COMMUNICATION FROM THE COMMISSION TO THE COUNCIL - TOWARDS AN INTERNATIONAL FRAMEWORK OF COMPETITION RULES
Date: 1996-06-18
Institutions: European Commission
Subjects: World Trade Organisation, competition law, competition policy, international law

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  18.06.1996 
COM(%)  284  final 

COMMUNICATION  FROM  THE  COMMISSION  TO THE  COUNCIL 

TOWARDS AN INTERNATIONAL FRAMEWORK OF COMPETITION RULES 

COMMUNICATION TO THE COUNCIL 

TOWARDS AN INTERNATIONAL FRAMEWORK OF COMPETITION RULES 

CONTENTS 

I. 

a) 
b) 
c) 
d) 
e) 

INTRODUCTION 

A global perspective on competition rules: why international rules are needed. 
The competition perspective. 
The trade perspective. 
Jurisdictional issues : avoiding unilateral measures. 
Historical background and recent developments. 

II.  WHICH FORUM ? 

III. 

INTERNATIONAL  RULES  ON  COMPETITION  -  ISSUES  FOR 
CONSIDERATION 

a) 
b) 
c) 
d) 

Adoption of domestic competition  structures 
Agreement on common rules 
Establishment of  instruments of cooperation  between competition  authorities 
Dispute settlement 

IV.  RELATED ISSUES 

a) 
b) 
c) 
d) 

Who should participate? 
The interest of developing countries. 
The relation to trade defense instruments. 
The relation to the Community legal order and Member States. 

V. 

CONCLUSIONS 

ANNEX: POSSIBLE ELEMENTS OF AN INTERNATIONAL FRAMEWORK OF 
COMPETITION RULES 

a) 
b) 
c) 
d) 

Adoption of domestic competition  structures 
Agreement on common rules 
Establishment of instruments of cooperation between competition  authorities 
Dispute settlements 

Ù. 

COMMUNICATION TO THE COUNCIL 

TOWARDS AN INTERNATIONAL FRAMEWORK 
OF COMPETITION RULES 

This Communication  is about the  international  aspects  of competition  law.  It examines 
whether public international  law, and especially the WTO, should be complemented  by a 
specific framework  to support competition law enforcement  \ 

The  concepts  and  proposals  set  out  in  this  paper  build  on  the  report  of  the  group  of 
experts  established  by  Commissioner  van  Miert  in  June  1994.  That  report,  entitled 
"Competition  Policy  in  the  New  Trade  Order:  Strengthening  International  Cooperation 
and Rules", was published in July 1995. 

The  experts'  report  covered  both  bilateral  and  multilateral  cooperation  in  the  field  of 
competition.  Their  parallel  development  was  considered  to  be  complementary  and 
mutually  supportive.  Thus,  although  the  emphasis  of  this  Communication  is  on 
multilateral  aspects,  the  further  development  of  bilateral  cooperation  agreements  is 
equally important and would have a favourable  impact on work in a multilateral  setting. 

I. 

INTRODUCTION: 

a)  A global perspective on competition rules: Why international rules are needed 

Two developments  have characterised  international  economic  activity  in recent decades: 
liberalisation and globalisation. Eight negotiating Rounds since GATT was established in 
1947  have  brought  import  tariffs  down  to  historically  low  levels:  from  around  35% to 
below  4%2.  This  has  led  to  a  massive  growth  in  the  volume  of  trade  in  goods  and 
services, doubling every seven to eight years and growing from  around $200 billion  in the 
early sixties to exceed  $5000 billion  in  1994. Foreign  direct  investment  has grown  at an 

1  The scope of this Communication  is limited to anticompetitive practices of enterprises.  There arc many 
governmental  practices  that  have  an  effect  on  competition,  such  as  subsidies,  which  are  grouped 
together  with private  practices  in the EC Treaty's chapter  on competition  rules. These  are  by and  large 
already covered by rules under the World Trade Organisation (WTO). 

This  is the trade-weighted  average  of  industrial  tariffs  that  will  apply  in developed  countries  once the 
reduction commitments  of the Uruguay Round  have been  fully  implemented. 40% of European  imports 
will even be duty free. Developing countries generally committed  themselves in the Round  to bind their 
duties  in  a  horizontal  way  for  the  first  time,  with  highest  levels  mostly  around  20-35%.  Remaining 
quantitative restraints on imports, in specific  sectors such as agriculture or textiles, but also with  regard 
to generic practices such as voluntary export restraints, are to be phased out by all WTO Members. 

even more spectacular rate - by a factor  of thirty in less than twenty five  years.  National 
economies are more open to foreign competition today than ever before. 

At  the  microeconomic  level  firms  have  adopted  global  strategies.  Liberalisation  and 
technological progress have driven them to adopt new production methods: exploiting the 
comparative  advantage  of  countries,  improving  their  mobility,  shifting  factors  of 
production,  moving  into  new  markets  etc.  Firms  often  need  to  be  present  on  different 
markets  at  the  same  time  to  stay  competitive.  As  a  result  countries  have  become 
interdependent  and  the  markets  of  many  goods  and  services  have  become  regional  or 
even global. 

The  number  and  size  of  transnational  firms  has  increased.  There  are  more  commercial 
practices  that  have  an  international  dimension  than  ever  before.  These  can  lead  to  an 
increase  in  cross-border  anti-competitive  practices:  cartels  with  international  effects, 
is  to  exclude  (foreign)  competitors  in  an  unfair  way, 
agreements  whose  effect 
international abuses of a dominant position, or international mergers with anticompetitive 
effects.  Such practices can limit competition and undermine the benefits of liberalisation. 

These  developments  call  into question  the domestic  nature  of  competition  rules  and  the 
absence  of  binding  rules  at  the  international  level.  Many  countries  or  regions  have 
implemented  comprehensive  competition  policies,  but  lack  appropriate  instruments  to 
apply  domestic  competition  rules  to  anti-competitive  practices  with  an  international 
dimension,  as  well  as  to  obtain  relevant  information  outside  their  jurisdiction.  A 
framework  is then necessary to enhance the effective  enforcement  of competition rules. 

In the Community  anticompetitive practices  are effectively  dealt with  in an even-handed 
and non-discriminatory  way across Member States.  Competition  policy is a cornerstone 
of the Community legal order.  But there are no competition  rules at the global level, and 
in  many  foreign  markets  the  means  for  redress  against  anticompetitive  practices  that 
undermine the efforts  of our companies trying to compete are inadequate. 

