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Rt. Hon. Stephen Byers - Former Secretary of State for Trade and Industry (Dec 1998 - Jun 2001)The Social Market Foundation - "A New Era in Competition" |
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This Government was elected with a commitment to modernise and reform. To create a better Britain in which opportunity is available to all and business can flourish. A key part of this modernisation programme are economic reforms to enable Britain to meet the challenges of the new global economy. Independence to the Bank of England over interest rates being the main example. The Competition Act, which comes into force in just two days time, is central to these reforms. The Act introduces a major modernisation and strengthening of UK competition law. The Competition Act introduces the toughest competition regime we have ever had in this country. This is not just in the interest of the consumer, but in the interest of business as well. Gone are the days when industrial policy meant planning, picking winners, pumping subsidies into firms. The new policy is about skills, about innovation and enterprise. Above all, it?s about competition to create dynamic, innovative firms. Strong competition in our domestic markets makes for strong businesses. It provides a spur for firms to innovate, increase productivity and provide real choice for consumers. It equips them to compete in the global market place. Conversely, anti-competitive behaviour is a burden on the economy. A burden on businesses which want to grow by offering better value. And a burden on ordinary consumers who have to pay more for less. Competitive markets enable small firms to grow. Cartels and abuse of market power stifle the small firms which are increasingly the lifeblood of our economy. A modern, effective competition policy is essential in the new, global market of the 21st century. We have moved from sheltered to open economies, from local to global competition, from national to world wide financial markets. The main character of the new economy is change. Change driven by new technology, innovation and globalisation. This is creating new challenges which need to be met by a new competition policy. Globalisation is driving the huge increase in mergers and take-overs that we?re witnessing at the moment. Companies not only need competitive markets but also need to collaborate to increase their competitive position. In this new economy we need strong competition, enforced by a tough but intelligent competition regime. That is why we introduced the Competition Act. The new regime provides new powers to tackle anti-competitive practices. It introduces tough penalties for anti-competitive behaviour. Strong incentives for companies to stick to the rules. The new regime enables the authorities to meet the challenges of the increasingly complex nature of competition policy. The Competition Act is the first fundamental reform of competition policy in this country in twenty five years. For the first time we are introducing a prohibition approach to domestic competition. In the United States, the Sherman Act introduced this approach in 1890. At the start of the 21st century we are finally catching up. The competition regime we inherited did not provide a guarantee of effective competition. Under the old regime there were no penalties for past behaviour. This meant that there was little to discourage companies from trying their luck at rigging the market. Under the old regime, anti-competitive behaviour was not unlawful until it had been investigated, found to be against the public interest and those responsible had failed to take the opportunity to remedy their behaviour. There were very limited powers to stop anti-competitive behaviour while an investigation was underway. The worst that could happen when anti-competitive behaviour was first detected was that a company was asked to stop. This meant that a company could continue to benefit from anti-competitive behaviour even during the investigation. The new system provides strong measures to discourage companies from price fixing or abuse of market power. From Wednesday companies are breaking the law from the moment they take anti-competitive action. The Director General of Fair Trading will be able to step in to stop anti-competitive behaviour where he considers urgent action is necessary to protect third parties from suffering serious, irreparable damage or to protect the public interest. Anti-competitive conduct will now give rise to fines or claims for damages right back to the time of the first infringement. And companies may be fined up to 10% of up to three years? turnover. Under similar systems in the US and European Community, fines can be substantial. In 1998 the European Commission fined Volkswagen a record £69m for forcing dealers to refuse to sell to foreign buyers. Since the beginning of 1997, the Dept of Justice has obtained over $1.5 billion in fines for breaches of the Sherman Act. Fines of over $10m have become commonplace. Last year Hoffman-La Roche was fined $500m. The new regime will allow fines of such levels where turnover is substantial. The new regime also introduces tough powers to investigate. Companies harmed by anti-competitive behaviour will be able to seek damages. And, following the US example, there will be immunities from fines for the first party to come forward in exposing cartels of which they have been a member. This marks a radical change in competition policy. We are also borrowing from the European Union competition regime. It is based on articles 81 and 82 of the Treaty of Rome . This has applied in the UK from 1973, in relation to the agreements and conduct which affect inter-state trade. The new UK regime now applies similar provisions to domestic cases. But there will be a difference. We are retaining the existing powers of the Fair Trading Act. There is no equivalent to these at the European Community level. The complex monopoly provisions of the Fair Trading Act will enable us to deal with cases where there are common practices in a market which, while individually of no concern, cause problems when adopted widely in an industry. And where there has been a prior finding of abuse and the DGFT believes that there is a real prospect of future abuse by the same business, he will be able to exercise the scale monopoly powers under the Fair Trading Act. This approach gives us a full armoury against anti-competitive behaviour. Based on the US experience I?m clear that the new regime will play an important part in improving the competitive position of British business. The US economy shows that strong competition laws vigorously enforced can make a real contribution to economic growth, innovation and investment. American businesses have not been made less competitive by their authorities long-standing tough approach to anti-trust enforcement. Indeed, the rigour of the competition authorities in pursing anti-competitive practices has contributed to the success of US businesses. I do not therefore accept that the changes we are introducing will be bad for business. Nor will the new regime stand in the way of genuine collaboration between companies which does not significantly restrict competition. Adam Smith said that "people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." But in the knowledge driven economy, companies need to innovate. And an important way of developing new ideas is to learn from other companies or enter into collaborative joint ventures. We don?t want to stand in the way of that. We are seeing, for example, how third generation mobile phone technology is leading handset manufacturers to collaborate with software and personal organiser companies. In the modern economy, we need such innovation and collaboration to generate wealth and improve our competitive position. But this poses difficult questions for competition authorities. When does collaboration end and market fixing begin? In such a complex economy, we need a sophisticated competition