Opinion of the Economic and Social Committee on the "XXVIIIth Report on Competition Policy (1998)"

(2000/C 51/01)

On 31 May 1999 the Commission decided to consult the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the "XXVIIIth Report on Competition Policy (1998)".

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 25 November 1999. The Rapporteur was Mr Bagliano.

At its 368th plenary session (meeting of 8 December 1999), the Economic and Social Committee adopted the following opinion by 97 votes to 1 with 2 abstentions.

1. The XXVIIIth Report on Competition Policy is of particular importance, not only because it documents the Commission's outstanding administrative and legislative work, but first and foremost because it provides an early interpretation, in terms of action and initiatives, of the marked changes characterising the Community's new competition policy. There are two keys to understanding the 1998 report: the first is modernisation and the second is cooperation. These are the keys to the Commission's future scenario for competition policy.

1.1. In 1998, the Commission's supervisory activities as well as its initiatives and proposals already reflected the modernising approach made necessary by globalisation: in other words, the need to take account of an outside world which is changing much faster than in the past. The Commission fully expressed its awareness of this in the new regulatory and legislative approach to vertical agreements and in the subsequent highly innovative White Paper which was formally adopted in early 1999.

1.2. Such modernisation is also necessary and urgent at this key stage in the completion of the single market on account of the powerful influence on competition policy of the widespread restructuring under way on the European market, which is partly a result of increasing company merger initiatives. This is combined with the beneficial and invigorating effects on the Community economy of the introduction of the single currency and the rapid public sector liberalisation processes.

1.3. The road ahead is therefore clearly mapped out. It is consistent with past action, but is mainly geared to ensuring rapid and constant adjustment to current and future changes: most urgently, the numerous problems arising from EU enlargement. To meet these new commitments and increased responsibilities, a new way of shaping and implementing cooperation must be found - not only with but also between Member State authorities and judiciaries. All parties in any way involved must be in a position to cooperate with each other in the interests of the fair competition between companies which it is competition policy's task to guarantee. All future plans and action must, however, be placed in an international context.

2. The XXVIIIth Report on Competition Policy is preceded by an introduction which briefly outlines the content of the report itself. The question of international cooperation, however, is dealt with separately in a foreword by Commissioner Van Miert. The Committee sees this as intended to place particularly strong emphasis on the international aspect of competition policy, and hopes that it will form an integral part of the report rather than an addition - however prestigious this may be, bearing Commissioner Van Miert's signature.

2.1. The Committee welcomes the decision to give this year's preface over to the Commission's work at international level, in view of the growing importance of the international dimension. As the Commissioner acknowledges, his proposal for competition policy to be seen in a broader perspective echoes the Committee's oft-repeated call.

2.2. The comment that the ever-increasing integration of the world economy is creating an unprecedented inter-dependency between countries is perfectly accurate. Inter-dependency has not only now become one of the defining features of the current economic situation, but is set to grow still further in tandem with the irreversible globalisation process. Against this backdrop, competition issues also take on a necessarily global dimension. International cooperation is therefore essential.

2.3. Cooperation with the United States, under an agreement dating back to 1991 (but, as the Commissioner points out, coming into force in 1995), confirms that bilateral agreements can be highly effective. The results of action on bilateral cooperation with a view to enlargement also confirm that the Commission is moving in the right direction. The Committee, however, agrees with the Commissioner that steps need to be made towards multilateral agreements as a matter of urgency. Progress here is much more difficult, but it is the only possible path: efforts must be stepped up.

2.4. Under these circumstances, the aim of establishing "a comprehensive worldwide multilateral framework, providing for the application of a basic set of common competition rules" comes to the fore. The WTO working group is examining proposals on the best approach to adopt, and should be encouraged and supported in every way possible.

In its opinion(1) on the XIXth annual report, the Committee concluded that

"although the final goal may seem distant, work should continue on the internationalisation of antitrust rules, and harmonisation (even partial and gradual) of the rules of international trade". Almost a decade has passed: the "one-step-at-a-time" policy needs to speed up or it will be left trailing by events.

A stronger political will is now needed. This is a further challenge, which needs to be faced gradually but determinedly.

2.5. In the meantime, "turmoil and uncertainty" are increasing "the threat posed by anticompetitive practices". Further on in his introduction, the Commissioner makes the following comment, as courageous as it is important: "so-called 'crony capitalism' meant that competition between firms was very often foregone in favour of opaque arrangements which have very little to do with market forces. I am convinced that the pursuit of a robust competition policy, at both the national and the international level, would provide an important antidote to such tendencies by promoting the competitiveness of industry, decentralising commercial decision-making, fostering innovation and maximising consumer welfare".

