Numărul 2 / 2007

 

 

A FEW CONSIDERATIONS REGARDING TRANSPARENCY AND LEGAL CERTAINTY IN EUROPEAN MERGER CONTROL

Cătălin Ştefan RUSU*

 

 

Rezumat: Câteva consideraţii privind transparenţa şi certitudinea juridică a sistemului european de control al operaţiunilor de concentrare. Articolul de faţă este menit a evalua din diferite puncte de vedere (jurisdicţional, procedural, material, instituţional) nivelul de transparenţă, şi într-o oarecare măsură, de certitudine juridică, al sistemului de control al operaţiunilor de concentrare în Uniunea Europeană, , punând în acelaşi timp accentul pe efectele amendamentelor legislative aduse în 2004. Ţinând cont de natura predominant birocratică a fenomenului de control al operaţiunilor de concentrare, conceptele de transparenţă şi certitudine juridică percepute în contextul aplicării dreptului concurenţei, trebuie privite ca esenţiale. Prezentul articol concluzionează că nivelul de transparenţă al sistemului de control al operaţiunilor de concentrare în Uniunea Europeană a fost administrat în general în mod corespunzător. În ciuda acestui fapt, ţinând cont de importanţa pe care cele două concepte amintite o au în contextul procesului de control al operaţiunilor de concentrare, mai ales în actualele circumstanţe politice, sociale şi economice, instituţiile Uniunii Europene trebuie să conştientizeze lacunele actualului sistem şi să reflecteze asupra unor posibile reforme menite a-i îmbunătăţi nivelul de de transparenţă şi certitudine juridică.

Abstract: The contribution at hand aims at assessing the degree of transparency, and in some respects legal certainty, as put forward by the European Merger Control System, from different standpoints (jurisdictional, procedural, substantive, institutional), focusing on the transparency enhancing directed changes brought by the 2004 Merger Review Package. Given the predominantly bureaucratic nature of the merger control phenomenon, transparency and legal certainty in connection with antitrust enforcement are to be regarded as essential. The article at hand concludes that the transparency level in the EU Merger Control has generally been more or less properly managed in the last decade. However, given the importance the concepts of transparency and legal certainty, and their functionality bear upon merger control, especially in the current political, social and economic context in Europe, the EU must acknowledge the drawbacks that the current system exhibits and reflect upon possible transparency and legal certainty enhancing reforms.

 

 

Introduction. Generalities

 

During the past few decades, merger enforcement has become the predominant enforcement activity in the antitrust field. Transparency in connection with antitrust enforcement is essential, especially since the merger control issue is nowadays more than ever a predominantly bureaucratic phenomenon. It has been argued that although there is almost universal agreement that transparency in merger review is a commendable goal, there is disagreement about how much burden should be placed on the agencies to explain their decisions[1]. To support the first limb of this assertion, namely the one regarding the importance the concept of transparency bears upon the process of merger control one may notice the preoccupation that decision makers worldwide have shown towards improving transparency and legal certainty; to take just a few examples, reference may be made to the OECD Recommended Framework for Best Practices in International Merger Control Procedures[2], as well as to the 2004 Merger Review Packageadopted in the EU. With regard to the second limb of this assertion, namely the one regarding the burden that should be placed on the competition agencies to explain their decisions, the level of transparency the European Merger Control System has passed through different stages and been exposed to more or less severe criticism. This contribution aims at detailing the criticism levelled at the European Commission for its allegedly intransparent merger control mechanism; also, the article at hand will try to portray the main transparency enhancing measures taken with regard to the European Merger Control System, as well as to provide proposals to improve the current status of transparency and legal certainty in EU concentration control.

For the purpose of merger control, the concept of transparency refers to the ability of the public to see and understand the workings of the merger review process; in other words, transparency refers to the fair and responsive explanations of the anti-trust enforcers' action and inaction[3]. To this end, transparency contributes to achieving consistency, predictability and fairness in applying merger norms, thereby enhancing credibility and effectiveness of merger enforcement. Also, transparency provides an incentive for the antitrust law enforcing agencies to ensure that their decisions are based on accurate facts and sound economic principles. Moreover, transparent merger control laws and procedures allow the concentrating parties and antitrust law practitioners to better understand and predict the likely outcome of their prospective case and the time and costs the review may entail. Besides the fact that transparency would afford the parties contemplating a merger greater predictability regarding the success or failure of their plans, it also promotes discussion and understanding as well as it enhances the possibility of harmonization of legal policies among different domestic competition authorities.

Transparency pertains to the jurisdictional scope of the concentration assessment norms as well as to the procedures applicable to merger review. Also, the concepts of transparency and legal certainty are related with the institutional design of the authorities that handle concentration control.

The contribution at hand aims at assessing the degree of transparency, and in some respects legal certainty, as put forward by the European Merger Control System from all the standpoints listed above, focusing on the transparency enhancing directed changes brought by the 2004 Merger Review Package. Furthermore, we will provide brief relevant comparisons with other merger control systems, where necessary.

 

Why Should a Merger Control Mechanism Be Transparent and How Does the Transparency Concept Work in Practice?

 

From the outset, a transparent merger control mechanism improves the quality of the pre-decision process and the results the functioning of the mechanism leads to. To this end, once a concentration related decision is reached, it may be argued that one of the goals of transparency is fostering the institutional accountability, as well as the fairness of and public confidence in the institutional setup designed to handle merger control issues. In other words, transparency may act as a check upon the decision-making body's merger related activity, as it may portray a clear picture on how well the investigation was executed and on whether the decision-making body performed reasonably. Transparency enhances knowledge and compliance with the law and limits political interference and arbitrary activity in competition matters.

