Competition law what is

A core objective of competition law is to prohibit firms for engaging in conduct which will distort the competitive process and harm competition by, for example, preventing firms from indulging in anti-competitive agreements, preventing firms with a powerful position on a market from abusing their market power, or dominant position, and preventing firms from lessening competition by merging with their competitors. For example, the benefits of competition will be lost where competing firms agree instead of competing to fix their prices or to divide the market, so eliminating important aspects of competition between them.

Under such conditions, firms can become lazy and inefficient, the directors may spend too much time on the golf course safe in the knowledge that their competitors, if any, are also doing so! This course scrutinises the EU competition laws regulating such anti-competitive agreements and practices Articles , and the EU Merger Regulation.

It examines the law in its historical, theoretical and political context. To this end, the Treaty on the Functioning of the European Union TFEU contains rules that aim to prevent restrictions on and distortions of competition in the internal market. More specifically, it does so by prohibiting anti-competitive agreements between undertakings and abuse of market position by dominant undertakings, which could adversely affect trade between Member States.

Moreover, mergers and takeovers with an EU dimension are monitored by the European Commission the Commission and may be prevented if they would result in a significant reduction of competition. Furthermore, State aid to given undertakings or products is prohibited when it leads to distortions of competition, but can be authorised in specific cases. Subject to certain exceptions, competition rules also apply to public undertakings, public services and services of general interest.

The fundamental objective of EU competition rules is to ensure the proper functioning of the internal market. Effective competition enables businesses to compete on equal terms across Member States, while putting them under pressure to strive continuously to offer the best possible products at the best possible prices for consumers.

This in turn drives innovation and long-term economic growth. Competition policy is thus a key instrument for achieving a free and dynamic internal market and promoting general economic welfare. EU competition policy also applies to non-EU businesses that operate in the internal market.

Societal, economic, geopolitical and technological changes constantly pose new challenges to EU competition policy. Such new developments compel policymakers to assess whether the current competition policy toolbox still provides the effective tools to achieve its overarching objective or whether it needs to be adjusted. The Commission has launched a comprehensive review of EU antitrust, merger and State aid rules [1].

Moreover, the COVID pandemic has posed particular challenges to businesses, consumers and the economy as a whole, and has required a range of measures in the field of competition to enable an adequate response to these challenges. A number of other initiatives aimed at reinforcing EU strategic autonomy in a global context are planned, such as the proposal for an instrument to address potential distortive effects of foreign subsidies in the single market and the planned EU carbon border adjustment mechanism.

Broadly speaking, the EU competition policy toolbox includes rules on antitrust, merger control, State aid, and public undertakings and services. The antitrust branch aims at restoring competitive conditions, should improper behaviour by companies e.

The preventive branch of the competition policy tools encompasses merger control and State aid rules. The purpose of merger control is to pre-empt potential distortions of competition by assessing in advance whether a potential merger or acquisition could have an anti-competitive impact. The State aid rules aim to prevent undue state intervention wherever preferential treatment of given undertakings or sectors distorts, or is likely to distort, competition and adversely affects trade between Member States.

Services of general economic interest SGEI are particularly important to consumers and are subject to specific rules in the context of State aid, with a view to promoting social and territorial cohesion, a high level of quality, safety and affordability, and equal treatment. If, instead of competing with each other, companies agreed to reduce competition, this would distort the level playing field and in turn cause harm to consumers and other businesses.

This is why all agreements between undertakings which have as their object or effect a distortion of competition and which may affect trade between Member States are prohibited paragraph 1 and automatically void paragraph 2. This includes, for example, explicit agreements such as those of cartels and concerted practices for fixing prices or limiting production output, or dividing the market among companies also called territorial protection clauses.

Those types of agreement are always considered harmful to competition and are thus prohibited without exception. On the other hand, other types of agreements may be exempted, provided that they contribute to improving the production or distribution of goods or to promoting technical or economic progress.

For example, agreements on cost or risk sharing between companies, or on accelerating innovation through cooperation in research and development could bring significant economic benefits. The conditions for granting such an exemption are that consumers are allowed a fair share of the resulting benefit and that the agreement does not impose unnecessary restrictions or aim to eliminate competition for a substantial part of the products concerned paragraph 3.

Rather than such exemptions being granted on a case-by-case basis, they are most commonly governed by the Block Exemption Regulations. These regulations cover groups of similar specific agreements, which usually have a comparable impact on competition. The Commission is currently reviewing the Vertical Block Exemption Regulation [2] , as well as the two Horizontal Block Exemption Regulations [3] together with the relevant guidelines. The aim of the review is to determine whether these regulations still take proper account of market developments and are still fit for purpose.

