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Competition provisions in FTAs The case of the EU-Korea FTA Clemens Kerle Miek Van der Wee Brussels, 10 December 2010. External challenges facing EU competition policy The EU-Korea FTA Antitrust and merger provisions in the EU-Korea FTA Subsidy provisions in the EU-Korea FTA Conclusions.

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Competition provisions in FTAsThe case of the EU-Korea FTAClemens Kerle Miek Van der Wee Brussels, 10 December 2010


External challenges facing EU competition policy

The EU-Korea FTA

Antitrust and merger provisions in the EU-Korea FTA

Subsidy provisions in the EU-Korea FTA

Conclusions

DG Competition, International Relations Unit


DG Competition, International Relations Unit


External challenges for competition policy
External challenges for competition policy

  • Competition policy does not stop at the EU border :

    • Globalisation

    • Proliferation of competition agencies

  • Challenges for EU competition policy :

    • Effectiveness

    • Legitimacy :

      • Inconsistent outcomes in Antitrust/Mergers

      • Lack of level playing field conditions in State aid

DG Competition, International Relations Unit


Responding to external challenges
Responding to external challenges

  • To meet these challenges:

    • facilitate cooperation between competition authorities

    • promote convergence between competition regimes

    • Strengthen disciplines at international level

  • 2006 Communication - Global Europe:

    • “No protectionism at home, activism abroad”

    • Multilateral level: Doha, TDI

    • Bilateral: “Deep and Comprehensive FTAs” with important trading partners to tackle “behind the border trade barriers”

      • Rules on public procurement

      • Rules on competition, including state aid

DG Competition, International Relations Unit


DG Competition, International Relations Unit


Eu korea fta
EU-Korea FTA

  • Korea: Key trading partner

    • 2009 EU Exports: €29bn (trade deficit: €7bn)

    • 2009 EU investment stock in Korea: €30bn

  • Negotiations : 2007 - 2009

  • FTA focuses on removal of non-tariff barriers (NTB)

    • Costly NTB in manufacturing (eg transport equipment, machinery, …) and services (eg finance, wholesale and retail trade) and construction

    • Positive effects on EU GDP and exports

  • Competition chapter:

    • Antitrust & mergers section

    • State aid section

DG Competition, International Relations Unit


DG Competition, International Relations Unit


Antitrust and merger provisions
Antitrust and merger provisions

  • In anti-trust & mergers:

    • No binding rules at multilateral level (e.g. WTO)

    • Soft convergence through dialogue (ICN, OECD)

  • This approach is also reflected in the AT/M section:

    • Relatively soft provisions:

      • List of anti-competitive practices that are incompatible with FTA

      • Commitment to maintain competition laws & competition authorities

      • Commitment to apply competition laws to public enterprises and enterprises granted special rights

      • Cooperation – with reference to bilateral cooperation agreement

    • Not subject to dispute settlement provisions

DG Competition, International Relations Unit


DG Competition, International Relations Unit


The case for subsidy provisions in ftas
The case for subsidy provisions in FTAs

  • Discrepancies between EU State aid control and WTO regime for subsidies (SCM agreement)

    • Substance: Per-se prohibitions and “challenge-ability” (heavy burden of proof) vs refined compatibility assessment

    • Procedure: Ex-post vs ex-ante control (incl. retro-active remedies)

    • Scope: Goods vs undertakings (i.e. incl. services)

    • Transparency: Ineffective notification system without sanctions vs full transparency

  • Limited prospect of revised multilateral regime in short term

  • Existing bilateral agreements difficult to enforce

  • Enforceable bilateral WTO+ provisions as a step towards greater convergence of international subsidy control

DG Competition, International Relations Unit


So what s new the wto at a glance
So what‘s new? The WTO+ at a glance

  • Substance

    • Two additional prohibited types of subsidies (unlimited guarantees, subsidies to ailing companies without credible restructuring plan

    • Best endeavour-clause

  • Transparency - Reporting obligation & info requests

  • Scope - Rendez-vous clause for services

  • Procedure: n.a.

    DISPUTE SETTLEMENT MECHANISM APPLICABLE TO SUBSIDIES‘ SECTION; ENFORCEABILITY THROUGH COMMERCIAL SANCTIONS

DG Competition, International Relations Unit


Prohibited subsidies art 11 11
Prohibited subsidies - Art 11.11

  • Chapeau

    • Definition of „subsidy“ builds on WTO terminology & concepts

    • Different „affectation of trade/adverse effects“ standard

  • PROHIBITED: Unlimited guarantees

    • Ratio: Highly distortive operating „aid“;

    • Always incompatible with EU State aid law

  • PROHIBITED: Subsidies to ailing companies without a credible restructuring plan [carve outs: coal, SGEIs]

    • Ratio: Highly distortive, hardly justifiable

    • Transposes the centre-piece of the EU‘s restructuring aid assessment into the FTA (rescue aid possible; restructuring plan & own contribution)

    • Always incompatible with EU State aid law

DG Competition, International Relations Unit


Scope art 11 15
Scope – Art 11.15

  • Goods with the exception of fisheries and agriculture

  • Rendez-vous clause on services

    • Exchange of information

    • Monitoring of multilateral developments

    • First exchange of views 3 years after entry into force

DG Competition, International Relations Unit


Transparency monitoring art 11 12 14
Transparency/monitoring – Art 11.12/14

  • Annual reporting obligation :

    Amounts, types, objectives, recipients of subsidies

  • Information obligation for any measure on request:

    Follow-up on general reporting; enables parties to clarify complaints

  • Monitoring

    The FTA‘s Trade Committee as a discussion forum for subsidies – bi-annual review of progress in implementation

     Tackle weakness of WTO notification system

     Reporting – combined with rendez-vous & best endeavour clauses

    and discussions in the Trade Committee – will increase awareness

    about subsidies and contribute to capacity-building

DG Competition, International Relations Unit


DG Competition, International Relations Unit


Conclusions
Conclusions

17

  • EU-Korea FTA

    • Global Europe put in practice

    • Strengthened disciplines in subsidies

  • At the moment, negotiations with China, India, Mercosur, Canada, Ukraine, Singapore, Malaysia, ...

    • EU-Korea FTA is model/benchmark

    • Experience shows that it will be challenging to live up to the EU-Korea FTA benchmark

  • International dialogue on subsidies:

    • Not just a question of Trade Defence

    • There are also issues such as quality of public expenditure, public accountability, the need for international coordination of state interventions in the economy

DG Competition, International Relations Unit


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