Competition provisions in FTAsThe case of the EU-Korea FTA

Clemens Kerle Miek Van der Wee

Brussels, 10 December 2010

I. External challenges facing EU competition policy

II. The EU-Korea FTA

III. Antitrust and merger provisions in the EU-Korea FTA

IV. Subsidy provisions in the EU-Korea FTA

V. Conclusions

DG Competition, International Relations Unit

I. External challenges facing EU competition policy

II. The EU-Korea FTA

III. Antitrust and merger provisions in the EU-Korea FTA

IV. Subsidy provisions in the EU-Korea FTA

V. Conclusions

DG Competition, International Relations Unit

External challenges for competition policy

■ Competition policy does not stop at the EU border :► Globalisation► Proliferation of competition agencies

■ Challenges for EU competition policy :► Effectiveness► Legitimacy :

Inconsistent outcomes in Antitrust/Mergers Lack of level playing field conditions in State aid

DG Competition, International Relations Unit

Responding to external challenges■ To meet these challenges:

► facilitate cooperation between competition authorities

► promote convergence between competition regimes

► Strengthen disciplines at international level

■ 2006 Communication - Global Europe:► “No protectionism at home, activism abroad”

► Multilateral level: Doha, TDI

► Bilateral: “Deep and Comprehensive FTAs” with important trading partners to tackle “behind the border trade barriers”

Rules on public procurement

Rules on competition, including state aid

DG Competition, International Relations Unit

I. External challenges facing EU competition policy

II. The EU-Korea FTA

III. Antitrust and merger provisions in the EU-Korea FTA

IV. Subsidy provisions in the EU-Korea FTA

V. Conclusions

DG Competition, International Relations Unit

EU-Korea FTA■ Korea: Key trading partner

►2009 EU Exports: €29bn (trade deficit: €7bn)

►2009 EU investment stock in Korea: €30bn

■ Negotiations : 2007 - 2009

■ FTA focuses on removal of non-tariff barriers (NTB)►Costly NTB in manufacturing (eg transport equipment, machinery, …)

and services (eg finance, wholesale and retail trade) and construction

►Positive effects on EU GDP and exports

■ Competition chapter:►Antitrust & mergers section

►State aid section

DG Competition, International Relations Unit

I. External challenges facing EU competition policy

II. The EU-Korea FTA

III. Antitrust and merger provisions in the EU-Korea FTA

IV. Subsidy provisions in the EU-Korea FTA

V. Conclusions

DG Competition, International Relations Unit

Antitrust and merger provisions■ In anti-trust & mergers:

► No binding rules at multilateral level (e.g. WTO)

► Soft convergence through dialogue (ICN, OECD)

■ This approach is also reflected in the AT/M section:► Relatively soft provisions:

- List of anti-competitive practices that are incompatible with FTA

- Commitment to maintain competition laws & competition authorities

- Commitment to apply competition laws to public enterprises and enterprises granted special rights

- Cooperation – with reference to bilateral cooperation agreement

► Not subject to dispute settlement provisions

DG Competition, International Relations Unit

I. External challenges facing EU competition policy

II. EU-Korea FTA

III. Antitrust and merger provisions in the EU-Korea FTA

IV. Subsidy provisions in the EU-Korea FTA

V. Conclusions

DG Competition, International Relations Unit

The case for subsidy provisions in FTAs■ Discrepancies between EU State aid control and WTO regime

for subsidies (SCM agreement)► Substance: Per-se prohibitions and “challenge-ability” (heavy burden

of proof) vs refined compatibility assessment► Procedure: Ex-post vs ex-ante control (incl. retro-active remedies)► Scope: Goods vs undertakings (i.e. incl. services)► Transparency: Ineffective notification system without sanctions vs full

transparency

■ Limited prospect of revised multilateral regime in short term

■ Existing bilateral agreements difficult to enforce

■ Enforceable bilateral WTO+ provisions as a step towards greater convergence of international subsidy control

DG Competition, International Relations Unit

So what‘s new? The WTO+ at a glance■ Substance

►Two additional prohibited types of subsidies (unlimited guarantees, subsidies to ailing companies without credible restructuring plan

►Best endeavour-clause

■ Transparency - Reporting obligation & info requests

■ Scope - Rendez-vous clause for services

■ Procedure: n.a.

DISPUTE SETTLEMENT MECHANISM APPLICABLE TO SUBSIDIES‘ SECTION; ENFORCEABILITY THROUGH COMMERCIAL SANCTIONS

DG Competition, International Relations Unit

Prohibited subsidies - Art 11.11■ Chapeau

►Definition of „subsidy“ builds on WTO terminology & concepts

►Different „affectation of trade/adverse effects“ standard

■ PROHIBITED: Unlimited guarantees►Ratio: Highly distortive operating „aid“;

►Always incompatible with EU State aid law

■ PROHIBITED: Subsidies to ailing companies without a credible restructuring plan [carve outs: coal, SGEIs]►Ratio: Highly distortive, hardly justifiable

►Transposes the centre-piece of the EU‘s restructuring aid assessment into the FTA (rescue aid possible; restructuring plan & own contribution)

►Always incompatible with EU State aid law

DG Competition, International Relations Unit

Scope – Art 11.15

■ Goods with the exception of fisheries and agriculture

■ Rendez-vous clause on services►Exchange of information

►Monitoring of multilateral developments

►First exchange of views 3 years after entry into force

DG Competition, International Relations Unit

Transparency/monitoring – Art 11.12/14■ Annual reporting obligation :

Amounts, types, objectives, recipients of subsidies

■ Information obligation for any measure on request:

Follow-up on general reporting; enables parties to clarify complaints

■ Monitoring

The FTA‘s Trade Committee as a discussion forum for subsidies – bi-annual review of progress in implementation

Tackle weakness of WTO notification system

Reporting – combined with rendez-vous & best endeavour clauses

and discussions in the Trade Committee – will increase awareness

about subsidies and contribute to capacity-building

DG Competition, International Relations Unit

I. External challenges facing EU competition policy

II. EU-Korea FTA

III. Antitrust and merger provisions in the EU-Korea FTA

IV. Subsidy provisions in the EU-Korea FTA

V. Conclusions

DG Competition, International Relations Unit

Conclusions

■ EU-Korea FTA► Global Europe put in practice► Strengthened disciplines in subsidies

■ At the moment, negotiations with China, India, Mercosur, Canada, Ukraine, Singapore, Malaysia, ... ► EU-Korea FTA is model/benchmark► Experience shows that it will be challenging to live up to the EU-

Korea FTA benchmark■ International dialogue on subsidies:

► Not just a question of Trade Defence► There are also issues such as quality of public expenditure, public

accountability, the need for international coordination of state interventions in the economy

17DG Competition, International Relations Unit