Moreover, certain agreements are not regarded as infringements if they are of minor importance and have little impact on the market the de minimis principle , even if they do not fulfil the conditions for exemption under Article 3 of the TFEU so-called agreements of minor importance. Such agreements are often seen as useful for cooperation between small and medium-sized enterprises. Following the outbreak of the COVID pandemic, the Commission adopted a Temporary Framework communication in April , which provides antitrust guidance to companies cooperating to increase the production and optimise the supply of, in particular, urgently needed hospital medicines in response to the crisis.

Moreover, a number of countries have not adopted competition laws. Therefore, any movement toward the adoption of multilateral rules on competition policy will require extensive deliberations specifically addressing these issues. In Canada, competition policy has traditionally been tailored to reflect the country's special characteristics as a small, open economy.

In any work leading potentially to a multilateral code on competition policy, it will be important to assess the implications of such an agreement for Canadian policy options. Another important set of considerations relates to the implications that possible international competition rules and dispute settlement provisions would have for domestic enforcement processes and institutional structures.

The growing importance of competition policy as an aspect of national economic policy is particularly evident in Canada.

Canada's Competition Act , has undergone systematic modernization in order to keep abreast of new economic thinking on economic arrangements and business strategies employed by firms reacting to global competitive pressures. Indeed, Canada's competition law and policy contain significant elements that respond to the needs of the globalizing economy, and has contributed substantially to the success in achieving efficiencies in the Canadian economy and to the vitality of firms, as well as protecting consumers from the exercise of market power.

The primary purpose of this paper is to solicit views from Canadian competition and trade laws experts, their clients, and academics on a number of topics that could arise if competition policy were to be part of the next round of multilateral negotiations.

It should be noted that the principles and concepts advanced in the paper are also being assessed in the context of the Free Trade Area of the Americas FTAA negotiating group on competition policy. First, the paper sets out the dimensions of the debate concerning the international implications of enforcing competition law. Second, it discusses the approaches to the internationalization of competition policy. Third, the paper discusses some of the obstacles in negotiating rules on competition policy.

Finally, the paper discusses approaches and, in particular, the application of the WTO dispute settlement understanding in competition policy cases. Appendix A provides a summary of Canada's current international commitments with respect to competition policy.

Appendix B provides a consolidation of the boxed questions that appear throughout the paper. Competition policy is properly perceived as an instrument that can assist in maintaining and safeguarding the competitive process. It should be noted that this also applies to trade and investment liberalization. The OECD Regulatory Reform report demonstrated that regulatory reform may pose particular problems for foreign firms when regulatory barriers are replaced by less transparent private barriers.

In this context, competition law enforcement is a key complement to regulatory reform, and the attention of the competition authority is all the more needed to address these concerns.

A second broad dimension is the substantive standards and enforcement processes followed under national laws. This particular matter is most vividly highlighted in recent U. A third dimension of the internationalization of competition policy that has received growing support relates to international cooperation in enforcement activities.

None of these instruments affects domestic statutory confidentiality protections that are incorporated in most advanced countries' laws that limit the circumstances in which competition agencies may engage in cooperative activities.

The most recent example is the adoption of a framework for notification of transnational mergers on February 5, As well, the OECD is assessing principles of positive comity and means to improve cooperation in enforcement against hard core cartels which may serve as a useful guide in further exploring concepts of enforcement cooperation. In the s a number of proposals related to convergence of competition rules have been made.

Footnote 1 The group recommended that there be a comprehensive international antitrust code covering the major areas of competition law such as horizontal agreements, vertical agreements, mergers and acquisitions, the relationship between competition law and industrial policies, and the establishment of an international antitrust agency which shares the responsibility of enforcement of international Competition rules with national governments. A task force established by the American Bar Association issued a report the " ABA Report" in which it advocates an agreement among states with regard to some basic principles such as unlawfulness of cartels and unification of filing requirements under the merger laws of various states.

Footnote 2 The proposal of the report is much more modest than the DIAC , and advocates partial harmonization through an agreement among states of some basic principles without establishing a comprehensive international authority to enforce international rules. A group of experts commissioned by the European Community submitted a report which presents an approach to introducing competition policy into the WTO.

Footnote 3 It recommends a two track approach: increased bilateral cooperation, and an agreement in the WTO that provides for core principles, including the prohibition of cartels and boycotts. There has been a significant amount of work undertaken by individual antitrust jurisdictions in promoting greater cooperation. There are bilateral agreements on competition law and policy among major industrialized nations that provide for cooperative relationships between the parties including consultation and exchange of information, including confidential information within the ambit of national laws.

Finally, there has been a great deal of pioneering work undertaken by the academic community which has advanced thinking on the merits of incorporating competition policy under the WTO framework. Footnote 4. Before reaching a WTO framework agreement on competition policy, several difficult issues will have to be addressed and successfully resolved. First, and most importantly, a number of competition policy agencies and practitioners in the field have expressed concerns about the constraining effect an international agreement would have on their abilities to formulate their own law and to manage their enforcement agenda.