There are then four  main  reasons why the adoption  of international  rules on competition 
should be considered: 

• 

• 

• 

as part  of  the Community's  strategy  on  market  access: anticompetitive  practices  are 
keeping  our  firms  out  of  third  country  markets  but  they  cannot,  in  the  absence  of 
proper  enforcement  measures  in those  third  markets,  be  tackled  effectively  without 
international rules.  European firms also face a competitive disadvantage if they have 
to compete  on  world  markets  with  foreign  producers  operating  from  home  markets 
that  are  subject  to  less  vigorous  competition  policies.  Multilateral  rules  would 
promote more equal conditions of competition world-wide; 
to avoid conflicts  of law and jurisdiction between countries and to promote a gradual 
convergence of competition  laws. There is a real  need to minimise the jurisdictional 
conflicts  and  resulting  trade  conflicts  that  can  arise,  not  only  from  extraterritorial 
application  of certain competition  laws, but also from  the application  of competition 
law  to  anti-competitive  practices  conceived  abroad  but  implemented  within  one's 
jurisdiction.  Convergence  and  conflict  avoidance  would  also  increase  the  legal 
security of firms  operating  in different  jurisdictions,  as well  as reduce their costs of 
compliance with competition laws; 
to  increase  the  effectiveness  and  coherence  of  the  Community's  own  competition 
policy enforcement.  As it is in many countries, competition  policy is a key factor  in 

3 

supporting  the  competitiveness  of  European  industry,  in  protecting  a  sound 
functioning  of our market economies and in maximising consumer welfare.  It needs 
instruments of cooperation to take account of the effects  of globalisation. 

•  Enhanced  commitment  to  competition  policy  enforcement  would  strengthen  the 
trading system along the lines of our legal systems and market economies, of which 
competition law is a basic feature. 

These concepts are further  developed below. 

b)  The competition perspective 

Within  the  Community  the  elimination  of  trade  barriers  and  the  application  of 
competition  law  have  gone  hand  in  hand.  This  approach  is  unique  in  the  world.  The 
competition  policy  of  the  Community  has,  in  its  development  over  thirty-five  years, 
grown  to full  maturity  and  is rigorous  and  neutral  in  its  application.3  Consequently,  the 
Community  has  become  a highly  integrated  market,  with  the competition  provisions  of 
the  Treaty  protecting  the  integrity  of  the  common  market.  In  a  larger  perspective, 
however, the Community's competition  policy and instruments  have remained  essentially 
domestic,  inward-looking  and  limited  to  conduct  implemented  within  the  common 
market and affecting  trade between our Member States. 

Absence of an instrument to deal with transborder cases 
Many countries or regions which have implemented comprehensive  competition  policies 
nonetheless  lack  the  necessary  instruments  to  apply  domestic  competition  rules  to  anti 
competitive practices with  an international  dimension.  For example, information  central 
to  the  investigation  may  be  located  outside  their jurisdiction  and  thus  be  beyond  their 
reach.  Absent  the  necessary  proof  of  anti-competitive  conduct,  competition  authorities 
are unable to take remedial action. 

Avoidance of conflict of law and remedies 
The  1980s and  1990s have seen  a significant  increase  in  international  mergers,  strategic 
alliances,  joint  ventures,  licensing  agreements  etc.  These  arrangements  may  face 
examination by different  authorities at the same time with a potential for a conflict  in the 
law or remedy applied to the same case.  In an extreme example, divergences in the laws 
applicable to the same set of facts  may result  in conflicting  conclusions  as to the legality 
of the behaviour under review.  However, even  where there is a common  view  as to the 
anti-competitive nature of the conduct, the remedies imposed in each jurisdiction  may be 
incompatible. 

Greater  convergence  of  laws  and  cooperation  between  competition  authorities  would 
reduce the likelihood of such conflicts  and promote greater legal certainty for business. 

Avoiding unnecessary  duplication of work and costs 
The  review  of  commercial  practices  involves  considerable  work  and  costs,  both  for 
competition  authorities  and for  the businesses whose conduct is subject  to review.  If the 
same commercial practice fails within several jurisdictions the costs increase accordingly. 

In parallel, those member  States who did  not have competition  authorities  prior to the establishment of 
the Community, have enacted  legislation and set up enforcement  structures at national level 

4 

Greater cooperation  and the elimination  of unnecessary  duplication  of effort,  can  reduce 
costs to competition authorities and business alike. 

Export cartels 
Certain  practices are difficult  to tackle under present  rules by any agency.  For example, 
export  cartels4  have,  for  trade  reasons  (the  wish  of  countries  to  improve  their  terms  of 
trade) not been subject to competition  law in exporting countries.  For legal and practical 
reasons  too,  competition  law  has  not  been  applied.  Absent  an  effect  on  the  exporting 
country's  markets, the competition  authority  has no jurisdiction  over export  cartels.  For 
the importing country, export cartels have an effect  on the market  and so jurisdiction can 
be  established,  but  the  evidence  needed  to  prove  the  existence  of  the  cartels  is  located 
outside the importing country's jurisdiction. 

In all these cases the instruments at the disposal of the Community and its Member States 
are inadequate. 

More  generally,  in  today's  liberalised  world  the  Community  cannot  be  without  an 
external dimension to its competition policy.  The Community interest is to seek the same 
commitment  to competition  enforcement  from  our partners  in their  markets  as we apply 
to operators, irrespective of their origin, on ours. 

c)  The trade perspective 

Balance of access opportunities 
Anticompetitive  practices  affect  the balance  of  access  opportunities  negotiated  between 
WTO Members.  They  belong  to the  next  barriers  to  trade  in  a liberalised  world.  The 
application  of competition  law contributes to creating accessible markets and to assuring 
the overall  openness  and  stability  of the trading  system.  Community  efforts  in this  area 
need to be matched by our partners.  Competition  policy is now clearly trade-related, and 
the  application  of  competition  law  principles  on  export  markets  will  help  level  the 
playing  field  and  promote  equal  conditions  of  competition  for  our  firms  competing  on 
international markets. 

While governments  today are subject  to very  strict  international  disciplines  in respect of 
the laws they make or the measures they apply, as soon  as these have an effect  on trade, 
no rules exist  at the  international  level  to control  anti-competitive  commercial  practices. 
Such  practices  can  replace  formal  governmental  barriers  that  have  been  reduced  or 
eliminated.  Arguably,  the  incentive  for  firms  to  engage  in  anticompetitive  behaviour 
impeding market access, (such as cartels combined with boycotts, exclusionary abuse of a 
dominant position, exclusionary  vertical  restraints)  increases with the reduction  of  tariffs 
and  other  barriers.  Also,  as  industrial  structures  in  emerging  economies  increase  in 
sophistication,  so  will  the  devices  used  by  firms  to  protect  the  market  from  foreign 
competition.  Finally,  governments  whose  freedom  of  action  to  support  domestic 
industries through administrative measures has been curtailed by international  rules, may 
be  tempted  to  maintain  lax  standards  of  competition  regulation  or  enforcement,  or  to 
grant exceptions, to protect specific industrial sectors. 

Export cartels are a specific problem insofar  as their negative effects  are only felt in the market of the 
importing country, while the relevant information  is situated in the exporting country.  The latter of 
course has neither an interest, nor the jurisdiction to take action. 

5 

Although  competition  rules  do  exist  on  many  of  our  export  markets,  anticompetitive 
practices  are  often  impossible  to  tackle  without  active  enforcement  by  the  domestic 
competition  authority.  In  the  absence  of  international  rules  our  firms  have  to  rely 
exclusively  on  the  commitment  and  tenacity  of  third  country  agencies  to  have  their 
concerns addressed5. 

Recent  developments  confirm  that  real  or  perceived  anticompetitive  practices  can 
generate trade friction  and that the trading  system has been unable to effectively  resolve 
disputes in the absence of agreed rules of conduct6. 