However, a transparent merger control mechanism is not easy to build. Besides the costs[4] associated with enforcing a transparent concentration control system, there are risks and burdens which one should be aware of when designing a merger control system, such as: the burden of preparing for a public disclosure, the risk that confidential information may be disclosed (although the staff responsible for disclosure may exercise a higher degree of diligence in this respect), the risk that disclosing the past decisions may (in certain circumstances) unreasonably constrain the decision-making body in making future enforcement decisions[5], the risk that disclosure will politicize to a greater extent enforcement decisions and also increase burdens on staff.

The most practical method to ensure transparency in an antitrust system is to provide appropriate rules in this respect from the very inception of the institutional system, or in any case when it is still young and malleable. Thus enforcers learn to expect the public to be a close observer and evaluator of their work. Not only this, but providing for a great degree of transparency at an early stage of the creation of a merger control system would require rather few resources and relatively little expertise. Of course, an absolute degree of transparency is extremely difficult, if not impossible to achieve; the decision makers have to manage a tight balance between the advantages that a transparent merger control system confers and the risks that may occur. Furthermore, like any legal concept, the concept of transparency has to be firmly grounded in political and socio-economic reality. To this end possible changes that might occur in time in this environment have to be mirrored in the functioning of the transparency concept. In circumstances as such significant adjustments of the way the concept at hand functions may be needed.

The evolution both the European and American merger control systems experienced along time with regard to transparency confirms the above assertion. Both systems started off from a basic level of transparency. The European model, for example, had to work its way to what it currently is through tough negotiations and debates between the Member States in order to reach consensus on key issues regarding antitrust and concentration control. Consequently transparency in European merger control could not have been regulated in just one shot. After all, merger regulations are mostly drafted in general terms, as the principles and criteria used to apply the substantive standard of review set forth in the basic legislation, must be developed through administrative practice and case law. Therefore, achieving a high degree of transparency regarding the functioning of the European Merger Control System is a long term process which involves on one hand substantive and procedural adjustments timely performed on the main pieces of legislation which lay at the basis of the mentioned system, and, on the other hand publication of not only basic legislation, but also relevant case law, enforcement policies, administrative practices and guidelines that clarify and develop the basic legal framework and also provide insight into the substantive principles and criteria used in applying the law.

Furthermore, looking at the European Merger Control System, it is important to place it in the context of the broader discussion concerning the compromise between the Member States, out of which the EU policies emerge. In such a context, companies merging within the single market, or companies having their concentration transactions assessed by the European Commission must constantly monitor the political importance of national interests in the supposedly EU-level policy competence of competition policy[6]. The lobbying which these companies may choose to consequently pursue should not be directed towards swaying the Commission's merger reviewing activity, but towards raising the EU's decision-making bodies' awareness that concentration activity within the EU should be assessed transparently, objectively and independent of political influence. After all, all the parties involved in the merger control process, either decision making bodies or undertakings concerned, must be aware of the fact that political influence upon the concentration assessment process, pursued through lobbying, has a high potentiality of leading to economically adverse effects of an anticompetitive transaction being allowed or, vice versa, of a healthy, profitable transaction being blocked.

Generally speaking, there are several ways in which transparency for the purpose of merger control may be promoted; to take just a few examples, reference should be made to publishing the basic pieces of legislation as well as general guidelines and notices regarding substantive matters, procedural matters, as well as the analytical standards employed in merger review, publishing individual decisions, issuing press releases and statements on key matters that signify changes in enforcement policies, delivering speeches and publishing informational materials and/or other tools to disseminate information regarding precedential interpretations of statutes, regulations, policies or practices, or regarding the basis for the agency's conclusions with respect to high profile or important cases.

Still, these methods may have a softer impact than prospected, as usually the antitrust agencies enjoy a certain degree of discretion in choosing exactly how detailed the information delivered to the public may be. For example, the occasional speeches delivered by agency officials regarding a certain case are often inclined to reflect only the views of the individuals involved in that particular case. Moreover, both speeches as such and speeches regarding the general policies used by the antitrust agency tend to be rather general. Information about how the agencies analyze specific transactions - which is potentially the best source of information for merger parties in future transactions, especially in industries that have recently been analyzed in depth by the agencies - is usually available in only a small percentage of cases. To exemplify the above mentioned discretion that antitrust agencies enjoy one may take a look at the way the US and the EU merger control systems function in this respect: the Department of Justice and the Federal Trade Commission are normally not required to publish their reasoning in merger cases that are cleared without remedies. The typical practice in such cases is for the reviewing agency to allow the waiting period under the Hart - Scott - Rodino Act to expire without any public explanation. Indeed, unless the parties have received early termination of a transaction - in which case a brief mention of the transaction appears on the Federal Trade Commission's web site - there is usually not even a public acknowledgement by the agency that a transaction has been reviewed and cleared by the government. In cases in which an agency seeks to block a transaction, its reasoning is set forth in detail in the complaint and other court filings. Absent a settlement, a detailed opinion, either blocking the transaction or finding that it is not likely to lessen competition substantially, is typically published by the court that hears the government's challenge. Even in these cases, however, neither the agency nor the court addresses the product areas and markets the agency has decided not to challenge. In cases involving negotiated settlements the agencies are required to publish their competitive analysis. These statements can provide helpful insight into how the agencies view the relevant markets and why they believe a particular transaction might violate the antitrust laws but for the proposed remedy. However, they generally focus only on the areas of competitive concern and the reasons for the proposed remedy; they do not explain the agency's analysis of product areas for which the agency decided that no remedy was necessary. In recent years, the Federal Trade Commission has attempted to adopt a more transparent approach in mergers that raise competitive issues but are cleared without challenge or settlement. Although not required by rule or statute, the Federal Trade Commission has issued official public statements in connection with several decisions[7], sometimes with dissenting statements.

