Future challenges for competition enforcement in Europe: a proposal for a multi-level approach

1. Future challenges for competition enforcement in Europe: a proposal for a multi-level approach ConferênciaemDefesadaConcorrência e DefesaComercial Brasília 21-22 de Maio de 2009 Aurelio La Torre Prime Minister Office Department for Legal and Juridical Affairs – RIA Office

2. Let me introduce myself… ► Director within the Presidency of the Italian Council of Ministers c/o the Department of legal affairs (Head of RIA Unit). ► Degrees cum laude in both Law and Political Sciences (with thesis in competition) and two postgraduate degrees in European affairs. ► Overall experience of almost 18 years in competition policy, legal drafting, European affairs and public administration. ► Competition official within the Italian Competition Authority for more than 4 years. ► Responsible for the competition component in three different PHARE Twinning Projects in Romania designed to help Romania`s accession to the UE (2006-2008, 2003-2005 and 2001-2002).

3. Content of the presentation Introduction Common difficulties in competition enforcement Conclusion: need for a multi-level approach 3

4. Common difficulties in enforcement of competition Frequent lack of a well-defined priority strategy for enforcement with little use of ex officio investigations Need to better design a strategy in order to foster competition in the area of public procurements Need to deepen the synergies between competition policy and anti corruption strategies Various problems in antitrust enforcement caused by legislation Need to strengthen administrative capacity and/or internal organisation and/or adequate HR management within the National Competition Authorities

5. 1. Frequent lack of a well-defined priority strategy for enforcement with little use of ex officio investigations Competition authorities around the world tend to be more “reactive” than “pro-active” in their fight against anticompetitive practices. Indeed, investigations are normally opened following a complaint or where companies “blow the whistle” on a cartel to benefit from leniency. The percentage of investigations opened ex-officio is generally low.

6. What are the benefits of a pro-active investigative policy? (1/2) A “reactive” investigative policy (as opposed to a “pro-active” investigative policy) may have several important shortfalls: • It may force the authority’s resources to focus on cases having a small impact on the national economy and fail to achieve tough competition in some economic sectors which are fundamental for the national economy • It may detect anticompetitive practices long after they have been in place, causing lasting damages to the structure of the market (e.g. RTE practices against Magill; Microsoft practices against Netscape); • It is unlikely to reach anticompetitive practices targeting consumersdirectly (e.g. excessive prices charged by a monopolist), who are not sufficiently organised to complain against such practices;

7. What are the benefits of a pro-active investigative policy? (2/2) • It may receive scarce media coverage and reduce the authority’s visibility and reputation – complaints, due also to their confidential character, are unlikely to attract the attention of the media; • It reduces the ability of the competition authority to gather evidence of the infringement, since in the majority of cases the alleged infringer has been warned of or is likely to guess the other party’s intention to lodge a complaint • It may have scarce deterrent effect, since a non-interventionist authority - especially in markets which are unlikely to be the object of a complaint - is unlikely to be perceived by companies as a threat to their ability to conclude anticompetitive practises; • It may fail to attract new entrants in the market(s) where anticompetitive practises (for instance, cartel agreements or exclusionary practises implemented by dominant companies) represent a disincentive for new entrants.

8. What criteria for ex-officio investigations? Decisions to open ex-officio investigations need to follow a pre-determined policy by drafting specific guidelines. Priority should be given to investigations concerning “hardcore restrictions” of competition having an effect at national level (as opposed to local level) and relating to sectors essential for the national economy.

9. Antitrust enforcement: overcome the spider-web paradox 9

10. CRITERIA Minor dangers for competition Serious dangers for competition Very serious dangers for competition A) Type of infringement(s) Minor ٱ Serious ٱ Very serious ٱ B) Scope of the relevant geographic market Local ٱ Regional ٱ National (or multinational) ٱ C) Product(s) or service(s) concerned Of minor importance ٱ Important ٱ Very important ٱ D) Concentration rate in the market Low HHI below 1000 30% or less ٱ Moderate HHI 1000-1800 30% - 60% ٱ High HHI 1800 and above 60%- 100% ٱ E) Barriers to entry Low ٱ Moderate ٱ High ٱ OVERALL IMPACT ON COMPETITION (sum of A+B+C+D+E) Low ٱ Average ٱ High ٱ

11. Key sectors for enforcement (e. g. Romania 2005-7) • Public Procurement • Media (* #) • Energy (* #) • Communication and Information Technology (* #) • Transport (* #) • Banking (* #) • Insurance (* #) • Construction • Pharmaceuticals • Steel Industry • Postal services (* #) • Real Estate Transactions • Mechanical Engineering • Tourism # = Area including network industries * = Area including sector(s) under competence of a Regulation Authority 11

