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Challenges and Provisions in the EU-Korea FTA

This article explores the external challenges facing EU competition policy, with a focus on the EU-Korea FTA and its antitrust, merger, and subsidy provisions. It discusses the need for cooperation, convergence, and strengthening of disciplines at the international level. The article also highlights the discrepancies between EU State aid control and the WTO regime for subsidies. It concludes by discussing the potential for enforceable bilateral provisions to enhance international subsidy control.

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Challenges and Provisions in the EU-Korea FTA

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

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. External challenges facing EU competition policy • 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. External challenges facing EU competition policy • 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

  17. 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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