Neelie Kroes
Member of the European Commission in charge of Competition Policy

"The Competition Principle as a Guideline for Legislation and State Action - the Responsibility of Politicians and the Role of Competition Authorities"

12th International Conference on Competition
Bonn, 6th June 2005

Ladies and Gentlemen,

Thank you for inviting me to address you today. Particular thanks are due to our kind hosts, Dr. Böge and all our colleagues from the Bundeskartellamt. It really is my pleasure to be here for the 12th International Conference on Competition. And the role of every single one of the competition authorities represented here today has never been more important.

We all know the realities of our globalised environment; and the opportunities - and the challenges - global market brings. We all recognise the need for unceasing vigilance and constant innovation if the potential of these markets is to be released to deliver growth and jobs worldwide.

Competition is the natural ally of competitiveness and therefore at the heart of any economic growth agenda. Competition makes companies stronger and ensures that they grow in a sustainable manner through improving their efficiency and innovating, all of which ultimately benefits the end-consumer.

That is why we in Europe have put a proactive competition policy at the heart of our renewed Lisbon agenda for growth and jobs. That means not only the enforcement of competition law against undertakings, but also more proactive competition advocacy and the firm application of the competition rules to legislation and State action.

Both the European Commission and the European national competition authorities have important roles to play in this regard. I would also add that I think that the experience we are building up in advocating competition principles could be interesting for those outside Europe too.

Competition advocacy

I would like to start by saying a little more about what I mean by proactive competition advocacy. It is essentially a toolkit which can improve the overall quality of legislation, and help make it more sensitive to competition concerns.

Competition screening of legislative proposals

One of the key advocacy tools we are starting to use in Europe is competition screening of legislation. Our aim is to improve the quality of regulation and make it as competition friendly as possible. At European level the European Commission will routinely examine draft legislation to assess its impact on competition in the internal market.

Many different types of legislation may have an impact on competition. These include liberalisation measures, industrial policy measures and internal market legislation, as well as consumer protection rules and intellectual property rights. Of course, these measures pursue their own legitimate policy objectives, and it is a normal and inevitable part of responsible policy making to weigh the pros and cons of every policy option. We just want to make sure that competition principles are part of the balancing act alongside other concerns, whether they be industrial, environmental or social. The Commission has therefore made a clear commitment to improving regulation at EU level by basing its policy choices on better, evidence-based analysis of the impacts of each policy option.

To this end, competition testing is being included in the Impact Assessment the Commission undertakes on EU legislative and regulatory proposals. The aim is to ensure that the policy options retained are those which are as favourable as possible to the structure and parameters of competitive markets, whilst achieving the primary policy objectives necessary in whichever policy field is concerned. In short, our approach to EU policy-making should mean that there are no surprises, no unexpected or underestimated side-effects on competition.

We think this can really help improve the quality of European legislation and regulation, and we would also encourage competition national legislators to think about applying similar cross-cutting analysis as part of their own decision-making process.

Sector inquiries

In parallel, in the coming days, I will propose that the Commission adopts the decisions necessary to launch comprehensive inquiries in two key sectors which are highly relevant for economic growth and better jobs. The powers needed to undertake these inquiries were provided for in Regulation 1/2003, allowing the Commission to conduct investigations in sectors where competition does not appear to be functioning as well as it might.

Europe has already achieved a great deal in creating the single market, but there is still evidence that barriers remain. These are hurdles which prevent the full exploitation of the potential of our unified market, both by businesses and by consumers. We therefore intend to use these sectoral investigations to identify any significant barriers to competition, including regulatory barriers. In a first stage, we will focus work on financial services and the energy sector, more specifically gas and electricity. These are both areas which are key to the efficient operation of many other economic activities.

The final results of our work will probably be available from 2006. Where we find obstacles to competition - be it regulation, State aid, private barriers - we will go on to propose solutions, working closely with national administrations, regulatory bodies and competition authorities.

Competition advocacy at work - the liberal professions

I am confident that both the initiatives I have described will help us to identify regulatory and other barriers to competition and ways to prevent or address them.

