Is the global consensus on competition in danger of unravelling?

Philip Lowe

Director General, Directorate General for Competition, European Commission

Philip Lowe was born in Leeds in 1947. He read Politics, Philosophy and Economics at St John’s College, Oxford and has an MSc from London Business School. Following a period in the manufacturing industry, he joined the European Commission in 1973 and held a range of senior posts as chef de cabinet and director in the fields of regional development, agriculture, transport and administration, before becoming director general of the Development DG in 1997.
He took up his current appointment as Director General of the Competition DG in September 2002.

The emerging global consensus on competition policy has delivered measurable benefits for individual consumers and businesses, in particular through action against cartels, strict control of mergers and state aids, as well as a tough line on other market abuses. But with the background of the failure of the Doha trade talks, recent debate around sovereign wealth funds and recurrent state interventions to block foreign takeovers, the voices of protectionism have not gone away. Indeed, they have been getting louder and more organised, leaving the competition consensus less than secure.
Each cross-border merger, each technological advance, each wave of immigration, brings home the reality of a global economy. Inflation, recession and the continuing credit crisis add to the climate of uncertainty and fear, putting politicians under pressure to resort to old-fashioned protectionism.
We have seen elements of more interventionist attitudes in several EU member states. In Spain, Poland, Hungary and Italy, national authorities unduly prevented or restricted the acquisition of domestic companies by companies from other member states. The Commission reacted in those cases to preserve the internal market. Also, several governments have enacted laws to control more closely investments from third countries.
As with many areas of EU activity, there is a conflict: individual member states may want to bend or breach the internal market and competition rules, even though collectively it is in their interest that those rules are enforced. This is why they collectively agreed in the Rome Treaty to entrust the Commission with far reaching policing powers in those domains. In the face of looming protectionism, the importance of independent enforcement of both the internal market rules and the competition rules, irrespective of the member state or the nationality of the undertakings concerned is more important than ever.
Against this background, what needs to be done? Well, we should not overstate the case or panic. The Doha round started from a position where many tariff barriers had already been lowered or eliminated; even within the round there was agreement on further progress. The final stumbling blocks were in difficult areas, but ones which would not even have been discussed 20 or even 10 years ago. The position is similar when we look at competition cases in the EU: the protectionist measures mentioned above have often been in areas like energy and financial services where the internal market is only beginning. Again, twenty of even ten years ago there were no cross-border energy mergers. That governments – wrongly – feel the need to impede them is a perverse sign of progress.
Nor, however, should we rest on our laurels. We have to remain active. First, the decisive factor in our cases must remain the effects of the measure or transaction on the market.
Individual cases are important, but of course not enough. So secondly, the global convergence of substantive competition and state aid rules must continue. Everyone will benefit if we race to the top, to a high level of protection of competition throughout the world. Everyone will be worse off if we race to the bottom, if individual competition authorities lose their focus on protecting competition and consumers, or worse, have their powers curtailed. Divergences in substantive rules might give scope for disruptive discussion between major trading partners. By contrast, coherent and strong competition enforcement around the world helps to ensure fair and open access for all companies to all markets.
Thirdly, there should be a gradual shift of emphasis from trade regulation to competition regulation at the global level. In the EU a strong regulatory framework and an effective competition policy were necessary counterparts to the dismantling of trade barriers and the creation of open markets. Whereas internal market measures removed many of the barriers to cross-border trade, an effective competition policy ensured that behind the barriers a competitive landscaped emerged. I would plead for a similar approach in global economic stewardship. Trade regulation and competition policies act as communicating vessels: where barriers are removed, competition policy moves in to ensure a level playing field.
Attempts to add a competition component to the WTO unfortunately failed in Doha, but we have made strong progress with the International Competition Network. The ICN´s growth and effectiveness are good news in a year of tough news. With a singular focus on competition, a genuine spirit of cooperation and the knowledge that critical mass is now on its side as the global competition community grows beyond 100 authorities, there is more than a ray of light at the end of this tunnel. The Doha difficulties are a blow, both for trade policy and for the support trade policy offers to the task of creating an international level playing field for business. But the global competition consensus has emerged out of much more than this single process.
The internal market remains Europe’s best asset in the global economy and competition policy remains at the heart of it. By contrast, protectionism is a proven failure. Blocking cross-border mergers denies industry an opportunity to achieve scale advantages necessary to compete effectively on global markets. Rejecting foreign investment (including from sovereign wealth funds) diverts capital away from a state’s home industry to markets with which that industry often competes head-on.
Horizontal integration of competition policy with trade and internal market policies and vertical integration by deepening a global consensus around competition policy provide a far better alternative to protectionism. If competition authorities around the world use the assets we have at our disposal to fight cartels, sanction anti-competitive agreements and discipline mergers and state aid, business and consumers will be better off. For that the global competition consensus need not and must not unravel.

An extract from The European Antitrust Review 2009