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C. Peter McColough Series on International Economics: Antitrust in the European Union and the United States [Rush Transcript; Federal News Service, Inc.]

Speaker: Neelie Kroes, Commissioner for Competition, European Union
Presider: Merit E. Janow, Professor in the Practice, Columbia University; Member, World Trade Organization Appellate Body
September 15, 2006
Council on Foreign Relations


MERIT E. JANOW: Good afternoon. My name is Merit Janow, professor at Columbia University and member of the WTO Appellate Body, and it’s my great honor to preside at this afternoon’s discussion with the European commissioner for competition, Neelie Kroes.

I have a few notices from the council to share with you.

First, this meeting is sponsored by the council’s corporate program and the Maurice R. Greenberg Center for Geoeconomics, and is part of the C. Peter McColough Series on International Economics, the next meeting of which will be on September 27 th , with Martin Wolf, associate editor of The Financial Times.

I would also like to remind the audience that this meeting is on the record, but I don’t think I see any cameras present. And so please also take a moment to turn off all bleeping devices—(chuckles)—your cell phones, BlackBerries and any other electronic devices that might interrupt us in the precious hour ahead.

I think you have a brief bio of the commissioner in your package, so I won’t speak at length about her, except to note that she really has an extraordinary background. She’s been a professor of economics and the president of a leading European business school. Her political career includes serving as a minister and a parliamentarian. Her experience in business is very deep, having served on many corporate boards and also taken time to contribute to not-for-profit activities for the art and the sciences. She’s the recipient of many awards and now, since 2004, is commissioner for competition, which, as you know, is an extremely important part of the European Community leadership and serves as the watchdog of market integration and competition broadly.

So thank you very much for taking time to join us. Please join me in welcoming Commissioner Kroes. (Applause.)

NEELIE KROES: I’m a grateful for your very kind words. And I’m always realizing my age, but especially when you are mentioning what I did in the past. Then I realize I’m getting a little bit older than the average one in office.

But that also means—and I was just touching upon before entering this room, Professor, that having the experience and especially talking about the experience in the business world, I’m grateful for that.

By the way, I can’t change my past. I shouldn’t like to change my past. But especially in this job of being the commissioner for competition, it is extremely important that you are aware how the dinner is prepared in the kitchen and that you are a person in which you can really exercise what you did yourself at that time, in most cases, with the team.

So I’m extremely grateful that you are inviting me here today. I’m looking forward to share views, to share your thoughts and my thoughts on parallel developments in antitrust policy and enforcement here and—in the United States and in Europe.

By the way, it is an extremely important phase in the history of Europe, and I’m aware that quite often that’s mentioned by people. But in this case, very close to the anniversary—the 50 th anniversary of the European Union next year, we are aware that within half a century we really changed the situation in Europe and that it makes sense not only to be proud of what we did but also the responsibility for us but also for our children and for the next generation to fill in what we promised to do.

And in that case, it is quite important—and the commission in Brussels is aware of that—that filling in the Lisbon Agenda, for example, and filling in what we promised to the younger generation that it should be a growth of the economy, that it should be a growth of the number of jobs, that it should also be the growth of our environmental and social welfare way of thinking.

But okay. That having said (sic), I’m coming to the item that you have been—put at the agenda. Cooperation between the EU and the U.S. antitrust authorities and the European Commission is long-established.

We share information. Indeed, not only sharing information, by the way, but also coordinating our activities, and specifically individual cases where confidentiality permits, but we also share best practice. And being with friends and the United States and Europe, in my opinion, our friends, our allies—and we did quite a bit together—if we are sharing our best practice and if we are discussing key elements of our respective policies, that makes sense. We can learn from each other. It should be a win-win situation, and it is, by the way, a win-win situation.

It happens not only during bilateral meetings, but also now through the International Competition Network—and you were touching upon in the discussion we had before a forum in which the mind-sets—but not only the mind-set, the competition of forces are brought together, and not only from the U.S. and from Europe, but across the world.

