Monti committed to taking on cartels

Date: 07/02/02

The EU competition chief tells Peter Chapman why the Commission needs to get even tougher on price-fixing,

PC: WHAT is the overall aim of EU competition policy? Current reforms notwithstanding, does it achieve its goals? And do you think the citizen knows enough about it?

MM: Competition policy is about consumer protection. It exists to ensure that consumers benefit from sufficient choice of products and services at competitive prices.

A healthy degree of competition guarantees that companies continue to innovate, to improve quality and remain competitive on the European and global scene to the benefit of economic growth and creation of durable jobs.

You would not get any of this if companies were allowed to run price-fixing cartels, to gain entrenched dominant positions or receive unchecked state subsidies.

The enforcement of competition policy has an effect on the everyday life of European consumers.

When the Commission fined BASF, Roche and other companies last December - for colluding to fix the price of bulk vitamins at high levels - it contributed to lowering the price of pharmaceuticals, cereals, drinks and many other products which include vitamins.

When the Commission examined the merger between TotalFina and Elf, two French oil companies, it made sure that people using French motorways would continue to have sufficient petrol stations to choose from and this meant that the two had to sell 70 stations.

Most of them were bought by a supermarket chain and we all know the key role played by supermarkets in pushing petrol prices down in the United Kingdom and in France.

And when the Commission says 'no' to subsidies to a given company, again it ensures not just a level playing field for the companies in the sector but also, and more importantly from the consumer point of view, that tax money is put to its best use.

Can we expect more cartel fines running through 2002?

The year 2001 was an exceptional one in terms of the number of cartel decisions and the overall amount of the fines imposed on companies for colluding to keep prices high and share out markets.

The total amount of fines reached nearly €2 billion which, by the way, will be good for European taxpayers since the money will go to the EU budget and, therefore, will reduce national contributions to the same budget.

More will come in 2002 and in the following years, have no doubt. I have made the fight against cartels one of my top priorities and this fight will be carried out with full determination at all times, be they good or bad economic times.

This is because price-fixing is one of the worst violations of competition rules; it is, as I have said before, the cancer of market economies.

Are fines a true deterrent?

What can be done to stop cartels forming in the first place?

I do believe that fines have reached a size in the European Union where they truly hurt and this should make companies and their executives think twice before they decide to meet to fix prices in some nice hotel on the banks of Lake Geneva or in anonymous airport conference rooms.

I give you two examples: the fine of €462 million imposed on Roche in the vitamins cartel last year, the biggest ever imposed by the Commission, and the €184 million levied on UK firm Arjo Wiggins Appleton in December for its involvement in a cartel in selfcopying paper - a product used every day for business forms, delivery slips and bank transfers.

As I said, these amounts will make companies think twice, I'm sure.

But this is not just based on my personal belief.

The Commission has given itself the instruments to fight cartels and these instruments are currently being refined to be even more effective.

I intend to submit to the Commission in the next few weeks a new policy on leniency or 'whistleblowing rules', as the press likes to call it.

The existing policy was adopted in 1996 and was instrumental in unearthing and eradicating the cartels of last year.

Incidentally, it is largely inspired by the experience of the US competition authorities with whom the Commission cooperates closely.

The new leniency policy will further encourage companies to come to the Commission and confess any wrongdoing by making it easier to obtain full immunity from fines for the company which will be the first one to come forward.

This will greatly destabilise cartels, which is what regulators want, and will allow the Commission to intervene at an earlier stage to unveil and punish them.

What do you think about the issue of checks and balances in competition cases? Do you really believe that the Commission is sufficiently supervised when it is judge, jury, prosecutor and private investigator at the same time? Why is the Commission so reluctant to admit that there is a problem?

I strongly believe that there are sufficient checks and balances in the EU competition enforcement activity. As you know, the system in the EU is an administrative one, as it is in fact in all member states, and we have developed a system of internal checks and balances that safeguards the parties' rights.

Before the Commission takes a final decision in merger or other anti-trust cases, it has to address a motivated statement of objections to the companies which then have the opportunity to defend themselves in writing as well as at an oral hearing.

The Directorate-General for Competition is also under close scrutiny from the legal service, which depends directly on the president of the Commission.

Draft decisions are also discussed by an advisory committee composed of competition experts of the member states and, ultimately, it is for the Commission as a whole, and not for the commissioner alone, to make a final decision.

I should also like to emphasise that all our administrative decisions, be they on mergers or in the anti-trust area, are subject to judicial review.

I am rather baffled by the current underestimation of the role played by European courts in our merger control process. Let me stress that the very possibility of an appeal serves as an efficient deterrent in safeguarding the integrity of that process.

Since the merger regulation came into effect 11 years ago, the Commission has prohibited 18 mergers (accounting for less than 1 of all notified operations), since 1990, of which nine have been appealed.

In other words, half of our prohibition decisions have been - or are being - scrutinised by judges.