Trade instruments 
The inadequate application  of competition  principles on different  markets can have other 
trade  effects.  Cartellization  or  similar  restrictive  behaviour  in  a  foreign  country  can 
enable firms  to make supracompetitive  profits  at home and then  sell  products  on  export 
markets below cost price. This may trigger the use of legitimate trade instruments  such as 
antidumping  duties  by the  importing  country.  But  the  use  of  trade  instruments  will  not 
address  the  activity  on  the  exporting  country's  market  and  may  also  have  negative  side 
effects.  From  an  economic  perspective  it  is  therefore  less  efficient  than  tackling  the 
conduct on the exporting firm's home market. 

Even  where  there  is  no  evidence  of  dumping,  the  protection  afforded  to  companies 
through an inadequate application  of competition  rules on their home markets may place 
them in an advantageous position when competing on foreign markets. 

d)  Jurisdictional issues: avoiding unilateral measures 

Some competition  authorities pursue policies to address market access problems, caused 
by  anti-competitive  practices  on  foreign  markets,  by extending  the  territorial  scope  of 
their national competition  rules. This raises concerns of jurisdiction7 and sovereignty, and 
can lead to conflicts  between countries. Moreover, there are limits to the effectiveness  of 
such a policy given the legal  and practical obstacles to seeking information  outside one's 
jurisdiction. 

Note, however,  that in the US the enforcement  system is geared  towards private action  in civil  courts : 
private parties are actively encouraged  to bring cases by the possibility of winning treble damages.  The 
competition provisions in the  EC Treaty and national legislations can also be invoked by private parties 
before  national courts. Domestic courts in third countries are often  not, however, as easily accessible. 

Note, however, that in May  1995 Kodak filed  a petition with the US Government (USTR) under Section 
301 of the US Trade Act, alleging  that there are anticompetitive  barriers  restricting  open  access  to the 
Japanese market for consumer photographic film and paper. On  13 June  1996 Acting USTR  Barshefsky 
made a determination  of  "unreasonable  practices"  and  initiated  dispute  settlement  in the WTO,  on the 
grounds  of  "nullification  and  impairment"  of  expected  GATT  benefits  and  violation  of  GATS 
commitments.  Consultations  will  also  be  conducted  under  the  1960  GATT  Decision  on  restrictive 
business practices. 

See The  1995 US international  antitrust enforcement  guidelines. US attempts to impose  its law beyond 
its  jurisdiction  led  Canada,  France,  Germany,  the  UK,  the  Netherlands  and  Switzerland  to  adopt 
blocking  legislation.  Section  301 of the  1974 Trade Act also allows trade action to be taken to counter 
the toleration by foreign  governments of anticompetitive practices. 

Enhanced international  cooperation  would limit competition  authorities' need to resort to 
extraterritorial  action.  There  are  compelling  advantages  to  solving  problems  through 
cooperation,  especially 
the 
anticompetitive behaviour can be eliminated. 

if  such  cooperation 

likelihood 

improves 

that 

the 

e)  Historical background and recent developments 

There  have  been  many  initiatives  to  establish  rules  on  anticompetitive  conduct  in  the 
past.  The  Havana  Charter  was  based  on  the  concept  of  comprehensive  rules  covering 
both  public  and  private  practices  and  devoted  a  whole  chapter  to  restrictive  business 
practices8.  The Charter was not ratified however and was succeeded by the more modest 
GATT, which examined  the trade-competition  interface  a number of times  in the  1950s 
and  1960s, but  with  no clear result  9. In the  1970s  a full  Competition  Code  was  finally 
negotiated  in  the  framework  of  UNCTAD10  at  the  request  of  developing  countries.  Its 
provisions are not binding. 

The  OECD  has  carried  out  significant  work  in  the  international  competition  area  for 
many  years. 
It  has  adopted  a  Recommendation  that  includes  a  non-binding  but 
functioning  notification  instrument between Agencies, which has been revised  a number 
of times11. 

The WTO contains limited  tailor-made  rules on competition  in each of  its three  "pillar" 
Agreements  12.  The  General  Agreement  on  Trade  in  Goods  (GATT)  has  an  annexed 
Agreement on Trade Related Investment Measures (TRIMs) which provides for a review, 
to  be  conducted  within  five  years  of  its  entry  into  force,  to  consider  whether  the 
Agreement  should  be  complemented  with  provisions  on  competition  policy13.  The 

See its Chapter V. The  1947 Charter foresaw  the establishment of an International  Trade  Organisation 
to  oversee  world  trade.  The  Organisation  was  mandated  to  act  against  anticompetitive  practices:  it 
would  have  had  an  investigative  capacity  and  be  entitled  to  issue  recommendations  on  remedial 
measures. The Charter,  which also included  rules on investment,  was not adopted  and  a number  of  its 
provisions  were bundled  together  in the  less ambitious  GATT Treaty  that was, in turn, superseded  by 
the WTO on  1 January  1995. 

9  See GATT BISD 7S/29, 9S/28,170. 

The Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business 
Practices was adopted by the UN General Assembly in December  1980. (UN Doc. A/35/48 (1980)). 

11 

12 

13 

Amended in  1995. This Recommendation  includes a voluntary dispute settlement procedure, which has 
never been used. (C (95)  130/final). 

The WTO has  three  "pillar"  Agreements, covering  trade  in goods  (GATT),  trade  in services  (GATS) 
and  the  trade-related  aspects  of  intellectual  property  rights  (TRIPs).  The  Agreement  establishing  the 
WTO  itself  as  well  as  the  integrated  Dispute  Settlement  Understanding  overarch  the  three  separate 
Agreements. The WTO also includes a number of Plurilateral  Agreements, which  are binding between 
the signatories only. 
The  GATT  Agreement  on  trade  in  goods  contains  a  provision  to  ensure  commercial  conduct  of 
enterprises  that  have  been  granted  special  or  exclusive  rights  (Article  XVII  GATT  -  which  docs  not 
function  very well). It has been argued that anticompetitive conduct could be tackled through a so-called 
"non-violation" complaint. 

Multilateral  rules  on  investment  are currently  being  negotiated  in  the  OECD  and  the WTO  may  start 

Agreement  on  the  trade-related  aspects  of  intellectual  property  rights  (TRIPs)  contains 
provisions  on  the  control  of  anti-competitive  practices  or  conditions  in  contractual 
licenses, relating to the transfer of technology  or of other proprietary  information.  It also 
recognises  the  right  of  countries  to  regulate  such  practices  through  their  domestic  laws, 
and  it  provides  for  consultations  and  exchange  of  information  between  governments 
where there is reason to believe that licensing  practices  or conditions  constitute  an abuse 
and have  an adverse effect  on competition  in the relevant market.  Likewise,  the General 
Agreement  on  Trade  in  Services  (GATS)  contains  provisions  on  consultation  and 
exchange of information,  similar to those in the TREPs Agreement,  and requires  countries 
to  ensure  that  monopoly  services  providers  do  not  abuse  their  position  in  activities 
outside the scope of their monopoly privilege. 

