Competition Law in European Union - Essay Example

The struggle against cartels, arguably the most serious form of competition law violation, is moving beyond traditional model of EC law enforcement. What challenges does this pose for the DG Comp (Directorate-General of the European Commission)? Table of Contents 1. Introduction 3 2. Competition law in European Union – aspects and characteristics 4 2a. The role of the DG Comp on the development/ enforcement of competition law across Europe 5 2b. Cartels under the European Union Law 6 3. Current practices against cartels – relationship with traditional model of EC law enforcement 12 4. Issues for consideration 15 5. Conclusion 16 Bibliography Case law 1. Introduction The protection of commerce across Europe has been proved to be a difficult task. Because of the continuous expansion of the geographical borders of the European Union – still under development – the monitoring of commercial activities within the specific region has become extremely difficult. The antitrust laws introduced in the EU have helped firms to protect their rights and compete under equal terms in the European market. It should be noticed however that the initiatives taken have faced a strong criticism regarding their effectiveness: the introduction of leniency programs in the EU for the control of cartels across the specific area did not have the expected results –even if the relevant practices were based to the offering of incentives to entrepreneurs across the Union for the development of fair commercial practices. Regarding this issue it is supported that ‘the standard leniency privilege is incentive-compatible with respect to its aim to enhance competition’ (Blum et al., 2008, 209). However, the choice of the incentives used for the limitation of cartel practices, cannot be an easy task. In fact, through the years, the targets and the priorities of entrepreneurs across Europe – as also internationally – are expected to change. Under these terms, the practices established for the limitation of the phenomenon of cartels across EU, need to be appropriately reviewed periodically ensuring that the specific guidelines are aligned with the current European Law - as continuously amended – but also with the market trends and the potentials of the firms to follow the suggestions of the European Commissions – as these suggestions are expressed by the Commission’s decisions and are also enforced at a next level through the European Court of Justice. Current paper focuses on the examination of the methods used by the legislative and administrative bodies in European Union regarding the limitation of cartel practices. At a next level, these methods are compared with the traditional methods of EC law of enforcement. The potential differences are identified and evaluated using relevant legal material. On the other hand, the role of the Directorate General of the European Commission is explained referring especially to its intervention in the promotion of the European antitrust law. 2. Competition law in European Union – aspects and characteristics As already noticed competition in Europe is protected by a series of appropriately customized leniency programs. These programs are based on the existing European legislation on competition (2006 Commission notice - Immunity from fines and reduction of fines in cartel cases – along with the previously published 1996 and 2002 notices of the Commission on the particular issue). The effectiveness of these programs has been carefully examined in the literature. At a first level it is found that these programs are quite effective – as the relevant case law – presented throughout the paper – also proves; however, it is necessary that a few changes are made on existing leniency programs ensuring that the fines imposed are fair – in accordance with the law violated and the benefits achieved. In this context, it is noticed that ‘the effectiveness is enhanced by (i) increasing the reduction in fine payments in return for reporting a cartel, and (ii) increasing the expected per-period cartel detection probability for any (future) period’ (Hinloopen, 2004, 415). In general, it could be stated that the competition law of EU is based on the EU principles – like freedom of establishment, freedom of movement etc. – but also on legal rules that have been developed by the European Union through the years (e.g. Regulations, Notices of the E.U. and so on) under the influence of globalization and the extreme financial and political turbulences in countries worldwide – the global market affects the decisions of the European Union legislators at the level that most European countries have developed long term commercial agreements with countries in the international community – especially the Third World countries that can offer competitive benefits for the entrepreneurs/ firms based in Europe. 