So it is not just our enforcement and antitrust policies that our world leaders—it’s also the strength, the depth and breadth of our ongoing cooperation which sets an example to help our forces across the world to promote a global competition culture, and we are all aware how important it is. It is a(n) absolute cross-border way of thinking, and it is an instrument that shouldn’t be stopped at borders. And talking about globalization—well, if we are believing in globalization—and even if we are not, that is a fact of life; it’s reality—then we have to take into account that all (help ?) enforcement, also antitrust policies, also cooperation, also the competition culture should be embedded in that way of thinking. And there is no doubt that it is what the future requires. As markets become more global and as anti-competitive behavior takes place of an increasingly global scale, so must our competition policy and antitrust enforcement. There is no other choice.

But in the midst of this effort expanding global perspective, it is the duty of competition authorities to remain firmly and clearly focused on the interest of individual consumers. And I am pleased that this is something on which the EU and the United States (forces ?) are in complete harmony. There is no (slight light ?) in between. Why not? Because we are both aware, it is at the heart of effective competition policy. Whether we are dealing with cartels, which directly harm consumers, or unilateral conduct, which inhibits innovation and economic growth, it is the same way of just targeting to the final goal.

And I would like to talk today to you about three particular areas where recent developments in competition policy and enforcement on both sides of the Atlantic stand to bring substantial benefits for consumers and for the economy.

The number one factor, if you allow me, is cartels.

The second one is the unilateral and antitrust behavior.

And the third one is private damages, actions for breaches of competition law, and I’m, of course, absolutely willing and trying to learn also—able to answer any other questions after my speech.

Talking about cartel enforcement—your assistant attorney general here in the United States, Tom Bennett, described the objectives of the Antitrust Division of the Department of Justice as being to, quote, “Pursue vigorously the most harmful violations, to increase transparency and to reduce the time and cost associated with our investigations,” end quote.

Our objectives in the European Commission are completely identical. Cartels are the most damaging form of anti-competitive behavior. They are notoriously hard to detect, and they increasingly take place on a(n) international scale. It’s not any more national. And that is why we must join in a rigorous action and be equipped to overcome those same geographical boundaries that the cartelists have conquered.

And during my two years in office till now, I’ve taken a number of measures in this case. First, I have created a dedicated Cartel Directorate and 60—nearly 60 officials are involved in this directorate. And they have already delivered an increased number of concluded cartel cases this year. Furthermore, it provides a central contact point for the outside world, including our colleagues in the United States. So I think that’s a worthwhile investment, and I hope that we are on the same line in this.

Second, I’ve presented to the commission new guidelines on fines which are designed to increase fines further so as to better deter offenders, and in particular, repeat offenders who will now be subject to a 100 percent fine increase. What I was wondering when I took over from Mario Monti, was if you are looking at the fines, and that, of course, is damaging a competition climate—so talking about competitiveness and taking into account that if there is one player who isn’t playing the game in a fair way, then it is just an awful situation for the whole team who is playing the game. And taking into account that those who are not having the right attitude in this case, that they are, of course, making their sum: What is the benefit for us? What’s in it for us? And what is the risk that we should get—a fine or whatever? So if the fine is too low, you can absolutely be sure that they are pulling your leg. So that is one of the driving thoughts behind it. And I think that what we did and what we are doing now is working well.

So the guidelines on fines are just accepted, and I am absolutely aware that this deterrent effect was at the heart of the decision to increase the criminal penalties here in the United States. We did this our way, but I’m sure that at the end of the day, we are coming to the same goal. We in the commission in Brussels can threaten cartelists with a spell in prison. Also, some of our member states can, a couple of them. But our very tough attitude to administrative fines aims to achieve a similar effect, and the effect counts, and even if it’s a different way in which you reach it, it makes sense that it’s reached.

Thirdly, just as the United States has an amnesty scheme, we too have a carrot and stick approach through our leniency program. In 2002, we improved the program to make it more attractive and to facilitate cooperation with other enforcers, including your country. And since then, we have received around 170 applications for leniency covering companies based in over 20 different countries. But we are looking again at our leniency system, and we’ll make soon some further improvements, notably to ensure a one-stop-shop leniency within our European competition network of national competition authorities.

