Prof. Mario Monti
Competition and Economic Reform in the EU
NHO's Annual Conference 2003
Ladies and Gentlemen,
It is a great pleasure for me to contribute to the Annual Conference of the Confederation of the Norwegian Business and Industry, which has chosen economic innovation, as its main topic. "Time for innovation" is a crucial call in the current economic climate and I will concentrate on the role that competition policy can play in increasing the incentives for innovation and thereby European growth and competitiveness.
Lisbon agenda - towards a more competitive and dynamic economy
But before I go into this topic, let me briefly set out the problem. I think you will agree with me that the European economy is not doing too well. The recent economic forecasts made by the European Commission provide a rather negative outlook of the economic climate with the average growth rate in the EU estimated at just 1% in 2002, although it may raise to 2% by the end of 2003. Norway, which is part of the same economic area as the EU, is, I understand, facing a similar outlook.
Some of our current economic problems are clearly due to external factors, such as the global downturn, which followed September 11, 2001. However, it cannot be denied that the European economy is also burdened with structural problems, which decrease its competitiveness and hamper the growth opportunities.
The European Union has clearly identified this challenge. In March 2000, at the Lisbon European Council, the European leaders set the ambitious goal for the Union to become by 2010 “the most competitive and dynamic knowledge-based economy in the world capable of sustaining economic growth”.
Since then, important progress has been made in the way of economic reform, but increasing Europe's growth potential remains a challenge.
We need more competition to create incentives to innovate
What role can competition policy play in responding to this challenge, you may ask, and should competition authorities be more lenient during economic downturns? In my opinion, we need more competition, not a relaxation of the competition rules, because only then will we ensure the right incentives for innovation and productivity growth.
Effective competition in Europe also ensures that companies are successful on a global scale. Indeed, it is a proven fact that facing competition in the home market prepares companies well to cope with competition in the world market.
Competition policy has been key to establish a level playing field for business in Europe and this is particularly important in markets which are being liberalised. A good example of the Commission’s actions in this respect is given by the electricity industry. On the 16th of October 2002 the Commission initiated state aid proceedings that seek to end some advantages, such as an unlimited state guarantee and a tax relief, from which the French electricity producer EdF has benefited. On the same day, the Commission also opened proceedings against Spain and Italy concerning legislation hindering acquisitions by EDF of shareholdings in electricity companies in these countries. Both measures show our determination to remove all obstacles to competition, including those created by the Member States. You will of course also remember the Commission's action in the GFU case, to ensure that Norwegian companies sell there gas individually and increase liquidity in the market to offset the long term effects of their anti-competitive behaviour in the past.
The Commission's action in this respect was crucial in many ways: 1) it contributes to a more competitive environment at a time when the EU is creating a single market for gas. Individual marketing is all the more important that products such as gas are homogeneous and competition focuses on price rather than quality or brand. 2) It also went a long way to demonstrate that the Commission is not opposed to long term contracts in the gas sector, which underpin important investments. 3) This, in turn, has helped discussions with other gas producers such as NLNG of Nigeria, which recently agreed to remove a clause from an Italian contract that prevented the resale of the acquired gas outside Italy. I am hopeful, that progress will also be made with Gazprom of Russia (in fact progress has already been achieved in regards to future contracts) and Sonatrach of Algeria.
Market liberalisation brings clear long term benefits to industry and ultimately to the consumers, particularly in terms of price reductions. For example, over the past five years (1997-2002) the price of long-distance and international phone calls fell by 60% and electricity prices also dropped 9% for industrial users and 4% for households during the same period.
It should, however, not be forgotten that the long-term success of the economic reforms depends also, to a large extent, on how easily businesses and people can generate and transform knowledge into commercial realities and new skills. We have observed weak innovation performance and a slowdown in productivity growth in many European businesses in recent years. The low level of investment in research is a key factor in this poor performance, holding back innovation and the growth potential. For this reason, we must focus on how the governments and, more importantly, business can be encouraged to invest in knowledge and innovation. In fact, the EU has set a target of reaching a R&D expenditure level of 3% of GDP by 2010, with two thirds funded by industry.
Concerning the state funding for businesses, it should be recalled that as part of the Lisbon agenda the EU Member States are committed to redirecting aid to horizontal objectives of common interest such as the environment, SMEs and, indeed, R&D activity and spend less with individual handouts, which are more distortive of competition.
I am glad to note that Norway has also embraced the winds of reform and, in particular, that it intends to liberalise its financial markets in very much the same way as the EU has done. In Norway too this could be an important catalyst for modernisation of the financial sector by increasing its efficiency and, therefore, improve and increase the access to corporate financing.
Being part of the EEA has brought Norway great benefits as highlighted in the Norwegian Government's White paper on the EEA co-operation presented to your Parliament last year, notably by securing Norwegian businesses equal treatment in the EU and access to its markets.