The European Commission's practice stands somehow in contrast to that of the US agencies. For cases in which the Commission clears transactions without any conditions, it issues statements identifying the parties and the nature of the transaction as well as discussing the relevant product and geographic markets, the degree of overlap of the participating firms, and other pertinent facts. These statements are often limited in detail but still, they typically provide at least some basic information about the Commission's view of the companies and markets involved in the transaction. In cases that are resolved after in-depth investigations, the Commission issues detailed public decisions whether it blocks the merger, allows the merger with conditions, or allows it to proceed without conditions. In Phase II analysis, the Commission has access to significant amounts of information, data, and internal company documents; it has access to staff recommendations which outline the relevant markets, the competitive issues, and possible remedies; also, it has often conducted extensive economic analyses and has talked to industry participants, such as customers and competitors. The Commission's practice approach as described in the above lines is a meaningful step toward transparency and consistency.

Therefore, regarding the publication requirement, the European system seems to be a bit more transparent than the US system, as it reveals how the agency views the relevant markets and dynamics of competition in a broad range of industries, as opposed to selectively announcing the agency's analysis when it believes that the decision deserves a public explanation.[8] Supporting this assertion is the statement issued by Deputy Assistant Attorney General of the Antitrust Division Thomas O. Barnett, while explaining the Arch/Metrocall merger: "Regarding the goal of increased transparency, the European Commission and others have been ahead of the U.S. when it comes to explaining the reasons behind decisions not to bring challenges[9]."

However, the publishing requirement should not be transformed into an absolute requirement though, because an approach as such would transform it into a substantial and rarely worthwhile resource commitment[10]. For example, publishing a decision not to challenge a concentration would entail a certain degree of resource use and it may add little to the public appreciation of enforcement priorities, since the explanation with regard to not challenging a merger may result inextricably from already published guidelines[11]. In other words, insisting on publishing statements explaining the agency's reasoning in every transaction notified would be imprudent and tremendously burdensome, and would result in hundreds of cursory opinions that provide little guidance to the public[12]. However, publishing decisions adopted in cases which entailed in-depth analysis, regardless of the outcome of the case, goes a long way toward achieving the goal of ensuring consistency and providing the public with information about the agencies' analysis of all cases involving significant competitive issues without imposing undue burdens on the on the reviewing agency.

 

Transparency, Legal Certainty and Procedural Safeguards

 

In 2004 the EU adopted the Merger Review Package including a revised merger regulation, a cross-border mergers directive, guidelines on the assessment of horizontal mergers and a set of best practice guidelines for merger investigations; these acts, coupled with the internal reforms within the Commission[13], were designed to strengthen the objectivity and soundness of the Commission's decisions in merger cases and to increase the transparency of the merger control system. To this end, following the Recommended Framework for Best Practices in International Merger Control Procedures, the changes brought in 2004, entail that a transparent merger control should exhibit the following features, or clarify the following issues:

• Merging parties and other persons with a potential interest in a merger should be able to clearly ascertain when a transaction will be assessed as a merger;
• The standards for determining whether a pre-merger notification will be required;
• Any applicable time deadlines for making a pre-merger filing;
• The information required to be provided in a filing and in any voluntary submissions that may be considered helpful;
• How third parties can make their views known to the agency with respect to the merger; and the time periods, if any, within which any decisions must be made by the enforcement authority.

Furthermore, the guidelines and notices put forward by the Commission include:

• A clear explanation of when a transaction will be assessed as a merger;
• The test for determining when a 'second phase' review will be commenced and the test for determining whether a merger will be challenged or approved;
• The potential theories of anti-competitive effects that may be considered;
• The extent to which political or other non-competition considerations may influence the determination of whether a merger may be approved or challenged;
• The principles applied in defining the product and geographic dimensions of relevant markets; the manner in which market shares will be calculated;
• How ease of entry will be evaluated;
• The role of efficiencies and other factors in the agency's analysis.

Summing up the above, merger control related norms and guidelines should identify the agency or agencies with jurisdiction over a given transaction, articulate the basis on which such jurisdiction will be exercised, elucidate each such agency's enforcement policies in a manner adequate to facilitate strategic planning, provide guidance on each such agency's approach to market definition, detail which defences or mitigating factors will be taken into account by each such agency when reviewing a reportable transaction, and delineate any non-competition factors that will be taken into account in the merger review process.

Three observations may be drawn at this point of our research:

ü                  First, a better co-ordination of the EU and US merger reviews seems to have been enabled during the last decade. Furthermore, the Guidelines on the Assessment of Horizontal Mergers[14] enable parties to extend deadlines in order to address concerns during the review and remedy phases. Moreover, the Guidelines expedite the review process by enabling notification based on a letter of intent. The guidelines seem to improve the process by requiring the Commission and complainants to explain concerns to the parties through face-to-face meetings.

ü                  Second, the Guidelines seek to clarify the theories upon which the Commission may oppose transactions. The Guidelines presume 'dominance' where a firm exceeds 50 % market share. In all other cases, the Guidelines assess co-ordinated and unilateral effects somehow similar to the US Horizontal Merger Guidelines. In this respect, the EU and US merger reviews seem to be more closely aligned in substance.

ü                  Third, the number of multi-jurisdictional notifications seems to be reduced, by expanding the procedure for referring matters to Brussels. Parties may now invoke a referral prior to submitting a notification. The Merger Control Regulation also provides for referral at the initiative of the Member States or the Commission. In all cases, the new referral mechanism introduces deadlines to expedite the process.

Now, one may inquire what are the opportunities and risks which derive from an approach as such. We will dwell in the following paragraphs on the advantages and disadvantages that arise from the EU's attempt to render the European Merger Control System closer to a transparent and objective model.

