Challenges and Provisions in the EU-Korea FTA

1. Competition provisions in FTAsThe case of the EU-Korea FTAClemens Kerle Miek Van der Wee Brussels, 10 December 2010

2. External challenges facing EU competition policy The EU-Korea FTA Antitrust and merger provisions in the EU-Korea FTA Subsidy provisions in the EU-Korea FTA Conclusions DG Competition, International Relations Unit

3. External challenges facing EU competition policy • The EU-Korea FTA • Antitrust and merger provisions in the EU-Korea FTA • Subsidy provisions in the EU-Korea FTA • Conclusions DG Competition, International Relations Unit

4. 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

5. 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

6. External challenges facing EU competition policy • The EU-Korea FTA • Antitrust and merger provisions in the EU-Korea FTA • Subsidy provisions in the EU-Korea FTA • Conclusions DG Competition, International Relations Unit

7. 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

8. External challenges facing EU competition policy • The EU-Korea FTA • Antitrust and merger provisions in the EU-Korea FTA • Subsidy provisions in the EU-Korea FTA • Conclusions DG Competition, International Relations Unit

9. 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

10. External challenges facing EU competition policy • EU-Korea FTA • Antitrust and merger provisions in the EU-Korea FTA • Subsidy provisions in the EU-Korea FTA • Conclusions DG Competition, International Relations Unit

11. 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

12. 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

13. 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

14. 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

15. 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

16. External challenges facing EU competition policy • EU-Korea FTA • Antitrust and merger provisions in the EU-Korea FTA • Subsidy provisions in the EU-Korea FTA • Conclusions DG Competition, International Relations Unit

17. Conclusions 17 • 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 DG Competition, International Relations Unit