However,  the  scope  of  these  provisions  remains  very  limited  for  the effective  control  of 
anticompetitive  practices  at  the  international  level.  More  importantly,  the  lack  of  more 
comprehensive  multilateral  principles  and standards for  the  application  and  enforcement 
of competition  policies,  may undermine past and present international  trade  liberalisation 
efforts. 

Parallel  to  the  above  developments  an  increasing  number  of  countries  have  negotiated 
bilateral  agreements  on  cooperation  between  their  competition  authorities.  Such 
Agreements  have  been  negotiated  in the Union  both  at the  Community  and the  national 
level.  At  Community  level,  for  example,  a  cooperation  agreement  has  been  concluded 
with the US. Amongst  others it provides for notification  of enforcement  activities by one 
party that may effect  the important interests of the other; information  exchange  in certain 
circumstances; 
consultation  and  cooperation  and  avoidance  of  conflicts  over 
enforcement  activities.  The  so-called positive  comity  instrument  stands out14,  because  it 
permits a party whose  important interests are affected  by anticompetitive practices  within 
the other party's territory to ask the latter to examine them and take appropriate measures. 
In  general,  the  substance  of  these  treaties  has  also  evolved  and their  contents  are  more 
developed today than before. 

Notwithstanding  the  wide  consensus  on  the  promotion  of  deeper  bilateral  cooperation 
among  competition  authorities,  bilateral  cooperation  agreements,  similar  to  OECD 
efforts, remain limited in scope and in effect.  In scope, because although increasing,  only 
the EU  and a limited  number of  countries  which  are very  actively  involved  in  enforcing 
competition  policies,  have  entered  such  agreements;  and,  in  effect,  because  these 
agreements do not contain substantive rules or principles. 

Another question  is  whether,  next  to the  above,  the proliferation  of  sector-specific  trade 
agreements  that  include  competition  provisions  which  each  have  their  own  specific 
characteristics,  can  be  kept  coherent.  This  becomes  more  significant  as 
the 
interrelationship  between  trade  in  goods,  services  and foreign  investment  increases,  and 
as  respective  geographic  markets  overlap.  At  best,  firms  will  press  governments  to 
ensure  that  their  policies  are  streamlined  and  consistent.  At  worst,  they  will  seek  to 
exploit the provisions of such agreements for narrow corporate advantage through forum-
shopping. 

work in this field  soon. Competition rules may contribute to ensuring that (foreign) investments are only 
made under sound and competitive conditions. 

14  SeeArticleV. 

A  more  coordinated  policy  grouping  together  a  number  of  countries  and  straddling  all 
sectors of the economy  then needs to be considered. 

II.  WHICH FORUM ? 

There  are  four  alternative  fora  to  house  an  international  framework:  the  OECD, 
UNCTAD,  the negotiation of a separate, stand-alone agreement, or the WTO. 

The  OECD  has  been  involved  in  the  area  of  international  competition  rules  for  a  long 
time  and  is serviced  by an independent  Secretariat.  It has the organisational  capacity  to 
cater for the negotiation of an agreement on international  competition  rules.  However the 
OECD  has  three  disadvantages:  it  does  not  have  a track  record  of  dealing  with  binding 
commitments  and dispute  settlement,  it does not provide the disciplines  on  competition-
related  trade  measures  (which  are  dealt  with  in  the  WTO),  and,  importantly,  it  has  a 
limited Membership. 

UNCTAD  developed  a  full  Competition  Code  in  the  1970s  which  has  been  regularly 
revised.  However,  many  of  the  same  objections  that  apply  to  the  OECD  also  apply  to 
UNCTAD,  i.a.  the  absence  of  a tradition  of  dealing  with  binding  commitments  and  the 
lack  of  an  overlap  with  competition-related  trade  disciplines  (which  are  dealt  with  in 
WTO). 

It may be difficult  to gather  the necessary  political  momentum  in different  countries  for 
an  independent,  stand-alone  agreement,  and  its  functioning  would  likely  have  higher 
overhead costs. 

The  WTO  is  the  prime  candidate  for  a  framework  of  competition  rules:  it  has  a  near 
universal  membership15.  The  WTO  can  provide  a  balanced  response  sensitive  to  the 
varying interests and concerns of both developed and developing countries. 

The  WTO  is  the  recognised  institution  for  trade  related  international  economic  rules. 
Many  of  its  present  rules  are  closely  related  to  competition  issues  (especially  those  on 
subsidies,  state  enterprises  and  intellectual  property).  Some  of  its  Agreements  already 
have  a number  of  specific  provisions  to  address  anticompetitive  practices  (see under I.e 
above). 

The  institutional  infrastructure  of  the  WTO  includes  a  system  of  transparency  and 
surveillance  through  notification  requirements  and  monitoring  provisions.  These  are 
common  to  many  WTO/GATT  Agreements.  The  WTO  also  provides  a  forum  for 
continuous  negotiation  and  consultation,  where  its  Members  could  bring  their  trade-
related  competition  concerns.  Furthermore,  the  Organisation  has  a  reinforced  and 
legalised dispute settlement  system between  governments. This can back-up agreed  rules 
and provide means for conflict  resolution. 

The  WTO  also  caters  for  the  possibility  of  negotiating  an  Agreement  with  specific 

Over  twenty  five  former  state  trading  economy  countries,  amongst  which  China  and  Russia,  are 
currently negotiating their accession to the WTO. 

disciplines  between  a  limited  number  of  signatories  (thereby  creating  a  so-called 
Plurilateral Agreement under Annex IV of the WTO Agreement). 

III. AN  INTERNATIONAL  FRAMEWORK  OF  RULES  ON  COMPETITION  -

ISSUES FOR CONSIDERATION 

A  premise  of  this  Communication  is  that  the  creation  of  an  International  Competition 
Authority, with its own powers of investigation  and enforcement,  is not a feasible  option 
for the medium term. Countries would at this stage be unwilling to accept the constraints 
on national  sovereignty  and policies that  such a structure  would  impose.  The proposals 
set  out  below  and  in  the  annex  therefore  reflect  a  more  modest  approach,  built  on 
commitments binding  governments  and providing  intergovernmental procedures. This is 
also the model on which the international  trading system has been built since the Second 
World War. 

Work on a framework  of international  competition  rules is most likely to make headway 
if  a progressive approach  is adopted.  The objective  would  be to strengthen  competition 
policy coordination  in steps (building-blocks approach).  This could be achieved  through 
the creation  of a working group in WTO, whereby initial work might be limited to those 
areas where consensus can be mustered at an early stage, and more ambitious  objectives 
would be tackled later.  The main steps can be identified  as follows: 

a)  Adoption of domestic competition structures 

A  first  step  could  be  taken  by  WTO  Members  committing  themselves  individually  to 
assuring the existence of  domestic competition  structures.  The core elements of  such  a 
structure would be : 

having  basic  competition  rules  in  domestic  laws  to  address  anti-competitive 
practices, covering restrictive agreements of companies, abuse of dominant position, 
and mergers; 

having  or  creating  domestic  enforcement  structures  to  guarantee  an  effective 
implementation  of 
those  rules,  including  proper  investigatory  instruments  and 
appropriate sanctions; 

ensuring access for private parties to the domestic enforcement  authorities, including 
national courts, on equitable, transparent and non-discriminatory terms. 

b)  Adoption of common rules 

In parallel WTO Members could seek to identify  a core of common principles, and work 
towards their adoption at international level.  This would : 

promote equal conditions of competition world-wide; 

facilitate  closer  cooperation  between  competition  authorities  and  pave  the  way  for 
10 

the coordination of international enforcement  activity; 

promote a gradual convergence of competition laws. 

