Executive Summary

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

Chapter 2: Objectives and Instruments of Competition Law. Chapter 3: Competition, Trade and Emerging Economies. Chapter 4: Competition Law and Infrastructure Industries. Chapter 5: Rules of Competition in the Association and Cooperation Agreements. Chapter 6: Competition Rules and the Accession Process. Chapter 7: Domestic Competition Regimes in the Mediterranean Partners. Chapter 8:... (see full summary)


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Competition law regimes have long been present in industrialized countries, but a large number of emerging economies are now also adopting domestic competition rules. It was estimated that, in 2002, more than 90 countries enacted competition law regimes. The adoption of competition law regimes in developing and emerging economies can be explained by a variety of reasons, such as their participation in regional trade agreements which they request their members to adopt competition law regimes or the adoption of such regimes as part of comprehensive regulatory reforms, such as privatization or market-opening reforms.

Against this background, this study examines the state of adoption and implementation of competition rules in the twelve Mediterranean countries engaged in partnership agreements with the European Commission in the framework of the Barcelona Process. The legal mechanisms organizing this partnership take the form of international cooperation or Association Agreements. These agreements contain provisions regarding the free movement of goods, services and the freedom of establishment, public procurement, payments, economic and financial cooperation, etc. They also replicate the competition rules contained in the Treaty of Rome. Independently of these agreements, some Mediterranean Partners (MPs) have adopted domestic competition law regimes. In some MPs, the adoption of regimes patterned on the competition law of the European Community (EC) was a pre-condition for joining the European Union. In other cases, the development of competition rules was the result of a spontaneous process, although it was generally supported by industrialized countries and their competition authorities, as well as by institutional donors.

This paper seeks to achieve three main objectives. First, it seeks to clarify the content, as well as the overall effectiveness of the competition provisions found in the Association Agreements signed between the EC and the MPs, as well as in the domestic legislation of the MPs. Second, this paper reviews the plans of the European Commission to encourage MPs to engage in a process of regulatory convergence whereby they would progressively approximate their competition rules with EC competition rules. Third, this paper contains a number of policy proposals offering an agenda for further action by the European Commission and other relevant international organizations in the field of competition law in the Mediterranean region.

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Chapter 2: Objectives and Instruments of Competition Law

This chapter argues that competition law is the best way to allocate resources and the most efficient means of providing for technological and commercial innovation, as well as consumer satisfaction. Though competition is beneficial for society as a whole, firms have incentives to acquire market power, in effect, to be in a position to influence prices and other factors determining business transactions. When firms exercise their market power this leads to inefficient results. The purpose of competition law is thus to control market power in order to promote economic efficiency.

Competition rules are applicable to most economic activities, unless specific exemptions are granted. They fall broadly into three categories. First, some competition rules prevent the conclusion of anticompetitive agreements between operators. Second, other rules deal with firms which enjoy substantial market power. Their objective is to prevent those firms from abusing their dominant or monopoly position vis-à-vis end users or other operators. Finally, another set of rules prohibit mergers which would "substantially lessen competition." Given their wide scope of application, competition rules tend to be general: they tend to prohibit or impose broad categories of behaviors defined in relatively general terms.

As far as institutions are concerned, a plurality of entities can potentially play a role in the implementation of competition rules, including the courts and ministerial departments. However, given the complexity of the issues to be addressed, an increasing number of countries have opted to rely on specialized institutions to play a major role in implementing some or all of those rules. The specific characteristics of each type of institution vary from country to country. However, because competition authorities must monitor the behavior of a large number of firms, they tend to have one characteristic in common. They tend to act on a case by case basis, when needed, rather than closely regulate enterprises on a permanent basis.

Chapter 3: Competition, Trade and Emerging Economies

This chapter reviews the relationship between competition law and trade, as well as the relationship between competition law and economic development.The point of connection between competition and trade policies is that it is widely believed that free trade among nations requires not only the removal of public barriers to trade, but also a series of obstacles originating in private restraints, such as the abuse of dominance, import cartels, and vertical restraints. Competition law is thus a necessary complement to trade policy. The importance of competition law as a tool to promote market integration has long been understood in the EC, where competition rules have been applied to prevent vertical restrictions, which would contribute to dividing markets along national lines. More recently, the EC has inserted competition rules in a series of regional or bilateral trade agreements, such as the European Economic Area (EEA) and the Association Agreements concluded by the EC with a variety of third countries. Similar approaches can also be found in agreements concluded in other parts of the world, such as Mercosur. The relationship between trade and competition policies is also a major issue at the World Trade Organization (WTO) level, as illustrated by the Doha Ministerial Declaration, which provided that negotiations over competition would take place in the next round of multilateral trade negotiations.

These last two decades have seen a large number of developing economies adopting competition law regimes. The development of such regimes in developing economies, however, remains a controversial matter. On the one hand, many authors argue that adoption of competition law regimes will be beneficial for emerging economies. The main arguments in favor of adoption of such regimes are that: (i) the existence of a competition law regime is a factor contributing to economic development; (ii) the adoption of a competition law and the setting up of an enforcement authority will be beneficial to investments; (iii) developing countries are particularly vulnerable to international cartels involving firms based in the developed world and need to protect themselves against such cartels; (iv) at the domestic level, the high degree of concentration and the barriers to entry that often characterize developing economies increases the risk of collusion, as well as abuses of a dominant position; and (v) one of the benefits of creating effective competi-Page 3tion law institutions in developing economies is that such institutions could engage in "competition advocacy."

On the other hand, arguments are sometimes raised that developing economies do not need a competition law framework. These arguments are that: (i) free trade would by itself be sufficient to protect the competitive process; (ii) because of the complexity of competition law analysis, combined with the weak institutional endowment of most emerging economies, the adoption of a competition law regime might produce more harm than good; and (iii) competition law would be a luxury for developing economies, which have other, more pressing priorities. A number of commentators do not oppose the adoption and implementation of competition laws in developing economies, including in the majority of the Mediterranean Partners, but argue that such laws and the way they are enforced, should take into account the specific characteristics of these countries.

After reviewing the arguments for and against the adoption of competition law regimes in developing and emerging economies, this chapter concludes that there are powerful arguments in favor of adopting and implementing competition law regimes for these economies. Attention should, however, be paid to the specific characteristics of such countries, such as the high degree of concentration in some industries and their limited institutional endowment, and so forth. Because developed and developing countries have different market structures and levels of institutional endowment, the process of establishing such regimes should be carried out with care and following a gradual approach. In contrast, the arguments advanced against adoption and implementation of competition rules fail to convince. As they are sometimes shared by government officials and industry interests in developing countries, there is a risk that the setting up of competition regimes might not be an easy process.

Chapter 4: Competition Law and Infrastructure Industries

One sector in which the absence of an effective competition law regime could create considerable difficulties are "infrastructure industries"-industries that operate on the basis of a physical infrastructure, such as a network. These...

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