Opinion on the XXIVth Report of the Commission on Competition Policy-1994

(96/C 39/14)

On 23 May 1995 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the XXIVth Report of the Commission on Competition Policy-1994.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 18 October 1995. The Rapporteur was Mr Sepi.

At its 330th Plenary Session (meeting of 22 November 1995), the Economic and Social Committee unanimously adopted the following Opinion.

1. Introduction

1.1. The Committee is pleased to note that this year's Commission report on competition policy is much better organized and rationally set out, and consequently easier to read and to understand.

1.2. Earlier Committee Opinions have repeatedly stressed the need to make these reports easier to read, since they are one of the essential reference points for assessing not only competition policy but also the EU's economic policy as a whole.

1.3. Equally important for transparency is the very recent publication of a summary of the report entitled 'Competition policy in the European Community' and intended for a much wider public than the official reports.

1.4. Nonetheless, and while noting the substantial progress made, the Committee is obliged to point out that the report remains somewhat ponderous and repetitive, while the initial summary could still be improved in order to allow easy assimilation of the basic EU policies.

1.5. Transparency is too important an aim for it not to be further pursued, e.g. by dividing the report into keynote volumes ().

2. Background

2.1. The Commission's XXIVth Report on Competition Policy comes at a time of rapid change.

2.2. After many years of recession, the economy has begun to show signs of picking up. This will open the way to new developments which will require assessment criteria and particular attention on the part of DG IV.

The new dynamism of growth must be accompanied by appropriate operational renewal, to ensure proper vigilance in this new stage of the business cycle.

2.3. The Commission, and the EU as a whole, are committed to achieving the economic and social objectives set out in the White Paper on Growth, Competitiveness and Employment - The Challenges and Ways Forward into the 21st Century. The Committee considers that competition policy should focus more on these objectives.

2.4. The global situation has been considerably altered by the gradual opening-up of markets, culminating in the conclusion of the Uruguay Round and the establishment of the WTO. The impact of these developments has been heightened by the association agreements and the setting-up of the EEA, the accession of the new Member States, and the association agreements with the CEECs ().

All this has changed the role of competition not just quantitatively, but also qualitatively.

3. Commission activities

3.1. 1994 was marked by intensive regulatory activity which produced a number of general papers, and an increase in administrative measures. The Committee would urge the Commission to continue with this work on standards of practice and the principles to be observed by economic and social players, both for institutional reasons and to speed up DG IV's ad hoc administrative checking.

3.2. Incorporation of competition policy in the EU's general economic guidelines, as proposed by the Commission, was recommended in the Committee's Opinion () on the XXIIIrd Report and is to be welcomed.

As evidenced by several passages in the report under review, the Commission is aware this will lead to profound changes in its tasks and role.

3.3. However, the Committee feels there is a need for more coherence between competition policy and other EU policies, especially the policies on trade and industry, employment, social cohesion, competitiveness, inflation and consumer protection.

3.4. The Committee believes that the trade policies and the initiatives for cooperation with the CEECs envisaged by the industrial cooperation agreements must respect certain social parameters, so as not to distort competition or encourage industrial relocation which might have an adverse economic and social impact within the EU.

3.5. On competition policy as such, the Commission, bearing in mind the White Paper, must adopt an interpretation that is appropriate to the new situation and take more account of the economic and social impact of decisions.

3.6. The Committee feels that special competition rules should be drawn up for market cooperatives and non-profit organizations operating in sectors far removed from business interests. More particularly, voluntary and social activities in support of marginalized groups might be allowed to benefit from state aid and specific legislative concessions.

3.7. The Commission has issued a notice on the application of the competition rules to cross-border credit transfers ().

This notice sets out the approach which the Commission intends to take when assessing the compatibility of credit transfer systems with the competition rules enshrined in the Treaty.

The notice should be examined in detail, and should form the subject of an ESC Opinion following up the Opinion adopted at the Plenary Session of 31 May/1 June 1995 on EU Funds Transfers: Transparency, Performance and Stability.