Common  principles  or rules can  be developed  progressively  and  step by step. It  may be 
opportune, in  a first  stage, to concentrate  on horizontal  restraints  (price or output  fixing 
or  market  sharing  cartels,  bid-rigging,  group  boycotts,  export  cartels).  Work  on  other 
practices  (abuse  of  a  dominant  position,  certain  vertical  restraints  such  as  exclusive 
distribution or supply agreements) could start in parallel, but may take more time. 

c)  Establishment of an instrument of cooperation between competition authorities 

Transparency is an essential element of a framework  of competition.  Provisions could be 
developed  on  notification,  information  exchange  and  cooperation  between  competition 
authorities.  These  could  include  provisions 
regarding  cooperation  procedures,  for 
example  when  agencies  are  launching  parallel  investigations  into  the  same  practice. 
Negative and  positive comity instruments could also be developed  further16. 

d)  Dispute settlement 

Apart  from  its  natural  role  as  a  permanent  forum  for  negotiation  adapting  or 
strengthening  agreed  rules  and  obligations,  the  WTO  also  provides  a  compliance 
mechanism  to  help  settle  disputes  between  governments  when  a  country  claims  that 
agreed WTO rules have been breached. Private parties do not have access to the WTO's 
dispute  settlement  system.  The  WTO  mechanisms  could  be  applied  if  a  country  for 
example fails to set up a domestic competition  structure or if it fails  to react in a specific 
case to a request for enforcement  action  lodged by another WTO Member.  The relevant 
rules  could  be  adapted,  if  necessary,  to  the  specificities  of  competition  law  and  policy, 
and could be applied in a progressive way. 

The above concepts are further  developed in the annex. 

IV.  RELATED ISSUES 

a)  Wb9 should participate? 

An international agreement on competition rules would bring benefits to all nations of the 
trading  community.  All  countries  could  participate  in  an  agreement  to  incorporate 
competition law provisions in their domestic laws. 

At the  same time  the  application  of  the cooperation and enforcement provisions  would 
require, of  participating  countries, that  they  have  a sophisticated  administration  capable 

*"  These could be inspired  by OECD provisions as well as those in bilateral  agreements.  The principle of 
negative  comity  implies  that  a  Party  will  take  into  account  the  important  interests  of  another  Party 
before  action  is taken.  Through  the positive  comity  instrument  (see also  above page  7), a Party  may 
request another to act on the basis of its own powers, to investigate activities which adversely affect  the 
important interests of the first Party. 

11 

of  handling  sensitive  information  and  of  assessing  commercial  practices  in  a  dynamic 
context. Many developing countries do not yet have this administrative machinery. 

It is therefore  realistic to expect that, if adopted, cooperation provisions of a competition 
agreement  would,  in  a  first  stage,  apply  only  between  a  limited  number  of  signatories 
with mature antitrust  agencies. Provisions could group together developed  and advanced 
developing  countries  to  start  with,  and  gradually  come  to  include  more  countries.  Any 
country able to shoulder the obligations of the agreement could be eligible to participate. 

A  different  intensity  of  cooperation,  for  example  in  the  field  of  information  exchange, 
could apply between different  countries. 

b)  The interest of developing countries 

Private anticompetitive practices have long been a concern  for developing countries.  As 
the  turnover  of  many  multinationals  has  come  to  surpass  the  GDP  of  middle  size 
developing countries, developing countries have seen  a growing need for  a minimum of 
discipline on private conduct  in their markets.  It was in response to this that  UNCTAD 
developed its competition Code in  1980.  It would certainly be consistent with this stance 
for developing countries to support a further  strengthening of international rules, certainly 
if these would come to cover practices, such as export cartels, that today escape  effective 
control  17. 

Even  if  developing  countries  might  not,  in  a  first  stage,  participate  in  the  provisions  on 
cooperation  between  competition  authorities  (see  under  HI  a.  above),  they  would  be 
beneficiaries  of  enhanced  control  over  anticompetitive  practices  with  an  international 
dimension.  They  would  also,  like  other  WTO  Members,  have  access  to  the  dispute 
settlement  provisions  if  agreed  basic  rules  and  enforcement  structures  had  not  been 
properly  implemented  by  other  countries.  Moreover,  they  would  benefit  from  the 
acceptance  by  developed  or  newly  industrialised  countries  of  MFN  obligations  in  the 
competition  field,  even  if their own  obligations  were lighter  (eg. in respect  of  transitional 
periods). Finally,  all  WTO Members, including  developing  countries, would  benefit  from 
possible  dispute  settlement  judgements  which  might  create  new  market  access 
opportunities. 

Insofar  as  competition  rules  can  ensure  that  investments  are  made  under  sound  and  fair 
conditions, effective  competition structures can support liberal investment regimes. 

The establishment  of  appropriate  competition  structures  is  a complex  task  and  requires 
substantial  resources  and  training.  A  framework  on  competition  should  include 
provisions on technical assistance for those countries requesting it. 

c)  The relation to trade defence instruments 

17 Note,  however,  that  a  competition  framework  cannot  be  a  panacea  for  the  difficulties  faced  by 
developing  countries  as  a result  of  their  limited  domestic instruments  and  capacities  of  investigation. 
This reinforces the need for developing countries to be able to benefit from technical assistance. 

12 

The relation  between  the elaboration  of a competition  framework  and the functioning  of 
existing trade instruments is a key issue in the trade-competition  debate. It is true that the 
incorporation  of  competition  provisions  into  trade  law  and/or  more  comprehensive  and 
effective  enforcement  of  competition  policies 
international 
cooperation,  would  lessen  the  need  to  have  recourse  to  instruments  of  commercial 
defence.  However,  competition  instruments  cannot  be  seen  as  substitutes  for  trade 
instruments.  The  latter  only  lose  their  raison d'être  in  the  context  of  fully  integrated 
markets. A framework  of  competition  rules  would,  therefore,  complement  present  trade 
law and create a new instrument to tackle anticompetitive behaviour in markets which are 
not  integrated.  Thus  the  development  of  new  instruments  would  complement,  not 
supplant, present instruments. 

increased 

through 

The above is illustrated by practice within the EC itself.  Antidumping action is excluded 
on  intra-Community  trade,  as  this  is  a  fully  integrated  market  18. This  integration  has 
meant,  for  Member  States: the elimination  of  all  tariffs,  the elimination  of  measures  of 
equivalent  effect  to  tariffs  (which  is  a  wider  concept  than  GATT's  national  treatment 
obligation)  and  the  adoption  of  the  four  freedoms  (goods,  services  -including 
establishment, capital  - including investment, and labour). The single market programme 
and relative currency stability have been added to this. Competition  law has been applied 
effectively,  amongst others with an explicit objective to integrate the markets of Member 
States, by an authority with autonomous powers of investigation  and enforcement.  All of 
these  elements  are  absent  in  present  day  world  trade.  Finally  the  framework  explored 
under H. above falls well short of EC competition  structures, and would have to prove its 
worth. 

d)  The relation to the Community legal order and Member States 

A  basic  assumption  of  this  Communication  is  that  a  framework  of  competition  rules, 
negotiated  in  WTO,  would  be  compatible  with  EC  competition  law,  in  particular  the 
provisions  of  the  EC  Treaty.  The  WTO  instrument  would,  as  is  traditional  in 
GATT/WTO,  apply  to  governments  and  not  be  self-executing  or  have  direct  effect.  It 
would  also  be  much  more  general  than  the  relevant  provisions  under  EC  law,  and  the 
emphasis would in the first  stages be on procedural  obligations.  For these reasons alone 
it is highly unlikely that there should be any friction  between a WTO panel report on the 
rules  agreed  in  the  WTO,  and  ECJ  case  law  on  Articles  85  and  86  and  related 
legislation19. 