2a. The role of the DG Comp on the development/ enforcement of competition law across Europe The promotion of the European legislation on competition is guaranteed through the Directorate General for Competition, a body that has ‘to enforce the competition rules of the Community Treaties, in order to ensure that competition in the EU market is not distorted and that markets operate as efficiently as possible’ (European Commission, 2008, online report). The role of DG Comp on the development of European Competition Law is quite important. The role of the specific body in the promotion of the competition law in Europe is significant. In accordance with the study of Wheeler (2002, 98) ‘the European Commissions Competition Directorate has been responsible for applying European Union competition policies and making rulings with regard to a growing number of corporate communications convergence alliances and mergers’. The above study refers to the case of media and their relationship with the development of cartel practices across Europe. Media and telecommunications – as all industrial sectors – can be related with cartel practices especially when the firms operating in the specific sectors are limited – a phenomenon developed not only in Europe but also around the world. The intervention of the Competition Directorate can ensure that the competition in the specific sector is protected –as possible – and that the member states make appropriate adjustments in their legislation so that cartel practices in media – as in other industrial sectors - are eliminated. On the other hand, it has been proved that the decisions of European Court of Justice or the European Commission on the practices of firms in specific market areas are usually based on the existing case law. However, it is possible that changes have been occurred in the meantime in the legislation regulating the competition across European Union. The DG Comp can ensure that the legislative or administrative bodies that handle similar cases are appropriately informed on the changes on the European competition law and that entrepreneurial activity in Europe is sufficiently protected. The role of the DG Comp for the support and the promotion of the European antitrust law can be identified through the examination of the relevant case law – as presented analytically in the section that follows. 2b. Cartels under the European Union Law In order to understand the practices followed by the European Union regarding the limitation of cartel practices, it is necessary to refer primarily to the general characteristics of these practices – as they can be observed in many commercial agreements across EU – see the relevant case law presented below. In accordance with a report of the European Commission ‘a cartel is an illegal secret agreement concluded between competitors to fix prices, restrict supply and/or divide up markets’ (European Commission, Memo 08/690, 2008). Specific requirements for the existence of cartel – as a form of commercial cooperation/ agreement – apart from the ones explained above – could be also set by the EU Commission – however, they should be appropriately justified – the addition of more requirements for the characterization of a commercial agreement as ‘cartel’ would lead to the limitation of the number of such agreements brought before the European Commission or the European Court of Justice for evaluation. The development of cartel practices is punished by the European Law in any case of the relevant activity; in other words, in case that a cartel practice has been arranged but the terms of the specific agreement are not applied – i.e. the parties are differentiated from the terms of the relevant agreement – still the specific activity has to be punished. The above issue is examined by the European Court of Justice in the case of Tokai Carbon v Commission (Competition) [2005] EUECJ. More specifically, in the above case, the Court held that ‘the fact that a cartel agreement is not honoured does not mean that it does not exist ; in the present case, the infringement committed is not therefore cancelled out merely because Intech succeeded in deceiving the other members of the cartel and in using the cartel to its own advantage by not complying in full with the prices fixed’ [Tokai Carbon v Commission (Competition) [2005] EUECJ T-87/03 (15 June 2005)]. Under these terms, the existence of a cartel agreement can justify the punishment of the parties (firms, individuals) involved even if in practice the relevant arrangement is not activated by the parties (the intention for use of the specific practices in the future cannot be rejected). In order for a specific commercial activity to be related with cartel practices, it is necessary that appropriate legal methodology is applied – in other words, the rules related with the examination of the case by the European Court of Justice – or the European Commission (see the decisions of European Commission presented at the end of the paper) should be applied throughout the relevant procedure. In the report that has been published by the European Commission regarding the procedure followed in Britain for the limitation of cartel activities it is noticed that the issue of jurisdiction is of critical importance for the identification of the Court responsible for the examination of a case in which the violation of European antitrust law needs to be identified and evaluated. More specifically it is noticed that ‘Brussels Civil Jurisdiction Regulation 44/2001 and the Lugano Convention’ (European Commission, Antitrust Practices in Britain, 