PART A: THE LEGAL FRAMEWORK

Competition law is there to protect competition in a free market economy. Why is that?

In free economies the level of prices and the allocation of resources is determined by supply and demand.

Competition is desired because of the market result it is purported to bring, i.e.

› Overall Market Efficiency› Control over Market Pricing › Innovation

A competition policy sets the framework: • a) promotes competitive market structures and• b) combats monopolistic exploitation.

Competition law sets the legal rules implementing the competition policy.

Court case decisions on competition matters complement anti – monopolistic policies.

Monopoly therefore..Leads to inefficient allocation of resources through abusive practices

and overall loss to the consumers in favour of the monopolist.

However, perfect competition in the real world does not exist, so the institutions of the EU use the concept of Workable competition following the reasoning of J. M. Clark.

He suggested additional criteria such as the number of firms should be at least large as economies of scale permit, promotional expenses should not be excessive and advertising should be informative.

Although no consensus has arisen over what might constitute workable competition all bodies which administer competition policy in effect employ some version of it

The internal aspect of the common market is defined as follows in Article 14:

‘’The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of this Treaty’’.

It is this internal common market competition policy is trying to protect from the effects of anti-competitive behaviour.

Prevention of agreements aiming at the restriction of competition i.e.› Horizontal agreements (Among competitors) and› Vertical agreements (between parties at different

levels of production or distribution). Control of market power and its abuse. Control of oligopolistic markets Prevention of mergers and acquisitions

that can reduce competition

Article 81› Article 81(1) prohibits agreements or concerted practices

restrictive of competition.

Article 82› Forbids dominant undertakings to abuse their market power› Prohibits concentrations (i.e. Mergers and acquisitions)

significantly impeding effective competition

Extraterritoriality, i.e. inadmissible conduct outside a jurisdiction which impacts another jurisdiction can be caught,

and

The authorities possess extensive investigation powers allowing them to raid, seize records, search homes etc..

Thereafter, with effect as of October 2008, there has been a change whereby:

The block exemption on liner shipping was abolished,

And

Bulk shipping – wet and dry – also came under scrutiny.

Freight forwarders Liner and bulk shipping Class societies Ports P+I Clubs Other players

..in other words the net has been cast wide.

Big fines up to 10% of global turnover.

Criminal prosecution of persons and companies.

Unenforceable agreements.

In fact, all agreements are prohibited under Art 81 (3), unless it can be proved that

they improve production/distribution, give rise to economic benefit, do not eliminate competition and are not indispensable.

Some examples: Price fixing Bid rigging Organized boycott Discussions with competitors Market sharing agreements Supply restrictions

Dominant position , according to Article 82 EC, is a position of economic strength of a party which enables it to prevent effective competition. The meaning of the party can be either individual, or collective.

Abuse of dominant position is prohibited and it will lead to penalties when discovered. Usual cases of abused dominant position include excessive and/or injurious pricing, quantity restrictions, refusals to supply goods etc.

This area is controlled via the European Commission Merger Regulation.

There are rules in place mandating notification and clearance. Lack of the above would render the completion of the deal illegal triggering sanctions.

Interestingly, the location of the companies need not be within the EU in line with the notion of extraterritoriality, as long as the merger might have an EU market impact.

A. The functioning of competition is impeded by anti-competitive agreements.

B. It is also impeded by abuses of dominance. So all efforts are in the direction of

making anti – competitive agreements illegal, and

by controlling/preventing companies or groups of companies to achieve dominant position through mergers and buyouts.

PART B:ADMISSIBLE FORMS OF COOPERATION UNDER EU

LAW

…provided that:

the authorities are notified, the deals are scrutinized and approved and that the outcome does not restrict competition.

It follows these are ‘’softer’’ types of cooperation which fall under certain exemptions.

In principle therefore bulk pools, alliances, consortia and joint ventures can be allowed. One should be aware however that the dividing lines between the various types are often less than clear.

Bulk pools are usually formed in order to enable carriers to bid for big Contracts of Affreightment that each member alone could not service.

Such pools have operated for decades in refrigerated cargo, oil products, minerals, edible cargoes etc.

By definition the members of a bulk pool offer their services jointly and price them identically.

These abound in the liner trade and are taking the forms of capacity sharing agreements combined, or not, with joint vessel scheduling.

This type of cooperation agreement was first tested for legitimacy in air transport and it may involve two or more players. There have been demonstrable benefits for the public while competition is not affected.

There is a maximum joint market share limit to the tune of 35%. As always the difficulty lies in identifying the ‘’relevant market’’.

A joint venture is a contractual business undertaking between two or more parties. 

