Competition Law in International Context - Essay Example

Competition law in International context Introduction Competition allows prices to be influenced by the forces of demand and supply in the market economy. Competition leads to price declines and innovations in the market. International competition laws aim at prevention price discrimination, market-sharing and market distortion. International Competition laws safeguard the welfare of consumers by encouraging innovations, variety and increase in output of production. This paper will offer advice to the Minister of Trade and Industry of Greek on the proposed plans of Greek Postal office on reinforcing the monopoly of traditional mail service, and nationalizing the electronic mail service. Statement of purpose The Minister of Trade and Industry should prevent nationalization of electronic mail service and reinforcing the monopoly of Greek Post office. These plans are anti-competitive and will lead to prices paid by consumers. Greek is a Member State of the European Union and several provisions, Regulations and legislations of EU aim at ensuring market competition. Background of the problem The new Minister of Trade and Industry in Greece is planning to nationalise the electronic mail service, reinforcing the monopoly of Greek post office in the delivery of traditional mail. The objective is to ensure that Greek post office maintains important market share of customers. However, most customers have already switched from the traditional postal services to modern electronic mail, which is offered by efficient private companies. After nationalization, the Greek post office aims at increasing the prices of both services since the costs of delivering the ordinary post has been increasing over the recent years. The Greek post office will decline access to its facilities including fibre optic infrastructure, to private companies who would like to offer competition to Greek post office by providing internet service and electronic mail services. International competition law According to the European Union treaty on competition, member states are not supposed to enact policies that create rigidity in trade and hinder competition or distort the market economy. Article 101 of the Treaty of the Functioning of the EU prohibits agreements that distort market competition or encourage cartels. This article aims at prevention undertakings that restrict and distort market economies of the member states within the internal market. Some of the prohibited practices include limitations on production, technical development and investments in the market. Direct or indirect price fixation or the selling and buying prices and trading conditions are prohibited by the Article. Member states are prohibited from applying different trading conditions on similar transactions with other trading partners in the economy1. The EC Treaty provisions regarding competition are contained in Article 3 (g) and Articles 81-89 of the Treaty that established the European Community along with several regulations and subsidiary legislations. Articles 81 to Article 86 mainly apply to the trade undertakings while Articles 87 to Article 89 apply to the Member States. The primary objective of the EU competition law is to prohibit internal markets distortion. Article 81 (1) prohibits all trade agreements between undertakings and association decisions that may hinder trade between member states2. However, the Article makes exception s for the trade agreements that aim at improving the welfare of the EU citizens by promoting the distribution of goods or technical promotion, while allowing customers a fair share of the benefits of the trade agreement. The excepted trade agreements should not impose conditions and restrictions on the customers in the access of the goods or eliminate free competition in the market in regard to the goods being produced. Article 1 (1) of the Regulations 1/2003, the agreements that are outlined in Article 81 (1) and that contravene conditions of Article 81 (3) are unlawful. Article 1 (2) of the Regulation 1/2003, accepts agreements which are outlined in Article 81(3) as long as they satisfy the outlined conditions3. In interpreting Article 81, law scholars consider whether an agreement between the trade partners will affect trade between the Member States, and whether it will introduce anti-competitive objective and motive in the market. If the trade undertaking aims at restricting competition in the internal markets, the second consideration is the effect on competition. The law would consider whether pro-competitive benefits effects surpass the anti-competitive effects. The cost-benefit analysis is conducted according to the framework outlined by Article 81 (3). Article 82 of the Treaty is subject to the EU competition law4. Article 3 (2) of the Regulation 1/2003 is not applicable to unilateral conduct of any particular Member State but applies to decisions, agreements and concerted practices that impact on trade between the Member States. Article 3 (2) of the Regulation 1/2003 will be applicable in the case of Greek Post office since refusal to access the fibre optic infrastructure will hinder the ability of the competitors to provide electronic mail services and internet services across the EU Member States. Refusal to provide the communication infrastructure will hinder the ability of Greek citizens to access services from other Member States and communicate with friends in the other Member Countries. The limitations of access to the fibre optic infrastructure will hinder the ability of citizens of the other Member States to access services in Greek5. The Minister of Trade and Industry will be contravening Article 3 (2) of the Regulation 1/2003 by approving the plans of Greek Post office to limit the access of competitors to the fibre optic infrastructure. Article 3(2) clearly states that when such trade agreements, decisions and policies are not prohibited by the Article 81, the national competition laws cannot outlaw such agreements and decisions. From the above statement, it is clear that Article 3 expressly demonstrates that decision and agreements