I can assure you that this level of judicial review is sufficient to ensure that the Commission takes the risk of oversight seriously and does not prohibit a merger without being convinced that its decision would withstand a legal challenge.

In this regard, the situation in Europe is not so different than in the US, where in a significant number of cases the parties abandon the deal as soon as the authorities announce they are likely to challenge it before the courts.

What do you think of the idea of the Commission becoming an 'independent competition authority'?

First of all I would like to re-phrase your question. In any case, I would not speak of an independent, but of a separate competition authority. In its role as competition authority, the Commission is an independent body and has demonstrated this countless times.

Secondly, I do not think that the idea of a separate agency is either new - it was already mentioned in the context of the 1996 Intergovernmental Conference and failed to gather any support from the member states - or desirable.

As the EU prepares for its largest enlargement ever, our competition colleagues in the present and future member states need a stable point of reference in the Commission's Competition DG, not a body that is itself taken up with setting up a new structure and coping with the loss of experienced collaborators that would follow a removal.

For my part, I have some doubts that the model proposed would fit the Union.

In this system, the Commission, which by law is independent of the member states' governments, has been chosen as the enforcer of the competition rules applying to both member states, i.e. the state aid control rules, and those applying to companies. Both belong together.

Also, the flow of ideas inside the Commission is important. The presence of strong in-house experience in the competition field ensures competition advocacy vis-à-vis other policy areas.

This experience ultimately results from the work on individual cases.

It is the case experience that gives us our strongest arguments.

Separating the work would risk undermining competition advocacy. The Commission's proposals of legislation, or its administrative decisions, would be much exposed to the risk of having anti-competitive side effects, if they did not have to go through an ex-ante check of conformity with the competition principles. This would, of course, be lost if the competition responsibility were given to a separate agency.

A lot of people in the business and legal communities seem to have concerns about the predictability of the outcome of merger cases. When lawyers are being consulted on the anti-trust feasibility of a deal, some feel it becomes very difficult to advise.

In many cases, the Commission uses 'indirect effects' theories - whether you call it conglomerate effects, portfolio power, mutual moderation - that go beyond classical horizontal/vertical relationship issues.

Allow me to correct the picture you are painting. Most mergers and acquisitions notified to the Commission get cleared after only a routine one-month review.

The Commission has also gone a long way to explain its policy to the legal and business communities by detailing, for example, what it understands by remedies to address dominance problems and when to submit them, and by simplifying the review of unproblematic cases which are notified simply because they meet the turnover thresholds. The Commission is also preparing guidelines on the notion of collective dominance.

Our analysis of conglomerate mergers is an area where the EU and the US differ. But the Commission has applied this theory very carefully and in a few cases only, where it was established that the merged entity already had a dominant position in one of the markets concerned which could be leveraged onto neighbouring markets.

The Commission and the US authorities have also increased work in a transatlantic working group on mergers - which looks particularly into conglomerate mergers to understand why our positions differ and how those differences can be narrowed.

Other issues discussed include due process, timing and the substantive tests - all aspects on which the Commission has launched a debate with the publication in December of the green paper on the merger review.

The Commission has established itself as a respected merger control authority, thanks to the professionalism and dedication of its officials, their ability to work within tight deadlines and to the strict application of the law.

The merger regulation came into force in September 1990 and, in the first full year of its application, there were only 63 cases notified compared to 335 last year.

In parallel, the number of staff has grown and their background diversified to take into account the increasing complexity of merger cases. Although officials were mostly lawyers to begin with, we now have a great deal of economists and IT experts.

Because the merger task force is part of the bigger Competition Directorate-General it can also benefit from the expertise of colleagues in the financial services, computer industries or in commodities. There is nothing wrong with the Commission seeking external expertise from time to time, when justified.

What do you expect to achieve following the various efforts under way to boost international cooperation?

We are working on several fronts. There is the bilateral cooperation and, within this, the special relationship with the United States agencies.

Cooperation with the US has been going on since 1991. It has enabled the two sides to reach broadly convergent decisions on all but one case, the GE/Honeywell one.

The increasing globalisation of the economy, the global reach of many businesses plus the explosion of anti-trust laws and enforcement around the world mean that we have to progress. There is a twin-track global approach: the World Trade Organisation (WTO) and the International Competition Network. The Commission has (since the WTO Singapore Ministerial in 1996) been at the forefront of efforts to persuade member states of the merits of a WTO multilateral agreement on some fundamental aspects of competition policy.

WTO members agreed that the negotiation of a multilateral agreement on competition would underpin the progress which has been made in trade liberalisation over the past few decades, by promoting domestic competition regimes, spreading competition culture and combating anti-competitive behaviour which might otherwise have the effect of undermining that same progress.

The International Competition Network was created last October and will provide anti-trust agencies with a forum in which to address the whole range of practical competition enforcement and policy issues.

Major interview with Competition Commissioner Mario Monti.