It is similar to a business partnership,with one key difference: a partnership generally involves  longterm business relationship, whereas a joint venture is based on a single business transaction.

A concern with joint ventures is that they can restrict competition, especially when they are formed by businesses that are  competitors.

Nevertheless, due to their short term nature joint ventures can be in position to avoid the lengthy process of notification to the competition authorities.

Consider this: An agreement between two companies concerning e.g. price fixing, or geographical division of the market which would fall under prohibition, would not be considered unlawful if the two merged or one is acquired the other and then they did exactly the same.

One wonders how effective the protection of competition would be in such cases.

Individual market shares and the joint market share after joining together are object of analysis based on the requirements of the European Commission Merger Regulation.

PART C: ECONOMIC CONCEPTS

USED IN ASSESSING LEGALITY

Competition law is concerned first and foremost with the problems that occur when one company or two or more possess market power.

A firm - or firms - that possesses market power can enjoy some of the benefits available to the true monopolist

Market power presents undertakings with the possibility of limiting output and raising prices, which are clearly harmful to consumer welfare

Provides the framework for the analysis of market power on basis of Economic or econometric analysis of the facts. It has important normative implications as

a broad or limited definition of the relevant market can lead to different enquiry outcomes.

The analysis seeks to identify competitive restraints from actual competitors, although it does not include potential competitors

The European Commission’s Notice on the Definition of the Relevant Market is basically an Extract of the Commissions practice.

The relevant market is determined by three fundamental considerations:

Product- or service - substitutability

Geographical application parameters, and

Time related factors.

Barriers to entry hinder the emergence of potential new competition which would otherwise constrain the liberties of monopolistic or oligopolistic operators.

Barriers to entry play a decisive role when determining market power,

e.g. Operators my have high market shares but no market power if there are no barriers to entry.

The analysis takes the form of an assessment of impediments to market access for new competitors.

Within the relevant market definition entry of new products or services and substitutes are examined.

Market conditions on basis of Structure, Conduct and Performance are determined.

Relative cost advantages are identified and calculated.Other factors such as strategic advantages, predatory

and/or restrictive practices.

PART D:THE MECHANISM OF

ENFORCEMENT

At EU Commission level on basis of Article 85, Article 83 and Regulation 1/2003.

At national authorities level, Regulation 1/2003, and

At national court level, Article 81(1) and 82 have direct effect and after Regulation 1/2003 also Article 81(3)

Cases of major importance can also be referred to the European Court of Justice.

A written protest by any citizen A publication alleging wrongdoing. A formally submitted complaint to the competition

authorities. A request from DG Comp to a member state to

investigate nationally. A unilateral decision by the national competition

committee.After investigation the outcome of a decision by the

national competition committee can be referred by the parties against to national courts.

First and foremost Article 81(1) makes reference to ‘’undertakings’’ which are nowhere defined in the EC Treaty.

This major issue was finally resolved by a decision of the European Court of Justice in 1990 which has ruled as follows:

“the concept of an undertaking encompasses every entity engaged in an economic activity regardless of

the legal status of the entity and the way in which it is financed”.

Secondly, agreements, informal agreements etc are illegal not only in case they intend to restrict competition, but also if their mere existence has as the effect of preventing or restricting competition.

Thirdly, the meaning of ‘’every entity’’ has been interpreted widely to include companies of every sort, self employed persons (but not employees), associations (excluding trade unions and their members) and generally any entity engaging in economic activity.

From the meaning of ‘’entity’’ are exempt public authorities and ‘’undertakings entrusted with the provision of a public service” following another decision of the ECJ in 1987.

Regarding the definition of economic activity, legislators have opted for a wide interpretation to include any activity consisting in offering goods and services on a given market.

Finally, shipping companies outside block exemptions, i.e. the wide majority of shipping companies, are expected to Self Assess concerning their compliance to EU’s competition policy, or else risk paying heavy fines. It is important to remember that whistle blowers are rewarded from the moment infringements are discovered.

Raided classification society offices (2008)

Raided ferry companies and fines in Greece and Italy for price fixing in the Adriatic following protest by a passenger (1993).

1.4 billion euro fines to the Car Glass cartel members (2007).

One billion fines to airlines for price fixing – executives possibly going to jail.

Two investigations in Microsoft, 900 million euro for failure to comply in 2004.

Freight forwarders under scrutiny for price fixing.

Three executives in jail in the UK in connection with the Marine Hose cartel.

Many time honoured trade practices in the field of maritime transport may contravene the competition provisions of the EU.

It is imperative that expert legal advice is sought before going ahead on any type of cooperation agreement.

Self assessments are a must.

Referrals to the competition authorities are unpredictable and may come from many sides.

Ladies and Gentlemen,Thank you for your attention.