policy. That is why, under the Competition Act, the Office of Fair Trading will consider issues on a case by case basis. In doing so it will look at the actual effects of the agreements or conduct in particular markets. And as markets change, so the effects and the analysis may change. Equally, in the new economy, mergers are becoming increasingly complex. Globalisation and the adoption of the single currency in continental Europe are driving an upsurge in the number of mergers. We are witnessing this on an almost daily basis. In a global market a merger can increase the competitiveness of a business and enable a company to enter new markets overseas. But mergers can also, of course, have adverse effects on competition In relation to mergers, we are of course reviewing the regime as part of our programme for modernisation and reform. Last year I issued a consultation paper on changes to the merger regime. I will be responding in May. As I have made clear before, I believe there would be benefits in taking politics out of the whole area of merger policy. Businesses need stability and confidence that decisions in these matters are not taken for short-term political considerations. My consultation document proposed that merger decisions should normally be taken by the independent competition authorities judged against a competition-based test. A small number of cases will raise exceptional public interest issues, such as defence and there, Ministers may have a continuing role. In my time as Secretary of State I have dealt with over 280 merger cases. On only one occasion, in relation to NTL Cable and Wireless, have I gone against the advice of the Director General of Fair Trading and referred a matter to the Competition Commission. And on only two occasions have I decided not to refer cases when advised to. Just three cases out of nearly 300. We have always been clear that, as far as monopoly reports are concerned, there is a clear public interest that needs to be exercised by the Secretary of State for Trade and Industry. By their nature, such cases can affect markets as a whole, not just individual firms, and wider considerations may have a role to play. Transparency - of how the authorities work, how they reach their decisions - is vital in this process. Companies want as much certainty as possible. The Competition Commission have recently come forward with a number of ways of increasing transparency - of timetables, publication of certain evidence, issues and remedies statements. I am pleased to be able to report today that the Office of Fair Trading are looking at ways of publishing the Director General?s advice on key mergers. I believe that it is also important to provide transparency in cases where Ministers take decisions on competition cases. The DGFT publishing a summary of his advice to the Secretary of State on merger referral cases will go a long way towards achieving that. I hope this is something the DGFT will be able to do in the near future. I would like to do that sooner rather than later. Any changes to the merger regime will require primary legislation. I would like to do something now to open up the process to greater scrutiny. Greater transparency should support the cultural change we need to see in attitudes to competition and consumers in Britain. All businesses must realise that to succeed in the new economy they must be dynamic and innovative. That means strong effective, competitive markets; not price fixing and abuse of market power. Monopolies and cartels do not make for dynamic, competitive businesses. They do not provide a basis for a vibrant, wealth generating economy. They do not encourage companies to adapt to changing technology, markets and consumer demand. The Competition Act calls for a change in business behaviour. The new regime means that businesses will be better protected against anti-competitive behaviour. In return businesses will have to take greater responsibility to avoid anti-competitive behaviour themselves. Successful implementation of the new regime will depend in large part on the Office of Fair Trading. We are improving and expanding the OFT to enable it to carry out effectively its new role under the Competition Act. We are investing in the skills and expertise needed for the more pro-active and sophisticated role it will play in the new regime. John Bridgeman has led OFT through a period of major change. Alongside dealing with its heavy caseload of mergers and investigations, he has led the restructuring of the organisation to prepare it for implementation of the Competition Act. John Bridgeman will be standing down as DGFT in September. I would like to take this opportunity of thanking him personally and publicly for his work as DGFT. His successor will need to build on his work to meet the challenges ahead. I believe we need a change in culture in the UK where competition and consumer interests are seen as key drivers in the success of the economy and are embedded in the work and culture of Whitehall as well as the public mind. In order to take this agenda forward I want to take a more thorough look at particular sectors and markets to see whether policies and regulation are promoting effective competition. We are already doing that in relation to utilities at the moment with the Utilities Bill. Market liberalisation poses new questions for competition policy. It affects the way competition authorities look at markets. The development of the Single Market in Europe means that for an increasing number of British companies, their domestic market is Europe not the UK. E-commerce takes this one step further. In retailing or financial services, it is possible that in the future dominance on the high street will not necessarily lead to market power. At the click of a mouse, a consumer can access a wide range of competitors across Europe and the globe. I believe that these developments mean we must work with the European Commission and colleagues in Member States to ensure a modern and effective competition regime, properly enforced across the European Union. This is crucial to our goal of furthering European competitiveness. We need to ensure that the European Commission?s reviews of competition enforcement and merger reform work towards building an open and competitive single market. The Commission is currently looking at these areas. We need to ensure that the right decisions are taken. We need to consider how we can provide for greater flexibility and effectiveness whilst at the same time providing the necessary certainty and consistency for business. With increasing globalisation, we also need to look at arrangements between other national competition authorities. The US Department of Justice has increasingly found that cartels it uncovers are international ones, not just based in the United States. There is a good case for improving co-operation and information exchanges between national competition authorities. Far too little joint work is carried out at the moment and there are restrictions on the exchange of information. This has to change. I am currently looking at how we can strengthen co-operation between the OFT and the US authorities. We will be exploring ways of exchanging information with the US Department of Justice in their and our efforts to tackle anti-competitive behaviour. Conclusion: I believe the Competition Act marks a real departure for the UK. We will now have a tough but fair process for dealing with anti-competitive behaviour. We have given notice to firms hiding behind anti-competitive behaviour. It is an exciting time in the development of policy in this important area. The Competition Act will play an important role in ensuring that we have businesses capable of competing in the global economy of the 21st century. |
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Other speeches by Rt. Hon. Stephen Byers - Former Secretary of State for Trade and Industry (Dec 1998 - Jun 2001)
(the following are available from the archive) |
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