The WTO's role will be crucial in this respect. The Committee hopes that this acknowledgement on the part of the outgoing commissioner will be fully matched by both his successor and the Commission as a whole in the exercise of its full powers. To cite the most notorious case only (which has had a major impact on the Community's economy, and is also damaging to the majority of developing countries), the fixing of oil prices by international cartels must no longer be tolerated.

3. The Commission was highly active in 1998 at both the legislative and administrative levels under its programme of modernisation of Community competition law. This represents yet another challenge, going beyond the simple replacement of one law with another. The Commission also imposed severe penalties in cases of market partitioning, price cartels and abuses of dominant market position. In practice, modernisation - synonymous with "refocusing" - has meant concentrating "on those cases where the Community interest is manifest". The policy is undergoing consolidation and is giving rise to ambitious projects for change. The Committee supports the Commission's interesting initiatives and action in this direction.

4. The notice on cooperation between Community and national competition authorities seems to be producing its first results, as reflected in effective collaboration (exchange of information on notifications, joint handling). The anomaly whereby seven national authorities are still not authorised to apply Articles 81 and 82, however, remains unresolved. In this connection, the Committee would repeat its insistence on the urgent need for harmonisation of national legislation on competition through the application of Articles 81 and 82, as a prerequisite for any improvement in cooperation and, above all, for effective decentralisation. It also hopes that this "harmonisation" will encompass the principles underpinning national legislation on competition.

4.1. The Commission should devote a chapter (including comparative tables) of its annual report to the state of application of Community (as well as national) competition law in each Member State. This would also serve to assess the degree of transposition, as well as decentralisation, actually achieved. Here, the Committee wonders which of the effects of insufficient harmonisation in the different Member States are most damaging. It should be borne in mind that markets are still segmented and national diversities still strong, and that a number of dominant national positions remain in existence and have major, serious distorting effects on competition. A carefully-planned information campaign will be needed if greater transparency is to be achieved. Harmonisation takes time. Pending more substantial results, it might be necessary to look into at least specific supervisory instruments, with the same aim of preventing distortion or unduly advantageous positions.

5. Liberalisation has proceeded apace in telecommunications, but has been slower in the energy sector. The Committee views these sectors as providing a considerable spur for competitiveness and for consolidating and invigorating the single market.

5.1. In this context, the Commission should also examine the overall effects of liberalisation processes, and of the ending of certain monopolies. The purpose would not, of course, be to try to turn the clock back, but to fine-tune supervision and identify new trends or signs of change at an early stage. A further aim would be to keep a close eye on the possibly significant repercussions for employment. The Committee suggests that following an in-depth ad-hoc investigation, the Commission should publish periodical information reports and updates. These would be of great value to economic operators as well as to national institutions and authorities.

6. Legislative activity in the field of vertical agreements and state aid has been particularly intense(2). Real reform, as part of the broader reform contained in the White Paper on modernisation, adopted in early 1999(3), has been set in train. It provides the legislative ground-work for the new criterion for interpreting competition rules, which should henceforth place the emphasis on economic rather than legal or formalistic aspects. The Committee, which has already voiced its approval of the relevant options set out in the Green Paper, is drawing up an opinion on this matter, but wishes at this stage to acknowledge the Commission's consistency and clear, responsible vision of the problems.

7. The Commission has taken landmark decisions and imposed fines in application of the Merger Regulation. These decisions have always provided thorough documentation, in-depth analysis and solid economic and legal reasoning to back the conclusions reached.

7.1. Here again, however, the Committee believes that the time has come for the effects of this action to be verified, including at international level, as they may generate new forms of oligopoly or even monopoly, with repercussions on the Community market. The Committee calls upon the Commission to add to its annual report by including the results of its checks on the effects of formal commitments entered into by companies in the first and second phases of conditionally authorised merger operations. It must be borne in mind, particularly with regard to the employment market - to which the Committee is always highly attentive - that jobs in traditional sectors are contracting, having been decimated over recent years by automation and, more recently, by the unstoppable processes of relocation. Factories are switched, in part or in whole, to countries with lower labour costs, as a result of non-compliance with the ILO's minimum key standards. Competition policy cannot afford to overlook these aspects: it must be fleshed out and integrated - here again, by means of cooperation, first and foremost within the Commission itself - if application of competition rules is to be the result of a real Community policy.