One sector in which the Commission has already taken steps to look at regulation in the light of competition principles is the liberal professions. Professional services have an important role to play in improving the competitiveness of the European economy, but they tend to be subject to high levels of State regulation and self-regulation across the EU. These rules concern both access - i.e. who can supply certain services - and conduct - i.e. how certain services can be supplied.

Following an information-gathering and consultation exercise, in February 2004 the Commission published a report on competition in professional services. The report invited the regulatory authorities in the Member States and professional bodies to review existing rules, looking at whether they are indeed necessary and proportionate to achieve public interest objectives and the proper practice of the profession.

That process is still underway, and I look forward to reporting on the progress achieved later this year. And, in addition to these advocacy measures, I am also considering taking further enforcement action in this field, under the Commission's powers to apply the competition rules to undertakings.

Enforcing competition principles

I have talked a lot so far about the Commission's role in promoting competition. But our Member States are under a formal obligation to comply with competition principles. When it comes to the effective and consistent enforcement of the competition rules, the European Competition Commissioner cannot do it effectively alone!

The authors of the EC Treaty, back in 1957, were aware that State measures would constitute the single most important obstacle to the establishment of a functioning common market in Europe. That is why they set out the "four freedoms" - to combat obstacles to cross-border trade resulting from State legislation and regulation.

And they also made sure that the Treaty provides tools to tackle State measures that have a direct impact on competition between undertakings. As a result, there are a number of ways in which distortions of competition resulting from national legislation or from the actions of public authorities can be tackled under the EC Treaty. I would like to take a few minutes to review each in turn.

Article 10, in conjunction with Articles 81 and 82 of the EC Treaty

First, States are subject to obligations under Article 10 of the EC Treaty, combined with Articles 81 or 82. Article 10 obliges Member States to abstain from any measure that could jeopardise the attainment of the objectives of the Treaty, one of which is to ensure that competition is not distorted. The European Court of Justice has concluded from this that Member States are prohibited from introducing State measures which may deprive Articles 81 and 82 of their useful effect.

These provisions can be invoked defensively by companies in the context of competition proceedings before national courts. They can of course be enforced by the European Commission. And in September 2003 the European Court of Justice greatly enhanced the powers and responsibility of the national competition authorities to apply these provisions too. The "Consorzio Industrie Fiammifieri" anti-trust case concerned national legislation establishing a professional body for match manufacturers, and governing the production and sale of matches in Italy. This legislation included, or at least facilitated, an anti-competitive system of production quotas. The Court ruled that where anti-competitive conduct by undertakings is required or facilitated by national legislation, a national competition authority has the duty to disapply the national legislation on the grounds that it is contrary to Article 10 of the EC Treaty, read in conjunction with Article 81.

I welcome the fact that the Court has made so very clear that national competition authorities have a fundamental role - alongside national judges and the European Commission - in making sure that national legislation complies with competition principles.

Article 86 of the EC Treaty

A second, more specific, instrument to ensure that States comply with competition principles, is Article 86 of the EC Treaty. This sets out provisions concerning undertakings which are State controlled or which hold a State-granted monopoly or special rights. States may not take any measure - including legislative measures or regulatory acts such as the award of a licence - which would allow or encourage such undertakings to violate Article 81 or 82 of the EC Treaty. There is no prohibition of monopolies or special rights as such - except where the award of such a right will inevitably result in an abuse or expansion of dominant position by the undertaking concerned.

Article 86, paragraphs 1 and 2, are directly applicable provisions which can be applied by the national courts. Paragraph 3 of the article grants the Commission wide-ranging powers of enforcement, allowing us to adopt decisions or directives requiring Member States to bring their actions or legislation in line with competition principles. In the past we have used such directives to push through liberalisation in the telecommunications sector and to create rules on transparency of financial relations between Member States and public undertakings.

