Despite their divergences at the multilateral level, the Commission and the US government have developed a successful and innovative bilateral cooperation during the nineties, as discussed in section 2 of this paper. In 1991 they signed an agreement that was to create several consequences. Besides paving the way for other bilateral initiatives, it proved to be an effective mechanism for dealing with international antitrust cases, and generated a new flow of data that kept the subject of competition policy alive on the international agenda. But bilateral agreements have two evident limitations: they do not curb anticompetitive actions originating in third countries and they ignore the interests of the rest of the world. As Falvey and Lloyd (1999) have argued, there are instances in which the maximization of global welfare is not compatible with the short run interests of the nation in which the anticompetitive conduct originates, and this conflict requires multilateral cooperation to be solved. Therefore, all the existing bilateral and regional arrangements on competition policy are, in fact, interim solutions that will be eventually complemented by a multilateral framework.

Like in other existing trade agreements, the discussion about competition rules is an inevitable component of the current EU-Mercosur trade negotiations. This paper reviews the recent developments on the enforcement of these rules in both trade blocs and suggests some possible approaches for cooperation. Section 2 examines the European experience during the nineties at three interrelated levels: regional, bilateral and national. The regional level refers to the policies carried by the Commission to ensure harmonized conditions of competition inside the common market; the bilateral level includes the cooperation activities generated by the agreement with the United States; and the national level describes the measures applied by the member States. Section 3 discusses the peculiarities of the Mercosur case, wherein only two members have competition laws and the regional provisions are not yet operational. Section 4 highlights the possibilities for cooperation and section 5 presents some concluding remarks.

2. The European experience

In a recent publication (EC, 1999), the European Commission compiled its formal decisions adopted over the period Dec. 1994 – Dec. 1998 on matters related to Articles 81, 82 and 86 of the EU Treaty.1   Despite its 700 pages, the document describes just a small portion of the European experience in the competition policy area during that period, as it does not include the cases solved through informal procedures, the activities carried out by the national antitrust authorities, the merger cases, state aids and international cooperation. However, it provides two types of insightful data for the discussion in the present paper. First, it shows how the Commission works. As Cini and McGowan (1998) have noted: “Decisions are important not simply because they complete the Commission’s decision-making process, but also because they allow the policy to develop by clarifying and extending the law if the decision is appealed. Decisions, then are not just legal documents, they are also statements of principle and intent, spelling out the Commission’s thinking in particular cases, highlighting trends in Commission thought, and acting as regulatory tools in a broad rule-setting and norm-creating sense.” (p. 109) Second, it contains enough evidence to explain why competition policy became a mandatory issue in contemporary trade agreements.

Table 1 classifies the decisions by type of subject: joint ventures (8 cases), cartels (6 cases), vertical restraints (7 cases), abuse of dominance (6 cases) and state monopolies (9 cases). There are at least five noteworthy aspects in that table. The first is the overwhelming presence of telecommunications, which was the object of 12 decisions, highlighting the importance this sector has had as a policy issue since the early nineties. As seven decisions on state monopolies indicate, one of the Commission’s priorities was to establish, in a pragmatic, yet rigorous, manner the complete liberalization of the telecommunications infrastructure and services inside the European market. Thus, additional implementation periods were granted to Greece, Ireland, Portugal, Luxembourg and Spain 2; but at the same time Italy and Spain 3  were not allowed to create entry barriers in the provision of mobile phone services. The same stance was kept in the analysis of five joint venture cases, which were all approved, but under detailed conditions that monitored the balance between efficiency gains and the market power generated by each undertaking.

The second interesting aspect is that the world economy is the relevant geographic market in the majority of the joint ventures cases. In some cases, the partners were European corporations such as Lufthansa, Scandinavian Airlines, Dresdner Bank, Banque Nationale de Paris, France Télécom, Deutsche Telekom and others making strategic alliances to improve their global competitiveness. In other cases, the parent firms were foreign, most often from USA or Japan, and the European market was just a part of a global operation. The Commission had the same approach to both situations, always focusing the analysis on whether the joint venture would have any harmful impact on the conditions of competition in the European market.

The third aspect is the Commission’s severity when punishing anti-competitive practices that provoke real or potential damages to the integration process. Heavy fines have been imposed not only on cartels, as in the cases of British sugar and pre-insulated pipes, but also on the frequent attempts by large firms to restrict the distribution of goods and services across national borders. Even Europeans icons such as BASF, Bayer, Asea Brown Bovery and Volkswagen were not exempted from these disciplinary measures; and it should be noted that the cases listed in table 1 are not exceptional. Indeed, the imposition of harsh penalties has been a Commission’s routine since the early eighties. In 1994, for instance, three large cartels were dismantled with the corresponding fines of ECU 104 million on the suppliers of steel-beams, ECU 132 million on carton board producers and ECU 248 million on the cement industry (see Cini and McGowan, 1998, pp. 75-78).

Source: European Commission, Competition Policy Reports.

Table 2 also shows that about 96% of conduct cases are settled informally after a brief investigation. Frequently, the case ends with a note called “comfort letter” in which the Commission explains its view on the issues involved. Although simple and effective, this procedure has been criticized for its lack of transparency: “In EU competition policy, perhaps more than in any other European policy area, a shadowy area somewhere between law and politics has emerged. Here, courts and due process remain important but often find it difficult to come to terms with the gap between the more solid ground of legislation and case law, and the vaguer more malleable and flexible world of actual competition practice.” (Cini and McGowan, 1998, p.112)

(*) The Danish Competition Act has no rules on merger control.
(**) Only 7 cases were reviewed by the French Competition Council.
(***) This figure includes mergers, joint ventures and other forms of alliance.