I would like to turn now, if you’ll allow me, to unilateral anti-competitive behavior. And that is what we call, in the European Union, abuse of a dominant position, further to Article 82 of our treaty, which broadly equates to Section 2 of your Sherman law. I think that’s comparable. And as we all know, there are some significant differences between the two jurisdictions in this field. In the EU we regulate the conduct of firms who have a dominant market position. And the Sherman law, as far I am informed, talks about conduct of companies who acquire or maintain monopolies. So there is a difference. It is, of course, true that dominance requires a lower market share than a monopoly, and some people like to make much of this difference. But let’s not overstate things. Our respective enforcement approaches are in fact rather convergent on a number of very important things. So let’s count our blessings, and let’s keep in line with each other.

Firstly, that open competition, even aggressive competition, is essential for a healthy, a competitive and a dynamic economy that don’t need to be underlined in the United States, I imagine.

Secondly, the other competition rules are designed to protect competition and not competitors, and protecting competition is the best way to protect consumers. And that is why we are active in this field at the end of the day—to protect consumers and give them the benefit of a good of a good system.

And thirdly, that our big companies are a vital part of our economies, and they have a right to compete. Dominance alone is certainly not itself a trigger for reproach. It’s abused, which is the problem.

And finally, that clear and predictable rules benefit everyone and ensure that the fear of enforcement does not stifle innovation, for that is one of the main issues that we are focusing at the moment in Europe; that we need to have more innovation, and that to have more innovation, you need to stimulate competition and there should be competitiveness. And I think that when you look at the terms of both our reviews in this area, we are focused on very similar goals: improving the economic basis that underpins both the rules themselves and the way they are enforced. And the reason for doing so is to ensure that we strike the right balance between preventing abusive behavior and preserving full competition on the merits.

Finally, ladies and gentlemen, I would like to say a few words about the ongoing debate in Europe as concerns private damages actions for breaches of competition law. You in the United States have traveled much farther down this road than we have in Europe. Whilst in theory, European citizens have long been entitled to compensation for the damage caused by anti-competitive behavior, the fact, real life, is that theory and reality are two very different—(inaudible).

And that is why I launched a public consultation on a green paper on this issue last year. And I’m very much pleased to say that we had a number of responses to our green paper from organizations and from firms who are based here in the United States, and in particular a very useful paper from the American Bar Association.

I will outline just a few of the questions we are addressing. Number one, how to ensure that public enforcement decisions could be taken into account in private court proceedings throughout the union. Second, how to make sure that private cases are actually brought in court. In other words, that the benefits of bringing proceedings outweigh the costs, otherwise it doesn’t make sense. And third, how to guarantee that our public and private enforcement systems are complementary. This question arises in particular in relation to access to evidence and issues of leniency.

By the way, that’s not the whole list. Another question is, who should be able to claim? That is the question I often quote in the European Union. What do you have in my mind? Should indirect victims be entitled to bring proceedings? And if so, Madame Commissioner, should we have a passing on defense to ensure justice as between different victims? This question appears to be as contentious in Europe as it has been here in the United States, and we have learned a lot from listening to your debate on it.

And what about consumers? In my view, we should look very carefully at the possibility of allowing representative actions by consumer—representative actions by consumer organizations whilst avoiding the well-known potential pitfalls. Our debate in Europe remains open, and as yet, I have no firm view on how we should respond to these questions or even if any further action is indeed needed on any of them.

But watch this space, because we shall try to draw some conclusions from the debate early next year. So time is not solving the problem. We have to take a firm point in this. We got a lot of interesting reactions and taking into account what it’s all about that should be possible to come up with a list of conclusions early next year.

For me, there is no doubt that competition systems in Europe and in the United States have more similarities than differences, so to say. And most importantly, enforcers on both sides of the Atlantic are firmly headed in the same direction with policies which increasingly go hand in hand. And there is so much we can achieve by consulting and cooperating with each other and by continuing to recognize that listening to our stakeholders and benefiting from their experiences is important, too, that at the end of the day, we are much wiser and hopefully much better in a position to take the right decisions.

So I look forward to our discussion today, Professor, and to hear your views on how we can all benefit from the parallel developments as briefly outlined today.

Thank you for your attention. (Applause.)

JANOW: Thank you very much.

I think we now shift a more informal part of our program, and I have the honor of asking a few questions and perhaps stimulating a little bit of a discussion before opening it up to hear what’s the minds of our audience.

