Future challenges for competition enforcement in

Europe: a proposal for a multi-level approach

Conferência em Defesa da Concorrência e Defesa Comercial Brasília 21-22 de Maio de 2009

Aurelio La TorrePrime Minister OfficeDepartment for Legal and Juridical Affairs – RIA Office

Let me introduce myself…

► Director within the Presidency of the Italian Council of Ministers c/o the Department of legal affairs (Head of RIA Unit).

► Degrees cum laude in both Law and Political Sciences (with thesis in competition) and two postgraduate degrees in European affairs.

► Overall experience of almost 18 years in competition policy, legal drafting, European affairs and public administration.

► Competition official within the Italian Competition Authority for more than 4 years.

► Responsible for the competition component in three different PHARE Twinning Projects in Romania designed to help Romania`s accession to the UE (2006-2008, 2003-2005 and 2001-2002).

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Content of the presentation

1. Introduction2. Common difficulties in competition

enforcement 3. Conclusion: need for a multi-level

approach

1. Frequent lack of a well-defined priority strategy for enforcement with little use of ex officio investigations

2. Need to better design a strategy in order to foster competition in the area of public procurements

3. Need to deepen the synergies between competition policy and anti corruption strategies

4. Various problems in antitrust enforcement caused by legislation

5. Need to strengthen administrative capacity and/or internal organisation and/or adequate HR management within the National Competition Authorities

Common difficulties in enforcement of competition

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1. Frequent lack of a well-defined priority strategy for enforcement

with little use of ex officio investigations

Competition authorities around the world tend to be more “reactive” than “pro-active” in their fight against anticompetitive practices.

Indeed, investigations are normally opened following a complaint or where companies “blow the whistle” on a cartel to benefit from leniency.

The percentage of investigations opened ex-officio is generally low.

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What are the benefits of a pro-active investigative policy?

(1/2)A “reactive” investigative policy (as opposed to a “pro-active” investigative policy) may have several important shortfalls:

1. It may force the authority’s resources to focus on cases having a small impact on the national economy and fail to achieve tough competition in some economic sectors which are fundamental for the national economy

2. It may detect anticompetitive practices long after they have been in place, causing lasting damages to the structure of the market (e.g. RTE practices against Magill; Microsoft practices against Netscape);

3. It is unlikely to reach anticompetitive practices targeting consumers directly (e.g. excessive prices charged by a monopolist), who are not sufficiently organised to complain against such practices;

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What are the benefits of a pro-active investigative policy?

(2/2)4. It may receive scarce media coverage and reduce the

authority’s visibility and reputation – complaints, due also to their confidential character, are unlikely to attract the attention of the media;

5. It reduces the ability of the competition authority to gather evidence of the infringement, since in the majority of cases the alleged infringer has been warned of or is likely to guess the other party’s intention to lodge a complaint

6. It may have scarce deterrent effect, since a non-interventionist authority - especially in markets which are unlikely to be the object of a complaint - is unlikely to be perceived by companies as a threat to their ability to conclude anticompetitive practises;

7. It may fail to attract new entrants in the market(s) where anticompetitive practises (for instance, cartel agreements or exclusionary practises implemented by dominant companies) represent a disincentive for new entrants.

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What criteria for ex-officio investigations?

Decisions to open ex-officio investigations need to follow a pre-determined policy by drafting specific guidelines.

Priority should be given to investigations concerning “hardcore restrictions” of competition having an effect at national level (as opposed to local level) and relating to sectors essential for the national economy.

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Antitrust enforcement: overcome the spider-web

paradox

National

(or multinational) ٱRegional

ٱ

Local

ٱ

B) Scope of the relevant geographic market

High

ٱAverage

ٱLow

ٱOVERALL IMPACT ON COMPETITION (sum of A+B+C+D+E)

High

ٱModerate

ٱLow

ٱE) Barriers to entry

High

HHI 1800 and above

60%- 100%

ٱ

Moderate

HHI 1000-1800

30% - 60%

ٱ

Low

HHI below 1000

30% or less

ٱ

D) Concentration rate in the market

Very important

ٱ

Important

ٱ

Of minor

importance

ٱ

C) Product(s) or service(s) concerned

Very serious

ٱSerious

ٱMinor

ٱA) Type of infringement(s)

Very serious dangers for competition

Serious dangers for competition

Minor dangers for competition

CRITERIA

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Key sectors for enforcement (e. g. Romania 2005-7)

• Public ProcurementPublic Procurement• Media (* #)Media (* #) • Energy (* #)Energy (* #) • Communication and Information Technology (* #)Communication and Information Technology (* #)• Transport (* #)Transport (* #)• Banking (* #)Banking (* #)• Insurance (* #)Insurance (* #)• ConstructionConstruction• PharmaceuticalsPharmaceuticals• Steel IndustrySteel Industry• Postal services (* #)Postal services (* #) • Real Estate TransactionsReal Estate Transactions• Mechanical EngineeringMechanical Engineering• TourismTourism

# = Area including network industries # = Area including network industries

* = Area including sector(s) under competence of a Regulation Authority* = Area including sector(s) under competence of a Regulation Authority

