REPORT on the proposal for a Council and Commission Decision on the position to be taken by the Community within the Association Council established by the Europe Agreement between the European Communities and their Member States, of the one part, and the Republic of Estonia, of the other part, signed in [...] on [...], with regard to the adoption of the rules for the implementation of Article 63(1)(i) and (ii) and (2) of the Europe Agreement (4214/98 - COM(98)0118 - C4-0594/98 - 98/0077(CNS))

2 December 1998

Committee on External Economic Relations
Rapporteur: Mr Rijk van Dam

By letter of 28 October 1998 the Council consulted Parliament, pursuant to Articles 87 and 235 in conjunction with Article 228(3), first subparagraph, of the EC Treaty, on the proposal for a Council and Commission Decision on the position to be taken by the Community within the Association Council established by the Europe Agreement between the European Communities and their Member States, of the one part, and the Republic of Estonia, of the other part, signed in [...] on [...], with regard to the adoption of the rules for the implementation of Article 63(1)(i) and (ii) and (2) of the Europe Agreement.

At the sitting of 16 November 1998 the President of Parliament announced that he had referred this proposal to the Committee on External Economic Relations as the committee responsible and the Committee on Economic and Monetary Affairs and Industrial Policy S1for its opinion.

At its meeting of 4 June 1998 the Committee on External Economic Relations had appointed Mr van Dam rapporteur.

It considered the proposal for a Council and Commission Decision and the draft report at its meetings of 9 and 24 November 1998.

At the latter meeting it adopted the draft legislative resolution unanimously.

The following took part in the vote: Sainjon, vice-chairman; van Bladel (for Karoutchi), Elchlepp, Ferrer, Karamanou (for Papakyriazis), Schwaiger, Seppänen (for Herzog) and Valdivielso de Cué.

The opinion of the Committee on Economic and Monetary Affairs and Industrial Policy S1is attached.S1

The report was tabled on 2 December 1998.

A DRAFT LEGISLATIVE RESOLUTION

Legislative resolution embodying Parliament's opinion on the proposal for a Council and Commission Decision on the position to be taken by the Community within the Association Council established by the Europe Agreement between the European Communities and their Member States, of the one part, and the Republic of Estonia, of the other part, signed in [...] on [...], with regard to the adoption of the rules for the implementation of Article 63(1)(i) and (ii) and (2) of the Europe Agreement (4214/98 - COM(98)0118 - C4-0594/98 - 98/0077(CNS))

(Consultation procedure)

The European Parliament,

- having regard to the Commission proposal for a Council and Commission Decision (4214/98 - COM(98)0118 - 98/0077(CNS),

- having regard to Articles 87 and 235 of the EC Treaty,

- having been consulted by the Council pursuant to Article 228(3), first subparagraph, of the EC Treaty (C4-0594/98),

- having regard to Rule 90(7) of its Rules of Procedure,

- having regard to the report of the Committee on External Economic Relations and the opinion of the Committee on Economic and Monetary Affairs and Industrial Policy S1(A4-0472/98),

1. Approves the position to be taken by the Community within the EC-Estonia Association Council with regard to the adoption of the rules for the implementation of Article 63(1)(i) and (ii) and (2) of the Europe Agreement;

2. Instructs its President to forward this opinion to the Commission, the Council and the governments of the Member States and of the Republic of Estonia.

B EXPLANATORY STATEMENT

1. The European Union has concluded association agreements, known as Europe Agreements, with the three Baltic States, Estonia, Latvia and Lithuania, which supersede the existing trade and cooperation agreements. These agreements entered into force on 1 February 1998 after negotiations with all three countries had been successfully concluded on the basis of a negotiating mandate which the Council issued to the Commission on 12 April 1995 and after they had been signed in June 1995. Since they are mixed-type agreements concerning areas which fall under the EU's as well as the Member States' jurisdiction, the Europe Agreements have had to be ratified not only by the European Parliament but also by the parliaments of all the Member States. The purpose of the Europe Agreements is to bring the relevant associated countries into line with the EU and prepare them for accession. The three Baltic States are the only former Soviet Republics with whom Europe Agreements have been concluded. The EU has concluded partnership agreements with the CIS States, but they do not contain any provisions regarding future accession and, in the area of commercial policy, refer to the establishment of a free-trade area only as an option for consideration in the medium-term.

