Istanbul, 1 August 2006 UNCTAD/Yeditepe Seminar on Competition Provisions in Regional Trade Agreements, Istanbul, Turkey 31 July - 01 August 2006 Competition Policy in RTAs: Lessons from the EU pre-Accession process Authors: Dr Peter Holmes (University of Sussex) Bahri Özgür Kayalı (Yeditepe University/University of Manchester/UNCTAD) Anna Sydorak (University of Sussex )

Istanbul, 1 August Outline  Types of EU Agreements on competition policy  Competition rules in non pre-accession RTAs  Competition rules in pre-accession agreements  Pre-accession agreements  Case studies: Poland, Turkey, Croatia  Lessons from candidates  Implications for ENP/Euro-Med countries Candidates are a special case Competition law harmonisation with EU must be judged in its own terms not for market access or cooperation benefits

Istanbul, 1 August Agreements on competition policy involving EU EU Candidates ENP/Euro-Med USA SA Mexico UNCTAD OECD Korea

Istanbul, 1 August Types of EU Agreements on competition policy RTAs with competition provisions: –Agreements signed with candidate countries (Turkey, Croatia, Macedonia) –Agreements signed with ENP/Euro-Med countries (Egypt, Jordan, Morocco, Ukraine) –Other countries (e.g. South Africa, Mexico, the Cotonou Agreement with ACP countries) Dedicated cooperation agreements (inter-agency): –MoU (Korea) –Enforcement cooperation agreements (United States, Canada, Japan) MLATs (EU member states only) Multilateral and plurilateral (UNCTAD, OECD, [ICN])

Istanbul, 1 August Competition rules in non pre-accession RTAs Content of the agreements: Main aim to discipline anti-competitive practices and distortionary state aids that would be targeted by CP within EU, rather than to create obligations for cooperation/info exchange Not directly tied to reduced contingent protection EU-South Africa TDCA: –EU market access aim? –Implies approximation –SA interested in merger issues where informal cooperation has worked EU-Mexico –Elaborate provisions for notification but little evidence that this has been used. –Contingent protection alive and well Euro-Med: –Implied demand for approximation of CP goes slightly beyond SA/Mexico –Promise of end to use of CVDs if EU State aid rules applied –No equivalent of membership goal to secure implementation

Istanbul, 1 August Competition provisions in in EU RTAs EU – South Africa TDCA “The following are incompatible with the proper functioning of this Agreement, in so far as they may affect trade between the Community and South Africa: (a) agreements and concerted practices between firms in horizontal relationships, decisions by associations of firms, and agreements between firms in vertical relationships, which have the effect of substantially preventing or lessening competition in the territory of the Community or of South Africa, unless the firms can demonstrate that the anti-competitive effects are outweighed by pro-competitive ones; (b) abuse by one or more firms of market power in the territory of the Community or of South Africa as a whole or in a substantial part thereof. […](Article 35) Public aid:1. In so far as it may affect trade between the Community and South Africa, public aid favouring certain firms or the production of certain goods, which distorts or threatens to distort competition, and which does not support a specific public policy objective or objectives of either Party, is incompatible with the proper functioning of this Agreement.” (Article 41) EU-Egypt FTA “The following are incompatible with the proper functioning of the Agreement, in so far as they may affect trade between the Community and Egypt: (i) all agreements between undertakings, decisions by associations of undertakings and concerted practices between undertakings which have as their object or effect the prevention, restriction or distortion of competition; (ii) abuse by one or more undertakings of a dominant position in the territories of the Community or Egypt as a whole or in a substantial part thereof; (iii) any public aid which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods.” (Article 35) Wording “cut and pasted” but EU-Egypt appears to have less exceptions. Enforceability?

