EU and Australian Antitrust Laws - Coursework Example

EU and Australian Antitrust Laws Antitrust Laws or Competition laws as it is known world over, were formed in order to regulate the control of market power by large companies, government organizations and various other economic entities. Large monopolies and trusts dominate the market, leading to the concentration of market power in the hands of few entities. These large powers that monopolize market shares are considered harmful to the economy as they minimize normal market competition, which results in unwanted price control. This further causes market stagnation and prevents individual initiatives. The main objective of Competition law was to ensure the protection of consumers and give a chance to individual entrepreneurs to compete in the market as opposes to large conglomerates holding monopoly over market share. Competition or Antitrust laws have been in existence since the time of the Roman Empire. Roman emperors have been seen to controlling unwanted price fluctuations and unfair trade practices. All through the Middle Ages in Europe, many Kings and Queens have broken down monopolies in order to ease out the flow of market power. Following the 20th century this law has become global. Antitrust or Competition law consists of three main functions or elements: (a) Prohibition of practices and agreements that limit or damage free trading and competition between businesses. (b) Banning of abusive behaviour by a dominating firm in the market or anti-competitive tactics in order to achieve monopoly market power. (c) Overseeing mergers, acquisitions and joint ventures of some large conglomerates in order to prevent any form of anti-competitive practice. Competition law in recent times has been viewed as a means to provide better public service. On the other hand Robert Bork (1993) is of the opinion that “competition laws can produce adverse effects when they reduce competition by protecting inefficient competitors and when costs of legal intervention are greater then benefits for the consumers”.1 The European Union known widely as the EU, is a political and economic union of 27 countries, usually referred to, as member states are all situated mainly within Europe. Established in 1 November 19932 by the Treaty of Maastricht, EU generates about 30% share of the nominal gross world product.3 According to Europa, the European Commission, “The EU has developed a single market through a standardized system of laws which apply in all member states, guaranteeing the freedom of movement of people, goods, services and capital”.4 The EU has also standardized a common trade policy, agricultural and fisheries policy and a regional development policy. Sixteen of the 27 member states have adopted the EU’s common currency, the Euro. The EU has a role to play in the justice and home affairs of the member states. It has abolished passport controls within its many member states under the Schengen5 Agreement. The EU operates through a system of supranationalism and intergovernmentalism. For some issues it relies on inter governmental agreements and on others it has supranational bodies that make decisions independent of unanimity between member governments. The most important bodies within the EU include the European Commission, the European Council, the European Central Bank, the European Parliament, the Council of the European Union and the European Court of Justice. The citizens of the EU elect the parliament every five years. One of the main areas of authority of the EU is the European Community Competition Law. Otherwise known as the Antitrust Law. Its main role is to ensure that there is a free flow of trade, goods, services and people and that there is no monopolization or concentration of power in the hands of a few parties in a Europe without borders. The Australian Competition and Consumer Commission, popularly referred to as the ACCC, was formed in 1995 with the unification of the Australian Trade Practices Commission and the Prices Surveillance Authority for the administration of the Trade Practices Act of 1974. Its primary objective is to monitor price regulations, ensure free trade flow, safeguard consumer rights and business obligations and prevent anti-competitive practices. By providing access to national infrastructure it regulates certain industries. Its main responsibility is to make sure that businesses and individual entities conform to the fair-trading, competition and consumer protection laws and practices of the Commonwealth. The ACCC while administering the Trade Practices Act of 1974 has competence to take action against any business or individual going against the provisions of the act in the Federal Court of Australia. The ACCC also takes up the role of an educator under the act as it seeks to educate businesses and the consumers on their rights and responsibilities under the act. In majority of the cases the ruling of the ACCC will neither favour the consumer nor the supplier. It plainly ensures that the competition is not affected through artificial restrictions. The Australian Energy Regulator is a part of the ACCC, which is responsible for economic energy regulation. It has a separate board although at least one member of the board is required to be a Commissioner at the ACCC. Now that we have had a broad overview of the bodies responsible to ensure that Antitrust or Competition laws are conformed