We have only rarely applied Article 86 in individual cases. One recent example is the Deutsche Post case. Deutsche Post's actions were based on a provision of the German postal legislation which induced the undertaking - which enjoys exclusive rights to clear, sort, transport and deliver letters weighing less than 100 grams - to abuse its dominant position, contrary to Article 82. The investigation was carried out in very close cooperation, via the European Competition Network, between the Commission and the Bundeskartellamt, which itself had received an antitrust complaint in parallel. It was agreed that the most effective and efficient way forward would be for the Commission to finalise its Article 86 procedure and for the Bundeskartellamt to then adopt a decision based on Article 82. The combined proceedings complemented each other in order to achieve a swift remedy.

Finally, it is worth recalling that Article 86 can also be used in conjunction with the European rules on state aid, as concerns services of general economic interest, to the extent that it does not obstruct the performance of these tasks. Contrary to what is sometimes said, the European competition rules do not hinder the proper functioning of these services. Nor do they affect the prerogative and responsibility of national, regional or local authorities to define, organise, finance and monitor public services.

The Commission's established policy is not to restrict the financing of companies in charge of public service obligations. But we do ensure that this financing is really necessary and does not lead to undue distortions of competition, notably through over-compensation. That is where the rules on transparency of financial relations between states and undertakings, to which I referred a moment ago, become important, because they allow us to identify the amounts of compensation paid.

The environment in which the Commission pursues this policy has recently changed, following the July 2003 judgment in the Altmark case. The Court ruled that unless four specific criteria are fulfilled, compensation for services of general economic interest constitutes state aid and needs to be notified. Failure to notify would result in the illegality of the aid paid.

The Commission therefore brought forward draft proposals clarify how the state aid rules apply to public service compensation. A draft decision seeks to reduce the notification burden as concerns small services of general economic interest, provided certain conditions are met. And a draft framework lays down which criteria the Commission will apply in assessing those state aids which still need to be notified.

After a period of consultation, we are now finalising the texts so that they can be adopted before the summer. They will bring legal certainty and predictability, as well as reducing the administrative burden, for tens of thousands of important public services across Europe.

EC secondary legislation

A third set of instruments designed to ensure that Member States comply with competition principles, can be found in recent EC internal market legislation, in the telecommunications sector and the energy sector.

In the telecommunications sector, the Electronic Communications Framework Directive imposes ex ante regulation only on undertakings which have significant market power in those markets which are not subject to efficient competition. The national regulatory authority analyses the state of competition in these markets and subjects undertakings with significant market power to ex ante regulation. These decisions are subject to review by the Commission. The Commission has exercised this power four times so far, most recently vetoing a decision by the German telecommunications regulator concerning telephone call termination services provided by alternative network operators.

State aid rules

Fourthly, and finally, I turn to perhaps the most important of all the Treaty competition provisions which apply to European Member States, namely the rules on state subsidies.

I believe that state aid policy has a significant role to play not only for its role in preserving a fair level playing field in the single market, but also as a specific instrument to create a better framework for national support to research, innovation, entrepreneurship, high quality services of general economic interest, environmental protection, social and regional cohesion.

State aid is the new frontier of competition policy. After comprehensive reforms in the field of antitrust and mergers, I have made a review of state aid policy the top priority for my mandate. I want to see a state aid policy based on sound economics, contributing directly to promoting growth and jobs, and delivering faster, more streamlined procedures.

Tomorrow I expect the Commission to issue a State Aid Action Plan, on the basis of which I intend to consult all stakeholders on a series of proposals for the modernisation of state aid policy.

One area I would like to mention is the role of state aid in promoting innovation. Before the summer the Commission will bring forward a Communication on State aid for Innovation, again as a basis for consultation. We would then propose changes to the present rules towards the start of next year.

Conclusion

I have given you a general overview of the ways in which competition principles can be embedded in politics and State action - and the role competition authorities have to play in ensuring that this is the case. There is a lot of work ahead. And I think I have demonstrated why this is not a job which the European Commission - or indeed any competition authority - can do on its own. That is why opportunities to exchange experience and ideas - such as today's event - are so important.

I would like to thank the Bundeskartellamt for giving me the opportunity to speak to you on these issues today.