12. 3. Need to better design a strategy in order to foster competition in the area of public procurements • Advantages: • ensuring transparency in Public Administration • fighting corruption • maintaining in place a functioning free market economy

13. The main competition problems in public procurement procedures • Award directly a contract without organising a public tender • Requirements tailored to the advantage of one specific bidder • Discrimination among potential bidders (e.g.: unjustified high turnover thresholds that can discriminate SMEs and/or many years of experience in the field of activity to block the access of the newcomers) • Lack of transparency • Tight deadlines: insufficient visibility and inadequate time for submitting bids • “Bid rigging” (i.e. illegal co-ordination between firms aimed at affect the outcome of any sale or purchasing process in which bids are submitted) • Corruption related practices - these are instances where a representative of the contracting authority agrees with one or more bidders to false the tendering process. 13

14. Role of competition Authority in public procurement • analyse PP legislation • address recommendation to Government and Parliament (advocacy) • draft guidelines for all tenders organisers • draft internal instructions and checklist • internal training and referee • bilateral cooperation with PP Agency

15. 4. Need to deepen the synergies between competition policy and anti corruption strategies • The higher is the corruption, the higher is the alteration in the business environment, especially in the „strategic” and high remunerative markets

16. Role of competition Authority • analyse anti-corruption legislation • set up or increase cooperation with Anti-corruption Authority • identify field of inter-relation (e.g. public procurement) • promote studies on influence of non ethical behaviours on the functioning of market economy (CFR. Current financial crisis)

17. 5. Problems in antitrust enforcement caused by legislation • Many competition distortions originate from legislation. • Competition agencies are generally entrusted with advocacy powers. • Nevertheless, these powers are not binding and are implemented ex post. When did this become a crucial problem?

18. Is legislation encouraging or distorting free competition? ”The Bosses of the Senate," Lithography, 1889

19. ”The Bosses of the Senate," Lithography, 1889 Huge figures stand behind rows of Senate desks. The four figures in top hats, with big bellies, are the Iron Trust, Standard Oil Trust, Copper Trust, Steel Beam Trust, all with dollar signs on their stomachs. The sign at top reads: "This is a Senate for the Monopolists, By the Monopolists and of the Monopolists!" Some Senators look up at them.

21. Examples of legislative measures that may have an anticompetitive impact include: • public tenders applying unfair or discriminatory terms • measures fixing prices or tariffs • measures granting exclusive rights • measures discouraging market entry by increasing standards or introducing new administrative barriers (licences, authorisations etc.) • measures obstructing import or export of products/services • measures granting state aid or otherwise favouring domestic over foreign companies

22. The Structure of the Italian RIA model (2008) 1. Context and objectives. 2. Procedures of consultation. 3. Assessment of the non-intervention option («zero option»). 4. Assessment of the alternative options of regulatory intervention. 5. Justification of the proposed regulatory option. 6. Impact on the correct competitive market functioning and on the Country competitiveness. 7. Implementing modalities of the regulatory intervention.

23. Basic competition RIA filter test (Italy 2008) • Does regulation: • Limit the number or type of providers? • Limit the competition possibilities of providers? • Reduce the incentives for providers to compete? • N.B. Italy is preparing specific guidelines and a more detailed checklist

24. To what regulation should we apply the competition filter test? • Must be submitted to RIA legal provisions that have business or competition impacts. • Business impacts arise in the case that proposed regulations: • (1) govern the entry or exit into or out of market • (2) control prices or production levels • (3) restrict the quality, level, or location of goods and services available • (4) restrict advertising and promotional activities • (5) restrict price or type of inputs used in the production process • (6) are likely to confer significant costs on business, or may provide advantages to some firms over others. 24

25. 6. Need to strengthen administrative capacity, internal organisation, HR management within the National Competition Authorities

26. Enhancing the administrative capacity of Competition Agencies: some issues • personnel selection procedures • carrier and status • internal promotion system • training on: • public speaking • lobbying and negotiating skills • leadership • team building

27. Conclusions… • Adopt a well-defined prioritystrategy for enforcement with adequate use of ex officio investigations • Verify your strategy in order to foster competition in the area of public procurements • Consider to study the synergies between competition policy and anti corruption strategies • Consider to adopt RIA in order to face competition distortions caused by legislation • Pay attention to the human factor

28. Obrigado! Aurelio La Torre 28

29. www.planejamento.gov.br/gestao/dialogos dialogos.setoriais@planejamento.gov.br Departamento de Cooperação Internacional Secretaria de Gestão – SEGES Ministério do Planejamento, Orçamento e Gestão Esplanada, Bloco K, 4° andar (61) 2020- 4906