First of all, the Best Practice Guidelines on Merger Control Proceedings provide for earlier and better disclosure of Commission concerns. They unmask third party complainants by requiring three-way meetings among the Commission, the merging parties and interested third parties. Merging parties may also request state-of-play meetings with the directorate general of competition to better understand the basis for any competitive concerns. These changes should significantly improve transparency, even compared with the US process. This greater flexibility should prove valuable to merging parties, by enabling them to better co-ordinate EU and US merger reviews. Furthermore, the possibility to extend deadlines in Phase II cases provides parties with additional time to negotiate remedies where necessary. It also enables parties involved in cross-border mergers to co-ordinate the offering of commitments in the EU with the United States. However, the conversion of deadlines into working days is a disguised extension of the Phase I deadline for initial merger decisions by two to three days. Financial institutions and other companies that frequently engage in non-controversial transactions may find their transaction further delayed.

The additional transparency provided by these amendments should provide parties with greater opportunities to address EU concerns and reduce the impact of complainants' actions. Indeed, these changes should benefit merging parties by enhancing their due process rights.For complainants, however, increased transparency may discourage smaller firms from raising complaints. For example, smaller customers that may be dependent on the merging parties will be reluctant to voice opposition to the merger in fear of retaliation because their complaints will be revealed to the merging parties.

The increased analytical clarity inherent in the new guidelines offers benefits for merging parties. For example, the Commission's approach to mergers in differentiated product markets provides greater opportunity to consumer product companies. Under the Guidelines, mergers between consumer product companies are likely to be approved even at a high market share, so long as the transaction does not involve the closest competitors. Likewise, the Commission's acceptance of the failing firm defence will assist troubled companies. While the particulars of the defence must still be met, this clarification should prove helpful to companies in the technology and telecom markets. However, there are companies which may not welcome these changes. The new Guidelines make it clear that markets with several strong firms may find it more difficult to merge given the Commission's clarification that it will oppose certain mergers where post-merger collusion would be likely. This will be of particular concern to mining, manufacturing and chemical markets that have three of four strong participants.

At the start of the reform discussion leading to the adoption of the 2004 Merger Review Package the Commission cited the increase in legal certainty, originally defined as protection afforded to the citizen against unexpected intervention by authorities, as a central benefit of the new more economic approach that was to be adopted. It was repeatedly argued that (only) through the greater application of economic concepts could the decision-making be made more transparent and thus more predictable. In other words, for the purpose of merger control, the European Merger Control System regulatory framework should be inseparably linked with the predictability of the Commission's actions, resulting in the parties wishing to merge being able to predict the reaction of the competition authority with sufficient reliability. In this respect transparency and legal certainty should go hand in hand, enabling firms to realise welfare-enhancing transactions while discouraging them from filing an excessive number of anti-competitive mergers. At the same time, they avoid proceedings from being abandoned or ending in prohibitions, with high sunk costs and damage to reputation. The better transparency and greater legal certainty which the European Commission expects from the more economics-based approach implies that the approach provides a clearer benchmark for the assessment of concrete merger cases. However, in economic competition theory there are constant divergences and a plurality of approaches[15], which may lead in practice to divergences in the recommendations given or in case appraisals. Consequently, this may result in a wide range of theoretical studies whose conclusions are in part contradictory or are only valid for very specific assumptions. Moreover, case analysis becomes much more complex[16] and the Commission's decisions become more difficult to predict. Also, given also that the temporary effect that any modification in the assessment criteria is causing uncertainty and, as a result, adjustment and learning costs for those concerned, it may be argued that the European Merger Control System's legal certainty has not necessarily improved[17]. All in all, it is too soon to label the changes brought in 2004, and in this context, the changes referring to the more economics-based approach of merger review, as being beneficial or detrimental to the functioning of the merger review process in the long run; only time will reveal whether the path chosen through these amendments was the appropriate one, with respect to the economic and political stage the EU is currently in.

Generally, it may be observed that the Merger Review Package provides a number of potential benefits for merging parties, as well as a number of potential drawbacks and uncertainties. With regard to increasing the transparency of the review procedure, the European Merger Control System has made a step forward. From a procedural point of view, the current merger review process clearly offers more transparency than the system enforced through the application of Regulation 4064/89. Still, the formal and informal changes enacted in 2004 result in a complex 'bargaining game' between the Commission and merging firms, involving a considerable burden in terms of time and costs. First of all, the administrative burden on firms may have increased, as the notifying parties have to furnish more extensive information on their activity in general and on their transaction. For example, pre-merger and post-merger HHI (Herfindahl / Hirschman Index) values have to be calculated for all the affected markets; placing this assertion in a international EU - US context, the use of a numerical approach like the HHI creates merely an illusion of transparency, unless precisely coupled with insights into the regulator's methodology of market definition. Second of all, employing a greater use of economic concepts and quantitative analysis in merger control, besides improving the quality of the Commission's work, brings about extra administrative workload which the Commission has to handle.

All in all, the remarks made above prove that achieving a high degree objectivity and transparency of the merger review procedure constitutes a complicated process, which can be only completed in time. Also, results in this respect may only be achieved if the changes meant to enhance transparency on procedural matters are coupled with effective changes from an institutional point of view. We will detail the institutional aspects of transparency in EU merger control in the following paragraphs.