2. Estonia occupies a special place amongst the Baltic States for two reasons. Firstly, the Europe Agreement and its predecessor provided for the immediate establishment of an EUEstonia free-trade area, whereas the agreements with the other two Baltic States and the other countries of central and eastern Europe, provide for the asymmetric and phased establishment of free-trade areas. Secondly, Estonia is the only Baltic State to have been included in the first round of accession negotiations.

3. The establishment of a free-trade area will yield economic benefits for both sides only if the legal framework for economic activity is based on uniform principles. This is particularly true in the case of competition policy. Article 63 of the EU-Estonia Europe Agreement stipulates that the principles set out in Articles 85, 86 and 92 of the EC Treaty (prohibition of restrictive practices, prohibition of the abuse of dominant positions and discipline as regards state aid) are to be applied for this purpose. Pursuant to Article 63(3), the Association Council, which is the highest political body of the Association and composed of representatives of the Contracting Parties's governments, is to adopt, by the end of 1997, the necessary rules for the implementation of common rules on competition. In order that the Association Council can take such a decision, the Member States of the EU first must establish the common position which they propose taking within the Association Council.

4. That is the purpose of this proposal by the Commission. The draft Decision of the Association Council, which is annexed to the decision on the Community's position concerns the basic principles of competition policy, the competent competition authorities, consultation and notification procedures in cases which, whilst concerning both Parties, fall within the exclusive jurisdiction of one Party only or are of cross-border relevance, and cooperation between authorities. The principles apply to all agreements between undertakings, decisions by associations of undertakings and concerted practices between undertakings which have as their object or effect the prevention, restriction or distortion of competition as well as to abuses of a dominant position in the territory of the Community or of Estonia. Such cases are dealt with by the Commission (DG IV) on the Community side and by the Competition Board on the Estonian side. Both authorities are to settle cases in accordance with their own substantive rules, and having regard to the agreed implementing provisions. The relevant substantive rules in the Commission's case are therefore the competition rules contained in the Treaty establishing the European Community and the secondary legislation derived therefrom, and in Estonia's case, they are the Estonian Competition Law as last amended on 1 October 1998 and the relevant by-laws. Cases relating to competition law are to be dealt with by the authorities of the Community and the national authorities acting in close cooperation. The above implementing provisions may also be used to develop procedures for cooperation between the competent authorities in the following three cases:

* where both authorities (i.e. DG IV and the authority of the relevant associated country) are competent to deal with one and the same case (Article 2);

* in cases which fall within the exclusive competence of one competition authority and which may affect important interests of the other Party (Article 3);

* in cases which do not fall within the competence either of one authority or of the other (e.g. if only trade between one Member State and an associated country is affected), the authority of the relevant Member State has exclusive competence.

5. In addition, Article 7 contains provisions on the increasingly important merger control aspect of competition policy. As the relevant Community rules, Regulation (EEC) No 4064/89, were enacted, owing to the absence of a specific Treaty provision, on the basis of Article 235 of the EC Treaty, that article of the Treaty is also cited as a legal basis for the Decision on the position to be taken by the Community. The implementing provisions stipulate that the Estonian Competition Board is entitled to express its views in the course of merger control procedures where mergers have a significant impact on the Estonian economy.

6. The laying-down of basic principles and establishment of procedures for implementing competition policy which goes beyond existing Association Agreement provisions is important for guaranteeing the smooth functioning of the association arrangements between the EC and Estonia. The European Parliament is therefore able to approve the draft Community position. After it has been adopted, the provisions must be adopted by the Association Council by means of a written procedure.

7. Although the deadline set in Article 125 of the EU-Estonia association agreement expired at the beginning of the year, your rapporteur takes the view that, in this important matter, it is crucial that the EU establishes the same bases for all the associated countries before accession. Accordingly, the timetable for introducing the competition rules must be brought into line with the timetable for the other central and eastern European countries. In order to prevent the difference becoming too great, Parliament should deliver its opinion as soon as possible.

8. Application of these provisions will help to improve the conditions for trade between the EU and Estonia. However, this will not prevent the EU from applying, where necessary, trade protection measures, in particular anti-dumping measures and safeguards, which are permitted by the association agreement. In order that the EU can abandon such measures once and for all, Estonia must pursue a public aid policy based on rules which are the same as those that apply within the EU. Under the association agreement, the deadline for this is the end of 1999. According to the Estonian authorities, Estonia is prepared to implement provisions to harmonise the rules on public aid immediately, as subsidies are not an instrument of Estonian economic policy. In this way, conditions are to be created so that Estonia may cease to be treated as a third country for the purpose of trade protection measures, even before its formal accession to the EU.

