
competition inasubstantial partofthemarket inquestion orifcompetition isrestricted bythecumulative
effect ofparallel networks ofsimilar agreements setupbyseveral manufacturers ortraders.WT/WGTCP/W/61
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15. Effective capacity forgathering information; protection ofconfidential commercial
information.
TheEuropean Commission isvested with extensive powers toconduct itscompetition
investigations. Itsinvestigators mayinfactrequire theproduction ofallprofessional documents, take
copies thereof, askfororalexplanations onthespotandenteranypremises, landandmeans oftransport.
However, theinformation acquired inthiswayiscovered bytheobligation ofprofessional
secrecy:
- Itmayonlybeusedforthepurpose forwhich itwasrequested (Article 20,§1,of
Regulation No.17);
- itmaynotbedisclosed (Article 20,§2,ofRegulation No.17;asimilar prohibition
islaiddown inthe1989Regulation onthecontrol ofconcentrations; theseprohibitions
arebased onArticle 214oftheTreaty ofRome).
16. Ifmergers formed bymultinationals located within Community territory haveanimpact
inother countries, cantheCommunity authorities takesuchanimpact intoconsideration?
Such animpact would onlybetaken intoconsideration insofar as,according tothecriteria
laiddown bythe"Concentrations" Regulation, theystrengthen adominant position withtheresult that
effective competition would besignificantly impeded inthecommon market. Thisfurther demonstrates
theimportance foreachcountry ofhaving itsowncompetition lawandofnotrelying onthehighly
uncertain protection which theymaybeafforded byforeign laws.
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