Cooperation Between Competition Authorities - a Vision for the Future

SPEECH/00/234

Mario Monti

Commissioner for Competition Policy

Cooperation between competition authorities - a vision for the future

The Japan Foundation Conference

Washington DC, 23 June 2000

Introduction

Bilateral cooperation has never been as topical as it is today. Over the past decade, we have witnessed the conclusion of a whole series of bilateral agreements providing for cooperation between antitrust/competition agencies in a variety of jurisdictions across the world. It is also undeniable that - irrespective of any formal legal framework for such cooperation - there has been a very marked increase in the level and intensity of cooperation generally; the recommendations of the OECD, advocating best practices for cooperation between competition authorities, have been very important in this regard. And never before has the same degree of serious reflection been given by governments, academics, business and other interest groups to the shape international cooperation in antitrust enforcement should take in the future: I am thinking in particular of the 1995 Van Miert report (named after my predecessor as European Competition Commissioner, who commissioned the report) and of the recent report by the International Competition Policy Advisory committee (ICPAC) commissioned by US Attorney-General Reno and Assistant A-G Klein. Both of these reports represent invaluable contributions to the debate about the future of cooperation; I am heartened by the fact that - in spite of some differences - the two reports share much common ground and in some respects a remarkably convergent analysis of the challenges facing us, and of how they should be met.

In my presentation to you this morning, I intend, firstly, to explain why cooperation is so important in dealing with global competition concerns; secondly, to set out where we stand at present with regard to bilateral cooperation - and indeed much has been achieved in recent years; thirdly, to assess the effectiveness of the arrangements which are currently in place - and in so doing to point out some of the current limitations to cooperation, and; finally, I will finish my address by looking to the future, and considering how bilateral cooperation might be enhanced in the years ahead.

Why is cooperation so important?

Globalisation

The ever-increasing integration of the world economy, a phenomenon which has come to be known as "globalisation", is creating an unprecedented inter-dependence between countries. Advances in technology and the progressive liberalisation of sectors previously closed off from genuinely competitive forces have combined to drive forward this process of integration. Business is taking advantage of the new openness of markets, and companies are increasingly competing on a world-wide scale. The past decade has seen an astonishing growth in the number of trans-national transactions of all sorts, and new corporations of truly global dimensions are being created. I think it is fair to say that few of us would have anticipated the recent wave of what some like to call “mega-mergers” between companies based in different parts of the world.

These dramatic changes mean that competition problems are also taking on global dimensions. The emergence of ever-larger multinational companies, with the technological means and resources to do business on a global level, brings with it the danger that these same firms may be tempted to take anti-competitive measures, the effects of which will be felt in a multiplicity of jurisdictions. If such behaviour is allowed to go unchecked - or is not dealt with effectively - it is no exaggeration to say that many of the benefits that have been achieved in terms of opening markets across the world could be jeopardised.

An analysis of the reasons underlying this globalisation - technological advances, the spread of market capitalism to parts of the world which were previously under the yoke of managed economic systems, the introduction of competition into sectors which had been closed to competition, and the increasing liberalisation of the world’s trading system, to list but the most obvious - would be the subject of a speech in itself. But today I would like to focus on the ways in which cooperation between antitrust enforcement authorities in different parts of the world can facilitate each of our agencies in effectively grappling with competition problems having an international dimension. Indeed, I believe that effective bilateral cooperation has become an essential feature of competition law enforcement in the world of today.

The limits to extra-territoriality

From our perspective, that is from the perspective of the European Union, it is clear that anti-competitive commercial activities taking place outside of the EU can - to a greater extent than ever before – have a significant adverse impact on competition within the Union, ultimately harming European consumers. Dealing effectively with these problems is – in my view – one of the EU’s main challenges for the years ahead.

While the effects of anti-competitive behaviour increasingly pays no respect to borders, it is clear that the scope of the applicability of the laws of sovereign nations (or of regional entities such as the EU) is more restricted. There are important limits to the ability of one jurisdiction to sanction, by the application of its laws, conduct which is not occuring within its territory. These constraints arise as a matter not only of domestic law - that is to say that a jurisdiction generally imposes geographic restraints on the applicability of its own law - but are also required by adherence to the accepted norms of international law.

More specifically, then, what are the legal limits to EU jurisdiction? The European Commission has consistently claimed jurisdiction over anti-competitive behaviour taking place outside of the Community, provided that the behaviour produces effects within it, an interpretation which is primarily based on the wording of Articles 81 and 82 of the Treaty.