to, both in Europe and in Australia, we will move to look at some basic similarities and differences in each of their antitrust policies. Firstly, we will take a look at what the EU and the ACCC have to say about Cartels. Competition is a very vital part of the market that induces businesses and companies to provide the best products to their customers. It brings down prices and gives rise to innovations. For effective competition suppliers have to be independent of each other with only the pressure of the competition. But in many markets suppliers indulge in Cartels. A cartel is collection of individual but similar companies that join together by a common agreed course of action to fix prices, share customers or limit production. EU aims to put an end to the agreements between undertakings or agreed course of action between two firms seeking to restrict competition by specifying certain Cartel behaviour prohibited in Article 81 of the Treaty. The treaty states that it will consider null and void all agreements that “directly or indirectly fix purchase or selling prices or any other trading conditions”. It further states that any agreement that “limits or control production, markets, technical development, or investment” and agreements that “share markets or sources of supply” 6 will not be considered as valid agreements and the EU will following that take action on the companies involved in the agreement. The ACCC also has provisions to prevent the formation of Cartels that distort, prevent or restrict the competition in the market. According to Section 45A a provision of agreement or contract that is “likely to have the effect, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied” is prohibited. Similarly it also prevents the drawing of an agreement with an exclusionary provision. Section 4D states that a provision of contract or arrangement will considered an exclusionary provision “if the provision has the purpose of preventing, restricting or limiting the supply of goods or services to and from particular persons or classes of persons”.7 The three issues related to price fixing, limiting or controlling of goods and services and sharing of markets and suppliers are addressed by antitrust laws of both EU and ACCC. The EU laws further address two points. It directly prevents trading parties from taking unfair advantages by terminating or declaring agreements null and void whenever a party tries to apply dissimilar conditions to the same transaction with different trading parties, since this results in an unfair advantage to one or more trading parties the agreement is considered null and void. The same action is taken if discrepancy is found in the conclusion of a contract. In cases where parties with mere supplementary obligations, i.e. no commercial connection with the contract subject, are found to wield control over the conclusion of a contract, the contract is treated as null and void. The ACCC on the other hand looks into anti-competitive behaviour in the telecommunications industry. It explains that a carrier or carriage service provider is considered employing in anti-competitive tactics if either of the two, “has a substantial degree of power in a telecommunications market” or “takes advantage of that power with the effect of substantially lessening competition”.8 The next provision that antitrust laws deal with is the misuse of power. Businesses or entities occupying a dominant position in the market tend to abuse their position by greedy pricing aimed at getting rid of competitors from the market. This law aims to check corporates from using their position to indulge in anti-competitive activities. The EU prevents this with Article 82 of the EC Treaty stating 3 conditions for declaring as incompatible. If a dominant leader in the market uses his position to either directly or indirectly impose unfair prices or any other unfair trading conditions will be declared incompatible with the market. Likewise any dominant organization that seeks to limit the production, markets or technical development or applies dissimilar conditions to the same transaction with different trading parties using its powerful position it will be declared incompatible. If a business creates a discrepancy in the conclusion of a contract it will also be declared incompatible with the market. Whereas according ACCC, as per Section 46(1) of the Trade Practices Act, a corporation or business organization is prohibited from misusing its power to get rid of any competitor in the same of different market. They are further prohibited from using their power to prevent the entry of a person into the same or different market or from stopping a person engaging in good competitive conduct within the same or different market. From the above analysis we see that the EU and the ACCC address different issues relating to misuse of power. But the ultimate objective of both the laws is to prevent the misuse of power by monopolizing conglomerates. The next major provision under the antitrust law deals with merger and acquisitions. According to a definition from investorwords.com, “the combining of two or more entities into one, through a purchase acquisition or a pooling of interests. It differs from a consolidation in that no new entity is created from a merger”.9 The Oxford dictionary defines the term acquisition as “an act of purchase of one company by another or buying or obtaining an asset