3 November 1998

OPINION

(Rule 147)

for the Committee on External Economic Relations

on the proposal for a Council and Commission Decision on the position to be taken by the Community within the Association Council established by the Europe Agreement between the European Communities and their Member States, of the one part, and the Republic of Estonia, of the other part, with regard to the adoption of the rules for the implementation of Article 63 (1) (i), (1) (ii) and (2) of the Europe Agreement. (4214/98 - COM(98)0118 - C4-0594/98 - 98/0077(CNS)) (report by Mr van Dam)

and

the proposal for a Council and Commission Decision on the position to be taken by the Community within the Association Council established by the Europe Agreement between the European Communities and their Member States, of the one part, and the Republic of Latvia, of the other part, with regard to the adoption of the rules for the implementation of Article 64 1(i), 1(ii) and 2 of the Europe Agreement. (4215/98 - COM(98)0068 - C4-0593/98 - 98/0076(CNS)) (report by Mr Seppänen)

and

the proposal for a Council and Commission Decision on the position to be taken by the Community within the Association Council established by the Europe Agreement between the European Communities and their Member States, of the one part, and the Republic of Lithuania, of the other part, with regard to the adoption of the rules for the implementation of Article 64 1(i), 1(ii) and 2 of the Europe Agreement (4216/98 - COM(98)0119 - C4-0592/98 - 98/0075(CNS)) (report by Mr Elchlepp)

Committee on Economic and Monetary Affairs and Industrial Policy

Draftsman: Mr Wolf

PROCEDURE

At its meeting of 25 June 1998 the Committee on Economic and Monetary Affairs and Industrial Policy appointed Mr Wolf draftsman.

It considered the draft opinion at its meetings of 23 September and 28 October 1998.

At the latter meeting it adopted the following conclusions unanimously.

The following took part in the vote: von Wogau, chairman; Katiforis, Garosci and Secchi, vicechairmen; Wolf, draftsman; Billingham, Caudron, Alan John Donnelly, Fayot, García Arias, Glante, Hendrick, Metten, Miller, Murphy, Pérez Royo, Randzio-Plath, Rapkay, Read, Torres Marques, Areitio Toledo, Arroni, Christodoulou, Friedrich, García-Margallo y Marfil, Herman, Ilaskivi, Konrad, Langen, Lulling, Mather, Peijs, Rübig, Thyssen, Gasòliba I Böhm, Riis-Jørgensen, Watson, Barton,(for Berès), Bowe (for Wibe), Ettl (for Harrison), Kuhne (for Imbeni), Lienemann (for Kuckelkorn), Skinner (for Paasilinna), Argyros (for de Brémond d'Ars), Camisón Asensio (for Carlsson), Glase (for Hoppenstedt), Cars (for Cox), Goedbloed (for Kestelijn-Sierens) and Theonas (for Ribeiro).

BACKGROUND/GENERAL COMMENTS

The European Union has concluded Europe Agreements with the three Baltic States Estonia, Latvia and Lithuania. The agreements have been in force since 1 February 1998 and are similar to the Europe Agreements already concluded with other countries of Central and Eastern Europe. Together with the criteria for EU accession defined at the Copenhagen European Council (1993) they serve as a legal framework for the accession process. They are intended to create the economic and political conditions for EU membership. The Europe Agreements are first and foremost economic agreements, but they also contain arrangements about the environment, political dialogue, vocational training, culture and agriculture. Estonia occupies a special position, because the EU has already begun accession negotiations with it. However, the Europe Agreement still forms the basis for the EU's relations with Estonia.

The Europe Agreements with the Baltic states contain competition rules. Under Article 63 (1) (i), (1) (ii) and (2) of the Europe Agreement between the EU and Estonia, and Article 64 1(i), 1(ii) and 2 of the Europe Agreements between the EU and Latvia and Lithuania, the following practices are prohibited:

- agreements between undertakings which have as their object the prevention, restriction or distortion of competition,

- abuses by undertakings of adominant position in the territories of the Community or of the Baltic states,

- state aids, in so far as these distort competition by favouring particular undertakings or the production of particular goods.

The negotiations between the Baltic states and the European Union are being held bilaterally in association councils. These association councils are intended to monitor in principle the implementation of the agreements. They are also required to issue implementing provisions on competition rules for undertakings. These competition rules are an important part of the agreements. Their implementation is a precondition for the development of trade relations between the Baltic states and the European Union. Implementing provisions on competition rules with the same wording have already been agreed with Poland, Hungary, the Czech Republic, Slovakia and Bulgaria. There are plans to conclude such provisions with Romania and Slovakia.

