The 7-Up project is deep into its
second phase now. The
case studies are being finalised and the draft countries reports would
be prepared soon. A brief report of the progress has been given below.
During this period, the issue of separation of investigative and
adjudicatory powers in terms of enforcement of competition law became
a hotly debated one. The decision of the European Court of Justice
reversing the European Commission’s veto of the takeover of First
Choice by Airtours came as a severe blow to the Commission. The
commission has boasted a 100 percent record of defending merger vetoes
so far and hence the decision itself is quite damaging to its
reputation. But what is more damaging is the observations made by the
court. The commission has been pulled up not only for failing to
substantiate its main argument that the deal would lead to
price-fixing but also for giving scant regard to economic reality. It
has also been criticised for gross mishandling including selective use
of evidence, disregard for material facts and incorrect assessment of
data.
The
judgement has lent credence to the criticisms of EU’s merger
handling policy as being too restrictive and not based on proper
economic analysis. Such criticisms were made especially in the context
of GE-Hoenywell case, which created a rift between the US and EU.
The
competition commissioner, Mario Monti, tried to interpret the
judgement in his own favour. “It vindicates his claims that the
judicial review provision is good enough to keep EU competition policy
enforcement under check,” said Monti. He has been using this
argument for quite some time to resist the demand for radical
institutional reforms in competition policy enforcement mechanism in
Europe.
The
present judgement should be viewed in the context of another recent
court decision that ripped up its existing case law and allowed
individuals, companies and pressure groups to challenge previously
incontestable EU laws, decisions and regulations. Needless to say,
Monti will have tough time ahead defending many more such cases.
In
view of the strictures on mishandling in the Airtours case, the demand
for separating investigation and adjudicatory functions will get
further momentum. Incidentally
this has been a worldwide concern as it is believed that combining of
functions enables a competition authority to act as judge, jury and
executioner, giving it absolute power, while stripping the system of
internal checks and balances and thus leaving enough scope for its
misuse.
The
EU should take the issue of institutional reforms in the competition
policy enforcement mechanism more seriously. This should also be a
good lesson for many other jurisdictions in the process of amending
their competition laws or adopting a new one.
Happy reading!
Pradeep S Mehta. Editor
I.
Project
Progress
The
7-Up Project, as it is popularly
known as, is deep into its second phase now. The research activities
are in full swing in all the seven countries and preparations are
going on for organising the National Reference Group meetings.
1.1
Phase-I Synthesis
The
first phase synthesis report was further revised after incorporating
various comments of the researchers, country partners and the members
of the project advisory committee. This version would now be
circulated for final suggestions and the final version is planned to
be printed by the end of next month.
1.2
Phase-II Research
The
second phase of the project involves a case study approach and during
the last two months, the country researchers were able to work
substantially on the three case studies decided by them. Almost all
the draft case study reports were prepared during this period. These
drafts were sent to the advisors for their perusal and the work of
revision is in progress.
These case studies would
form a part of the individual phase-II country reports to be prepared
by the country partners. These country reports would then be compiled
and collated at CUTS and a synthesis report of the second phase would
be prepared.
1.3
NRG meeting in India
The
Phase-II NRG meeting for India was organised on June 8-9, 2002, in
Chennai, India. The meeting deliberated upon the new competition law
of India, particularly in context of cross border issues.
Presentations were made with the help of several examples of cross
border competition abuses in India. The set of recommendations on
competition policy and law, regulatory design and environment,
sectoral investment policy and on the services sector, which had
emerged at the previous NRG meeting held in January 2002, were further
refined.
The meeting was attended by
representatives from consumer organisations, academia, research
institutions, media, regulatory bodies and the government.
II.
Major News
& Views
1.
JUDGES REVERSE VETO ON TRAVEL MERGER
Europe’s
competition authorities suffered an unprecedented defeat yesterday
when the second highest court in the EU overruled their 1999 decision
to block Air-tours’ bid for rival UK travel company First Choice.
The ruling by the Court of First Instance will not revive the bid but
could trigger radical reforms in the way the European Commission uses
its sweeping powers to block mergers.
It
could speed an overhaul of the Commission’s competition department,
criticised by companies and European Union states for being
unaccountable. Chris Bright, a competition partner with the law firm
Shearman & Sterling, said, “This is a real body blow for the
Commission. There is an
urgent need for fundamental reforms.”
In
its 66-page ruling, the CFI said the Commission was wrong to block the
£950m bid by Airtours, now called My Travel, for First Choice.