or object”.10 When two or more companies merge, it can result in market expansion and bring about many benefits to the economy. It can pave the way for innovation, efficiency and reduction of production and other costs. With efficiency thus increased it will result in good competition and fair prices. While these may be the advantages of mergers it also has a down side. Mergers may result in the reduction of market competition and the increase of concentration of market power in the hands of a few major players. As a reversal effect, the prices may go up and innovation may come down when a company holds a dominant position in the market, as it has no competition. The European Commission, a part of the EU examines mergers in Europe before approving or rejecting them. According to the European Commission, “If the annual turnover of the combined businesses exceeds specified thresholds in terms of global and European sales, the proposed merger must be notified to the European Commission, which must examine it. Below these thresholds, the national competition authorities in the EU Member States may review the merger”.11 These guidelines are applicable to every merger irrespective of which part of the world the merging companies’ headquarters, registered offices or any other facility is situated. This is because companies merging outside EU, but conducting businesses in EU will affect the markets in the European Union. All proposed mergers are referred to the Commission for verification of side effects. If the merger is going to disrupt the competition in the market by becoming a dominant player, then the Commission will prohibit it. Furthermore if the merging companies take no action or suggest no measure to prevent it from damaging market competition the Commission will choose to reject it in the best interests of consumers and businesses. If the Commission finds that the merger will not cause any significant disorder of the competition in the market, then it is approved unconditionally. Also not all mergers that cause damage to the market are prohibited. Some mergers are conditionally approved. If the merging parties make an effort and commit to changing the adverse effects the merger has on the market, by adopting some kind of measure, and if the European Commission is satisfied that these measures will restore market competition to its normal levels, then it gives conditional clearance for the merger. That is, it keeps a tab on the merging companies to check if they fulfill their commitments, and intervenes with legal action if they fail to do so. The ACCC also deals with mergers but in quite a different way. In Australia mergers are prohibited if it can be proved that the merger can have the effect of noticeably reducing competition in the market. There are mainly two ways of getting a merger approved. One may either Obtain Clearance or an Authorization for the proposed merger. Clearance will be granted to the merger only if the ACCC is convinced that it will not lessen market competition. Whereas Authorization can be granted even if the merger lessens market competition, if it can be proved that it will benefit the public and so it must succeed. There are some basic differences between Clearance and Authorizations. Firstly different bodies deal with the granting of either. Secondly different timelines are given to these bodies to come to their decisions. Thirdly the merger has to go through different tests in order to be cleared or authorized. And fourthly a review of the merits of the merger is not available in the authorization procedure. The Commission, which has to come to a decision within 40 business days, decides merger Clearances and it cannot give clearance if it is not satisfied that the merger will lessen market competition. If it doesn’t grant clearance or if it conditionally clears a merger, then the applying party may apply to the Tribunal. Clearances cannot be granted to acquisitions that have already occurred. The Tribunal on the other hand grants authorization and it has to arrive at a decision within 3 months, which is sometimes extended to 6 months in some cases. It cannot authorize the merger unless it is convinced that it will bring about benefits to the public despite lessening competition. The next provision that EU Law ventures into is Liberalization or Access. Some public services such as transport, telecommunications, postal services etc were not always open to any organization other than the government. The European Commission was a pioneer in opening up these sectors to competition. Under the EU Law, national organizations have been providing public sector services with exclusive rights. But now, since they are open to international markets customers are given a wider range of choice. This has also resulted in freedom of choice. For example, in 1993 when it pressed the Denmark Government to let go of the monopoly rights to the State owned Railways department, it gave the Danish government free reigns to allow the competitors to either use the existing facilities or construct new ones. This opening up of services to the competitive market has also resulted in the reduction of average prices. On the other hand, this action requires extra administration to ensure that the public get continued good services and that they are not affected adversely. When regulating Competition law the European Commission makes sure that organizations enjoying