A Convergence Of Domestic Competition Rules

Author:Damien Geradin
Profession:Professor of Law at the University of Liège and Director of the Global Competion Centre

What is Convergence?. Rationales for Convergence. The Need for Cost/Benefit Analysis. The Need for a Prudent Approach. The Need to Establish Priorities and Develop an Enforcement Agenda. Alternatives to Convergence Around EC Rules. Opportunity of Regulatory Convergence Around an ad hoc Model. Improbability of a Convergence Around an ad hoc Model. Boxes.


Page 67

Chapter 6 referred to the obligation of candidate countries to harmonize their domestic laws on the basis of EC competition law. This process of forced transposition, however, is not imposed on the non-candidate countries (Hakura 1998). Nevertheless, some of these countries have spontaneously adopted domestic legislation that shares common characteristics with EC competition law, but without transposing EC rules to their full extent. Whether deeper harmonization is desirable is an issue that needs to be explored.

This chapter explores the concept of regulatory convergence. First, it discusses the meaning of the concept, as well as the various ways in which convergence can be achieved. Second, it reviews the rationales for harmonization, as well as the benefits that could be generated by this process. Third, since convergence would also impose some costs, it suggests the need to engage in a cost/benefit analysis of convergence before engaging in this process. This section also explores how these costs could be covered, as well as various strategies for reducing such costs. Fourth, because of the costs and the risks generated by a process of transposition of EC competition law in the MPs, the need for caution is suggested, whereby the transposition should be initially limited to EC competition rules prohibiting agreements between competitors and abuses of a dominant position. Fifth, attention is also drawn to the importance for the competition authorities of the MPs to establish priorities as well as an enforcement agenda. Sixth, it examines various alternatives to the convergence model, which is promoted by the EC.

Over the last few years, several official documents produced by the EC institutions have evoked a "convergence" of competition rules of the partner countries towards EC competition rules. 171

Page 68

The European Commission Communication "Wider Europe-Neighborhood: A New Framework for Relations with our Eastern and Southern Neighbors" of March 2003 defines principles for a proximity policy of an enlarged European Union. It proposes that neighboring countries not on the road to full membership "should be offered the prospect of a stake in the EU's Internal Market and further integration and liberalization to promote the free movement of persons, goods, services, and capital." It "recognized that geographic proximity increases the value of developing a comprehensive policy of close association." It states that the EU acquis "could serve as a model for countries undertaking institutional and economic reform," but does not specify the desirable degree of regulatory convergence. To implement the agenda of deeper integration, the communication calls for "better targeted EU development assistance," a closer partnership with other donors, and additional financial assistance "conditional on meeting agreed targets for reform." It proposes the preparation of Action Plans with clear reform benchmarks, and at a later stage possibly new Neighborhood Agreements. With New Neighborhood Policy activities being coordinated by the Commission's DG Enlargement, the extensive adjustment experience gained in the enlargement process may made available to the MPs. Following this communication, further implications of the "New Neighborhood Policy' strategy have emerged. One likely consequence for the Barcelona Process is that the EU could offer selected MPs "preferential relations within a differentiated framework which responds to progress made by the partner countries in defined areas, in particular political and economic reform." The main instrument to implement this policy of differentiation will be the above-mentioned Action Plans. These should set out "clearly the over-arching strategic policy targets, common objectives, political and economic benchmarks used to evaluate progress in key areas, and a timetable for their achievement [. . .]. They should be concise, complemented where necessary by more detailed plans for sector-specific cooperation" and should form the basis for financial assistance to those countries. The next step in the elaboration of the "New Neighborhood Policy' strategy is the proposal of specific Action Plans, starting in 2004 and a further "communication on a new Neighborhood Instrument," to be deployed from 2006 onwards.
Source: Müller-Jentsch, Daniel. Forthcoming 2004. "Deeper Integration and Trade in Services in the Euro- Mediterranean Region."

More recently, the Communication of the Commission on "Wider Europe-Neighborhood: A New Framework for Relations with our Eastern and Southern Neighbors," makes abundant reference to the concept of "regulatory approximation" and seems to urge the MPs to progressively align their legislation with the acquis communautaire.

What is Convergence?

Convergence can be defined as a process whereby several nations or groups of nations decide to adopt identical, or at least compatible, rules and principles in one or several regulatory areas.

Regulatory convergence can be realized by several means. In some cases, one nation will decide to transpose in its domestic legal order one or several set(s) of rules from another nation. This process is often referred to as a form of regulatory "transplant" (Scheuer 2000, Stein 1977, Watson 1976). The transposition of the acquis communautaire by the candidate countries is a clear example of regulatory transplant. In other cases, convergence will be achieved through a process of "approximation," whereby countries negotiate a common set of rules and then adjust their domestic regulatory framework to make it compatible with the common rules. Among EU Member States, approximation is essentially realized through the negotiation and subsequent adoption of directives based on Article 95 of the EC Treaty. 172

Page 69

Convergence may also involve different degrees of intensity. Convergence is sometimes understood as a process whereby one or several nations decide to rely on common principles in one regulatory area, whereas the details on how to achieve compliance with these principles are left to national law. An example of this approach can be found in the OECD recommendations, such as the recommendation on hard-core cartels. OECD members agree on one broad set of principles, but remain free on how to achieve compliance with these principles. 173 This approach can be referred to as "loose" convergence. On the other hand, convergence may also be understood as a decision by a group of nations to completely harmonize their domestic regimes in one or several regulatory areas. This approach, which can be referred to as "deep" convergence, is typically used when nations decide to harmonize various standards in order to facilitate trade (Sykes 1995).

So far, the Commission has not expressed a clear position on the degree of intensity it would seek to achieve with respect to the convergence of competition rules in the context of the Euromed Partnership. While some documents seem to suggest the desirability that MPs transpose EC competition rules in their domestic legal orders, 174 other documents suggest a looser form of harmonization, whereby MPs would progressively converge around the principles of EC competition law. Title V of the Association Agreements (Economic cooperation) contains a provision which envisions the approximation of the domestic rules of the associated country on the rules of the EC in the fields covered by the agreement. The approximation will be negotiated and concerted. Unlike in negotiations over accession, it is likely that the reference to convergence is to be understood as a process of soft harmonization, comparable to the voluntary actions undertaken by EC Member States so as to make their domestic competition rules compatible with EC competition rules. The other documents issued by the EC institutions on this matter are generally very elusive.

While the Communication of the Commission on the New Neighborhood Policy does not specifically address the issue of convergence in competition rules, it contains interesting statements on the desirability of greater regulatory approximation between the Neighboring Countries (here- after, the "NCs") and the EU. Hereafter, we quote a few interesting passages of the Communication (EC 2003a), which we subsequently analyze:

While some Association Agreements with the EU still need to be ratified, the Mediterranean Partners are already being encouraged to approximate their legislation to that of the Internal Market.


The EU therefore should stand ready to work in close partnership with the neighboring countries who wish to implement further reforms and assist in building their capacity to align with and implement parts of the acquis communautaire.


The EU acquis, which has established a common market based on the free movement of goods, persons, services, and capital, ensuring competition and a level playing field based on shared norms and integrating health, consumer, and environmental protection, could serve as a model for countries undertaking institutional and economic reform.


Page 70

The long term goal of the initiatives set out in Chapter 3 is to move forward an arrangement whereby the Union's relations with the neighboring countries ultimately resemble the close political and economic links currently enjoyed with the European Economic Area. This implies the partners taking on considerably deeper and broader obligations when it comes to aligning with Community legislation.


EU should aim to...

To continue reading