The 7-Up project is almost midway to its second phase now. The country researchers were busy preparing their case studies for the second phase research, some of which have already been received. Preparations are also on for the review meeting of the work in progress involving the research work of phase two that is to be held in early July in Geneva. In the meanwhile the first phase backlog is almost over. The country reports are going to come out in printed form within a few days and the synthesis report will also be finalised very soon.
The intervening period witnessed another bout of tension between the US and the EU involving merger review issues since the EU blocking of the GE-Honeywell deal. This time of course the salvo has been fired from the other side of the Atlantic. The US has planned that all foreign acquisitions of big American companies are to be approved by a national security committee, ostensibly due to its security concerns in the aftermath of September 11. As expected the stakeholders in Europe have expressed dismay on hearing about the move, which undoubtedly, is protectionist in nature.
It is understandable if such restrictions are imposed on the takeovers of companies owning defence-related technology. But the proposed regulation covering deals across all the sectors of the economy raises serious doubt over the actual motive. The approval of the plan by the US government may lead to several other governments adopting similar measures. If that happens the world will definitely be a poorer place to do business and to promote welfare of the people, weakening the fight against poverty, the greatest contributor in the growth of terrorism. On the other hand this kind of measure is neither necessary nor sufficient to prevent terrorist attacks.
It should not be forgotten that the terrorists did not require to procure any sophisticated technology to effect the September 11 attacks. All that they required is a perverted mind. The issue is definitely of great concern to the global community and needs serious introspection and proper measures that the situations that breed terrorism are not created and removed wherever they exist. The proposed measure can hardly be a solution to this. Indeed, an act of perversion can never be prevented or countered by perverted measures, in a sustainable way!
Pradeep Singh Mehta, Editor
I. PROJECT PROGRESS
The 7-Up Project, as it is popularly known as, came half way through the research activities of its second phase during the months of March and April 2002. The project entitled “Comparative Study of Competition Regimes in Select Developing Countries of the Commonwealth” is being implemented by CUTS, Jaipur with the support of DFID, UK. The countries selected for the study are India, Kenya, Pakistan, South Africa, Sri Lanka, Tanzania and Zambia.
The following is a brief report of the progress made by the Project during the months of March and April 2002.
1.1 Phase-I Synthesis Report
During the period under review, the Phase-I Synthesis Report was revised and sent to the Project Advisory Committee for comments and suggestions. The deadline for comments has been fixed as 30th April 2002. The last chapter of the report that would include the conclusions and recommendations is yet to be prepared. This chapter is being drafted and would also be sent for comments by the first week of May 2002.
1.2 Phase-II Research
The second phase of the project deals with cross border competition concerns and three case studies would be taken up by each project country for carrying out research. Partners were able to decide the cases they would take up during phase-II.
In the months of March and April, information on the selected cases was collected and analysed. This information was then collated and the study report prepared on the basis of an outline that was sent to the partners in advance. Most of the draft case studies have been submitted by the partners.
These drafts would be finalised after review by the advisory committee and their analysis would then form the Phase-II country report which would be discussed at the Phase-II National Reference Group (NRG) meetings and finalised thereafter.
1.3 Fringe Meeting of 7-Up
A 7-Up meeting was organized on the fringe of the IDRC meeting on competition policy organized in Montevideo on 18-19th April 2002. Many of the Advisory Committee members as well as the representatives of the partner institutions were attending the IDRC meeting giving us the opportunity to organise the fringe meeting. The purpose of the meeting was to take stock of the work progress and plan the way ahead.
II. MAJOR NEWS & VIEWS
1. Europeans warn Pentagon over merger review
European regulators, companies and antitrust lawyers yesterday expressed surprise and anger at plans by the US Defense Department to require all big foreign acquisitions of American companies to be approved by a national security committee.
They attacked the proposal to present all deals with foreign buyers worth US$100mn to the Committee on Foreign Investment in the US as a protectionist measure, and warned that it could further strain the relationship between Washington and Brussels on antitrust matters.
“The plans will ring very serious alarm bells in Europe,” said Ralph Cohen, a partner at the law firm S.J. Berwin. “The US authorities are introducing an additional level of red tape which, from a European perspective, will be seen as potentially protectionist.”
In Brussels, officials from the European Commission, which last year clashed with US antitrust regulators over its decision to block General Electric’s takeover of Honeywell on competition grounds, said they had not been informed of the Pentagon’s plans. They said that if the plans were approved they could hinder efforts to patch up the EU-US relationship, soured by the GE-Honeywell decision.
European companies voiced fears that the rules could be abused to favour domestic defence suppliers, particularly in the current security climate. “There has always been an element of Fortress America about US procurement and there has been a strengthening of that view post September 11,” said Giles Irwin, the finance director of Cobham, a British defence contractor.
Others argue the hurdles are already very high for defence contractors. BAE Systems is one of the largest foreign suppliers to the US military and employs 23,000 people in 30 states, yet even it acknowledges that getting approval for recent acquisitions of companies from Lockheed Martin was a “tortuous process”. “If we hadn’t had such a home base in the US, it would have been very hard,” said a BAE spokesman.
French officials suggested the latest US moves were further signs of Washington’s increasing unilateralism and probably linked to tension on the transatlantic trade front. Those involved in getting clearance for recent US acquisitions say the proposal would have the biggest effect on civilian industries making high-tech equipment that could be deemed to have military uses. “This is a tacit admission that the line is getting blurred between what is military and what is non-military technology,” said one manager.
