Editor’s Note
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
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