3.8. The Committee is aware of the difficulty of maintaining rigorous application of the rules while encouraging structural and productive growth in the EU; however, it holds that the basic principles expressed at the outset must prevail in practice.

4. Agreements

4.1. In assessing agreements, particularly in relation to the White Paper on growth, competitiveness and employment, the Commission draws a distinction between 'defensive' agreements in restraint of trade which are designed to protect markets, and agreements designed to improve company competitiveness by increased cooperation. The former are penalized and the latter are authorized.

4.2. The distinction is clear in theory but more difficult to apply in practice. The recent proposed regulation on technology transfer is not wholly satisfactory in this respect, as the Committee noted in its Opinion.

4.3. Two further points need to be made concerning the practical application of these rules:

a)

sanctions against cartels must be commensurate with the various intervention levels of each participant;

b)

as regards associations of undertakings, it is vital to define clearly whether sanctions apply to the associations or to their members, in order to avoid a party being penalized twice for the same act.

In the case of exchanges of price information, it is sometimes extremely difficult to assess whether there is a genuine intention to restrict competition. At all events, undertakings and associations must give an extremely precise indication of their means, methods and objectives in practices of this kind.

4.4. The White Paper dwells at length on the need for agreements between SMEs which make the market more dynamic and boost competitiveness and employment.

Competition policy-makers should also help to provide a clearer framework here, offer special exemptions for SMEs, and review mechanisms for encouraging cooperation among them. To this end, apart from cooperation in the field of training and research, mentioned in various parts of the report, the creation of specific financial instruments and joint marketing and purchasing facilities should be encouraged, always subject to reasonable market shares.

5. Mergers and concentrations

5.1. The Commission was extremely active in this sector in 1994, in response both to restructuring developments and market globalization.

5.2. The aim of the decisions taken in individual cases was to eliminate any dominant positions but to authorize proposed mergers which were conducive to sectoral competitiveness, the business system and market openness, and did not prejudice competition - often seen in global terms (BT/MCI - Olivetti/Digital).

5.3. However, efforts should be speeded up to define new criteria that take account of the new dimension of competition, resulting from market globalization, which requires European industry to achieve higher levels of competitiveness.

5.4. The Committee therefore urges the Commission, in light of the efforts and experience already gained with the task force, to take an increasingly global view in assessing the markets and to keep a careful eye on the unfair practices deployed by third-country firms in some strategic sectors.

5.5. The Committee is also concerned that concentrations might not be assessed consistently because of the competence of the national authorities. Here it would refer to its recent Opinion () calling for a reduction in thresholds and hence an extension of the remit of the Commission bodies.

6. State aid

6.1. Monitoring of state aid is a vital part of a proper competition policy and essential for increasing convergence of the Member States' economies. Social and regional criteria have been used to decide whether aid should be authorized. In the case of firms facing problems, the emphasis has been on the viability of their restructuring plans, and on avoiding aid that would lead to excess production capacity.

6.2. There is a clear contradiction here between 'perfect competition' and state financial aid motivated by political and social considerations; between different economic management cultures; and between different socio-economic structures in different parts of the EU. A market liberalization policy clearly will not of itself resolve the serious problems of social cohesion in and between the Member States. This problem requires further consideration - inter alia in relation to the contents of the White Paper - and the Commission has this year begun to examine aid for employment and for research and development.

6.3. Member States' administrative structures and financing mechanisms vary greatly. This calls for a serious effort to improve transparency, and an inventory of all aids and their economic impact.

6.4. The fourth report on state aid, recently published by the Commission, contains extremely useful data and analyses. The Committee notes with satisfaction that total annual state aid has fallen by 8,5 % compared with the previous period; nevertheless ECU 93,8 billion continues to be a very high sum, particularly when one considers that 84 % of state aid to industry is granted by the four largest Member States. The Committee would like to see this figure reduced still further in the next reference period. The Committee expresses its continuing concern about possible distortions of competition stemming from state-aid differences between the Member States and between the regions within the Member States. The Committee would urge the Commission once more to take vigorous action to ensure the rigorous application of rules governing the grant of state aid.