Let me just start with a very general, kind of observation question. You know, as an observer of the EU competition law and policy system, it’s really extremely interesting to see how much experimentation seems to go on—the green papers, the evolution of the system is very pronounced. It isn’t static. It’s very dynamic. It changes year to year. And you’ve mentioned some of the important priorities at present, but I know you’ve also been involved in some broad-based modernization efforts and other steps on institutional, procedural and substantive issues. Now, in the not so distant past, we had some significant disputes the U.S. and the European Union on mergers. And, of course, the most famous recent examples being the Boeing-McDonnell Douglas and the GE-Honeywell cases, both of which came before U.S. and EU authorities, both of which were cleared in the U.S. and only one with conditions in Europe. And so my question to you is this, as you look at that experience and where we are today, do you think the underlying sources of those types of conflicts—and I’m not speaking to those cases—but those types of conflicts where there seem to be differences, both in procedure that cause tensions and also in substantive standards, do you think those differences have been ameliorated, or do you think they’re still there? And if so, what should we do about them?

KROES: If you allow me to use your question—and I will come to your point, certainly—and rightly said by you, it is a dynamic climate in which we have to do. And by the way, I am very much in favor for the dynamic approach of the whole competition policy, merger and policy and a couple of other parts in the portfolio.

For the business world, it’s dynamic, and that is the pause we are dealing with. And by the way, also, in talking about the European Union, we have to be aware that—and that is not that long ago that we were 25 separate member states—that we are now together.

By the way, a single market that is unique in the world, with more than 450 million consumers, what I would say—so that challenging—changing and dynamic process in which we have to deal with the competition policy is a fact of life. And it is a split second from now that we are not any more with 25 but that we are with 27 member states—so again, enlarging and so on.

What we should take into account—talking about mergers—that what was already put down in the decision-making process of all the member states of the union is that the competition authority in the European Union, the commissioner for competition, has the responsibility to check the notification of parties who are announcing that they are going for a merger and that at notification will give us the possibility had the responsibility to check if it is in line with the merger rules, the merger regulation, with Article 21, and that’s it.

So to put it in a very down-to-earth way of saying, I’m not interested in the size of the parties. I’m not interested in the nationality of the party. I’m very much interested in if it is in line with what we have said in that merger regulation and the merger rules.

So if there is a(n) overlap in which competition is threatened, then we have to take in account that there should be remedies. In that case—and that is indeed sometimes a dispute; sometimes governments are coming in the discussion, and then I’m getting a type of allergy, to put it—(laughter)—I mean, we certainly can discuss this with you and myself. And why? Because the mergers in itself are a(n) activity where those businesses—with their shareholders at the back, but for them, extremely important—have to say if they are in favor, yes, or no. And if a national government is interfering or is involved, then the arguments that they are using are not always opportune, and sometimes, to put it also in a not diplomatic way, they are opportunistic.

So that is—and we call that—at the moment I am, anyhow mentioning that as the wave of protectionism or nationalism, and of course you all know that extremely silly example of the yogurt. Yogurt in one of the member states of the European Union seems to be a national security or whatever. (Laughter.) So when that is the case, then we have to take into account that is it not—absolutely not in line with what we did with the single market.

And I’m misusing your question, so you should stop me. (Laughter.)

I am absolutely intrigued by the fact that the single market is quite often more aware—in awareness for the business world, for they are filling in. They are filling in that there could be and that there should be cross-border mergers, that there should be activities not anymore within a member state but in the whole single market or even southern, and that some governments are still hesitating, to put it in a nice way, in using that way of thinking of the single market. It’s unique. You are more used to the ID now and then. It’s also—I caught that as an explanation yesterday at Fordham—but anyhow, in your country, you are more used that the whole of the United States is the playing field, and we are aware that we have the single market with a playing field that is so challenging.

So coming back to your question, dynamic? Yes. And we should take it into account that we also are aware that our systems never stop a development but that we do have the responsibility to check, and therefore we are reviewing from time to time our measures, our rules, our regulations, but that it should take into account that is an instrument for a process in which we are believing that that will stimulate economic growth, creating more jobs.

So substantive, yes. Let’s go step by step and communicate about that and learn from each other. But let’s go on the truth.

