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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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slide1
Competition provisions in FTAsThe case of the EU-Korea FTAClemens Kerle Miek Van der Wee Brussels, 10 December 2010
slide2

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

slide3

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

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

slide6

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

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

slide8

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

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

slide10

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

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

slide16

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

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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