However, although the Court of Justice and the Court of First Instance have - broadly-speaking - upheld the validity of the Commission’s assertion of jurisdiction in such cases, they have not always done so on consistent grounds. Indeed, the caselaw of the Courts has given rise to a degree of uncertainty: in some cases, our Courts have seemed to be adopting a pure (so-called) "effects doctrine", upholding Community jursisdiction in all cases where anti-competitive effects are produced in the Community, irrespective of where the behaviour was conducted; in other cases, the European Courts have been more restrictive, attributing Community jurisdiction to the fact that the anti-competitive behaviour was in some way implemented directly within the Community.

I am confident, however, that this uncertainty is now behind us: the European Court of First Instance’s recent judgment (1999) in the Gencor/Lonrho case clearly states that the Community’s exercise of jurisdiction over a merger taking place wholly outside of the Community is compatible with the principles of public international law, where the merger produces "direct, substantial and forseeable" effects within the EU. In doing so, the Court seems to have accepted the “effects doctrine”, at least in the context of merger control .

This new-found clarity is a welcome development, which will hopefully render less controversial the extra-territorial application of our rules, at least in appropriate cases where direct, substantial and forseeable anti-competitive effects are felt in the Community. This new approach also represents a convergence with the status under US law of applying US antitrust laws extra-territorially to catch behaviour taking place outside of US territory; the US courts have for many years applied an "effects doctine" of this kind.

I should add, however, that EU law has, in one important respect, been less far-reaching than US law: we have never claimed jurisdiction over anti-competitive conduct occuring overseas which produces adverse effcets on our export markets alone (i.e. not producing any effects on competition within the EU). Nor is it clear whether whether such an assertion of jurisdiction would be legally tenable: it has never been tested in our courts. Although there are tenable legal arguments in favour of asserting jurisdiction in such circumstances - on the grounds, for example, that goods not exported as a result of restraints on exports will impact on intra-EU trade - I believe that the practical disadvantages of doing so (which I will explain in a moment) would usually plead against doing so.

US law does claim to extend to deal with such situations, however. Indeed, the US Foreign Trade Improvements Act of 1982 explicitly provided that the Sherman Act should be applicable to anti-competitive conduct - wherever occuring - that restrains US exports of goods or services from the US, and the DoJ/FTC Antitrust Enforcement Guidelines for International Operations re-iterate this claim of jurisdiction.

Problems posed by the extra-territorial application of EC rules

But applying the rules of one jurisdiction unilaterally and extra-territorially (quite apart from any legal limitations to doing so) can give rise to a number of practical and political problems, which may seriously limits its effectiveness:

Firstly, it can give rise to conflicts, or to incoherence, with the rulings of foreign agencies (principally competition authorities, but also other governmental entities) or courts, and even to conflicts with foreign laws – indeed, in some countries, conduct prohibited by the law in one jurisdiction may be required by foreign laws, or so-called "blocking statutes" may prevent companies in one jurisdiction from complying with the laws of another, by forbidding them from providing the foreign jurisdiction with evidence, for example. At worst, we could be faced with directly conflicting decisions.

Secondly, it can - often as a result of the foregoing and because of conflict with other countries’ national interests - give rise to conflicts with foreign governments, bringing with it the risk of trade conflict or political stand-off. The Boeing/McDonnell Douglas episode was a case in point: although the media may have exagerrated the substantive differences between the EU and US in their respective assessments of the likely effects of the merger, it is undeniable that the case gave rise to very real political tensions.

Thirdly, applying our rules extra-territorially very often involves logistical fact-finding problems: how, for example, do we become aware of an infringement taking place outside of our territory?; how, in the absence legally-sanctioned compulsion, do we obtain information from companies located abroad?

And lastly, extra-territorial action can give rise to difficulties of enforcement. It may not always be easy, for example, to collect fines, to enforce "cease and desist" orders, or to impose and monitor remedies.

The Van Miert and ICPAC Reports both acknowledge the difficulties with unilateral enforcement action which I have just described; indeed the ICPAC report points out that there are few instances in which the US has sought successfully to apply its antitrust laws to conduct occuring outside of US territory and damaging US exports.

Substantive rules in international agreements

In tackling global competition problems, another option which we in Europe may choose is to avail of the substantive competition provisions contained in international agreements between the EU and some third countries, agreements whose main purpose is generally trade-related. Agreements containing such substantive rules generally provide that certain types of anti-competitive practices by enterprises (on the territory of the other party to the agreement) are “incompatible with the proper functioning of the agreement”. It has become increasingly common to include such provisions in international agreements to which the EU is party . However, relying on such provisions to deal effectively with competition problems is fraught with potential difficulties, both practical and political.

The main difficulty arises from the fact that international agreements apply to states and not to companies. The rules do not, therefore, generally have direct effect in the sense that they can be directly relied upon in a court of law; they don’t, for example, automatically render restrictive contracts illegal and thus void, or abusive behaviour by dominant firms illegal.

