Competition enforcement in non-acceding countries Damien Neven (Graduate Institute of International Studies, Geneva and CEPR) Workshop on “EU enlargement : regulatory convergence in non-acceding countries” Athens – November 7, 2003

Introduction More competition from firms in acceding countries In domestic markets but also in export markets Faster growth in some export markets What should be the response in terms of competition enforcement ?

Introduction (II) Enforcement of competition rules in the domestic markets –Scope of activities –Legal framework –Appropriate institutions Coordination of competition enforcement across jurisdictions –Bilateral agreement with the EU –And beyond

Domestic enforcement « economists might serve a more useful purpose if they fought fires or termites instead of monopoly » - Stigler (1966) Indeed, the effect of final consumers is often small… But « the quiet life » is the best of all monopoly rents Competition matters more to enhance productive and dynamic efficiency – Consider wood pulp and cement (Aiginger, 1997). Deadweight loss are 1.85 and 2.56 % of sales. The cost inefficiencies are respectively 7.93 and 7.66 % of sales –Consider a sample of firms (Nickell, 1998) operating in different environments. Firms exposed to high rivalry experience a TPF growth 4 percentage points higher than those exposed to weak rivalry

Domestic enforcement (ii) In transition and developing economies, effective enforcement is highly correlated with the development of efficient private firms (Dutz, 2001) Competition and graudualist innovation Competition is a substitute for external shareholder control by a financial institution – when shareholder control is internal (as often in transition), competition is more important

Domestic enforcement (ii) Public restraints (trade impediments, investment policies, sectoral regulations) may matter more than private restraints (anti-competitive agreements and practices) Competition authorities have an important role to play as advocates of competition regarding public restraints Their position needs to be secure within government Approximation of laws ? This is not a priority (fast moving target)

Domestic enforcement (iii) Is the control of state aids a priority ? Is state aids an internal market policy or a competition policy ? In the Community, it is currently implemented as a policy to achieve a level playing field (across firms, mostly within countries) It may be more useful when there is excessive public intervention Beware of geographic market definition, the protection of competition vs competitors and industrial policy

Domestic enforcement (iv) Institutions are prone to capture – they can be led to pursue different objectives from those that they have been assigned Independent (terms of appointment, publication)…yet accountable Bureaucratic capture may be the most important risk Administrative procedures are not appopriate when there is substantial discretion - At the very least, an administrative tribunal is required Do not approximate with the EU in this area.

International enforcement (i) The tale of the cement cartel And that of the aluminium cartel Rents in prosecuted cartels amount to 20 b $ (more than what the liberalisation of the agricultural sector could bring) One cannot rely on the EU (or the US) to prosecute international cartels Export cartels Predatory mergers

International enforcement (i) A cooperation agreement with the EU is necessary – and one in which cooperation is not determined on a case by case basis But integration in a broader framework is an important complement

Conclusion Competition enforcement will help making the most of neighbours’ accession An opportunity to implement competition policies that are best suited to the environment Convergence of markets does not require regulatory convergence in the transition