 

Transparency and the Institutional Design That Supports a Merger Control System

 

It has been argued that a substantial lack of transparency in a merger control system may stem from the very institutional design that particular system is built upon[18]. The reason why the European Merger Control System has its current institutional design shaped as it is, lies in the roots of the legal systems functioning in Europe and in their underlying philosophies. The European Merger Control System draws heavily on the experience achieved in the Community's Member States, which is mostly under the influence of the civil law tradition, as opposed to the American system, which is deeply rooted in the common law tradition, which places a deal of importance with regard to its functioning on the role of the judiciary / court system. The European system is different in this respect and chose to place its confidence with regard to antitrust enforcement mainly in one single institution which, along time achieved tremendous practical experience in this field. Proving thus its reliability, the Commission was invested with a tri-partite 'investigator, prosecutor and judge' role in reviewing concentrations with a European dimension. Having this solid status where no separation of functions existed, the Commission was overnight transformed into an easy prey for antitrust doctrine and practitioners who labelled the European Merger Control System as being intransparent and the Commissions activity prone to political influence.

To elaborate the above stated, the policy objectives of the US and EU schemes are somewhat different. The US antitrust laws were enacted to preserve and maintain competition within a late 19th century concept of a free market; one of the main goals of this was to create a kind of common market among the states. With respect specifically to merger regulation, the principal goal of Section 7 of the Clayton Act was to halt the increasing of concentration in the American economy. The EU competition laws, in contrast, were intended to promote the integration of the separate economies of the Member States into a unified 'Common Market' and only secondarily to promote effective competition within the Community. Thus the EU authorities are responsible not merely for maintaining but also for creatingsuch a competitive common market. In passing its Merger Control Resolution, the European Council sought to facilitate intra-Community mergers (thereby helping to integrate the economy into a single market) by replacing multiple and potentially conflicting competition regimes in the Member States with a single and coherent regime for reviewing concentration transactions with a Community dimension and preventing non-EU firms from gaining a dominant position within the Community[19].

These somewhat different policy objectives may explain, at least in part, the somehow peculiar role played by the European Commission under the current enforcement schemes. In the same context, while the Commission's decisions can be challenged in the Court of First Instance and appealed to the European Court of Justice pursuant to Article 225(3) of the EC Treaty, the European Merger Control System places the responsibility for seeking judicial review on the petitioning parties, who must decide whether challenging the decision is worthwhile, given the time and cost involved and the minimal likelihood of success. That likelihood is minimal because the review is not a full appeal but is predicated on rather limited grounds of annulment.

The 2004 reforms were meant to contribute to a better decision making process and guarantee that the relevant elements and points of view are properly taken into account in the final decision on individual cases; also, they may have added to the improvement of transparency in the European Merger Control System; the systematic appointment for second phase cases of internal peer review panels composed of experienced officials that scrutinise the case team's conclusions with a 'fresh pair of eyes', may have reinforced the Commission's objectivity as a regulator by strengthening the internal checks on the soundness of the investigators' preliminary conclusions; however, the new institutional structure is still working under one and the same body, namely the Commission. The role of the Advisory Committee and of the Hearing Officer is still rather soft and it should be further improved; to exemplify this assertion we may observe that although the Commission is urged to take account of the opinions delivered by the Advisory Committee, its opinion is not binding for the Commission.

Creating new levels of scrutiny is laudable, but as we stated above, the value of the checks and balances thus provided may still be questioned since they stem from within the Commission and not from an external independent body. This is not necessarily a highly criticisable issue, in the sense that advantages with regard to the quality of the final decision may be achieved with this format. After all, a 'fresh pair of eyes' may positively influence the likelihood of committing decision-making errors; but the model as described in the lines above may leave room for hardcore critics to suggest that the workability of these checks and balances would provide more legal and economic solidity of the final decision if they would have been set independently from the Commission's tutelage.

The new Competition Directorate General organisation, entailing the Merger Task Force staff being re-deployed to four merger units within the sector antitrust directorates, is supposed to allow pooling the market knowledge that flows from both types of enforcement - antitrust and merger - in one and the same structure where cross-fertilisation is much simpler. It should also facilitate the spread of the best practices developed in the Merger Task Force over the years to the whole Directorate General and is also designed to ensure effective use of the Competition DG's scarce staff resources and increase flexibility in their allocation between merger and antitrust work. This new format should normally increase transparency with regard to the relationship within the Commission's internal mechanisms.

Pursuing the 2004 institutional reforms, the European Union implicitly acknowledged the need for more transparency in its antitrust enforcement system. However, at the same time, it proved that, probably due to its legal culture heritage and the legal hurdles that need to be overcome for a radical institutional change to take place, is not ready yet to adopt a model where the investigation, prosecution and decision-making steps are separated and entrusted with different independent bodies / institutions. The Commission is still reluctant to hand over to the EU Court System, at least a part of its authority when dealing with antitrust cases. Whether an approach as briefly portrayed above would one day become reality, the European Merger Control System may gain a great deal of credibility, from a transparency point of view to say the least.

Whether this situation is unlikely to happen in the near future, on the same page we may mention the proposal to create an independent antitrust agency, responsible for the merger control related investigation, prosecution and decision making. Thus, the case assessment stage and the political stage are kept separated, assuring that any possible final decision to permit a merger on political grounds is transparently seen as such, and is not confusingly presented as the legal outcome of the case[20]. However, in order for the change not be just a cosmetic one, the goals and tasks set for the above mentioned agency at each stage of the procedure must be extremely clearly defined and distinct from each other, thus avoiding possible dangerous influences of lobbyism. The agency will have to be completely independent and freed (as much as possible) from the Commission's political influence. Some proposals[21] went further in detail providing that the agency's head would have to be appointed for a fixed term, by the Commission as a whole and the agency's officials would also have to have secure appointments. The EU chose not to regard this approach appropriate, not even in the long run, since it was not included either in the EU's immediate agenda, or in the Draft Constitutional Treaty. The arguments for this stance circled around the fact that the Commission's position in the current institutional setup would seriously erode, fact that may have a negative impact on overall legitimacy. Furthermore, it is hard to imagine how an agreement may be reached between the Member States on how such an agency should be set up and what its criteria of assessment should be, considering the fact that when discussed at the Intergovernmental Conference in 1996-1997, the proposal was considered inappropriate and found few supporters. Again, whether an approach regarding the creation of an independent antitrust agency would be taken into account, the European Merger Control System may improve its credibility regarding the transparency of its functioning.