monopoly fulfill certain special obligations. This ensures that there is fair competition. The ACCC after recommendations from the Hilmer Committee initiated the access of certain essential facilities to the open competitive market. Recently access to the telecommunications industry has been provided. This is the ACCC’s way of regulating some industries by providing them with access to compete for essential services. But there is one clause that is present here but which does not appear in the EU Law. According to Part IIIA, “access is available when the relevant minister declares a particular facility.”12 The EU further to all the above addresses two more provisions. The first one is State Aid Control. Certain companies or industries requires and receives government support. By receiving government support, it gains advantages over its competitors. To exercise control over this the EC Treaty usually prohibits state aids unless it is proven that it will result in general economic development. In order to make sure that state aid is prohibited and granted when necessary uniformly throughout the European Union, the European Commission is in charge of administration of the same. Any state aid disturbing competition will be declared incompatible with the market according to Article 87 of the EC Treaty. However state aid is granted to some parties if they have social character, if aid is used to make good damages, for economic development of certain areas, execution of important ideas, certain economic activities, to promote culture and heritage and other areas as specified by the Council. The second provision that the EU explains refers to the EU policy and international cooperation. With globalization many countries outside the EU are doing business within Europe. EU law also deals with anti-competitive behaviour from these businesses, as it will affect the market. The EU has created a Bilateral and Multilateral policy to ensure international cooperation. The ACCC on the other hand has provisions for four more issues. Firstly it prevents exclusive dealings of goods and services, especially third line forcing. But most types of this type of dealing are prohibited only if it can be proved that they noticeably reduce competition. Secondly it prohibits resale price maintenance. When a supplier induces, enters into an agreement or withholds goods and forces the second person to sell at a price not less than the price specified by him, then it is known as resale price maintenance. Thirdly it allows authorization for all forms of behaviour except the misuse of power. It also allows notification for small businesses and for exclusive dealings. Fourthly the ACCC provides remedies of the infringement of Part IV of the Trade Practices Act, which comprises of pecuniary penalties, injunctions, damages, divestiture, punitive and non-punitive orders, disqualification from directorship etc. There have been two recent but important developments in the EU regulations. The first regulation details the new and powerful powers of the Competition Commission. Following in Mario Monti’s (former Competition Commissioner) footsteps, the Commission now has powers not only to conduct surprise “dawn raids”13 on businesses but also on private homes of employees and owners of companies, provided there is strong evidence of anti-competitive behaviour. The second regulation deals with the split of power between the Competition Commission and the EU Central Office. This regulation permits the competition authorities in various member states to administer competition law in their jurisdiction, thus giving the Central office more time to deal with larger issues.14 The ACCC has also had recent developments. The COAG agreement of October 2008 has brought about the union of all Australian Governments namely Commonwealth, state and territory. The agreement has agreed to construct the best framework for consumer practices. The Australian Consumer Law has come up with new reforms to strengthen consumer protection and action against various anti-competitive practices. These reforms will further make sure of consistent regulations and actions. The basis for the new reforms is the provisions for consumer protection given in the Trade Practices Act. The COAG has also agreed to enhance consumer law penalties and the powers of enforcement. Another primary element of the new reforms will be severe action against unfair contract terms.15 Through the above essay, we have clearly outlined the essential features of the Antitrust or Competition Laws of the European Union and the Australian Competition and Consumer Commission and have made a detailed analysis of the similarities and differences between the two. Bibliography Abolition of internal borders and creation of a single EU external frontier. Europa, European Commission 2005. 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European Regulators Spark Controversy with ‘Dawn Raids,’ Wall St. Journal. The ACCC. Australiancompetitionlaw.org. Viewed on 20 February 2009. http://www.australiancompetitionlaw.org/law/access.html The EU Single Market: Fewer barriers, more opportunities. Europa, European Commission. Viewed on 20 February 2009, http://ec.europa.eu/internal_market/index_en.htm Trade Practices Act (1974) Anti-Competitive Agreements. Australiancompetitionlaw.org. Viewed on 20 February 2009. http://www.australiancompetitionlaw.org/law/cartels.html Read More