2008, online report) are the main legislative texts applicable on such a case – where the jurisdiction needs to be identified. From a different point of view, the fines imposed because of cartel practices should be carefully justified because there is the risk of violating the principles of law regarding the protection of human rights. Towards this direction, in the case Archer Daniels Midland v Commission (Competition) [2006] EUECJ T the Court held that ‘the principle of non-retroactivity of criminal laws, enshrined in Article 7 of the European Convention for the Protection of Human Rights and Fundamental Freedoms, signed in Rome on 4 November 1950, as a fundamental right, constitutes a general principle of Community law which must be observed when fines are imposed for infringement of the competition rules and that that principle requires that the penalties imposed correspond with those fixed at the time when the infringement was committed’ Archer Daniels Midland v Commission (Competition) [2006] EUECJ T-59/02 (27 September 2006), par. 41]. In many cases, the justification of existence of cartel practices in a specific market area can be a challenging task; the practices followed by firms and entrepreneurs are imposed by the market rules – in this context, the identification of the similarities of these practices with the market of a specific country should be based on specific criteria, like the development by a firm of similar activities in the past, the firm’s (entrepreneur’s) performance (as it can be measured and evaluated using its financial statements) but also the market needs (BASF v Commission (Competition) [2007], AC-Treuhand v Commission (Competition) [2008] EUECJ T-101/05 (12 December 2007)). All these issues have to be thoroughly considered by the firm’s strategic manager - who should have strong leadership skills in order to respond to the demands of the particular effort. On the other hand, the participation in the Union’s schemes related with the protection of competition within its territory is related with specific criteria. In this context, all interested parties – states – that wish to limit cartels in their market need to meet particular terms – the level of their economy can reflect their ability to respond to the needs of the schemes proposed by the EU. Towards this direction, it is noticed that ‘if national enforcers systematically find that they lack the procedural tools necessary to develop the economic evidence they need to meet those burdens, they will reduce or abandon their efforts to initiate competition law actions and it will be less likely that the promise of decentralization and privatization can be realized’ (Gavil, 2008, 177). Based on the above view, it could be stated that the participation of a state in the schemes developed by the EU regarding the protection of competition requires that the funds necessary for the realization of all phases of the specific schemes are available. Otherwise, alternative methods would be possibly developed following the guidelines of the European Union which are expected to be appropriately customized in order to be feasible – referring to the resources available for the realization of the relevant plans. The above assumption is also supported by the view of Nicholson (2008) who noticed that ‘strong laws do not necessarily represent effective antitrust policy; there appears to be a nonlinear relationship between adaptation of antitrust laws and the size of national economies’ (Nicholson, 2008, 1009). In any case, the ability of a member state to follow the Union’s guidelines is usually related with specific criteria; for this reason, it has been established – at least as the specific practice is followed up to now – that each member state is not primarily enforced to follow the legal texts of the European Union; it is necessary that a national law is developed and published recognizing the power of the specific European Union’s legal provision over the national legislation. On the other hand, most legal texts developed by the European Commission – or the other European authorities – include a deadline – the one for their ratification by the member states. In this context, every law of the European Union is applicable on all the countries within the specific region – either within a short or a long time period. In the literature the effectiveness of current law of competition – always referring to the European law of competition – is strongly doubted. More specifically, the penalties imposed to violators of the relevant European legislation can be characterized as rather inadequate to help towards the limitation of cartel activities across Europe. In this context, it is noticed that ‘the penalty schemes which are used now in EU and US legislation appear not to be as efficient as desired from the point of view of minimization of consumer loss from price-fixing activities of the firm’ (Motchenkova, 2008, 269). The fact that the cases brought before the European Commission or the European Court of Justice are numerous, cannot lead to the assumption that the whole procedure is effective. Commercial activities in EU are carefully monitored by the Union’s authorities and any violation of the competition law is identified – at least at a high percentage of these cases are brought before the Commission or the European Court of Justice; however, the penalties imposed should be reviewed to reflect more effectively the scope and the priorities of the relevant European Union law. 3. Current practices against cartels – relationship with traditional model of EC law enforcement The practices used by the European Union regarding the limitation of cartels have been differentiated the last decade under the influence of the continuous increase of the relevant activity – related possibly with the fact that the European market has been expanded but also with the fact that the competition within the European and the global market has been increased. Regarding this issue, it is noticed by Morgan (2009) that the changes developed within the European law of competition are related with the following initiatives: ‘a more proactive policy by the Commission, particularly towards ‘hard core’ cartels, the reallocation of responsibilities for controlling cartels between the Commission and Member States under the Modernization programme and the adoption of important new guidelines on leniency and fines in 2006’ (Morgan, 2009, 1). It is not made clear whether appropriate monitoring mechanisms are developed in order to ensure the application of the above schemes in practice. It can be assumed that the above measures have helped towards the improvement of the existing European law of competition – taking into consideration the relevant case law as presented and analyzed above. The limitation of cartel activities in European Union has been achieved mostly through the establishment of an appropriately customized leniency program. The effects of this program on the control of cartels that are possible developed across member states can be characterized as important – at least using the existing case law. In any case, the implementation of such a program – even if the initially set target of limiting cartel practices within a specific member state is not fully achieved – can positively affect the performance of a country’s control over the commercial activities developed in its territory. For this reason, it is noticed by Brennet et al. (2005) that ‘we expect that after introducing a leniency program, collecting evidence is a less costly activity for the authority and cases are more completely and more solidly documented’ (Brennet et al., 2005, 5). However, even if the ability of the Union’s authorities to collect evidence on commercial activities is improved through the implementation of a leniency program, still there are issues that need to be addressed (like the level of alignment of national laws with the EU’s provisions, the feasibility of the specific program – in terms of its financial demands, as explained above, and so on) in order for the specific program to perform fully – in accordance with the targets set by its developers. One of the main characteristics of the methodology followed by the European Commission regarding the examination of cartel-involved cases (at least as suspected) is the fact that the conditions of each particular case are carefully examined trying to align them with the existing EU competition law. In this context, in the case Archer Daniels Midland v Commission (Competition), the Court held that ‘when applying that provision to each individual case, the Commission must observe general principles of law, which include the principle of equal treatment as interpreted by the Community courts’ (Archer Daniels Midland v Commission (Competition) (2006) EUECJ T-59/02 (27 September 2006), par. 312-315). At this particular point, the methodology followed for the identification and the punishment of cartel practices can be characterized as being differentiated from the traditional model of EC law enforcement. The latter is related with the examination of a case’s events in general and the use of the appropriate legal provision for the punishment of potential violations. However, in the case of the EU competition law, the examination of the cases focuses on the potential identification of events that can be characterized as cartel practices; after that the specific events are carefully evaluated in terms of their punishment – as suggested by the EU rules. In other words, for the needs of EU competition law, events are ‘isolated’ and critically evaluated for specific violations – only if the connection of a person/ firm with cartel practices is clearly proved, then punishment can be imposed. The specific issue is highlighted in the case Bollore SA v Commission (Competition) [2007] where the Court held that ‘the mere fact that there is identity of object between an agreement in which an undertaking participated and a global cartel does not suffice to render that undertaking responsible for the global cartel; it is only if the undertaking knew or should have known when it participated in the agreement that in doing so it was joining in the global cartel that its participation in the agreement concerned can constitute the expression of its accession to that global cartel’ (Bollore SA v Commission (Competition) [2007] EUECJ T-109/02 (26 April 2007), par. 209). A similar issue also appears in the case Hoechst v Commission (Competition) [2008]. The power of the Court to proceed to the thorough examination of a specific commercial agreement – in a similar way with the European Commission – in order to identify its potential relationship with the violation of competition law is decisive for the effectiveness of the relevant process. 