The reservation centres on providing an international body with oversight responsibility to revisit or review judgments and remedies for cases that have already been decided, including criminal cases. Are WTO members prepared to allow a WTO panel to overrule their national competition agencies or domestic adjudicative bodies on questions involving both objective evidence and subjective judgments or decisions, or to supervise their competition agencies in lieu of national courts of appeal.

These differences in large measure are attributable to the fact that competition law is based on economics, and thus the differences in competition law reflect the varied economic structures, policies, legal regimes and actual experience in the enforcement of competition policy.

A third issue relates to the difference in orientation between competition and trade policies. Competition law is a framework law and is for the most part set at the national level. It is applied economy wide, with certain exceptions. The focus is on maintaining and promoting the competitive process. This is in contrast to international trade policy, which is typically set at the sector or goods level and focuses primarily on national economic interests and the concerns of domestic competitors in their efforts to serve foreign markets and to protect their domestic market base.

This difference is most readily perceived in the trade policy expression of market access, which emphasizes the role of foreign competition in the marketplace. The primary purpose of trade liberalization is to ensure that government measures do not have the effect of disadvantaging foreign competitors in the domestic marketplace. There are obligations to guarantee equality of opportunity; failure to respect commitments made under trade agreements can lead eventually to the aggrieved party seeking recourse to the relevant dispute settlement process.

On the other hand, competition law is neither well suited, nor intended, to address the specific problem of exclusion of particular competitors or classes of competitors. Fourth, WTO rules deal with government measures and do not purport to restrict private company decisions within WTO member states. Nothing in the WTO system threatens the fundamental principles of freedom of contract.

Quite the contrary: the international trading system is built on the principle that governments should not intervene or intrude in the ability of private companies to trade internationally. Therefore, decisions to conduct business with only its own nationals or not to engage in business with foreign nationals, would not violate competition principles unless the firm s had abused market power and the competitive process itself were threatened.

Yet such discrimination is a significant concern for the international trade community. It has been contended therefore by some antitrust practitioners and antitrust jurisdictions that competition agencies should not become involved in "market access" issues unless competition principles are clearly at play. Fifth, only approximately 70 WTO members have a competition law and others are in the process of adopting one. Convincing those members who have yet to adopt such laws to do so could require a commitment from other members with significant experience in this policy area to provide some form of ongoing technical assistance.

Conceptually, a number of avenues Footnote 5 have been advanced as offering potential to bring competition law into the WTO framework.

First and foremost, signatories would have to establish a sound national competition law regime, backed by an independent competition authority, with adequate powers and resources, a recognized advocacy role, and access to effective deterrents. The objectives of the law would have to be clearly articulated in the domestic legislation, which would apply across virtually all activities and sectors of a domestic economy, with a minimum of exceptions or preferential treatment.

The basic objective of competition policy should be to maintain and encourage competition in order to promote efficient use of resources while protecting the freedom of action of various market participants. Footnote 6. In light of the preceding discussion, what elements are necessary and sufficient to meet the objective that countries adopt a sound competition policy.

Some countries may not be in a position to incorporate all the elements of a sound competition policy at once. What are the most important elements that should have to be established at the outset. As markets become more integrated, the enforcement decisions and policy choices of one competition agency are increasingly likely to affect firms in other countries. It therefore becomes desirable that competition agencies in each country make available information about their enforcement policies and specific decisions to both their counterparts in other countries and to foreign businesses.

Transparency of laws and law enforcement would foster greater confidence on the part of private actors and could increase the likelihood that firms will pursue opportunities to trade and invest in foreign markets. This is particularly relevant in the international context because foreign laws and practices as opposed to domestic ones, are more likely to be poorly understood and treated with some suspicion. There would, however, have to be some qualification for the practice in some countries where not all their decisions are published.

Countries could commit to the publication of those documents relevant to an enhanced transparency of competition laws, such as annual reports, speeches, publication and explanation of decisions by competition authorities, and guidelines and decisions of the courts and Competition Tribunal.

The national treatment obligation is enshrined under Article III of the GATT and requires that foreign products including goods, services and intellectual property will be accorded treatment no less favourable than that extended to domestic products in respect of all internal measures excepting those of a fiscal nature.

While most competition laws do not discriminate between domestic and foreign businesses, it is the case that certain exemptions from competition law do have the effect of discriminating against foreign competition. Therefore, there will need to be a mechanism to deal with such matters. Footnote 7. Under the MFN principle all foreign firms should enjoy the same rights and remedies available in a given antitrust jurisdiction.

Under the Competition Act , all foreign firms enjoy the same rights and privileges to pursue private remedies before national competition agencies or courts.