Enforcement is key concern in competition arena

Date: 11/11/1999

By Tim Jones

NEGLECTING to enforce laws which parliament has enacted is by no means a failing peculiar to central and eastern Europe.

But, in the field of competition policy, this is a major problem for most of the CEEC applicants as they continue to knock at the EU's door.

On paper, they have all done that has been asked of them. Anti-trust enforcement offices have been established throughout the region and most of the candidate countries have introduced legislation in line with the new Articles 81-82 of the Amsterdam Treaty, which ban cartel-like behaviour and abuses of dominant positions.

Given that as recently as ten years ago, most of these countries had no competition at all, this is itself a major step.

However, as the European Commission's Deputy Director-General for competition policy Jean-Francois Pons put it in a recent speech, “as regards the effective enforcement of the law and the application of the law to all economic operators, much still remains to be done”.

Many of the competition authorities are still under-resourced and, like their counterparts in the west, have to compete for first-class legal minds with the lure of the commercial-law market-place.

Some agencies also run into political interference, particularly when they seek to enforce anti-trust decisions in sectors which are deemed to be untouchable.

The most blatant example of this so far was the Romanian privatisation of auto-maker Dacia via a trade sale to French car manufacturer Renault.

In return for its largesse in snapping up Dacia, Renault demanded a ten-year exemption from corporate tax and customs duties; effectively an 'export bounty'. No competitor in the region could hope for an equivalent deal.

British brewer Bass sold its minority stake in Czech beer-maker Radegast in September and concentrated its resources on rival brewery Prazske Pivovary at least in part because of what it claimed were the unpredictable and opaque regulatory practices of the local anti-monopoly office.

In December 1997, the office blocked a merger between Radegast and Pilsner Urquell, both already majority-owned by Czech bank IPB, which was in turn owned by Japanese financial house Nomura.

Suddenly, in mid-1998, the office reversed its decision and allowed the creation of a brewing giant commanding 40&percent; of the Czech beer market.

The problems are understandably greater in the field of state aid control. Politically, pulling the plug on old, run-down industries is extremely difficult. Romanian miners have a habit of marching on Bucharest while, in Poland, government plans to shed 40&percent; of the coal-mining workforce within three years have led to sit-ins and hunger strikes.

At the same time, British coal producers are threatening to take Poland to the European Commission over allegations of aid-funded coal 'dumping'.

The biggest concern for Commission officials as the day of enlargement approaches is the need to avoid any repetition of the kinds of headaches caused when eastern Germany suddenly appeared in the Union in 1990. Former Competition Commissioner Karel van Miert was never so frustrated as when he had to deal with the illegal diversion of aid to western companies buying up eastern assets.

Today, the Commission would be happier to see a long inventory of expensive subsidies than none at all.

“The most important problem today is the absence of transparency,” said Pons. “Monitoring of state aid is moreover very inadequate, and in some cases non-existent. Monitoring authorities, and proper aid-monitoring systems, need urgently to be set up.”

Apart from negotiating com-pliance with EU competition rules in the accession talks, the Commission is using the existing 'Europe Agreements' with Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia to beef up enforcement.

Ensuring this seeps down into business and government culture will take much longer.