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3. Need to better design a strategy in order to foster competition in the area of

public procurements

Advantages: ◦ ensuring transparency in Public

Administration◦ fighting corruption ◦ maintaining in place a functioning free

market economy

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The main competition problems in public procurement

procedures• Award directly a contract without organising a public tender

• Requirements tailored to the advantage of one specific bidder

• Discrimination among potential bidders (e.g.: unjustified high turnover thresholds

that can discriminate SMEs and/or many years of experience in the field of activity

to block the access of the newcomers)

• Lack of transparency

• Tight deadlines: insufficient visibility and inadequate time for submitting bids

• “Bid rigging” (i.e. illegal co-ordination between firms aimed at affect the outcome

of any sale or purchasing process in which bids are submitted)

• Corruption related practices - these are instances where a representative of the

contracting authority agrees with one or more bidders to false the tendering

process.

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Role of competition Authority in public procurement

analyse PP legislation address recommendation to Government and Parliament (advocacy)

draft guidelines for all tenders organisers

draft internal instructions and checklist

internal training and referee bilateral cooperation with PP Agency

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4. Need to deepen the synergies between competition policy

and anti corruption strategies

The higher is the corruption, the higher is the alteration in the

business environment, especially in the „strategic” and

high remunerative markets

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Role of competition Authority

analyse anti-corruption legislation set up or increase cooperation with Anti-

corruption Authority identify field of inter-relation (e.g.

public procurement) promote studies on influence of non

ethical behaviours on the functioning of market economy (CFR. Current financial crisis)

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5. Problems in antitrust enforcement caused by legislation

Many competition distortions originate from legislation.

Competition agencies are generally entrusted with advocacy powers.

Nevertheless, these powers are not binding and are implemented ex post.

When did this become a crucial problem?

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Is legislation encouraging or distorting free competition?

”The Bosses of the Senate," Lithography, 1889

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”The Bosses of the Senate," Lithography, 1889

Huge figures stand behind rows of Senate desks. The four figures in top hats, with big bellies, are the Iron Trust, Standard Oil Trust, Copper Trust, Steel Beam Trust, all with dollar signs on their stomachs.

The sign at top reads: "This is a Senate for the Monopolists, By the Monopolists and of the Monopolists!" Some Senators look up at them.

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Examples of legislative measures that may have an anticompetitive

impact include:

public tenders applying unfair or discriminatory terms measures fixing prices or tariffs measures granting exclusive rights measures discouraging market entry by increasing standards or introducing new administrative barriers (licences, authorisations etc.) measures obstructing import or export of products/services measures granting state aid or otherwise favouring domestic over foreign companies

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The Structure of the Italian RIA model (2008)

1. Context and 1. Context and objectivesobjectives..2. Procedures of 2. Procedures of consultationconsultation..3. Assessment of the non-intervention option 3. Assessment of the non-intervention option («zero option»).(«zero option»).4. Assessment of the 4. Assessment of the alternative options alternative options of of

regulatory intervention.regulatory intervention.5. Justification of the proposed regulatory 5. Justification of the proposed regulatory

option.option.6. 6. Impact on the correct competitive market Impact on the correct competitive market

functioning and on the Country functioning and on the Country competitivenesscompetitiveness..

7. Implementing modalities of the regulatory 7. Implementing modalities of the regulatory intervention.intervention.

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Basic competition RIA filter test

(Italy 2008)

Does regulation:

◦Limit the number or type of providers?

◦Limit the competition possibilities of providers?

◦Reduce the incentives for providers to

compete?

◦ N.B. Italy is preparing specific guidelines and a more

detailed checklist

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To what regulation should we apply the competition filter test?

• Must be submitted to RIA legal provisions that have business or competition impacts.

• Business impacts arise in the case that proposed regulations: (1) govern the entry or exit into or out of market (2) control prices or production levels (3) restrict the quality, level, or location of goods and services

available (4) restrict advertising and promotional activities (5) restrict price or type of inputs used in the production process (6) are likely to confer significant costs on business, or may provide

advantages to some firms over others.

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6. Need to strengthen administrative capacity, internal organisation, HR management

within the National Competition Authorities

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Enhancing the administrative capacity of Competition Agencies: some issues

personnel selection procedures carrier and status internal promotion system training on:

◦ public speaking◦ lobbying and negotiating skills ◦ leadership◦ team building

Conclusions… 1. Adopt a well-defined priority strategy for

enforcement with adequate use of ex officio investigations

2. Verify your strategy in order to foster competition in the area of public procurements

3. Consider to study the synergies between competition policy and anti corruption strategies

4. Consider to adopt RIA in order to face competition distortions caused by legislation

5. Pay attention to the human factor

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Obrigado!

Aurelio La Torre

www.planejamento.gov.br/gestao/dialogos

dialogos.setoriais@planejamento.gov.br

Departamento de Cooperação Internacional Secretaria de Gestão – SEGES Ministério do Planejamento, Orçamento e Gestão Esplanada, Bloco K, 4° andar (61) 2020- 4906