that are prohibited by Article 81 and Article 82 of the EU treaty on competition cannot be upheld by Greek national laws on competition. Article 81(1) regulates the collusion and behavior of market participants in the market. The collusion or undertaking should not impose a conduct that results substantial changes in the market behavior. The Article clearly outlines that such conduct may cause changes in the market incentives and the coordination of such conduct by the parties need not be express. Greek post office and the Ministry of Trade and Industry are planning to jointly conduct an undertaking that will lead to price distortion in the market. The ministry of Trade and Industry will be liable for the undertaking assisting Greek Post office to create a monopoly6. Article 81 aims at enhancing consumer welfare by ensuring efficient utilization of resources in the economy. Market competition and integration of the market operators enhance the competitiveness and innovativeness of the service providers. Article 81 (1), of prohibitions outlines the impact of the agreements on the market competition. Such adverse effects of anti-competitive prices include reduction on product quality, increase in the prices of goods and reduction in the output in the economy. Nationalising the electronic mail services and reinforcing the monopoly of Greek Post office in the delivery of the traditional mails will hinder innovation in the communication services. Such anti-competitive behaviour will lead to an increase in the costs of delivering the ordinary media beyond the effective costs. According to the plans, it is clearly that such actions will not create any benefits to the customers since the prices will go up beyond the effective costs. Greek Post office plans will deny the consumers product variety and will lead to decline in the product quality. Greek Post office cannot nationalise the electronic mail service or strengthen the monopoly of the post mail services since such plans aim at restricting competition in the industry. The plans have the objective restricting the competition from private undertakings. The agreement will not transfer any benefits to consumers. Greek Post office cannot restrict the access of the fibre optic infrastructure by other competitors. This behavior will make competing services unprofitable. The plans do not comply with Article 3.2.2.1 on the efficiency gains that are expected from all undertakings. The plans will hinder synergies and integration of the Greek electronic mail services with the rest of the Member States. The plans will raise the costs of electronic mail services beyond the costs. Access to electronic communication infrastructure that are owned and operated by the government is imperative in all the EU member states. The Member States including Greece are recognized by the EU regulatory framework and Competition laws as the dominant holders of the electronic communication infrastructure7. According to the EU regulatory framework, the dominant owners who are mainly the government institutions should not be allowed to enact changes that are less attractive to the competitors. The local fibre optic infrastructure should be utilized in the provision of downstream broadband service to the citizens. Article 2 of Directive 2002/19/EC which is able known as the “Access Directive” defines the local loop as a physical circuit that connects the network termination point of the subscriber’s premises with the main distribution frame. The EU has implemented laws to protect the dominant infrastructure holders from using their position to distort the distribution of broadband telecommunication services among the Member States. In ascertaining the dominance, the EU law will consider constrains imposed on the future expansion of the competitors and on the bargaining power of the consumers. In this case, Greek Post office is a dominant market player and plans to impose barriers of access to the inputs and essential technology facility. These rules include the regulations contained in ex ante regulations and ex post competition guidelines. Ex ante regulatory framework requires the Member States to foster competition in the communication infrastructure. According to ex ante regulatory framework, the economic behavior of the fibre optic operators should be regulatory by an independent body with clear market structures. The decisions of the independent body should aim at facilitating connectivity and competitiveness in the domestic electronic mail services. The current regulatory framework consists of several directives which have been adopted by the Member States according to the internal market laws of the EU treaty. The EU council Directive 2002/21/EC provides fro the framework of regulating telecommunication services while Council Directive 2002/19/EC provides for the guidelines of access to telecommunication infrastructure. Article 3(2) of the Local loop regulations prevent anti-competitive behaviour of the dominant owners of the Local Loops and strictly requires the owners to provide unbundled access to the competitors in a transparent and unconditionally. However, the requests for infrastructure access may only be denied after thorough feasibility studies on the technical capacity and ability of the competitor to maintain network security and integrity. The Greek Post office is required by Article 3(2) to provide equivalent access of the fibre optic infrastructure to the competitors or private undertakings as it enjoys. Article 27 of EU council Directive 2002/21/EC on Framework provides that all the provisions of the Regulatory directive will be enforceable until the national authorities designate significant market operators in the industry. The National regulatory authorities are empowered by the Access Directive to impose transparency and non-discriminatory practices under Article 10 of the same Directive. Greek Post office plans are discriminatory since they aim at denying competitors or imposing strict conditions on the access of the fibre optic infrastructure. Article 82 of the EC Treaty prohibits the denial of access of any essential facility which may deny