The
judges said that, because of a “series of incorrect findings”, the
Commission failed to prove the merger would have created an
anti-competitive oligopoly in the UK travel market. In language
described as “brutal” by one lawyer, the CFI says the Commission
did not base its analysis on “cogent evidence” and was “vitiated
by a series of errors”.
The
ruling, against which the Commission can appeal within two months,
marks the first time the Luxembourg-based court has overturned a
Commission decision to block a merger.
The CFI will have to rule on four more vetoes in the next few
years, including controversial decisions on the telecommunications
merger between WorldCom and Sprint and General Electric’s $43bn
takeover of Honeywell.
Mario
Monti, who signed the Airtours/First Choice decision five days after
taking over from Karel Van Miert as competition commissioner, said the
ruling was the answer to those who criticised the Commission for being
unaccountable. “[It has] shown what some people seem to forget,
namely that the whole activity of the commission….is subject to
effective judicial review by the courts in Luxembourg”.
However,
competition lawyers said the ruling would restrict the Commission’s
ability to block mergers that create oligopolies.
Some said the decision could even prompt the Brussels
authorities to change the criterion they use to judge whether mergers
should be blocked in favour of the one used in the US.
My
Travel said it felt vindicated by the decision.
It expected the Commission to pay back its legal costs,
estimated at £1.5m. It
did not say whether it would seek compensation for lost savings from
the aborted merger.
The
tour operator, which issued a profits warning two weeks ago, rejected
the possibility of resurrecting merger talks with First Choice.
Analysts suggested the companies have changed roles since 1999.
My Travel, trading at a discount to its rival, is widely seen
as a natural target for First Choice.
(Financial Times,
07.06.02)
2.
EU’S JUDICIAL TRAVAILS
Europe’s
competition authorities suffered an unprecedented defeat when the
Court of First Instance (CFI) overruled their 1999 decision to block
Airtours’ (now called MyTravel) bid for rival UK travel company,
First Choice. It was held that because of a “series of incorrect
findings”, the Commission failed to prove that the merger would have
created an anti-competitive oligopoly in the UK travel market. The
decision is subject to appeal.
The
ruling is considered as restricting the Commission’s ability to
block mergers that create oligopolies and could also prompt it to
change the criterion it uses to judge whether mergers should be
blocked, in favour of the one used in
the US. Though it will not revive the bid, it could trigger radical
reforms in the way the EU Commission uses its sweeping powers to block
mergers. This has been widely criticised by the EU states and
companies as being unaccountable.
In
another landmark ruling that could spur cross-border mergers,
Europe’s highest court, European Court of Justice (ECJ) made it
harder for EU countries to protect their privatised companies such as
Rolls Royce, KPN, ENI Spa and Telefonica. The ECJ rejected the use of
most “golden shares”, which allow government’s to block bids for
companies they view as valuable from falling into foreign hands. The
Commission had challenged the legality of minority golden-share by the
French, Belgian and Portuguese Governments.
The
ECJ held that the shares violated EU rules guaranteeing the free
movement of capital. The decision (not subject to appeal) is expected
to encourage mergers between US and EU companies and among the
European companies themselves. It represents a victory for the
Commission, which has fought for years to eliminate obstacles to
industry consolidation. This will boost its 12-year attempt to adopt a
Europe-wide take-over code. (FT,
07.06.02 & WSJ, 06.06.02)
III.
Around The World
ICN
Meeting in Naples, 27-29 September 2002
The
inaugural conference of the International Competition Network, Mexico,
would be held on September 27-29, 2002, at Naples, Italy. The
conference would address issues and challenges of common interest to
competition agencies. It will bring together heads and senior
representatives of anti-trust agencies from around the world to review
the progress and recommendations of current projects under way and
decide on the new work programme for 2002/2003.
IV.
New Publications
a)
ReguLetter 7, 2002
The
seventh issue of this quarterly newsletter talks about latest
regulatory news on pharmaceuticals, airlines, utilities, financial
sector, etc. The cover story speaks about multi-sector regulators and
their importance in regulating competition. The issue also carries an
article on the competition law of Pakistan in addition to several
interesting stories like class action on credit cards in the US;
consolidation in certain sectors like breweries and advertising,
difference in the opinion of the US courts on the process of
unbundling and the corporate frauds which are bringing down the
markets.
b)
Towards a New Competition Law in Sri Lanka
This
is the country report of Sri Lanka that has been prepared under the
7-Up project. The report gives a detailed overview of the competition
law in Sri Lanka and the developments that are taking place in this
context in the country. The institutional framework for the
enforcement of the law has also been dealt with in detail in the
report. Similar reports for other countries namely, South Africa,
Tanzania, Zambia, Kenya, Pakistan and India are also underway