Istanbul, 1 August Competition provisions in pre-accession agreements CP harmonisation rather than cooperation Necessary but not sufficient for full market access: “Once satisfactory implementation of competition and state aids policies (by the associated countries) has been achieved, together with the application of other parts of Community law linked to the wider market, the Union could decide to reduce progressively the application of commercial defence instruments for industrial products from the countries concerned, since it would have a level of guarantee against unfair competition comparable to that existing inside the internal market.” (European Commission, 1995, para 6.2) ● Hoekman thesis supported: Implementation of competition law is not sufficient to secure ending of anti-dumping

Istanbul, 1 August Competition provisions in pre-accession agreements EU-Turkey: “The following shall be prohibited as incompatible with the proper functioning of the Customs Union, in so far as they may affect trade between the Community and Turkey: all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their objective or effect the prevention, restriction or distortion of competition, […] Article 32(1) Any abuse by one of more undertakings of a dominant position in the territories of the Community and/or Turkey as a whole or in a substantial part thereof shall be prohibited as incompatible with the proper functioning of the Customs Union, in so far as it may affect trade between the Community and Turkey. […] Article 33(1) Any aid granted by Member States of the Community or by Turkey through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between the Community and Turkey, be incompatible with the proper functioning of the Customs Union.” Article 34(1) EU-Poland (EA) EU-Croatia SAA similar. Institutional change driven by accession negotiations

Istanbul, 1 August Poland Rules set by EU but NCA predates Europe Agreement (EA) EU left Poland, in theory only, free to choose means to implement Limited exchange of information and no access to confidential information State aid law introduced only in 2001 Beginning of 1990s Polish NCA carried out AD investigations; later Pre-accession EU law directly effective State aid approval by DG Competition in Brussels, UOKiK only monitoring function Some tasks given to ECN & done jointly with the German Competition Authority (Bundeskartellamt ) National cases retained ECN - cooperation and exchange of info among MS and the Commission on Art. 81& 82 Post-accession

Istanbul, 1 August Candidates: Croatia & Turkey RTAs and pressure of accession process Association agreement 1963 did not refer to competition policy but national competition laws required by Customs Unions (1996) Agency established by 1994 law CU requirement to establish state aid monitoring agency Strict harmonisation called for by EU Turkey has been unsuccessful in some cases where asked for info from DG Comp (OECD Report 2005) Not in ECN Requirement of EU – Croatia Stabilisation And Association Agreement (SAA – 2001) to harmonise national competition laws SAA requirement to establish state aid surveillance agency Informal cooperation and good assistance from neighbouring EU MS authorities (e.g. Croatia with Austria, Italy, Slovenia, and Hungary) Technical assistance from DG Competition Not in ECN

Istanbul, 1 August Lessons from candidate countries  Strict harmonisation and institutional requirements with little cooperation  EU dictates rules for candidates pre-accession but not for members because EU law is directly effective & applied by DG Comp, ECJ and Nat. Courts! So role of NCA changes on accession  ECN applies only after accession. Informal cooperation possible for candidate NCAs  NCAs able to use EU requirements in competition policy to promote market reforms, via credible commitment  Full application of EU competition laws is a vital step to membership - including state aids

Istanbul, 1 August Lessons – for ENP/Euro-Med countries Problems of competition provisions in RTAs : –Call for acceptance of EU competition and state aid rules potentially deeply intrusive with no binding cooperation provisions and no guaranteed end to contingent protection –Cannot guarantee absolute market access (cf EU 1995) –Not clear what effectiveness of these provisions can be –EU rules (e.g. on vertical restraints may or may not suit local conditions) –Negotiation may absorb NCA time Benefits –Possibility of eventual phasing out of Countervailing Duties if state aids rules applied advantages –Importing EU law gives credibility to national competition policy and ready made jurisprudence, and can help market oriented reform, –Contacts can facilitate informal cooperation (SA & Canada/CR) Conclusion –Non candidate EU neighbours should agree to enforce agreements if they think domestic consequences will be beneficial, not for market access or cooperation reasons

Istanbul, 1 August Thank you!