7.2. Individual Member State markets must also be supervised for this purpose, so that concern for the global dimension does not have the effect of downgrading the importance - which is clearly primordial - of an efficient, competitive and expanding internal market. Many further mergers and concentrations may be expected to take place in the future, and at a faster pace. The speed of change in market and production structures inside and outside the single market must be matched by swift adjustment of rules and controls.

8. In the area of state aid the Commission defined its aim as being "to improve transparency and legal certainty, to make the state aid monitoring system more efficient, to reinforce vetting, in particular in cases involving large volumes of ad hoc aid, and to simplify the monitoring system for more minor cases". The Committee supports this objective as a matter of course.

8.1. The Commission's regulatory activity has also been intense in this area. A regulation aimed at codifying the various aspects of the monitoring system while strengthening its powers was proposed, and has now come into force. It will clearly be a valuable instrument in managing competition policy in the highly sensitive area of state aid. The Commission has in any case always acted with dispassionate objectivity and down-to-earth realism. The innovative proposal for a regulation enabling the Commission to exempt certain categories of horizontal aid from the notification requirement also appears to reflect a healthily pragmatic approach, and naturally meets with the Committee's support.

8.2. The Committee also welcomes the new framework on training aid. Facilitating training initiatives is a secure medium-term investment which will help to boost social and economic stability within the Member States. More, however, needs to be done. A competition policy that is in line with current circumstances and with the needs of European integration must facilitate all initiatives designed to encourage and stimulate employment.

8.3. Aid should in principle be progressively reduced, as the Committee has always recommended. The Treaty, however, makes provision for such aid within a competition policy which is simultaneously designed to help secure the cohesion targets also pursued by other Community policies.

8.4. With regard to regional policy, in March 1998 the Commission adopted an important document: the guidelines on national regional aid, which simplifies and updates the criteria for applying Treaty rules. The Committee agrees with the principles and with the evaluation and monitoring mechanisms set out in the document.

8.5. The Committee must, however, once again point to the very different situations in the various Member States, which continue to counteract all cohesion policies with clear implications for competition.

8.6. In this regard, the annual report on competition should also assess the effects of Community "aid", which has mushroomed over recent years, now accounting for a considerable portion of public aid within the EU. A new concept of "public aid" needs to be adopted, including not only state aid - at national and regional level - but also Community aid.

8.7. The CEEC are quite another matter. In paragraph 300 of the XXVIIIth Report on Competition Policy, the Commission acknowledges that "In contrast to antitrust policy, the introduction of state aid control in the CEEC has proven to be much more controversial and difficult to bring about ... a lot of work remains to be done. The most urgent priority is to create transparency ...". The situation is also extremely diverse: an extreme example might be heavy industry, which is in state hands to the tune of 80%. The adjustment process will be lengthy. The Committee is aware of these circumstances and difficulties, but for this very reason would again urge the Commission this year to exercise careful supervision of these problems and play an active part in any contacts or negotiations.

9. The outlook for competition policy, confronted with the dual challenge of enlargement and globalisation, can be reasonably bright provided simplification and modernisation are pursued more vigorously. The drive to modernise and reform brings a need for an overall review which should also serve to trigger new measures to encourage training, foster initiatives in the most innovative and hi-tech sectors, and map out new types of jobs.

9.1. The quickening pace of market globalisation has accentuated the role of innovation as the trump card for the more advanced economies, which must counter the aggressive, cost-based policies of the recently industrialised countries. In this setting, only strong investment in innovation can shield the developed countries from the competition, based on price and rising product quality, offered by their new competitors. In spite of this awareness of the strategic value of innovation and of the new technologies, the Committee notes some hesitation in seizing the related opportunities for modernisation and growth. Community competition policy must seek out appropriate areas in which to act as a driving and sustaining force, and to create the most advantageous reference framework for businesses, within which they must make choices, take decisions, place investments and take risks. This is where competition policy links in with other Community policies.

10. Competition policy is not simply a matter of legal processes, penalties and controls. Nor is it divorced from other Community policies. It should not be isolated from them, nor should it seek to distance itself from them. Consultation and cooperation must be stepped up within the Commission. New trends must be detected and interpreted. The Commission possesses a tried and tested machine in its Competition Directorate-General: it can use it to learn about and understand change and to "refocus" all its own policies promptly and consistently. The challenges of enlargement, globalisation and the single currency demand a more rigorous, and at the same time more far-sighted competition policy, backed up by a stronger and more active Commission presence at all international levels.

Brussels, 8 December 1999.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI

(1) OJ C 60, 6.3.1991, p.19.

(2) OJ C 270, 24.9.1999, p.7.

(3) COM(1999) 101 final, 12.5.1999.