Reforms of the competition rules will further strengthen competitiveness
Overall, I would consider that the principle of using competition policy as a tool to ensure open and contestable markets in the interest of both business and consumers is well established.
But this does not mean that we can afford to be complacent. As the European Union and the EEA grows, the instruments of competition policy need to be adapted and modernised to be able to face up to the new challenges while reducing red tape for companies.
In 2002 we have done just that as EU ministers formally adopted the landmark reform of antitrust enforcement proposed by the Commission in 2000. This reform, which concerns the modernisation of the 40-year old procedural rules for enforcement of Article 81 and 82, will fundamentally simplify the way in which the European antitrust rules are enforced throughout the Union. Most importantly, the new enforcement Regulation abolishes the practice of notifying business agreements to the Commission, therefore ending bureaucracy and legal costs for companies. Vigorous antitrust enforcement will be strengthened by means of a better and more effective sharing of enforcement tasks between the Commission and national authorities. Due to abolition of the exemption monopoly of the Commission, the national competition authorities can now fully participate in the application of the EU competition law and the national courts can fully adjudicate a competition matter. Both the Commission and national competition authorities will be able to focus their resources on the important fight against price-fixing and other agreements that are truly harmful to competition.
With the reform the competition authorities will move towards a culture of co-operation; they will assist each other to achieve a common goal. For this purpose, we are creating a network of Member States competition authorities.
The new Regulation will apply as from 1st of May 2004. This will give sufficient time to the Commission for adopting a number of accompanying notices such as notices on the functioning of the network of competition authorities, on opinions and on complaints.
Another cornerstone in our attempts to further improve our enforcement tools is the review of merger control regime. The reform package adopted by the Commission on 11 December builds on what is generally regarded as a successful record. Our objective throughout the review process has been, on the one hand, consolidation of the successful features of the EU merger control system, and, on the other, seeking to ensure the continuing effectiveness of the Regulation in meeting the new challenges faced by the EU economy, notably including its pending enlargement.
In particular, the proposed reform is designed to produce a system, which improves the quality of the Commission's decision-making, while at the same time enhancing the due process guarantees enjoyed by merging companies. The reform package is a result of a long period of review, the start of which well precedes the recent judgements of the court in Luxembourg, which, of course, we have duly taken into account. I will only mention a few elements of the reform. The package consists of three elements:
a proposal for a new Merger Regulation, which makes the review timetable more flexible while retaining its predictability;
a draft Commission Notice containing comprehensive guidelines on the assessment of dominance in mergers between competing firms (so called horizontal mergers).These guidelines will now be the subject of a wide-ranging public consultation. Written submissions are invited before the end of March 2003;
a draft set of best practices on the conduct of merger investigations, to be discussed with the legal and business community. They cover the day-to-day handling of merger cases by DG Competition, the Commission’s relationship with the merging parties and interested third parties, and in particular concern the timing of meetings, transparency, and due process in merger proceedings.
Last but not least, a series of non-legislative measures will be taken which are intended to improve the Commission's decision-making process, including the creation of a post of a Chief Competition Economist. This new position will be occupied by an eminent economist who will be tasked with providing an economic viewpoint to decision-makers, as well as ongoing guidance to the Commission's investigative staff. I'm convinced that this appointment will do much to increase the soundness of our economic analysis, not only in the field of merger control, but also in competition and state aid cases more generally.
The EEA co-operation
In addition to these reforms, I would finally consider that we must continue to promote the EEA co-operation in the formulation and application of competition rules in order to respond to the challenges of EU enlargement and, ultimately, of globalisation.
The principal aim of the EEA agreement - which covers merger control, antitrust as well as state aid rules - is to ensure the respect of the same rules, with the view of creating a homogeneous European Economic Area. It is our firm intention to maintain the homogeneity of substantive rules within the EEA and I I believe that the said reforms of the EU competition rules, which strive towards homogeneous applications of the same rule throughout the EU will contribute to this objective.
I also welcome the focus of the Norwegian Government on competition policy as set out in the Government Declaration of the autumn 2001, which mirrors the strengthening of the EU competition policy. I also notice that the role of your national Competition Authority has been strengthened. These are welcome steps by Norway, which is one of our closest partners. The challenge for Norway is now to follow suit and further develop its culture for strong competition policy.
What are then the implications of the EU enlargement to EEA? With the enlargement the new EU Member States would also need to become contracting parties to the EEA agreement. The negotiations to this end will be launched in Brussels in three days (9 January 2003), and the Commission is firmly committed to these negotiations. Successful enlargement of the EEA can serve as an instrument to strengthen the European competitiveness and offer new growth opportunities.
In conclusion, the vigorous and homogeneous enforcement of all competition policy instruments - merger control, the fight against cartels, liberalisation measures and control of public subsidies to companies - throughout the EEA is necessary to foster economic development in Europe. Only open and competitive markets will allow European business to fully deliver its growth potential.