The Europe Agreements state that these rules should be applied in accordance with Articles 85, 86 and 92 of the EC Treaty which deal with competition. They stipulate that the necessary implementing provisions are to be issued by 31 December 1997. Your draftsman regrets that this deadline has not been adhered to. The delay should, however, mean that there will be a particularly satisfactory outcome to the negotiations.

The implementing provisions govern the responsibilities of the various competition authorities. On the EC side the Commission's DG IV is responsible; in Estonia it is the Competition Office, In Latvia the Anti-Monopoly Committee and in Lithuania the State Competition and Consumer Protection Office. The provisions lay down how the various competition authorities are to notify infractions of the Treaty, how they are to consult each other and seek mutually agreed solutions and how they should deal with confidential information. The competition authorities are also to ensure that the principles underlying the group exemption regulations in force in the Community are fully applied. Anti-competitive practices with insignificant effects on competition and trade are not covered by the provisions of the Europe Agreement. This is deemed to be the case when the total annual turnover of the undertaking in question is less than ECU 200 m and the goods or services comprise less than 5% of the total market for such goods or services. In cases where none of the competition authorities finds an acceptable solution, an exchange of views is to take place in the Association Council within three months.

The European Parliament has here to express its opinion on the implementing provisions for competition rules affecting undertakings. The Europe Agreements, however, also contain competition rules for state aid. In economies which are in transition from a central state trading economy to a market economy, these two complexes of rules are closely bound up together. Your draftsman regrets that the implementing provisions on undertakings and on state aid could not be negotiated together and the European Parliament issue its opinion on the whole complex of competition rules simultaneously.

The Baltic states have made great efforts so far to create the conditions for accession to the European Union. With the ratification of the implementing provisions on competition between undertakings they are adjusting to a further part of the acquis communautaire. Your rapporteur calls for a high degree of flexibility to be used in their application, since the economic development of the Baltic states would be seriously impaired by excessively rigid requirements.

The texts of the implementing provisions refer narrowly to competition issues. The competition rules of the EC Treaty, however, also mention other fields of economic life. There are for example references to the environment and consumer protection, and to the promotion of technical progress (e.g. in Article 85(3)). For the authorities of the Baltic states, who are faced with the highly demanding task of redrafting a large portion of their legislation, it would be a great relief if the implications of the competition rules could be explained. Your draftsman urges the Commission to draft a list, in an annex to the implementing provisions, referring to aspects such as the environment or the encouragement of research. Particularly in relation to the environment it ought to be made clear that competition rules cannot be regarded in isolation. The Europe Agreements themselves provide the basis for making these links. Article 69 (Estonia) and Article 70 (Latvia and Lithuania) indicate the need for harmonisation in areas of law including environmental law. Article 82 (Estonia) and Article 83 (Latvia and Lithuania) define cooperation on the environment in more detail. Economic cooperation, those articles state, should be complemented by measures guaranteeing sustainable development.

CONCLUSIONS

The Committee on Economic and Monetary Affairs and Industrial Policy calls on the Committee on External Economic Relations, as the committee responsible, to incorporate the following conclusions in its report:

1. Welcomes the fact that implementing provisions on competition law are being concluded between the European Community and the Baltic republics Estonia, Latvia and Lithuania representing an important step in these countries' EU accession process;

2. Regrets that the implementing provisions were not issued before 31 December 1997 as was stipulated in the Europe Agreements. Hopes that this will be justified by a particularly satisfactory outcome to negotiations.

3. Regrets that the implementing provisions on competition rules relating to undertakings and those relating to state aid are not being negotiated simultaneously, thus enabling the European Parliament to issue an opinion on both these sets of rules together;

4. Calls on the Commission to refer, in an annex to the implementing provisions, to links with other areas of policy such as the environment or the promotion of research;

5. Considers that the competition rules should initially be applied very flexibly in the Baltic states;

6. Considers that competition policy cannot be regarded in a vacuum but must be dealt with in the context of other policy areas such as the environment and social affairs;

7. Considers that the application of competition policy in the Baltic states will lead to considerable industrial restructuring. The EU should provide advice and technical assistance in a form which takes sufficient account of the environmental and social dimension of the restructuring process, particularly that resulting from the approximation of competition law.