JANOW: Well, thank you. I’d like to ask you further about these—I know you’ve been sharply critical of these merger cases in Europe that have appeared to be protectionist or national champion in flavor, seemingly to have a preference for mergers between firms in the same member state over other EU mergers. And you’ve been very public in your criticism of that, as well as legal action, saying that you would use the tools available under the internal market regulation on merger laws to stop inappropriate action of this kind.

Could you share with us what tools you think you have? And how do you think about the question of intervening on those kinds of problems?

KROES: Yes, and rightly said by you, Professor. I’m extremely focused on—that we keep into account that it should be for Europe and that is should be cross-border. For I can explain—and I don’t need to explain it here; you are aware of it. But I can explain also at home that at the end of the day, the consumer, the citizen of Europe, is getting the benefit, if it’s really working, the single market, and if we are really taking into account that cross-border is one of the (thoughts ?) that at the end of the day was giving the inspiration to the founders of the European Union.

And a one-liner in between. I’m absolutely deeply impressed by those who were the founders at that day, so 49 years ago this year, and next year 50 years ago, that they had the wisdom and the great view of mentioning in the Treaty of Rome at that time what we are filling in today. It is absolutely visionary what had been done at that time.

Coming back to your point. There is indeed a close cooperation between one of my colleagues, Charlie McCreevy, the commissioner for the Internal Market, and myself. The two of us have the instruments, at the end of the day, to make quite clear if the national governments are not behaving like they should, and like they are obliged, and like they took, earlier on, a decision that they should keep that behaving. That is, by the way, talking about, for example, the mergers that are going on, if we are getting the merger—the notification, so it is obliged to give the notification. But if in the meantime a national government is trying to stop it or trying to interfere, then we are active via our Article 21. And Charlie McCreevy can take action to that national government and taking them to court.

That, by the way—you were talking about dynamic processes. That is also a very important influence in our behaving, that we are aware—and we always were, but that it’s even more actual—that all our cases should be court-proven. Sometimes, by the way, you are losing a case. And it can’t be all winners, of course not. But of course we try to limit the cases we are losing. And in that case, Charlie McCreevy and I are going together in that line. So we did that in a couple of cases that were quite open, published in the outside world.

For example, in the case of Italy with the bank mergers that were at that time at the table, so the bank of—central bank of Italy at that time tried to protect their own situation. And two cases, one case from a Spanish bank who was interested in a takeover or a merger with an Italian bank, and another one in another member state, the country I know best, tried to stop from that process. We were successful at the end of the day. The same started in Poland, where an Italian bank tried to take over a Polish bank. So we have to be quite aware of what’s going on.

And that is what I should like to mention here—and you touched upon that one with my former activities—sometimes I’m also grateful for my political experience, over having been a member of Parliament. I know how a member of Parliament or politician, whatever rank or function you have, is faced with a question from someone from your constituency saying, “We are losing the jobs over here and why aren’t you backing us?”

So taking into account why national governments or why some national politicians are sometimes trying to fight for an industry or for a—that makes sense so that is recognizable, but still you have to be aware that it is only short-term and that you shouldn’t give them the ballots to show what—and the results to show what is really an advantage of at that moment being more European. And at the end of the day when you compare the situation of the European Union and when you should take into account that we were all separate, then it makes sense and you can also explain it to your constituency. We should do that also as a commission, and we are trying to do that.

JANOW: Thank you very much. I think you’ve given us a lot to think about and react to.

We’ve reached the part of the program where we can invite our audience to ask questions. Please wait for the mike, identify yourself and follow with a question. Who’d like to get us started? Sir?

QUESTIONER: Thank you. I’m David Braunschvig, Bear Stearns and Council on Foreign Relations. Commissioner, thank you very much for your very interesting observations.

An hour and a half ago it was announced that the chairman of Telecom Italia is resigning. Mr. Tronchetti Provera had put up—was considering putting up for sale for about 40 billion euros the mobile division of Telecom Italia. The predecessor of your—well, Mr. Prodi, the prime minister of Italy, had made all sorts of pronouncements, declarations, with respect to the, quote, “sensitive,” unquote, nature of this asset. As a result, it appears that this whole transaction might not happen.

What action or impact can your initiatives have on behavior by member states that have the effect of intimidating and thwarting competitive behavior?