Moreover  firms  are  already,  including  within  the  Community,  subject  to  different 
competition  regimes,  and  an  objective  of  an  international  framework  is  exactly  to 
promote  equivalent  and  rational  application  of  competition  principles  on  different 
markets. 

18 

The EEA Agreement between the EC and EFTA countries follows  the same approach: anti-dumping is 
excluded  in those  area's  where  the  "acquis communautaire"  has been  taken  over.  In  trade  between  the 
Community  and  the countries  of central  and  eastern  Europe, however,  anti-dumping  action  can  still  be 
taken,  as  well  as  between  the  US,  Canada  and  Mexico  in  the  NAFTA  context.  The  same  applies 
between  the  EU  and  Turkey:  anti-dumping  action  remains  a  possibility  despite  the  customs  union 
agreement. 

19  A  case  where  a  WTO  instrument  and  a  corresponding  EC  regulation  are  even  closer  than  in  the 
competition  field  is  anti-dumping.  In this  case  the  latter  is even  an  implementation  of  the former,  yet 
friction  between  panel  reports  based  on  the WTO  instrument,  and  ECJ judgements  based  on  the  EC 
regulation, has so far been avoided. 

13 

A  second  issue  concerns  the question  of  participation  in  an international  framework.  As 
competition  is  not  an  exclusive  Community  competence,  international  cases  might 
involve either the Community (if trade between Member States were affected)  or a single 
Member  State  (if  it  alone  were  affected).  A  framework  of  rules  would  have  to  take 
account of both cases, while preserving the unity of Community  action in the trade field. 

V.  CONCLUSIONS 

The Commission  requests the Council to take note of this Communication. 

Noting  that by  pursuing  stronger  multilateral  efforts  the  benefits  of  greater  convergence 
and improved competition  standards and enforcement  would be realized world-wide; 

Considering  that  an  international  framework  of  competition  rules  can  promote  a  level 
in 
playing  field  and  could  therefore  reduce  the  costs,  distortions  and  conflicts 
international  trade arising from differing  domestic competition regimes; 

Recognising  that,  alongside  continued  bilateral  cooperation  with  principal  partners 
stronger  multilateral  cooperation  in  the  field  of  competition  is  desirable  and  feasible  at 
this  time,  and  would  contribute  significantly  to  a  more  efficient,  stable,  and  integrated 
global  economy,  from  which  both  the Community  and its  Member  States,  as  well  as  all 
WTO Members, would benefit; 

Recognising  that the possible development of  an international  framework  of  competition 
rules is in the interest of all trading nations, irrespective of their level of  development; 

Considering  that the Community has a sound experience in applying uniform  competition 
principles across different  countries. 

The Commission  suggests the Council to conclude along the following  lines: 

•  The  Community  should  prepare  a  position  for  the  WTO  Ministerial  meeting  in 
Singapore  in  December  1996;  this  should  propose  to  WTO  Members  that  the 
Organisation  establish  a  Working  Party  to  conduct  exploratory  work,  from  1997 
onwards, on the development of an international  framework of competition rules; 

• 

• 

• 

Such  a  framework  could  include,  in  particular:  a  commitment  by  all  countries  to 
adopt  domestic  competition  rules  and  enforcement  structures  and,  for  a  limited 
number  of  countries,  an  instrument  to  allow  information  to  be  exchanged  between 
competition  authorities,  an  instrument  to  request  action  on  foreign  markets,  and an 
intergovernmental  dispute settlement mechanism; 

that  the  European  business  community  should  be  consulted  and  appropriately 
associated as progress in this area is made; 

that  the  Community  should  take  the  lead  on  this  issue  and  initiate  efforts  to  build 
international  consensus  and encourage  other WTO  Members  to  support  multilateral 
work in this field; 

14 

to request  the OECD  and  UNCTAD  to pursue  their  work  on  trade  and  competition 
taking account of developments in WTO. 

15 

ANNEX 

This  annex  outlines  the  main  concepts  set  out  under  Part  HI  of  the  Communication. 
Many of the concepts have been extracted from  OECD documents and other sources, and 
are included on an exploratory basis: 

a)  Adoption of Domestic Competition Structures 

The process towards an international framework  of competition rules could be carried out 
in  a  progressive  way.  A  first  step  could  be  to  ensure  that  each  country  provides  for 
competition  rules  in  its  national  législation,  covering  restrictive  agreements,  abuse  of 
dominant  position  and  mergers.  This  would  include  the provision  of  a set  of  equitable 
procedures  ensuring  an  effective  application  of  the  rules,  including  investigatory 
instruments  and  appropriate  penalties,  as  well  as  access  to  the  judicial  system, 
transparency and non-discrimination. 

Although an increasing number of countries have a sophisticated competition  law for the 
effective  control of restrictive business practices, some (developing) countries have yet to 
introduce  such  rules.  An  added  advantage  of  agreement  by  all  countries  to  enact 
competition  laws is that  domestic  courts  would become  an  integral  part  of  enforcement 
procedures, as they are in most industrialised countries already20. Firms could not then be 
obliged  to  respect  agreements  which  were  forbidden:  these  would  be  unenforceable 
before national courts. 

Another  important  issue  is  sectoral  comprehensiveness.  A  recent  OECD  study  has 
revealed  that  even  in  OECD  countries  substantial  gaps  exist  in  the  coverage  of 
competition laws;  most countries exclude sectors of the economy from  their competition 
law  application21.  A  first  step  in  addressing  this  could  be  taken  by  a  listing  of  these 
sectors and a commitment to stand-still and gradual reduction by all countries22. 

Competition  rules  should  likewise  apply  to  all  economic  operators.  Public  enterprises, 
and companies with special or exclusive rights should be covered, except for that part of 
their  activities  where  their  public  task  overrides  the  interests  of  competition  law 
application. 

b)  Agreement on Common. Rules 

There  is  general  recognition  of  the  negative  effects  on  competition  of  horizontal 
restrictive  practices:  cartels,  market  sharing,  boycott  of  foreign  firms,  price  fixing,  bid 
rigging,  collective  exclusive  dealing.  It  should  be  possible  to  formulate  international 
provisions  at an early  stage to combat  these practices.  Relevant  provisions  should  also 

20 

21 

A  similar  approach  was  adopted  in  the  Uruguay  Round  negotiations  on  the  respect  of  intellectual 
property rights (TRIPs). 