the competitors the opportunity to offer their clients services or offer them substandard services. Greek Post office is a dominant holder of the fibre optic infrastructure and is required by the EU law to offer equal access to the fibre optic infrastructure to all the private competitors in the economy. Article 82 clearly outlines conducts that aim at exploiting consumers like charging higher prices and decline to integrate the communication infrastructure. Refusal to grant access of the fibre optic infrastructure will lead to increase in prices of the communication services. Article 82 provides for fines and penalties to the dominant players who engage in anti-competitive practices by denial competitors an equal access to the infrastructure8. The Article prohibits discrimination where the duty to grant access to the facility exists or where the various users of the facility in the provision of services to customers are in competition. Greek Post Office refusal to grant access of fibre optic infrastructure to the competitors will subject the competitors to inescapable competitive handicap thus their activities will be unprofitable. The EU 2002 electronic communication guidelines were adopted to establish uniformity in regulations and allow for free movement of communications while fostering competition in the industry. Article 226 of the EU Treaty vests the EU Commission with the relevant authority and powers to require all Member States to comply with EU’s electronic framework9. Case study There are several cases that EU Commission has ruled regarding infringement of Article 81 and 82 of the EU Treaty. In the case of Deutsche Telekom AG v EU Commission (2003) ECR 117-188, the German Postal law had provisions that allowed the large scale posters to bring mail directly to the sorting centers in exchange for discounts. This provision was anti-competitive since commercial mail sorting companies could not enjoy such rights. The law had created different conditions fro the large senders and commercial firms handling mails since the volumes prepared at the centers was paid different tariffs10. The large senders and commercial mail preparing firms were not competing on similar market conditions. The commercial mail preparing firms were disadvantaged since they could not access the discriminatory discounts that were based on quantity of processed mails11. The Department of Trade of German argued that the telecommunications regulator had already approved the provisions of German Postal services. The EU Commission observed that charges of the retail and wholesale access of loop were regulated by the regulatory authorities. The anti-competitive practice restricted fair competition and violated Article 82 of EU Treaty. In the ruling, the Commission reiterated that the EU Treaty competition rules apply where the specific sector legislations do not prohibit the undertakings from engaging in conducts that lead to market distortion and price discrimination12. Sanctions applicable under Regulation 1/2003/EC The EU Commission can enter premises, examine records and seize electronic information in determining whether Article 81 and 82 of EU Treaty have been infringed. According to Article 23(2) (a) of Regulation 1/2003, the EU Commission may impose fines on undertakings and associations where Article 81 and Article 82 have been negligently or intentionally breached. The Commission will consider the duration of infringement and gravity of the anti-competitive practice. However, the fines cannot exceed the limits provided under second and third paragraphs of the Regulation. The Commission will consider the sales value of the goods that relate to the infringement but can adjust the value downwards or upwards. The sales value will be determined before the deduction of VAT and will cover the whole geographical area that relates to the infringement. The proportion of goods will be 30 percent of the value of sales13. The Commission will include a basic figure of 15 percent to 25 percent of the value of sales in order to prohibit the undertaking from engaging in market-sharing and output limitation behaviours. For instance, if Greek Post office continues with its plans and infringes Article 81 and Article 82, the basic value will be doubled. However, the final amount of the fine cannot exceed 10 percent of the turnover in the preceding business financial year of the undertaking. Pursuant to Article 234 EC, Article 15 (1) of the Regulation 1/2003, the Greek national courts may award financial damages for the losses suffered due to infringement of the competition Law. The national courts may also direct Greek Post office to fulfill its obligations as provided by Article 81 of EU Treaty14. Where an association or undertaking fails to cooperate with EU Commission or provides inaccurate and misleading information, or impedes the investigations, the Commission may impose further fines. Article 50 of the Protection of Competition Act provides for a pecuniary sanction of 1 percent of the total turnover of the association. The EU Commission may also order the association to make penalty periodic payments. The Commission may impose periodic penalty penalties of the mean daily turnover in the preceding financial year per day and calculated from the date set by the Commission. This sanction may be made to compel the association to furnish relevant information or comply with interim decisions that are binding15. Conclusion Greek Post office cannot implement its plans since they are prohibited by Article 81and Article 82 of EU treaty on competition. Article 3 of the Regulation 1/2003 also prohibits anti-competitive behaviours in the free market. EU Commission will impose penalties and sanctions if the Greek Post office implements the anti-competitive policies. Bibliography: G, Monti. EC Competition Law. Cambridge. Cambridge University Press. 2007. J, Alison and B, Sufrin, B. EC Competition law: text, case and materials. Oxford. Oxford University Press. 2008. N, Foster. EU Law: 2007 and 2008. Oxford. Oxford University Press. 2007. P, Craig and D, Grainne. The evolution of EU law. Oxford. Oxford University Law. 2011. Read More