KROES: You thought, “Let’s face her with an easy one.” (Laughs/laughter.)

Taking into account that the most used argument in discussions where there is an intervention from a national government is that it is security, even with a—I was making a bit of a joke about yogurt, but I had the pleasure at that time—or not pleasure—to have a cup of coffee of Mr. de Villepin; as you know, the prime minister of France. And we were visiting the French government at that time for a couple of items that we should discuss. And he indeed mentioned sometimes you need to explain to your voters that it is of great importance because it is a (number of jumps ?), in most cases, though mixing up arguments and so on. So even then it was a matter of security and you could put the definition a little bit wider and so on.

I don’t believe in security arguments—but now I’m very open and frank with you—when we are talking about telephone, telecom, about mobile and so on. As you are aware or not aware, I was also involved twice in my working life till now in telecom, one when I was minister for Transport and Telecommunications and was the leader and the pusher of the privatization of the Dutch telecom industry, and later on when I was on the board of one of the mobile companies.

And so often it was used, “Can we do this? And is the state, is the government enough involved?”—talking about the security. You in your country, and I from my experience in my past life, know exactly that what could make sense—talking about security—in that side of activity, you can organize it in an other way. There is not a must in keeping it in the way we are talking of when we are touching upon this merger.

And there are so many examples in which we are aware that at the end of the day, it is not anymore—anyhow, not in the Netherlands, in Europe, it is not anymore a national business when we are looking at the mergers we have been dealing with and that we are dealing with, then it’s all cross-border, for it is a cross-border activity, it is a single market. So I’m very interested in getting more information from the Italian government. And we were already planning then to have coffee with Mr. Prodi, but then there is a new—(inaudible)—to try to have that cup of coffee.

JANOW: Thank you.

I think I saw a question over here. Yes. Please wait for the mike and tell us who you are.

QUESTIONER: Thank you. I’m Gerald Prescott, Baker & McKenzie. The area of—here we call it unilateral conduct by a monopolist, or unilateral conduct by a dominant player in a market seems to be very much under discussion, both among the antitrust bar here and in Europe.

Have you—I realize there is a discussion paper out and comments have been received. Have you developed in your mind any standards, or is there an array of possible standards—such as profit motivation; is the business being conducted at a loss, et cetera—which could be used as we think through the issues of unilateral conduct?

KROES: I realize that there is a bit of difference between the two systems, so no doubt about that. We are believers in reviewing, and we did the review recently with Article 82. And we are aware that with that result of the review and with the discussions we had, that we can come with a more economic approach in this playing field. And in that case, I think it is absolutely a must that we need to take into account—talking about what you were touching upon—it’s a dynamic process in which we have to learn what’s going on and how it’s working.

Anyhow, a dominant position in a market, in general terms, should get a lot of attention, for at the end of the day, it depends on how it’s dominance is formulated and what’s the definition of that dominance and what is the effect on the competition. I’m a strong believer in competition, and learned from my own experience that if there is a real strong dominant player in the market that is blocking the other ones, then you are blocking more than only the competition at that moment, you are also blocking the research, the innovation, the development in a sector. So taking into account I’m quite positive about what we are doing now in Brussels. But there is the difference, as you are aware.

JANOW: I think on that subject that the FTC was holding hearings, DOJ/FTC, on dominance last week. And I know a person testified on the question of what is dominance, saying dominance shouldn’t be found at less than 70 percent. (Laughter.) How does that strike EU ears?

KROES: It depends. I think it is quite dangerous to say it is 70 percent, for then it depends what sector are you talking of, what are the circumstances, what is the whole environment in which you want to see the development of that situation.

JANOW: Okay. I think there’s a question here.

KROES: And it—sorry. And it is a matter of definition. For sometimes I’m even getting with a nearby monopoly a definition from some who are saying, well, its dominance, yes. But I say, come on.

QUESTIONER: Gear Littman (ph) with the U.S. Chamber of Commerce. You mentioned that one of your main objectives is to prevent abusive behavior, unilateral abusive behavior. Could you reflect a little bit upon the tension from that and the de facto monopoly that intellectual property rights grant innovative companies.

KROES: Well, that is one of the items that we are trying to deal with. And there is also a great difference between the United States and Europe in that case, and we need to come to a point in which we are clear on that item, but we aren’t yet, in the way you are in the United States.