Overview on Coverage of Competition Laws and Policies by Prof. B. Hawk. 

22  See OECD work in this respect. 

JL 

cover  export  cartels.  These  are exempted  from  the  applicability  of  competition  law  in 
exporting  countries.  Although  such  cartels  are  covered  by  the  legislation  of  most 
importing countries23, they are hard to tackle due to a lack of information  in the importing 
country.  An international  agreement  to outlaw export cartels  would  put  an end  to these 
"beggar thy neighbour" policies. 

Vertical restrictions, such  as exclusive distribution  or supply  agreements, should  also be 
considered,  but  a longer  period  may be required  to  reach  consensus,  and countries  may 
wish  to  maintain  a  greater  degree  of  latitude  in  their  assessment  of  the  effects  on 
competition of vertical restraints24. 

A  common  approach  to  vertical  restrictions  could  be  found  by  concentrating  on 
restrictions which create barriers to market access.  The working group  could examine to 
what  extent  competition  authorities  could  take  into  account  the  international  dimension 
and  weigh  the  effects  on  domestic  competition  of  market  access  restrictions,  when  a 
complaint is lodged through the provisions of the international framework  (see later). 

Such  a  review  by  a  competition  authority  would  reflect  the  fact  that  no  adequate 
assessment  of  competition  cases  can  be  made  without  careful  examination  of  the 
international  context: competition  policies cannot  be identical  in different  countries, and 
that  each  market  needs  to  be  assessed  in  its  own  context,  in  consideration  of  the 
economic  conditions  and  structures  influencing  the  openness,  and  thus  the  competitive 
situation,  of  that  market.  In their  review  of practices, competition  authorities  would, as 
many  already  do, give  weight  to factors  such  as: the effect  of  trade  barriers  (tariffs  and 
non-tariff  barriers),  regulatory  barriers  (i.e.  divergent  standards,  restrictions  on 
distribution  or supporting  services), foreign  investment  barriers, the  import  and  foreign 
investment  ratio, and  the  corporate  groupings  structure.  Competition  authorities  would 
continue  to  base  their  decisions  on  the  efficiency  goals  that  are  fundamental 
to 
competition  policy.  But  the  principle,  that  the  international  dimension  needs  be  taken 
into  account  in  international  cases,  would  be  incorporated  into  common  rules  with 
respect  to  all  anti-competitive  practices25:  As  a market  would  be  assessed  to  be  more 
closed,  greater  weight  would  be  given  to  the  importance  of  foreign  competition  to 
balance entry barriers. 

This approach  might also be useful  in working towards  agreement on abuse of  dominant 
It  is  generally  agreed  that  exclusionary  practices;  hindering  of  access  to 
position. 
essential  facilities;  practices with possible foreclosure  effects  such  as fidelity  rebates or 
tying  arrangements;  and  production  limitation  can  all  amount  to  abuse  of  dominant 

23  E.g. Wood Pulp - judgement of the European Court of Justice of 27 September  1988, 1988 ECR 5193. 

23  Partly  due  to  differences  in  underlying  objectives  and  principles  the  Community  and  some  trading 
partners  have  different  approaches:  the  Community  is  relatively  strict  on  vertical  restrictions  that 
interfere  with  market  integration  -  export  bans  and  some  territorial  restrictions;  the  US  take  a  more 
tolerant view.  An exception  is resale price maintenance which is prohibited in most juridictions. 

25  This  approach  is  similar  to  the  one  taken  in  the  Havana  Charter  (Article  46),  where  an  abscnsc  of 
government  action  to  prevent  a  limitation  of  access  to  markets  could  constitute  a  violation  of  its 
provisions. The jurisprudence  of the European Court of Justice follows  similar lines, i.e. that a practice 
should  be  assessed  in  its  economic  and  legal  context,  and  to  the  weight  traditionally  given  to  the 
objective  of ensuring market access, although only between Member States.  E.g. Henninger  (Delimitis) 
- judgement of the ECJ of 28 February  1991. 

2 

1} 

position.  As  European  competition  policy  enforcement  has  shown,  these  practices  are 
capable  of  affecting  trade  and  creating  access  barriers.  Other  practices  would  require 
further consideration: excessive pricing, predatory pricing, some vertical arrangements. 

There  has  been  a  great  increase  in  the  number  of  international  mergers.  It  would  be 
premature to suggest  international  substantive rules in this area.  At the same time  firms 
are today  having  to  notify  the  same merger  to  several  different  competition  authorities. 
Procedural  harmonisation  would  avoid  unnecessary  duplication  of  efforts  of  firms  and 
agencies  and,  in  encouraging  cooperation,  would  limit  the  potential  for  contradictory 
decisions26.  A  first  step  could  be  taken  by  harmonising  notification  filing  forms  and 
deadlines27. 

c)  Establishment of Instruments of Cooperation between Competition Authorities 

Meaningful  information  exchange  is a key element  of  cooperation  between  competition 
authorities.  At the same time business information  is subject to strict legal protection  in 
all jurisdictions  and  it  is  difficult  to  imagine  confidential  documents  being  exchanged 
between competition authorities as a routine matter28. 

Information  exchange would have to be developed cautiously.  In a general sense the will 
of agencies to cooperate will certainly be the greatest when they are investigating  a same 
case and intend  to apply similar enforcement  criteria.  Exchange  becomes  more  difficult 
when  different  solutions  are being  envisaged.  At  the  extreme  there  may be  a  situation 
where one agency seeks clear enforcement  measures while a counterpart  has no intention 
of taking action.  Although  the last example is the most difficult,  it is then that the need 
for exact information  may be the most acute. 

An important first  step towards the development  of rules on information  exchange could 
be  to  catalogue  the  types  of  information  that  are  considered  confidential  in  different 
countries, and what forms of legal protection apply. 

An  international  framework  could,  in  the  beginning,  provide  for  the  exchange  of  non 
confidential  business  information  between  a  group  of  core  participating  countries.  A 
further  step  might  be  taken,  if  this  mechanism  is  felt  to  function  well,  by  considering 

26 

The  1990 Merger Regulation has extrajurisdictional  effects:  it includes competence for the Commission 
to examine mergers of firms headquartered  outside the EC, if they have a turnover of 5 billion Ecu or 
more and where two of the undertakings concerned have a turnover within the EC of at least 250 million 
Ecu. As more Agencies  scrutinise mergers it is possible  that one Agency  may forbid  it,  while  another 
imposes conditions such as divestiture of certain parts or alternatively may see no objection at all. 

27 

28 

The OECD 1993 Whish/Wood "Merger Process Convergence Report" has made a number of proposals 
to harmonise international procedures in the field  of merger  notifications. 

It  should  be recalled  that  extensive  international  information  exchange  possibilities  do exist  in  certain 
sectors, for example between authorities controlling securities trade.  And different  levels of information 
exchange have already  been agreed  in the competition  field:  the EEA Agreement  for  example  provides 
for a sharing of information  between  the Commission  and  the EFTA Surveillance Authority.  Although 
the EC/US Cooperation  Agreement  does not provide  for  the exchange  of confidential  information,  US 
Congress  in  1994  did  pass  new  legislation  to  enable  the  antitrust  agencies  to  pursue  reciprocai 
arrangements for the purpose of exchanging confidential  information,  even in cases where sanctions that 
may be taken are different  to those under US law. 