4. Issues for consideration The issues developed above shows that European authorities are trying to effectively control and punish cartel activities across the specific region. However, the lack of an appropriate mechanism of control of commercial agreements in EU leads to the ineffectiveness of the relevant policies. Another reason for the failure of existing EU competition law is the fact that the relevant legal provisions (as included in the Commission’s Regulations, especially in the Regulation 1/2003) are not appropriately updated in order to reflect current market trends and conditions. Indeed, in the study of Bos et al. (2006) it is noticed that ‘the legal maximum fine specified in Article 23(2) of Regulation 1/2003 seriously constrains the Commissions commitment to deterring competition law infringement’ (Bos et al., 2006, 673). In practice, the application of the articles 81 and 82 EC (related with the competition across the EU) and the rest of the legal texts developed by the EU authorities (see the case of Regulation 1/2003 and the Commission Notice 2006 – also those of 1996, 2002 – analyzed above) has been proved to be quite difficult. More specifically, because national law can be differentiated by the European Law on many of its aspects, the application of EU laws on cases related with a specific member state can face severe constraints. In the case of United Kingdom, the following problems have been identified regarding the application of the European Law of Competition by the country’s Courts: ‘a) limitation issues, b) joint and several liability in tort, c) the knowledge of lawyers and the judiciary is improving but could be better; d) forum shopping; e) lack of clarity over standard of proof and so on’ (European Commission, Antitrust Practices in United Kingdom, 2008, online article). The interpretation of EU’s competition law by national court can fail to meet the scope of the European legislator (ABB Asea Brown Boveri Ltd v Commission of the European Communities, (Competition), Devenish Nutrition Ltd & Ors v Sanofi-Aventis SA (France) & Ors [2007]). In many cases, the claims of parties can lead to false interpretations of the conditions of a specific case – in this context the interest of the parties becomes a decisive criterion for the establishment of a decision. The improvement of the conditions of examination/ evaluation of each relevant case (decrease of the volume of cases examined on a daily/ weekly basis so that the time available for the examination of each case to be increased) would lead to fairer judgments on cases where the potential existence of cartel practices is under investigation. 5. Conclusion The limitation of the cartel practices in Europe is strongly depended on the decisions of specific legislative and administrative bodies, like the European Commission and the European Court of Justice. As it can be observed in the Table presented in Figure 2 (Appendix) the fines imposed by the European Commission on the firms that violate the competition law of EU can be extremely high – in fact they can be higher from the ones imposed by the ECJ which tends to focus on the elimination of the cartel practices by specific individuals/ firms rather than on the compensation of the parties that suffered a damage because of the specific practices. On the other hand, it is proved that cartel practices tend to increase through the years (see Figure 1, Appendix) – even if in 2008 they are decreased compared to 2007. Bibliography Blum, U., Steinat, N., Veltins, M. (2008) On the rationale of leniency programs: a game-theoretical analysis. European Journal of Law and Economics, Vol. 25, No.3, 209-229 Bos, I., Schinkel, M. (2006) On the scope for the European Commissions 2006 fining guidelines under the legal maximum fine. Journal of Competition Law and Economics 2006 2(4):673-682 Brennet, S. (2005) An empirical study of the European corporate leniency program. Humboldt University Berlin, available from http://www.fep.up.pt/conferences/earie2005/cd_rom/Session%20VII/VII.G/brenner.pdf Dick, A. R. (1996) When are cartels stable contracts? Journal of Law and Economics, Vol. 39, 241-283 Gavil, A. (2008) The challenges of economic proof in a decentralized and privatized european competition policy system: lessons from the american experience. Journal of Competition Law and Economics 2008 4(1):177-206 Hinloopen, J. (2004) An Economic Analysis of Leniency Programs in Antitrust Law. De Economist, Vol. 151, No. 4, 415-432 Friederiszick , H. and Frank P. Maier-Rigaud (2008) Triggering inspections ex officio: moving beyond a passive eu cartel policy. Journal of Competition Law and Economics, 4(1): 89-113 Marquez, J. (1994) Life expectancy of international cartels: An empirical analysis. Review of Industrial Organization, Vol. 9, 331-341 Morgan, E. (2009) Controlling cartels – Implications of the EU policy reforms. European Management Journal, Vol. 