In order to produce effects (direct or otherwise), there must be specific agreement between the parties (the EU and the third country) as to how the rules are to be implemented . In most cases, the result is that anti-competitive behaviour occuring outside of the Community will be subjected to foreign competition laws.

This leads to the problem of how to ensure that the competition provisions in these international agreements are respected, by effective enforcement of those foreign laws. If the Community feels there has been a breach of the agreement, the prescribed sanction is invariably a diplomatic one: normally this would mean resorting to trade measures, such as the withdrawal of tariff concessions, with all the political consequences which that would entail. The reality is that the effectiveness of such provisions, which have been little tested to date, is very much open to question.

Bilateral Cooperation

In view of the limitations of the the two approaches I’ve just described (unilateral extra-territorial application of EU law and reliance on competition provisions in bilateral agreements), the Commission has come to recognise that there are important benefits to be gained from effective cooperation with non-EU countries (principally with their competition authorities) in the enforcement of our respective competition rules. Indeed, in many instances, it is on balance more beneficial to cooperate rather than exercise unilateral extra-territorial jurisdiction – of course, the two are not mutually exclusive, and often coordination of enforcement in more than one jurisdiction is the most appropriate course of action.

Much has been achieved in recent years, and it is fair to say that we now have a redoubtable arsenal of cooperative weapons at our disposal. Cooperation in competition matters is provided for in international agreements which the Community has concluded with many of our trading partners; in the case of the US and Canada, dedicated cooperation agreements have been concluded, while in other cases cooperation of this kind is provided for in broader (principally trade-related) agreements, such as the Customs Union accord with Turkey, or in rules drawn up for their implementation (for example, the Europe Agreements with the CEEC's). The US has concluded an even larger number of such bilateral cooperation agreements . The desirability of such cooperation is also reflected in the non-binding OECD Recommendation on cooperation in antitrust matters which is adhered to by most of its members .

Most of you will be familiar with the principal instruments of cooperation between competition authorities provided for by these agreements: they include the following:

Comity: The parties to the agreement may agree to provide for positive and/or negative (or traditional) comity.

Positive comity provides that one Party to a cooperation agreement may request the other Party to take enforcement action. This would typically be requested where the company/ies suspected of anti-competitive conduct are located, or the behaviour is taking place, substantially outside of the jurisdiction requesting action, while the effects are being felt substantially inside of the requesting jurisdiction. Resort to such a request would normally imply that the requesting authority would suspend its own enforcement action pending the outcome of the investigation by the requested authority.

Traditional or negative comity provides that a Party will consider all relevant factors where its enforcement activities may affect the important interests of the other Party. In other words, the enforcing jurisdiction’s authority will take into account the views of the third jurisdiction.

Notification: The Parties to the agreement may provide for the reciprocal notification of competition cases under investigation which may affect trade between the Parties and/or the important interests of the other Party.

Exchange of information: Likewise, an agreement may provide for the programmed exchange of information about competition legislation/enforcement activity between the Parties, or for the exchange of such information on request. Invariably, agreements exclude the transmission of confidential information.

Enforcement coordination/assistance: The Parties may also agree to coordinate their enforcement activities and provide each other with enforcement assistance.

The bilateral EU/US Competition Co-operation Agreement of 1991 provides for all of these basic instruments of cooperation. The 1998 EU/US Positive Comity Agreement clarifies both the mechanics of the positive comity cooperation instrument, and the circumstances in which it could be availed of. The recently concluded EU/Canada Competition Co-operation Agreement (1999) is almost identical to the 1991 EU/US accord. It should also be added that the Commission cooperates with the antitrust/competition authorities of many other jurisdictions around the world, on an ad hoc basis, often with reference to and under the guidance of the best practices advocated by the OECD recommendations in this area.

How well does cooperation work?

So, how effective have the cooperative arrangements which we have put in place been in facilitating enhanced cooperation between jurisdictions. The simple answer is: cooperation works well in relation to merger cases, but is less effective in dealing with other, non-merger cases. And there is one over-riding reason for this: we are seriously inhibited in our ability to exchange confidential information . Let me first turn to cooperation in merger cases.

In merger cases, the parties will usually grant waivers to permit the exchange of information between the enforcement agencies – the merging parties want clearance and they need it in both jurisdictions. This means that, in recent years, there has been extensive cooperation between the Commission and foreign competition agencies in merger cases.

Our experience in operating the agreements, with the US in particular, has demonstrated that such co-operation can be highly effective in merger cases, substantially reducing the risk of divergent or incoherent rulings. The agreements have led to a much closer relationship between the Commission and the US antitrust authorities (the DoJ and FTC), as well as to a greater understanding of each other’s competition policy. The closely co-ordinated parallel investigations of the Exxon/Mobil (Commission/FTC) and Alcoa/Reynolds (Commission/DoJ) mergers are good, recent examples of the intensification of this co-operation.