3 

whether  certain  authorities  are ready to exchange  information  of  a more  detailed  nature 
bilaterally on the basis of consent.  Clearly, such an exchange of confidential  information 
would  have to be made subject  to a set of criteria and guarantees.  It is conceivable  that 
agencies  would  wish  to  make  exchange  subject  to  the  fulfilment  of  certain  conditions 
(e.g.  guarantees  on  confidentiality  or  limits  to  the  use  of  the  supplied  information):  in 
particular  the  receiving  authority  would  have  to  commit  to  refrain  from  taking 
In  any  case,  full  exchange 
extraterritorial  action  on  the  basis  of  that  information. 
obligations are likely to be a longer term objective. 

Clearly the European  business community  should  be consulted  and closely  associated  as 
options and conditions regarding the exchange of confidential  information  are explored. 

In  antidumping  investigations  officials  actually  have  extra  jurisdictional  information 
gathering possibilities  - they are usually given direct access to the files  of the firms  they 
investigate  in  third  countries.  A  similar  element  could  be  considered  in  competition 
cooperation  by  enabling  officials  to  assist  their  colleagues  in  third  countries  when 
investigations  are  being  pursued.  The  cooperation  procedures  that  apply  in  internal 
Community  cases between  DGIY  and  Member  State  authorities  is one example  of  such 
procedures. 

Another  key  element  of  cooperation  between  authorities  is  the  positive  comity 
instrument, which has already been included in recent bilateral competition  agreements29. 
Options need to be explored to further  develop this concept and to incorporate provisions 
that  will  generate  enforcement  by  third  country  agencies,  while  respecting  each  others' 
autonomy.  In  particular  it  could  be  considered  whether  and  under  which  conditions 
competition  authorities  could,  within  reasonable  limits,  be  obliged  to  investigate  on 
behalf of one another, and to have to indicate to a requesting counterpart within an agreed 
time-limit whether enforcement  action is envisaged30. A decision not to act would have to 
be reasoned and supported by relevant factual  material. 

d)  Dispute Settlement 

The gains of international  cooperation  have been set out earlier. It is clear, however, that 
the  advantages  would  be the  greatest  if  countries  can  be  committed  to  abide  by  agreed 
rules. That would generate a commitment to enforcement.  A framework  should  therefore 
have a binding character. 

A  central  question  concerning  the  development  of  a  dispute  settlement  system,  which 
would apply between  governments, relates to the standard of review that an  international 
panel  could  apply.  At  a first  stage, review  by a panel  might  concentrate  on  procedural 
aspects: whether  a country  has enacted  a domestic  competition  structure  as  agreed;  if  a 
country  is  subject  to  information  exchange  obligations,  whether  these  have  been 
complied  with; and,  if a country has commitments  in this area, whether the transparency 

™  See also above in footnote  16. 

30 

This has implications for the allocation  of resources of antitrust agencies. It may be necessary,  in a first 
stage,  to  put  a  maximum  on  the  amount  of  complaints  one  agency  could  lodge  to  another  within  a 
framework  per  year,  or  to  have  a threshold  (e.g. turnover  in  the product  concerned)  below  which  the 
mechanism would not apply. 

4 

/f 

motivation  and timetable  requirements  of the positive  comity  instrument  have been  met 
in a specific  case.  The dispute settlement  system could be extended to include review of 
whether the statement  of the reasons for  the national  decision  was adequate, whether  the 
facts  have  been  accurately  stated,  whether  there  has  been  any  "manifest  error  of 
appraisal" of the facts or whether there has been a "misuse of powers". 

An important issue would be the deadlines applied to resolution  of international  disputes. 
This  is  because  firms  confronted  by  anticompetitive  practices  in  many  cases  have  the 
option  of  asking for  application  of  a protective  trade measure. These can be activated at 
short notice. Clearly a framework  to tackle anti competitive practices through competition 
instruments  will  have  to  function  with  short  deadlines  if  it  is  to  offer  a  credible 
alternative. 

Another  key  issue  relates  to remedies  when  a country  is condemned  by an  independent 
panel.  Countries  could  be  authorised,  in  the  absence  of  corrective  action  by  a  foreign 
agency  and under  specified  conditions, to take extra jurisdictional  action  through  use of 
their  own  domestic  competition  laws.  In cases where this is not  viable,  (for  example if 
there  are  no  subsidiaries  of  the  targeted  firm  or  firms  in  one's jurisdiction),  measures 
usually foreseen  in the trade context,  such  as the withdrawal  of  tariff  concessions31,  are 
likely to be more acceptable than competition  sanctions, e.g. international  fines, as a next 
step32. 

Insofar as an agreement on competition might include binding elements, it is possible that 
a  derogation  clause  of  some  kind  may  be  considered  necessary.  This  would  cater  for 
cases where the essential  interest of a party is felt to outweigh the enforcement  interest of 
a  trading  partner  requesting  action,  for  example  if  the  latter  has  invoked  the  positive 
comity  instrument.  Such  an  exceptional  situation  could  arise  if  an  authority  allows 
restructuring agreements with restrictive effects.  Such issues have been resolved  in trade 
law  cases  by  allowing  GATTAVTO  Members,  in  exceptional  cases,  to  derogate 
temporarily  from  their  obligations  and  take  safeguard  action  to  protect  their  domestic 
industries.  A similar  approach  in competition  cases, provided  measures  taken  are time-
limited, justified,  non-discriminatory  and transparent, might need to be considered. 

3 * The WTO system is geared  towards conflict  resolution  and the withdrawal  of trade concessions  is only 
used as a measure of last recourse. In WTO the resolution  of conflicts  has  a sliding scale  starting  with 
(1)  agreement  of  the  parties  at  any  point  during  proceedings  through  consultations;  (2)  after 
determination  by a panel  of  a violation  of WTO rules, a request  to bring  the incriminating  measure or 
practice  into  conformity  with  the  WTO;  (3)  if  this  is  not  possible,  the  offering  of  compensation  (by 
means  of  new or enlarged  market  access  opportunities,  for  example  through  tariff  reductions  or  other 
liberalising  commitments),  and finally, if  neither  (1),  (2), or  (3)  are  possible;  (4)  the  authorisation  to 
suspend an equivalent amount of concessions. 

32 

From a competition  angle the withdrawal  of trade concessions  may seem to contradict  the objective  of 
increasing competition, as its effect  would be to lessen access opportunities to a market. In GATTAVTO 
practice,  however,  the ability  to withdraw  trade  concessions  has  actually  had  a  liberalising  effect,  and 
has  pressed  countries  to  bring  their  practices  into  line  with  GATT  law.  Countermeasures  have  only 
been authorised once. 

5 

ISSN 0254-1475 

COM(96) 284 final 

DOCUMENTS 

EN 

08 

Catalogue  number  :  CB-CO-96-304-EN-C 

ISBN  92-78-05721-5 

Office  for Official  Publications of the European Communities 

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