JANOW: Professor, (we’ll go down to you ?) in the front.

QUESTIONER: Yeah. Jack Fishagowitz (sp) from the council. Since intellectual property protection was mentioned, let me ask you about (tariffs ?). Because in the European Union now, the MSN applies only to about five countries, and so I called Pascal Lamy and told him, “Maybe you should call it the least favored nation—MSN.” But you have so many rules or origin, for instance, by different areas. You have product-specific rules of origin. These are sources of really elimination of competition, in effect. Sort of like Dannon—you know, yogurt might not be made by anybody else inside the system, but it is made by the Swiss and others who are probably not inside the system. So once you start playing this game, I mean, you know, you’re already cutting off competition altogether in many cases. So is your jurisdiction confined just to internal competition? Or do you really look at the true nature of competition, including trading on Peter Mandelson’s territory?

KROES: It is indeed Peter Mandelson’s territory. But we are looking at real competition, no doubt about that. But then we need to take into account that some standards are set to protect for environmental reasons or to protect certain areas, but not to get rid of competition, not at all, and that is what, anyhow, is in the mind not only of Peter but also the (environmental ?) commission talking about the Doha round, that we should come—stop (suffer ?) in just facing each other, that at the end of the day, we can all be winners, and then talking about real competition.


QUESTIONER: I mean, you talked about—this is Matthew Bishop from The Economist magazine. You talked a lot about the convergence of opinion between Europe and America, but the obvious case that leaves out is Microsoft, where there seems to be quite a fundamental difference of opinion. I mean, can you sort of—can you shed some light on why you think that is and how it might be resolved?

KROES: I’m not willing, if you allow me to say so, to say that there is a major difference in the way of thinking between the United States and our colleagues and ourselves. DOG is moving. So that having been fact—and I can imagine that some politicians are not in that camp, but I’m talking about the colleagues and we ourselves. We have a different system, so we need—and I’m talking for the European system, and I’m in favor for the European system—we need to take into account, if there is such a dominant player in a nearby monopolist, then we need to be absolutely aware that that player in the game is playing the game—conform our rules and our regulation, and then we are talking about competition rules and competition regulation. And that is what we are discussing with Microsoft, by the way, till the (day ?) of today, and a couple of items that we are not aware that they are taking our message till now that serious, that they are just behaving like we want them to behave.

If you allow me to say a few sentences more, for I know that it is a complicated dossier, and it’s not only complicated but also very sensitive—if we take into account that why are we such big protectors for competitiveness, it is—and to put it in one language—again, it is because at the end of the day—for the consumer, it is interesting to have competition in the field: better prices, better quality, more diversity and better innovation and research in that field. If those players—if the player, Microsoft in this case, is just with the interoperability and a couple of other points is not giving enough possibility for other ones in the competition field, then we have to conclude that they are blocking competition and they are not in line.

We are discussing this for more than a year now, and we do have great help of our trustee, a trustee, by the way, who was advised by the Microsoft board, is of help. And I sincerely hope that we will come to a point in which there will be an awareness that competition is absolutely crucial also in this field.

And we have to act, and we are quite willing and able to act; it’s our responsibility. But, as you know, when there’s a complaint at my desk, we have to act. There are complainers in this field, and by the way, most of the complainers are American companies. And what I said before, I’m not in favor for whatever nationality, neither as a merger partner, nor as a complainer or whatever. I’m interested in serious complaints, for then, we can do our job properly. So that is the case with Microsoft.

But I sincerely hope—and that is also when I’m discussing with the CEO of Microsoft this matter; that is indeed my attitude. Please give us the possibility in just closing this quarrel or whatever, and that we can just explain to the outside world that competition is still there and competition that makes sense.

JANOW: Thank you.

I see another question here.

QUESTIONER: Hi. I’m—(name inaudible)—with Citigroup. A question for you on consumers, because you’ve talked a lot about consumers. But the issue or the question I would have to for you on consumers is, in the decision-making process and in things like competition or in trade, consumers seem to be neither well-organized, unified in their positions, nor aware of the benefits that they receive from increased competition, open markets, et cetera. The losers are very cognizant of what they’re losing, but the winners aren’t always very aware of what they might be gaining.