The Committee considers that the general policy must be to obtain a gradual reduction in direct and indirect state aid in individual Member States, and at the same time increase Community funds for reducing social and geographical imbalances.

6.5. In particular, the new schemes for conduct in the case of indirect aid need consideration, and new guidelines are needed in the case of state aid for restructuring or business rescues. There is a risk that such aid will be used as an indirect way of restricting the impact of competition policy.

6.6. The volume of aid granted directly by the EU has increased in recent years. The Committee feels it would be helpful to include this alongside other public aid in the new report.

6.7. Details of the launch of formal inquiries should be passed on to the social partners and the ESC at an early stage, albeit without setting up a formal consultation procedure.

7. Liberalization of the public sector

7.1. The White Paper advocates the opening up of all sectors to competition. One reason for this is that over recent decades - and despite certain heavily publicized privatizations - the public sector in many of the Member States has continued to grow. The introduction of competition is impeded by entrenched rules and regulations in the Member States which allow monopolies for certain services traditionally the preserve of the public sector. These rules reflect differing values, habits and legislative practices - and public monopolies are not always inefficient.

7.2. The Committee is aware that a liberalization in these sectors could be advantageous to consumers, through price reductions and better service; this should not, however, be made a matter of dogma. It is necessary to establish with great caution, on a case-by-case basis, where and how these positive effects can be achieved, in order to avoid liberalization producing the opposite effects to those hoped for. The Committee asks the Commission to make a study of the impact which competition has had in areas where it has been introduced.

7.3. The Committee also feels that the universality of service at present guaranteed by public ownership must be maintained, by not allowing liberalization and the introduction of competition to lead to cuts which may exclude certain categories and geographical regions that may not be economically attractive. For all its disadvantages in terms of efficiency and costs, at least the public service established a certain solidarity among differing situations. The Committee believes that all citizens must be guaranteed access to these services, even after the introduction of competition.

7.4. Some of these state monopolies were created to sustain investments which had very distant prospects of financial return, and were therefore of little interest to private enterprise. In opting for liberalization, account must also be taken of this need.

7.5. Even if it is not a foregone conclusion that liberalization processes will lead to a structural reduction in the labour force, they can generate social problems in the short term. These must be taken fully into account, using all possible Community instruments.

8. The subsidiarity principle

8.1. The Committee stresses the Commission's intention to leave responsibility for part of the implementation of competition law to the national authorities. The Committee's Opinion on the XXIIIrd Report mentioned the need for Member States to 'act more effectively'. However, the Commission seems to envisage a precise breakdown of responsibilities, although this will not eliminate the problem of a 'diversified implementation', if only one level of intervention is retained, or the problem of a conflict of interest with the national authorities. The Committee voiced its views on this in its Opinion on the XXIIIrd Report.

8.2. This calls for increasing regulatory activity by the Community bodies, especially the Commission, in close consultation with national authorities where these exist.

8.3. The Committee will consider this matter in more detail when the Commission issues its Communication on the subject.

9. Globalization and competition policy

9.1. A series of factors, listed in 2.4 above, will speed up the opening of continental and intercontinental markets over the next few years. Hence the XXIVth Report's statement that 'it is desirable that a genuine body of competition rules should be developed at international level'; this will require effective implementing instruments.

9.2. The Committee urges the Commission to continue on the same path; however, it feels that pending the drafting of precise rules, which will certainly take a long time, it is necessary to find a consensus on the basis of certain competition principles.

9.3. These rules, particularly in the ambit of the WTO, should include a minimum number of rules on workers' and trade union rights as laid down in ILO Conventions; the intention would not be protectionist, but rather to further civil progress at world level as advocated in the final document of the UN Conference in Copenhagen, and to safeguard the EU's social system. It is in fact clear from these international documents that the violation of minimum workers' rights represents an actual distortion of rules of competition between companies.