However, a US banker based in Europe argued the move by the Pentagon had to be seen in the context of US security concerns. “People have lost their sense of humour about the prospect of technology leaving the US, especially after September 11. We spend billions each year creating the most advanced defence-related technology, so no wonder they don’t feel comfortable with it landing in the hands of strangers, particularly with Bin Laden at large.”
(Paul Betts, Francesco Guerrera and Dan Roberts, Financial Times, 06.04.02)
2. Brussels likely to fine Carlsberg and Heineken
Carlsberg and Heineken, two of the world’s biggest brewers, are likely to be fined after Mario Monti, European competition commissioner, accused them of one of the “most blatant forms of anti-competitive practice”.
The European Commission claims the Danish and Dutch brewers agreed not to market their products aggressively or compete intensively in each other’s home markets during part of the 1990s. The alleged “market sharing” was discovered by investigators after dawn raids at the companies’ premises in 2000. Carlsberg and Heineken dominate the market in the Netherlands and Denmark respectively, even though their home countries account for less than 10 per cent of their sales.
Mr. Monti’s department said: “Although the alleged infringement appears to have been terminated, the Commission treats this kind of behaviour very seriously because market sharing is amongst the most blatant forms of ant-competitive practices.” The move is part of Commission efforts to crack down on cartels, which Mr. Monti once called “the cancers” of the free market.
Carlsberg denied any collusion with Heineken though it said the then chief executives of the companies held talks between 1993 and 1996. “Such contacts were courtesy relations and ordinary business discussions,” the Danish brewer said. The Commission had attached “incorrect significance” to these talks. Heineken said it did not “share the view” of the European Commission and would prepare its defence after studying the case.
The Commission said yesterday’s statement did not prejudge the outcome of the investigation. Under EU law, the companies have the right to answer the objections and request a formal meeting with the Brussels authorities before any decision is taken over fines. No final ruling is expected for months.
The Commission can fine companies 10 per cent of worldwide turnover, which would amount to E916mn for Heineken and over E400mn for Carlsberg. Mr Monti fined beer producers last year for taking part in cartels in Belgium. Interbrew was levied a penalty of E46mn for its role.
(Francesco Guerrera in Brussels and Clare MacCarthy in Copenhagen, Financial Times, 02.03.02)
III. AROUND THE WORLD
a) International Meet on “Competition Law and Policy in a Global Context” 18 March 2002, Cape Town, South Africa
The International Bar Association (IBA) in collaboration with South African Competition Authorities organized this meeting. It was a part of the IBA Global Forum on Competition Policy’s initiatives. The programme focussed on comparative merger control analysis, competition policy in developing countries and competition compliance issues. It also had a special session on competition law enforcement in South Africa. Competition experts from all over the world participated in the event.
b) Internationalising Competition Policy: Developing Country Perspectives, April 18-19, Montevideo
The meeting was organized by the International Development Research Centre, Canada. The aim of the meeting was first to review what ground has been covered by existing research and second to help IDRC define a research strategy in this area that will complement existing work in the light of post-Doha agenda and the IDRC’s own research priorities.
c) Regional Seminar on Competition Policy & Multilateral Negotiations, 16-18 April 2002, Hong Kong
The conference was organized by UNCTAD in collaboration with Hong Kong Consumer Council. It was essentially a capacity building exercise on competition issues that the Doha Declaration envisaged for. The programme was attended by representatives from several countries of the Asia-Pacific region.
IV. NEW PUBLICATIONS
ReguLetter No. 6, March 2002
This quarterly newsletter of the CUTS Centre for International trade, Economics & Environment aims to provide a forum, in particular to the civil society, to understand the issues relating to competition and regulation and promote a healthy competition culture in the world.
The current issue covers a brief description of the progress of the 7-Up Project, news on industrial restructuring, corporate governance, financial sector, utilities and an article on the competition regime of Sri Lanka. The leader on the cover speaks about the need of competent and credible corporate governance quoting the example of the Enron scandal. The issue carries a brief on Microsoft settlements and a write-up on the cement cartel in India. It carries a special article on competition challenges in a globalising economy, in the context of developing countries, based on some experiences from South Africa.
V. FORTHCOMING EVENTS
a) 2nd National Seminar on “Competition, Regulation & Investment: Role in Economic Growth”, 8/9 June 2002, Chennai, India
CUTS Centre for International Trade, Economics & Environment (CUTS-CITEE) will be organising the seminar in collaboration with National Council of Applied Economic Research (NCAER), New Delhi. It is the second event, in continuation to the National Seminar organised on 11-12th January, 2002, at Jaipur which aimed at generating and enhancing understanding on competition and regulatory issues and their interface with investment. The purpose of this meeting is to reach out to the civil society in southern India.
b) 7-Up Project: Review Meeting, 5/6 July 2002, Geneva
The Review Meeting of the 7-Up Project with a focus on the 2nd phase of the project covering cross-border issues would be organised on 5-6th July 2002 in Geneva. The meeting would deliberate on the Phase-II research results of the project and the Phase-II synthesis report would also be discussed. The meeting would chalk out the action plan for the remaining period of project duration.
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