ABSTRACT
Merger control is one of the most controversial tools in the competition law tool kit. Mergers can facilitate industrial restructuring, they can help to create a national champion, and they can provide other positive contributions to a national industrial policy. Equally, mergers can have effects on employment, either negative when one firm ceases to exist in the market resulting in job losses, or positive, for instance in the case of a failing firm. Most importantly, however, merger control matters for competition purposes. Regardless of how a merger was formed – through a merger, an acquisition or a joint venture – for competition law the merger matters because it has immediate effects on the market’s structure. On the one hand, mergers between two or several firms may offer immediate freedom from the ‘nuisance’ of having to compete with each other, and may provide a ‘lazy’ way to the creation or strengthening of market power, with the ability to raise prices without losing consumers, make market structure more concentrated and more susceptible for tacit collusion, or otherwise significantly impede effective competition. On the other hand, mergers are not always about the harm on competition. These transactions may help to generate efficiencies, for instance, they may present the chance to re-combine assets in more efficient ways, and/or they may be about replacing poor management where performance is inadequate, and/or be concerned with improving the competitive performance of affected markets and therefore make the market more competitive. Since mergers can accumulate either positive, or negative, effects, the merger control for the competition authorities is a challenging predictive exercise, and one which will be explored in this book. While the European Coal and Steel Community (ECSC) Treaty contained provisions to control mergers in the coal and steel industries, the following
European Union (EU) Treaties are silent and do not inhibit comparable provisions. Merger control in the EU was introduced only in 1989 through the Regulation 4064/89, which came into force on 21 September 1990 to complete the full set of competition law. The European Commission became the sole arbiter of merger control. However, the Commission’s proficiency came under threat in 2002, when the European Courts challenged the Commission’s decisions in several merger cases.2 These defeats forced the Commission to review its merger policy and its approach. After arduous debates, the new revised regulation came into force on 1 May 2004. The development of the merger review process in the EU is in line with the Commission’s endeavour to base its merger control analysis with economics. Central to the new merger control regime is the ‘more economic-based approach’, which exhibits in the new substantive test for merger appraisal – the significant impediment of competition (SIEC), the new Guidelines on horizontal mergers and non-horizontal mergers, as well as in recent decision-making. The launch of the revised European Community Merger Regulation (ECMR) also coincided with the biggest enlargement in the EU history, commonly known as the ‘Big Bang’. Ten new countries joined the EU on 1 May 2004 with Bulgaria and Romania joining in 2007 completing the fifth expansion. This expansion brought to the EU a mixed bag of countries, including the post-Communist countries with their ‘past shadow of socialism’ and some Mediterranean countries. This book will focus on selected post-Communist countries with small market economies; that is, the former countries of the Soviet Union – Estonia, Latvia and Lithuania, which are also traditionally known as the Baltic states, and Slovakia and Slovenia. Although Slovakia and Slovenia did not officially form the former Union of Soviet Socialist Republics (USSR) like the Baltic countries, nonetheless both countries belonged to the former socialist regimes of Czechoslovakia and Yugoslavia respectively. The book will also review the merger control mechanisms in two Mediterranean countries with small market economies – Cyprus and Malta, which like the Baltic countries, Slovakia and Slovenia joined the EU on 1 May 2004. Reference will also be made to Luxembourg, which remains the only country in the EU without a national merger control enforcement mechanism, and Ireland, another older member state of the EU with a small market economy. Theory recognises that newly formed countries, developing countries and countries which are reforming their systems have two main choices in selecting sources of laws. The choice involves adopting a law from within its own institutional mechanism, or transplanting rules from outside its politicallegal zone of dominance. According to Watson, most changes occur in many legal systems as ‘the result of borrowing’.3 Given that in a socialist regime, competition was non-existent, as the prices were set centrally by Moscow, a merger control mechanism or competition law in general was introduced to the post-Communist countries because of ‘borrowings’. In contrast to the EU, where merger control has developed over time, competition law, includ-
ing merger control rules in the post-Communist countries, were transposed as a part of the acquis communautaire as a quid pro quo for being admitted to the EU. However, the implementation of the merger control mechanism in the post-Communist countries was not a single act per se. It constituted a new revolution for these countries, as their whole legal, economic and political environment as well as their Soviet mentality had to be changed. The reforms were in place to shift from a socialist legal system to a civil law legal system and from a centrally planned to a market economy. Crafting a competitive business environment required structural changes in the economies, including trade liberalisation as well as privatisation. Clearly, the transition not only demanded economic expertise but also comprehension of the legal conditions of a market economy, in particular the European Communities, as they were at the time (now the European Union). The policy to set and control prices, employed during the Soviet time, had to change almost overnight into the protection of competitive processes. The regulators, who worked at the old system and possessed a degree in law or economics obtained during the Soviet regime, but no knowledge of the basic principles of a market economy, had to change and adapt to the new rules of the game. Given that one of the requirements for admittance to the EU was to bring national competition law into ‘general harmony’ with the EU, a top-down approach was undertaken, which was inherent in the process of accession of the post-Communist countries to the EU. The external requirement of harmonisation in these countries overruled the national necessity for economic differentiation, that is, to take into account their small market economies in transition. Watson (1993), who is considered a pioneer of the ‘legal transplant’ theory, argued that legal transplant is possible from one jurisdiction to another even in the case of a different level of development or ‘political complexion’.4 However, Watson’s ‘legal transplant’ has been criticised by other scholars. According to Legrand (1997), legal transplants are impossible,5 because laws are deeply embedded in the ‘legal culture’ of nations and a legal institution cannot survive a ‘journey’ from one legal culture to another. Along similar lines, Örücü (2002) argues that the transplant theory needs some conceptual refinement. She suggests that the term ‘transposition’, as used in music, and the role of ‘tuning’ becomes more vital.6 In the context of legal transposition, each legal institution or rule is introduced in the recipient’s system as it was in the system of the model, ‘the transposition occurring to suit the particular socio-legal culture and needs of the recipient’.7 Neo-realism and its followers also suggest looking behind the formal texts of rules – ‘each society should implement its unique vision with a set of carefully considered indigenous laws, not a set of rules that represents the vision and voice of another’.8