Source: OECD, Annual Reports on Competition Policy.


3. Recent developments in Mercosur

Argentina has had an antitrust law since 1919 and Brazil since 1962, but competition policy became a relevant issue in these countries only in the nineties, in the context of the trade reforms and privatization programs implemented in the region since the late eighties. In 1994, the Law no. 8884 redesigned the Brazilian policy instruments and strengthened the powers of CADE (Conselho Administrativo de Defesa Economica) as the main antitrust authority, paving the way for the regulatory reforms carried out in the subsequent years in the areas of energy, oil and telecommunications. The Argentine law was amended in 1946 and 1980, but the real reform was to be made only in September 1999 through the Law no. 25156, which created the Competition Tribunal with the necessary instruments to play the role of regulator of last resort in the economy. With an enlarged scope of application, this law introduced important new provisions, such as merger control and the autonomy of the antitrust authority.

Although Paraguay and Uruguay do not have antitrust laws, since the mid nineties their governments have been engaged in the debate about competition rules in two integration projects, the Free Trade Area of the Americas (FTAA) and Mercosur. After a preliminary phase that lasted from March 1996 to June 1998, the FTAA Working Group was transformed into a negotiating group whose main assignment is to prepare the competition chapter of the hemispheric agreement to be signed in 2005. Two explicit mandates of this group are to “advance towards the establishment of juridical and institutional coverage at the national, sub-regional or regional level, that proscribes the carrying out of anti-competitive business practices;” and “develop mechanisms to promote cooperation and exchange of information between competition authorities.” (San Jose Ministerial Declaration, March 1998; see http://www.ftaa-alca.org)

Therefore, the Latin American and Caribbean countries with no competition laws are expected to make a decision in the near future on how to meet the above mandates, which means either passing a national law or adopting a sub-regional mechanism able to address these issues.5  In the case of Paraguay and Uruguay their sub-regional option is the Fortaleza protocol signed in December 1996 with the objective of setting up a common competition regime among Mercosur countries. However, one of the basic assumptions underlying that protocol is that the regional disciplines are to be enforced by national authorities, as the common regime does not include supra-national mechanisms. Thus, any use of the protocol’s instruments as substitutes for domestic enforcement must be temporary, but it can be highly innovative, as discussed below.

The protocol’s goals are very similar to those pursued by the European Commission. First, it provides mechanisms to control firms’ anticompetitive practices within the Mercosur. Second, it calls for convergent domestic laws in order to ensure similar conditions of competition and independence among firms regarding the formation of prices and other market variables. Third, it provides an agenda for overseeing public policies that distort competition conditions and affect trade among the member countries, though it does not include explicit rules about state aids, and this gap can be crucial, as we saw in section 2. But like in the European Union, the Mercosur competition policy is expected to be an instrument for abolishing obstacles to the enlargement of the regional market.

Regarding its first goal, the Protocol seeks to prevent -- just like Articles 81 and 82 of the EU Treaty -- any concerted practice between competing firms as well as individual firm’s abuse of dominant position with the aim of limiting competition in the Mercosur market. Its provisions apply to acts performed by any person, natural or legal, private or public, so long as such acts have extraterritorial effects. The list includes price fixing, imposition of restraints, reduction or destruction of input and output, market division, restriction of market access, bid rigging, exclusionary practices, tying arrangements, refusal to deal, resale price maintenance, predatory practices, price discrimination and exclusive dealing.

The Protocol is enforced by the Mercosur Trade Commission (TC) and the Committee for the Defense of Competition (CDC).6  The TC performs adjudicative functions, whereas the CDC is responsible for the investigation and evaluation of cases, which are handled in three stages. Proceedings are initiated before the competition authority of each country at an interested party’s request. After a preliminary determination of whether the practice has Mercosur implications, the competition agency may submit the case to the CDC for a second determination. Both evaluations must follow a rule of reason analysis in which a definition of the relevant market and evidence of the conduct and the economic effects must be provided. Then, the CDC must decide whether the practice violates the Protocol and recommend that sanctions and other measures be imposed. The CDC ruling is submitted to the TC for final adjudication by means of a directive. As part of these procedures, the protocol establishes provisions for preventive measures and undertakings of cessation. This mechanism allows the defendant to cease the investigated practice under certain obligations agreed upon with the CDC. The monitoring of these measures and the enforcement of the sanctions are the responsibilities of the national competition authorities.

When the protocol was signed Brazil was the only country that had the proper instruments to enforce the regional disciplines. Now, after the reform of the Argentine system, the disparities pointed out in table 5 will probably be reduced, as the national authorities start to apply convergent policies. But, more importantly, new opportunities have been created for an effective -- though interim and partial -- implementation of the protocol’s objectives. First, instead of the cumbersome decision making process therein established, whereby a resolution made by the CDC can easily be overruled by the TC and transformed into a trade dispute, Argentina and Brazil could sign a bilateral agreement based on the more lean procedures of positive comity. Besides strengthening the competition authorities, an agreement of this type would bring about new elements into the Mercosur current agenda, by moving its focus from import/export figures and related mercantilist topics toward more fundamental subjects such as productive efficiency, consumer welfare and market distortions. Second, both countries could unilaterally include the interests of Paraguay and Uruguay when handling cases through the bilateral agreement. This procedure would generate a continuous record of the damages suffered by those countries for not having domestic competition laws, thus providing an additional stimulus for a more rapid completion of the Fortaleza protocol.

Source: OAS (1998b).