How do you in making your decisions decide, given that you’re acting on behalf of consumers who may or may not be well-organized or articulate in what they want, include them in your decision-making? How do you properly weigh that and determine what they may or may not want?

KROES: Interesting. Rightly, I mentioned to you that I’m also highly focused on consumers because that at the end of the day is my goal that the consumer has taken profit out of, and consumer, by the way, is also the business world. For if we are talking about a competition—fair competition, then that makes sense for the business world too. So consumer is as well the private person as well the business world.

How do I get—at the end of the day, within the decision-making process, their views in steps process—by the way, and then, again, coming back to how is competition working out in the whole economic process. If there is competition, and if there is not a position and with one dominant player is making the rules of the game, then I can explain to the outside world, to the consumer that it is for his benefit, that it is for, at the end of the day, for the community in itself, a better proposition. So I need to communicate with them.

But that was not your question. Your question was, how do you get your feeling to take into account? And then, again, taking into account—and as a trained economist—I learned already long time ago that if it is a fair and open market, then, at the end of the day, it is in favor for the consumer. What—and perhaps I’m too much focused on it, but I think that we have neglect too much the consumer, not in the process, decision-making, not at all, but in communicating what it’s all about. And again, I’m misusing the question. We had a very worthwhile experience in Europe not that long ago with two referenda—two referenda, one in France and one in the country I know best, where people were asked for the European Constitution. And European Constitution—I won’t bother you with what’s all about. But it is a type of agreement, and because the enlargement—we need to do something with the agreement we have till now with the treaty and so on and so forth.

But people were just explaining the question—and a referendum is a very difficult item to deal with—they were explaining it as they are asking: What’s Europe all about? But people were so used to the advantages of a single market, of a Europe without war and yeah, within the single market and with prosperity and so on and so forth. So they took that for granted, and it was Europe—my goodness, rules and regulations and a lot of civil servants in Brussels, and it costs a lot of money, for national politicians—and you certainly recognize that in your country, too—are blaming always another one instead of themselves if something is going wrong. That is in the job, I think.

But taking into account that at that time, the consumer was quite—and the citizen of Europe—was quite—anyhow, in those two countries, for whatever reason, for national reasons or for specific reasons, were a bit anti-Europe, and they said, “Well, they should know as well in our capital in our own country, as well in Brussels, that it’s not a case for granted”—Europe.

And we discussed that, of course, in the European Commission, and we are worried. And I will—said: Count your blessings, for now we have a clear signal that there is something wrong in our communication, for we can explain to each other, and we don’t need for—what the economic facts and figures, what’s the figure on security, and with the terrorism, that you can’t deal it (sic) as a country on your own but that you need to have the whole of the European Union, and whatever items you should touch upon, you could explain it. But we didn’t. So that was, anyhow, for me the bell that was wakening up, that was wakening up and was stimulating the whole process.

So that is the same, talking about the consumer. We should explain and we should communicate that is not only a matter of taking into account what they are getting more out of it, but what would be the consequence if we wouldn’t go for this route—and by the way, not only the short term. So it’s not only tomorrow. It can be quite useful to think what’s the day after tomorrow bringing. And in that type of processes are, of course, arguments needed.

And that was—I’m learning, and hopefully I’m learning till the end of my life—but talking about Microsoft—so I sometimes got, of course, the question of youngsters: “Why are you that awful to Microsoft? For their products are great, and that’s it,” and so on and so forth. And when you are explaining—also to youngsters and saying, “Is this what you think will be the last innovation and what have you?” “No, of course not, but we are pleased with it till now.”

But think of tomorrow and the day after tomorrow. If someone is absolutely sure of his position in the market, will that be a stimulant? So you have to communicate, and you have to explain why you sometimes are a bit sticking to a point or whatever.

So—sorry to take that long for you, but I’m grateful for that opportunity.

JANOW: Well, thank you very much. You’ve been very generous with your time. And unfortunately we’ve reached the end of our time with you, and the council’s very strict about these matters. And I know they’ll raise my dues if I let us stay. (Soft laughter.)

So thank you so much. Please join me in thanking the commissioner for her thoughts. (Applause.) Thank you very much.








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