One other option to increase institutional transparency would entail following the US merger control model, where private enforcement with regard to antitrust cases is allowed. Undertakings and individuals should be afforded greater possibilities to trigger prosecution of anticompetitive behaviour. The Commission, probably aware of the fact that currently it is focusing more on punishing anticompetitive behaviour rather than raising the overall competitive level in the Single Market, did not reject such an approach and it believes that private enforcement could very well work as a deterrent of anticompetitive behaviour. An approach as such may bring about great benefits:

• Triggering prosecutions through private actions would relieve part of the Commission's burden and would allow it to focus on key cases.
• Private actions would result in more cases to be dealt with. Consequently, the competitive environment would be much healthier since a greater deal of anticompetitive behaviour would be sanctioned. Speaking of which, more fines (going to EU's budget) would be applied.
• From a transparency point of view, private parties that trigger the examination of anticompetitive behaviour would be actively involved in the review. Any piece of information regarding the case will be directed not only to the 'defendants' but also to the 'plaintiff'. Moreover, private parties involved in an antitrust case have more motivation to place pressure on competition authorities to transparently disclose information, than simple spectators have.

As optimistic as encouraging private monitoring of anticompetitive behaviour presents itself, it must be agreed that there are also downsides of an approach as such, fact acknowledged also by the US system. A system of private enforcement will not reach the speed that the current system has, with regard to reaching a final decision. Entrusting private parties with such prerogatives may lead to their abusive misuse, for the purpose of forcing competitors to waste time and resources. Moreover, private enforcement does not posses the suitable tools and options public authorities do, such as varied remedies.

Last but not least, encouraging private enforcement is pointless in a situation where the EU does not offer the proper legal basis for this. Although the European Court of Justice accepts claims from private parties, for damages caused by anticompetitive behaviour, there is no mention of triggering private competition cases in the EU Treaty. Enabling such an option would require an amendment to the Treaty, with all the legislative difficulties entailed. In this respect, whether a path as such would be pursued, more powers with regard to competition and consequently merger cases should be afforded to the European Court System. Thus, with one action several goals would be achieved: separation of functions with regard to investigating, prosecuting and decision-making, achieving a lower risk of political influence, involving private parties in a process which ultimately concerns them either directly, either indirectly. All in all, proposals like the above may bring about a higher degree of transparency in the antitrust enforcement system and consequently in the EU Merger Control System.

 

 

Transparency in the EU - US Merger Review Activity

 

In the previous paragraphs we have emphasized some of the differences between the US Merger Control System and the European Merger Control System. For the sake of completeness we will observe that the main features of the EU - US bilateral cooperation are embodied in the 1991 Cooperation Agreement, the 1998 Positive Comity Agreement and the EU/US Best Practices in Merger Cases. Provisions like mutual information about enforcement activities, coordination of enforcement activities and exchange of non-confidential information ensure a certain basic degree of transparency of trans-Atlantic merger control. However, speaking of transparency with regard to the EU - US merger related activity, one has to acknowledge that complete transparency and predictability is extremely difficult to achieve, given the fundamental differences between the two systems. Companies who intend to cross-border merge, or companies which are aware that a double clearance would be required for their concentration transaction often find it confusing and difficult to juggle with two different merger control systems. At least from their point of view, a higher degree of transparency in the EU - US merger control relationship may be of great help.

Several models and proposals have been put forward in order to increase trans-Atlantic transparency in merger control[22]; some of them relate to increasing communication and exchange of information between the reviewing agencies. Others are more radical going as far as achieving total convergence between the concentration control systems in EU and US. After all, the EU and the US appear to use methodologies that are similar in many ways, but come to a discordance of conclusions due to different fundamental economic models, assumptions and values. As provided above, the 2004 reforms of the EU Merger Control System managed to bring the two systems closer, at least from a transparency and methodology point of view. However, till reaching total convergence there is a long way to go. On the other hand, one may notice one peculiar issue: the European Commission planned the 2004 reforms before both US political and international media pressure for change began, thus proving that the European Merger Control System is evolving individually rather than being pressured to adapt to different other systems. Furthermore, the fact that these changes attempt to remedy the differences between the EU and US systems proves the EU's willingness to achieve a great degree of transparency and objectivity in the EU - US merger control relationship.

In the following lines we will outline a few models which may help increasing trans-Atlantic merger control transparency, outlining the benefits and the drawbacks which characterize each of them.

First of all, the first step towards substantive harmonization between the EU and US merger control systems has been taken. The EU Merger Control System's transition from the dominance test to the 'significantly impeding of effective competition' test attempted, among other things, to clear the muddy waters in which a transaction requiring double clearance was swimming. However, the reliance that the European Commission still places on the concept of dominance for the purpose of merger control, keeps the two systems to some sort of a distance from each other, distance which reveals to a certain extent a lack of transparency. The rather freshly enacted 'significantly impeding of effective competition' test cannot be considered a perfect match to the 'substantial lessening of competition' test. Therefore substantive convergence is at the moment unlikely to take place, unless the Community Court system will attempt through its jurisprudence to pursue a de facto substantive convergence. An approach as such may improve transparency in trans-Atlantic merger control, but not to the expected level, at least with regard to the interested companies' expectations. Given the above, the current status still requires double notification of a given transaction and consequently entails considerable uncertainty about outcomes and serious burdens for the undertakings involved in this specific type of transaction to build up arguments suitable for both reviewing agencies[23].