27, Issue 1, 1-12 Motchenkova, E. (2008) Determination of optimal penalties for antitrust violations in a dynamic setting. European Journal of Operational Research, Vol. 189, Issue 1, 269-291 Nicholson, M. (2008) An antitrust law index for empirical analysis of international competition policy. Journal of Competition Law and Economics 2008 4(4):1009-1029 Schinkel, M., Carree, M., Gunster, A. (2004) European Antitrust Policy: An empirical analysis of commission decisions and their appeal histories, 1964-2001. EARIE, 2004 - Berlin Sylvia James (2007) Company research - Effects of recent European Union company legislation. Business Information Review, Vol. 24, No. 4, 236-244 Wheeler, M. (2002) Tuning into the New Economy - The European Unions Competition Policy in a Converging Communications Environment. Convergence: The International Journal of Research into New Media Technologies, Vol. 8, No. 3, 98-116 Zielonka, J. (2007) The Quality of Democracy after Joining the European Union. East European Politics & Societies, Vol. 21, No. 1, 162-180 Websites Antitrust Practices in United Kingdom – Report published through the European Commission, 2008, available from http://ec.europa.eu/competition/antitrust/actionsdamages/executive_summaries/united_kingdom_en.pdf Directorate General for Competition, 2007, annual report on Competition Policy, available from http://ec.europa.eu/competition/annual_reports/ European Commission, Directorate General for Competition, 2008, online report http://ec.europa.eu/dgs/competition/index_en.htm European Commission, 2008, legislation on competition http://ec.europa.eu/competition/cartels/legislation/leniency_legislation.html Legal Texts Legislation 2006 Commission notice - Immunity from fines and reduction of fines in cartel cases Relevant notices of the Commission in 1996 and 2002 http://ec.europa.eu/competition/cartels/legislation/leniency_legislation.html Regulation 1/2003 Articles 81, 82 EC Case law A. European Court of Justice Bollore SA v Commission (Competition) [2007] EUECJ T-109/02 (26 April 2007) Archer Daniels Midland v Commission (Competition) [2006] EUECJ T-59/02 (27 September 2006) Tokai Carbon v Commission (Competition) [2005] EUECJ T-87/03 (15 June 2005) Hoechst v Commission (Competition) [2008] EUECJ T-410/03 (18 June 2008) ABB Asea Brown Boveri Ltd v Commission of the European Communities. (Competition) [2002] EUECJ T-31/99 (20 March 2002) Union Pigments v Commission (Competition) [2005] EUECJ T-62/02 (29 November 2005) LR AF 1998 A/S, formerly Logstor Ror A/S v Commission of the European Communities. (Competition) [2002] EUECJ T-23/99 (20 March 2002) Baustahlgewebe GmbH v Commission of the European Communities. (Competition) [1995] EUECJ T-145/89 (6 April 1995) Devenish Nutrition Ltd & Ors v Sanofi-Aventis SA (France) & Ors [2007] EWHC 2394 (Ch) (19 October 2007) BASF v Commission (Competition) [2007] EUECJ T-101/05 (12 December 2007) AC-Treuhand v Commission (Competition) [2008] EUECJ T-99/04 (08 July 2008) Schunk & Schunk Kohlenstoff-Technik v Commission (Competition) [2008] EUECJ T-69/04 (08 October 2008) B. Decisions of the European Commission: 1. Reference:  MEMO/09/1 - inspections in the smart card chip sector http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/1&format=HTML&aged=0&language=EN&guiLanguage=en 2. Reference:  MEMO/08/783    - Statement of Objections to alleged participants in power transformers cartel http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/783&format=HTML&aged=0&language=EN&guiLanguage=en 3. Reference:  IP/08/1685 - Commission fines car glass producers over €1.3 billion for market sharing cartel http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1685&format=HTML&aged=0&language=EN&guiLanguage=en 4. Reference:  IP/08/1509 - Commission fines banana suppliers € 60.3 million for running price cartel http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1509&format=HTML&aged=0&language=EN&guiLanguage=en 5. Reference:  IP/08/1434 - Commission fines wax producers € 676 million for price fixing and market sharing cartel http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1434&format=HTML&aged=0&language=EN&guiLanguage=en 6. Reference:  IP/08/1007 - Commission fines aluminium fluoride producers € 4.97 million for price fixing cartel http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1007&format=HTML&aged=0&language=EN&guiLanguage=en 7. Reference:  IP/08/917 - Commission fines sodium chlorate paper bleach producers € 79 million for market sharing and price fixing cartel http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/917&format=HTML&aged=0&language=EN&guiLanguage=en 8. Reference:  IP/08/415 - Commission fines providers of international removal services in Belgium over €32.7 million for complex cartel http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/415&format=HTML&aged=0&language=EN&gui.Language=en Appendix Figure 1 – Fines imposed in European Union for Competition (no alignment with the court judgments), source: European Commission, Statistics, http://ec.europa.eu/competition/cartels/statistics/statistics.pdf Figure 2 – Highest cartel fines – per category, source: European Commission, Statistics, http://ec.europa.eu/competition/cartels/statistics/statistics.pdf Read More