9.4. In this context special attention must be given to the EU's association agreements and trading policy with the CEECs to avoid distortions deriving from the fact that these countries still have institutional structures, industrial policy instruments and labour-supply rules incompatible with a proper competition policy.

9.5. In the meantime, efforts must continue to establish bilateral agreements with the antitrust authorities of countries with the closest economic links with the EU. In particular the Committee urges the Commission to continue to work with the antitrust authorities of the United States, Canada and Australia. It feels that further, strong pressure should be exerted on the Japanese Government, with whom dialogue at present seems extremely difficult.

9.6. At all events, a close eye must be kept on the practices of the EU's main trade partners, and bilateral agreements should stipulate the possibility of monitoring their action.

10. Consultation procedures

10.1. The Committee appreciates the Commission's desire to make its decision-making procedures more transparent and participatory. Numerous Committee Opinions have clearly been influential in this.

10.2. However, two points need stating: firstly, in consultations on competition policy, the Commission should seek a dialogue with European trade unions and other interested EU socio-economic organizations, as well as with BEUC and UNICE which have requested it.

10.3. Secondly, the ongoing dialogue between the Commission and the ESC could be improved, more especially by greater use of the possibility to inform the ESC of the line DG IV intended to take in advance of decisions and their publication.

10.4. It would be useful to consult workers' organizations and sub-contractors on aid for company restructuring as a matter of course, and not only as 'interested third parties'. The Commission could thereby obtain not only the opinion of an essential party to restructuring plans, but also acquire data useful for its own assessment.

10.5. The Committee regrets the insufficient consultation of both the ESC and social partners before the recent agreement between the Commission and the USA Antitrust Authority.

11. Operational efficiency

11.1. The Commission's action has often proved too slow for the requirements of the socio-economic players involved. In this connection, the Committee endorses the Commission's efforts to improve the transparency and speed of its actions. The Commission asks for more resources to speed up and extend its activities.

11.2. The Committee cannot fail to take note of the quantitative and qualitative increase in the Commission's activity in this sector. The accession of new Member States, the new rules and the globalization of markets justify this greater effort.

The Committee feels, however, that simplifying the rules and applying the subsidiarity principle through appropriate threshold solutions can go at least some way towards meeting these needs.

11.3. This requires the establishment in all Member States of effective competition authorities with the task of implementing DG IV Directives.

12. Independence of the application of competition law

12.1. As well as playing an investigative role, DG IV also takes decisions, if only in the administrative sphere. In some European countries, however, the antitrust authority is independent from the bodies with executive powers.

12.2. The Committee takes note of the discussions going on within the other EU bodies and the proposals put forward by one Member State to bring the Community institutional framework into line with the above.

12.3. However, it feels that, on the basis of an approach reiterated year after year in Opinions on earlier reports and forcefully stated in the present Opinion, competition policy must be consistent with the other EU policies and with the new strategic objectives.

It therefore opposes the proposals to make the function of administrative decision independent.

13. Other factors which distort competition

13.1. The effectiveness of competition is today threatened by new types of distortion. The Committee asks the Commission to identify the instruments needed to lessen or eliminate their impact.

13.2. The Committee considers that the Commission should be particularly attentive to at least two such disruptive factors:

a)

the destabilization of interest rates and exchange rates caused by speculation on the money markets;

b)

competition policy cannot turn a blind eye to the possibility of social dumping between weak and strong areas in the absence of minimum labour legislation, particularly in the event of further EU enlargement. The social policy chapters of the Treaty must thus be applied consistently, and in all Member States, as emphasized in the Committee Opinions on social policy following the Maastricht Treaty.

Done at Brussels, 22 October 1995.

The President

of the Economic and Social Committee

Carlos FERRER

() For instance, it could be divided into four volumes: 1. Summary; 2. Agreements and mergers; 3. State Aid; 4. Annexes.

() Central and Eastern European countries.

() OJ No C 397, 31. 12. 1994.

() OJ No C 251, 27. 9. 1995.

() OJ No C 388, 31. 12. 1994.