Competition Policy

In contrast to the situation in the old member states, the discussion in the CEEC-10 has thus far not so intensively focused on issues like merger control or abuse of a dominant

160 According to the World Bank definition, companies are considered private if less than 50 per cent of their shares are owned by the state.

161 One reason for his phenomenon is that most of private sector growth has been fostered through programmes of privatization of retail shops or farms, and through the emergence of a new small and medium sized enterprise (SME) sector in the wake of mass privatization.

162 As Bennett, Estrin and Maw (2001) show, in Estonia and Hungary mass privatization was eschewed because the government possessed a strong position relative to public enterprise employees or other potential buyers. In these cases, state-owned firms were sold at positive prices and there was only little or even no retained shareholding. In most of the former Soviet Republics and in the Balkan states, in contrast, governments held a much weaker position. The consequences were mass privatizations, with the distribution of state assets at a zero or nominal price which just served to cover administrative costs.

position. In the latter, anti-competitive forces are already greatly moderated by globalization pressures. What constituted a much greater difficulty is the role of the executive and legislative institutions, in particular as regards their lack of knowledge and experience of the functioning of a market economy (Hare et al. 1999: 27). In order to raise credibility and foster competition in course of economic transition, by now all CEEC-10 have established NCAs, albeit with variation in organizational form and degree of independence from political influence.¹⁶³ As will be shown in the next chapter, today we can also observe a tendency in the CEECs towards independent authorities in sector regulation.

The introduction of competition law in course of economic transition in the CEECs faced two major challenges. The main external challenge of national competition law is constituted through the European integration process and membership in international organizations and agreements, i.e. the OECD or Central European Free Trade Agreement (CEFTA).¹⁶⁴ On the one side, the Europe Agreements served as the basis for the harmonization of national competition law with the acquis, on the other they laid down the principles of cooperation between the competition authorities of the EU and those of the accession candidates (Heinz 1999). At the beginning, the Europe Agreements called for a general and complete harmonization of national with EU law within ten years.¹⁶⁵ As for competition law, the Europe Agreements directly incorporated the provisions of the Treaty, in particular Articles 81, 82 and 87 ECT. The incorporation of European legislation into

163 Especially the Hungarian NCA, Gazdasági Versenyhivatal (GVH), possesses a rather high level of independence. This is not surprising if we consider that its organizational structure was mainly oriented at that of the German Bundeskartellamt. Another factor contributing to the authority’s comparatively high level of independence is the fact that the competition principle is established in the Hungarian Constitution (Dieringer 2001b: 54-55).

164 The CEECs initiated international cooperation also outside the EU framework. One example for horizontal cross-country cooperation is CEFTA which was founded in 1992 by the Czech Republic, Hungary, Poland the Slovak Republic and Slovenia. Later, Bulgaria, Lithuania and Romania joined the agreement. Although CEFTA’s focus was on trade liberalization, it also contained provisions on competition law. These provisions followed closely the competition rules inherent in the Europe Agreements in order to enhance the concerted preparation for EU accession. Another form of institutionalized international cooperation that furthered the reform of competition rules in the CEECs started with the accession of the Czech Republic, Hungary, Poland and the Slovak Republic to the OECD between 1995 and 2000.

165 The Commission’s White Book of May 1995 contains an exact timetable for the implementation of EU law that is strictly related to the Single Market.

the national frameworks also included Secondary law, i.e. Directives and Regulations, as well as the decisions of the ECJ.¹⁶⁶

In addition to policy harmonization, the Europe Agreements also foresaw the cooperation between the EU and the associated CEECs. The responsibility of the Association Councils was, among others, to adopt measures to implement the competition provisions of the agreements within a three-year time period after the agreement’s entry into force (Nicolaides and Mathis 1996: 485ff.). The focus of these measures was on the rules regulating the methods of cooperation between the EU competition authorities, mainly DG IV, and the NCAs in the CEECs. Basically, competition authorities of both sides have dealt with cases under the provisions of the Europe Agreements according to their own rules. In most instances, however, mutual notification and information between DG IV and the NCAs was enacted on the basis of the implementation measures.¹⁶⁷

Despite rules on cooperation between EU and CEEC authorities, several issues carried a potential conflict of interest. A first major issue were state aids. Although state aids have always been a central concern for Western governments as well, they definitely possess greater significance for the economic policy of former Communist countries, in which the reallocation of income was the underlying principle of economic organization.

However, due to the economic and financial difficulties associated with transition, in the associated states public aids were treated specially under Article 87 (3) ECT for the first five years.¹⁶⁸ A second issue concerns restraints on vertical agreements. Based on its objective of promoting the Single Market, the Commission exerted considerable pressure on the applicant countries to amend their national competition laws in order to prohibit vertical agreements. This was quite problematic as in the early phase of transition

166 Another aspect of this rather detailed harmonization process was that draft proposals for new national legislation were checked against compatibility with the acquis and approximation to EU rules.

167 This procedure also played an important role in merger cases. If a case that fell under the EC Regulation on mergers (European Council 1989) also had a significant impact on the economy of the associated state, the NCA of the latter was entitled to express its views on the case.

168 This article foresees that state aids are allowed in order “to promote the economic development of areas where the standard of living is abnormally low or where there is serious unemployment”. Although this does not automatically exempt corresponding state aid from prohibition under Article 87 (1) ECT, the article gives the Commission the possibility to allow such aid.

economic restructuring required the establishment of new forms of cooperation, including such vertical networks (Heinz 1999: 69-70).

The major internal challenges for an effective competition policy in the CEEC-10 were programmes of privatization and de-monopolization. As in the case of infrastructure reform in the Western EU countries, privatization can bring about the creation of increased market concentration. If, for instance, a state-owned enterprise is sold without parallel steps of vertical separation, the monopoly position will most likely be preserved. An additional difficulty for the development of effective competition originated in the goal of most CEEC governments to generate as much revenue from privatization as possible. In practice, however, in many CEECs privatization did not result in increased market concentration. This was mainly due to liberalization efforts fostered by the EU accession process and by CEFTA and WTO membership.

All of the above mentioned challenges have significantly influenced the development of competition policy in the CEECs over the past one and a half decades. Whereas some of them inhibited the introduction of an effective competition policy, others, i.e. European integration, catalyzed the establishment of a stable legal framework. The problems arising from privatization were much stronger in the CEECs than in the EU-15. In the CEECs privatization has thus far constituted a central policy for general economic restructuring. It was elemental to the goal of pushing back the state and fostering private economic activity.

In the West European countries, in contrast, privatization was merely confined to the reform of public infrastructure companies in an otherwise free market environment based on private ownership. The difficulties surrounding the establishment of a competition framework in the CEEC-10 might however be justified by the tremendous efforts that have been necessary in order to prepare them for integration into the Single Market.