Second of all, doubling the above substantive efforts with considerable cooperation and convergence of the EU and US merger control procedures, also supported through a thorough practical application of the already existing cooperation agreements, may add to the current level of transparency. Given that serious substantive amendments to both the EU and US systems are unlikely to happen in the near future, the likelihood of the two merger control systems converging procedurally should be rather high. In such a perspective, the need for double notification would still exist, but both companies involved and the reviewing agencies would face greater certainty, transparency and procedural familiarity, while the bureaucratic difficulties would be considerably limited.

Third of all, the most appropriate solution for the purpose of increasing transparency in the EU - US merger control relationship would be the timely, but completely harmonize the two systems, through the creation of an International Merger Control Code. The likelihood of an approach like this is extremely low, given the reluctance of both sides to compromise on a common body of law regulating concentration control. After all, the political implications of handing in part of both sides' sovereignty are greater that they appear at first sight. To exemplify this assertion, we may point to the difficulties encountered in reaching consensus for the adoption of the European Merger Control System in the European Community; given that these difficulties arose between Member States which adhered to similar principles regarding antitrust policy, one can imagine that blending together the European and American legal thinking and economic philosophies in this respect constitutes a considerably tougher challenge to complete. However unlikely it seems for a situation like this to take place, one cannot overlook the advantages that it may bring about; just to mention a few: a system as such would bring about the level of transparency required by an objective and efficient concentration control process; the companies involved in international concentration transaction would face a seriously reduced level of legal uncertainty and would have their procedural tasks significantly limited; time and important resources would be saved and the low level of legal uncertainty provided by such a system would stimulate the cross-border concentration activity; the need for multiple notification and double clearance would be eliminated; the reviewing agencies in the US and in Europe would apply the same principles and work with the same procedures. A model as such would not necessarily require a hierarchically superior institution for reviewing the eligible concentration transactions. Not only that reaching consensus and drafting the legal basis for such an institution would be extremely difficult, but a step in this direction would be unnecessary given that the existing reviewing agencies would use the same body of rules and concepts for transactions that would be notified to them.

Opposing the very last assertion made above, there were proposals, some coming from the EU, directed to creating such a supranational antitrust agency under the aegis of the World Trade Organization[24]. However, the likelihood of any consensus on this matter is extremely remote, given the significant incompatibilities and differences between the concepts and methodologies used by the two merger control systems on one hand and the methodologies and procedures employed by the WTO on the other hand. An approach like this does not seem appropriate both because institutional WTO reasons, such as the WTO lacking both the particular institutional expertise and the resources to staff merger control operations, and as provided above, because of pragmatic reasons relating to sovereignty and national competition regimes. After all, the WTO should not substitute its judgement to someone else's. Nevertheless, there do seem to be a number of more modest functions that the WTO could usefully perform in order to increase transparency in international merger activity, such as the implementation of an internationally enforceable requirement of transparency in merger review, streamlining transaction costs and diluting the potential for conflict between and among merger review jurisdictions.

 

Summary and Concluding Remarks

 

As provided above, when one speaks of transparency in competition law, one generally refers to public availability of standards, policies, guidelines, reports of decisions, and, most importantly, basis for decisions. Many jurisdictions with competition laws feature basic transparency provisions at the general policy level. However, transparency needs to be provided at the level of decisions on specific transactions as well. As we have seen in the previous paragraphs, the latter can be effected not only by publication of decisions but also dissemination of information in many other ways: through periodic reports, articles, speeches, a broad variety of press releases etc.. Moreover, one should not forget that also, transparency counts a great deal when talking about the mere, behind close doors, day-to-day functioning of the merger review process.

Given the above, it has been argued that the transparency level in the EU merger control has generally been more or less properly managed in part of these respects. If so, one may inquire what is missing in the European Merger Control System with regard to affording the necessary degree of transparency.

First of all with regard to the institutional side of the reform, the EU has been taking small steps towards increasing transparency. The creation of new 'institutions' such as the Chief Competition Economist, the peer review panels and the Advisory Committee on Concentrations, as well as the reorganization of DG Competition and the Merger Task Force, may leave the impression that an effective change has taken place. Still, without doubting the relevance of these institutions' activities, one may still inquire whether these innovations amount in practice to a clear institutional separation with regard to the functionality of the European Merger Control System.

Second of all, the substantive and procedural features of merger control have been the ones which were assertively strengthened. The adoption of the Merger Review Package, the issuing of the supporting pieces of legislation, the switch from the dominance test to the 'significantly impeding of effective competition' test are just a few examples. Still, more is still left to be done in both respects. For example, in order to achieve a proper level of transparency from a procedural point of view, complete transparency with respect to the submissions by the merging parties' competitors and the extent to which they will be permitted to properly participate in the process has to be reassessed. This is significant because the contemporary phenomenon of multi-jurisdictional merger review furnishes competitors an unparalleled opportunity to abuse the process by delaying the transaction through protests or other submissions in one jurisdiction. Sometimes the delay itself will prevent a specific merger, which might well have provided welfare benefits.

There is, however, a more fundamental problem, not necessarily pertaining to EU law, but to global harmonization of antitrust norms, namely that one cannot have completetransparency and predictability in a merger control system, be it the US system, the EU System or a potential global merger control system, if concepts and principles used in the merger review are not unitary. Therefore, given the fast growing internationalization of businesses, international harmonization of merger laws and furthermore, antitrust laws, should be considered a commendable goal on any upcoming agenda of the appropriate decision-makers. The European Union has been one of the first initiators of international antitrust law harmonization projects. However, as we have seen in the above paragraphs, there are still critics who argue that the transparency level in EU merger control is below the desired one. Steps towards increasing transparency have been taken; nevertheless the pace of transparency oriented reform may be perhaps a bit slow if compared to the European integration speed benchmark that the EU has over time exhibited. Therefore, in order to be consistent in its stance, the EU may acknowledge that a high degree of transparency may only be achieved if consistent reform measures are taken with regard to all the features of the merger review process. To this end, reminding the importance the concepts of transparency and legal certainty, and their functionality bear to merger control, especially in the current political, social and economic context in Europe, the EU could perhaps reflect a bit more upon the institutional aspect of its merger control system; and this may be because the EU's transparency related reform activity with regard to the structure of the system seems to be lagging behind the work done concerning enhancing the procedural and substantive features of merger control.

