Competition provisions in FTAs The case of the EU-Korea FTA Clemens Kerle Miek Van der Wee Brussels, 10 December 2010

I. External challenges facing EU competition policy II. The EU-Korea FTA III. Antitrust and merger provisions in the EU-Korea FTA IV. Subsidy provisions in the EU-Korea FTA V. Conclusions DG Competition, International Relations Unit

I. External challenges facing EU competition policy II. The EU-Korea FTA III. Antitrust and merger provisions in the EU-Korea FTA IV. Subsidy provisions in the EU-Korea FTA V. Conclusions DG Competition, International Relations Unit

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 ■ 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

I. External challenges facing EU competition policy II. The EU-Korea FTA III. Antitrust and merger provisions in the EU-Korea FTA IV. Subsidy provisions in the EU-Korea FTA V. Conclusions DG Competition, International Relations Unit

EU-Korea FTA ■ Korea: Key trading partner ► 2009 EU Exports: €29bn (trade deficit: €7bn) ► 2009 EU investment stock in Korea: €30bn ■ Negotiations : ■ 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

I. External challenges facing EU competition policy II. The EU-Korea FTA III. Antitrust and merger provisions in the EU-Korea FTA IV. Subsidy provisions in the EU-Korea FTA V. Conclusions DG Competition, International Relations Unit

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

I. External challenges facing EU competition policy II. EU-Korea FTA III. Antitrust and merger provisions in the EU-Korea FTA IV. Subsidy provisions in the EU-Korea FTA V. Conclusions DG Competition, International Relations Unit

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 ■ 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 ■ 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 ■ 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 ■ 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

I. External challenges facing EU competition policy II. EU-Korea FTA III. Antitrust and merger provisions in the EU-Korea FTA IV. Subsidy provisions in the EU-Korea FTA V. Conclusions DG Competition, International Relations Unit

Conclusions ■ 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 17 DG Competition, International Relations Unit