Policing global competition
Written by Edward Bannerman, 01 August 2001
The fall-out from the European Commission's decision to veto the proposed $42 billion merger between General Electric and Honeywell shows how competition policy is becoming politicised. Criticism of the Commission from President George Bush and Treasury Secretary Paul O'Neill is placing more strain on an already tense transatlantic relationship.
Furthermore, the GE-Honeywell case is unlikely to be a one-off. In response to the enormous costs of R&D and the need to access global markets, more and more companies want to merge or collaborate with erstwhile competitors - and in many cases they are going to have to submit their plans to both Washington and Brussels.
Separately, the Commission is still investigating Microsoft's activities for possible anti-competitive behaviour. Any attempt by the EU to act against the American software giant would be likely to spark yet another serious conflict with the Bush administration.
Large companies in the US and elsewhere will certainly learn lessons from the GE-Honeywell affair. It is unlikely that another company planning such a tie-up would notify the Commission of its plans so late (four months after announcing the deal), or attempt such inept and counter-productive lobbying at the last minute. European businesses - such as the mobile phone companies raided by Commission anti-trust investigators - have long known that they have to take commissioner Mario Monti and his competition directorate seriously.
A strong competition policy complements the EU's single market project. There is no point in dismantling state-imposed barriers to trade, merely for them to be replaced by anti-competitive practices from the private sector. So it is quite right that the Commission has huge powers to vet major mergers, as well as to challenge cartels and state aids that affect the European market.
Nevertheless the EU needs to rethink the way it runs this policy. At present, there is no meaningful judicial oversight of its competition directorate, which lays the Commission open to the charge that it is overzealous and unaccountable. This is a key difference with the US, where anti-trust officials have to prove their case to an independent judge. If the Commission blocks a deal, a company may challenge the decision in the courts. But the ruling is likely to come too late to revive the original plans. The EU should develop a more effective and timely appeal process by implementing the fast-track reforms to the ECJ agreed at Nice (see elsewhere in this issue).
The Commission should also be more transparent about its approach and methodology, so that companies can better understand what is and is not acceptable. The Commission's analysis is based in part on economic theories, some of which remain unproven and deserve public debate. For example, its focus on "bundling" (in which a diversified firm such as GE-Honeywell combines different products in a single package in order to dominate the market) has proved controversial on both sides of the Atlantic.
The mantra of more and better co-ordination between the EU and the US is now becoming a cliché. In fact Mr Monti is broadly right to describe the existing arrangements as "something of a model for transatlantic co-operation". Given the rising number, value and complexity of corporate tie-ups, it is remarkable how few result in serious disputes between the competition authorities.
However, the current system of co-operation needs refinement. The two sets of authorities should work towards a system of joint notification, in which the companies concerned would submit to EU and US authorities at the same time, providing similar sorts of information, and in which the two sides would follow similar timetables. Furthermore, the information sharing procedures that already exist for mergers should be extended to other areas of competition policy, such as anti-trust investigations.
Such enhanced co-operation would inevitably challenge traditional notions of jurisdiction. It is not just the protesters at Genoa who think global capitalism requires some form of global governance. As a first step, the EU should try to overcome American reluctance to have competition policy included in the agenda for the next WTO round. Building on EU-US co-operation, a WTO accord on the core principles to be applied by national competition authorities may be feasible.
Long before a world competition authority becomes plausible, looser conventions, expert meetings and exchanges of best practice could all help to bring about "soft convergence" of thinking on competition policy.
A better appreciation of different approaches in the world's leading economies would minimise wasteful misunderstandings and ensure the best elements of each system were built upon. In effect, the EU should export its own "open method of co-ordination" to the world stage. And where better to have policy competition than in competition policy?