 

 

* Doctorand, Utrecht University / Molengraaf Institute for Private Law, Utrecht,

k3cata@yahoo.com.

[1] Gelfand, David I.; Calsyn, Jeremy, Transparency in Antitrust Merger Review: A Modest Proposal for More, The Antitrust Source, www.antitrustsource.com, 2005, p. 1.

[2] Recommended Framework for Best Practices in International Merger Control Procedures, Business and Industry Advisory Committee to the OECD, International Chamber of Commerce, The World Business Organization, 2001.

[3] Pitofsky, Robert, Comments on Warren Grimes: Transparency in Federal Antitrust Enforcement, 2003, http://www.antitrustinstitute.org, p. 995.

[4] Reference may be made, for example, to the costs regarding the publication of different documents as well as to the costs associated with employing the necessary staff responsible with handling the Commissions archives, the relationship with the national competition authorities, the press, the public etc.

[5] For example, on one hand, disclosure of reasons why enforcement action regarding a concentration was not taken may be cited later by defenders of a future similar transaction. If the first decision was wrong, the decision-making body has a responsibility to admit it. Whether the facts in the second case are somehow different, the decision-making body has a responsibility to clarify them. On the other hand, requirement of public disclosure might also discourage the agencies from clearing transactions that arguably raise competitive issues because they may fear that such precedents will be difficult to distinguish in future cases.

[6] Akbar, Yusaf H.; Suder, Gabriele G.S., The New EU Merger Regulation: Implications for EU - US Merger Strategies, Thunderbird International Business Review, 48-5, 667, 2006, p. 683.

[7] See for example the Amerisource Health Corporation/Bergen Brunswig Corporation case and the Royal Caribbean Cruises, Ltd./P&O Princess Cruises plc case.

[8] For further details, see Gelfand, Calsyn, op. cit., p. 3, 6.

[9] Thomas O. Barnett, Deputy Ass't Atty Gen., Antitrust Div., U.S. Dep't of Justice, Antitrust Enforcement Priorities: A Year in Review, Address Before the Fall Forum of the ABA Section of Antitrust Law 5 (Nov. 19, 2004).

[10] Pitofsky, op. cit., p. 996.

[11] In this respect, one may think of a situation where investigations may show that the relevant product market is broader than initially anticipated, so that the combined market share of the merging parties is 4% or 5%. What could an explanation of that transaction add to what is already in the existing merger guidelines?

[12] Gelfand, Calsyn, op. cit., p. 6.

[13] The new organisation of DG Competition is based on integration of both merger control and antitrust enforcement in directorates responsible for the various sectors of the economy. This change took place progressively, the Merger Task Force staff being re-deployed to four merger units within the sector antitrust directorates. The re-organisation aimed at enhancing sector specific knowledge in view of the change of antitrust enforcement culture. Also the re-organization established a new different basis for the co-operation with national competition authorities in view of the critical importance of dialogue with them on important sector developments.

[14] Guidelines on the Assessment of Horizontal Mergers under the Council Regulation on the Control of Concentrations between Undertakings, Official Journal C 31, 05.02.2004, p. 5-18.

[15] See for example the dispute between the "Harvard school" and the "Chicago school", which provided different approaches not only in their theoretical and empirical foundations but also in their normative objectives.

[16] To elaborate on this issue, two observations may be made: it may be argued that although growing economic input in the merger control process is to be welcomed in principle, the effects of the "more economic approach" on decision quality are ambivalent. From the Commission's point of view, the new concepts introduced in merger analysis, such as efficiency defense and coordinated effects may improve the quality and objectiveness of merger review, but at the same time, they may cause errors in the Commission's decision-making process; a situation as such is not necessarily generated because of the adoption of the "more economic approach", but rather because of the fact that these are fresh concepts for the European Merger Control System and the European Commission does not have strong practical experience with them. From the companies' point of view, it needs to be borne in mind that the growing involvement of experts upgrades the role of the firms in collecting and evaluating empirical data and thus strengthens the influence they can have on this information. For example, the concept of efficiency defense is a handy tool in the hands of the merging companies (which are aware of the fact that their transaction may bring about anticompetitive effects) for the negotiation of the transaction's clearance. Balancing these two points of view constitutes a complicated and complex task, which the Commission must transparently handle.

[17] Christiansen, Arndt, The More Economic Approach in EU Merger Control - A Critical Assessment, www.dbresearch.com, 2006, p. 10-11.

[18] Camesasca, Peter D., European Merger Control: Getting the Efficiencies Right, Intersentia - Hart, 2000, p. 246

[19] Fisher, Keith R., Transparency in Global Merger Review: A Limited Role for the WTO?, http://law.bepress.com/expresso/eps/862, 2006.

[20] Camesasca, op. cit., p. 246-247.

[21] Neven, Damien; Nuttall, Robin; Seabright, Paul, Mergers in Daylight - The Economic and Politics of European Merger Control, Centre for Economic Policy Research, 1993, p. 249.

[22] See also Akbar, Suder, op. cit., p.679.

[23] See, for example, the GE / Honeywell case, M.2220, OJ C046.

[24] For details concerning this approach, see Fisher, op. cit.

 

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