A Powerful Competition Policy - 6. Legal framework and the scope for increased co-operation

6. Legal framework and the scope for increased co-operation

6.1 Introduction [30]

In an economic context, mergers mainly fall into three categories. Horizontal mergers are those between companies, which operate in the same relevant market. Vertical mergers are those between companies, which operate at different distributive levels of the same relevant market. Finally, conglomerate mergers are those between firms, which have no connection with each other in any relevant market. In a legal context however, the categorisation of a merger has no significance for the application of the different national merger control provisions. The category of the merger in question will on the other hand play a crucial part in the analysis of the substantive test in any merger regulation regime.

In the Nordic power market, horizontal mergers between power producers are potentially most liable to pose a threat to competition. A horizontal merger resulting in high market shares may enable the new entity to set price and output in the same manner as a single-firm monopolist, with the same negative consequences for consumer welfare. The impact of vertical mergers on competition is more controversial. In essence, a vertical merger is a form of vertical integration. Such a relationship can be potentially anti-competitive, e.g. through the foreclosing of outlets to other producers, but may also create efficiencies, e.g. economies of scale. Conglomerate mergers have the least potential for being anti-competitive. On a general note, one negative effect of such mergers is the possibility for cross-subsidies from one product to another in order to defeat or out-compete new entrants, i.e. predatory pricing.

This chapter is mainly set up with the merger cases in mind. However, some of the views taken in this chapter can be of relevance to all enforcement activities.

6.2 The overriding objective of this chapter

In this chapter we seek to describe and clarify some of the substantive and procedural divergences that may come about in the case of a hypothetical inter-Nordic merger in the power market. By doing so, the report attempts to smooth the path for potential future co-operation between Nordic enforcement agencies regarding cross-border mergers in the electricity sector.

There are a number of enforcement issues that arise in the case of cross-border mergers. Firstly, the issue relating to the competence of the relevant enforcement agencies involved and the different substantive issues of merger control can cause problems with regard to co-operation on merger control. Secondly, the different procedural principles such as the obligation to notify, time limits for intervention and confidentiality issues may also create difficulties. Thirdly, there are other co-operative factors to be considered that are not construed in any law, like the division of labour, ongoing dialogue, possible convergence of analysis and so forth.

This chapter will furthermore seek to explore how to overcome the obstacles to co-operation on cross-border mergers. The existing agreements will also be discussed.

6.3 Substantive tests in merger regulation

Merger control has produced a wider range of substantive principles than has been the case in other areas of antitrust law, i.e. cartel enforcement or abuse of market dominance.

Merger control regimes today apply mainly three substantive tests. These different substantive tests are discussed in brief detail below. However, it is important to bear in mind that the outcome of merger cases depends to a great extent on the enforcement agencies discretionary application of the substantive test. Normally, the method used when defining the relevant market and when assessing potential market power, i.e. the economic analytical approach, will influence the result. Potential market effects in many merger cases are to some extent elusive and competition analyses might potentially produce different conclusions based on the same facts.

Although the different standards of review are an area of concern, there have been signs of convergence in the analytical approach taken by the different enforcement agencies in the assessment of mergers, also in the Nordic region.

6.3.1 Market dominance

In essence, the dominance test implies that a merger creating or strengthening a dominant position can be blocked by an enforcement agency. This approach can be viewed as an application of the monopolisation concept found in legislation such as the US Sherman Act or the abuse of dominant position provisions in article 82 EC.

The market shares of the parties in the relevant markets are an important factor when applying the substantive test to a merger. High market shares mean that the market will be concentrated and a high market concentration is generally seen as a necessary condition for competition to be restricted. Also the increase in market concentration is important in merger analyses, the larger the increase the larger the potential anticompetitive effects. Other elements to take into account when applying the dominance test are, inter alia, the degree of bargaining power of customers, the existence of potential competition and efficiency effects.

The European Commission, which applies the EC-merger regulation, issued a draft Notice on the appraisal of horizontal mergers on December 11 2002. The draft Notice states that appraisals of mergers notified under the regulation contains a definition of the relevant product and geographical market. It further states that the competitive assessment of horizontal mergers under the dominance test may include appraisals of the likelihood that the merger would have anti-competitive effects in the relevant markets in the absence of countervailing factors: the likelihood that buyer power would act as a countervailing force to an increase in economic power as a result of the merger, the likelihood that entry by new firms would maintain effective competition in the relevant markets, the likelihood that efficiencies will result from the merger and the conditions for a failing firm defence.

6.3.2 Substantial lessening of competition

This test allows for a merger that will lead to a substantive lessening of competition on the relevant market to be blocked by an enforcement agency. It must be noted that the terms comprised by the test will not be met if a merger simply lessens competition on the relevant market. It is an invariable condition that competition will be substantially lessened as a consequence of the merger for the test to be satisfied.

The core concept of the substantial lessening of competition test is a comparison of prospects for competition with and without the merger. Market shares are a key factor also in this test. Furthermore, possible loss of rivalry, deterrence of new entries, potential buyer power, cross ownership and prospective tacit collusion, failure of the target company and efficiency gains all fall within the frame of reference for an enforcement agency applying the test.

In their 1992 [31] Merger Guidelines the US Department of Justice and the Federal Trade Commission state that merger assessment under the substantial lessening of competition test can include whether the merger would significantly increase concentration and result in a concentrated market, whether the merger in light of the market concentration raises concerns about potential adverse competitive effects, whether entry would be timely, likely and sufficient either to deter or to counteract the competitive effects, whether the merger brings efficiency gains that reasonably cannot be achieved by the parties through other means and whether either party to the transaction would be likely to fail, causing it's assets to exit the market.

6.3.3 Public interest

As the name indicates, the public interest test is a broad standard in which other considerations than merely competition issues can be of relevance. Enabling the use of public interests in merger control implies that more politically laden factors such as e.g. regional welfare, consumer welfare, and employment, culture and exports promotion or security of supply can be taken into account alongside competition issues. The public interest test is normally adopted where the legislator has provided a more political body of government with the merger enforcement task, e.g. ministries or other bodies close to the political sphere.

6.4 Nordic merger control legislation

In this section we give a brief presentation of the merger legislation in Sweden, Norway, Denmark and Finland. A comment will be given on the relevant topics for the purpose of this report, such as which mergers are caught, control and minority interests, jurisdictional thresholds, filing, foreign mergers, suspensions, timetable for clearance, and publicity and confidentiality issues. A brief comment will also be given on the framework of rules, which will pave the way for cooperation between the national competition authorities. [32]

6.4.1 Sweden

The Swedish merger control provisions contained in the Swedish Competition Act of July 1993, amended in April 2000, are based on the provisions set up in the EC-Merger Regulation. The case law of the Commission and ECJ/CFI will provide guidance when applying the act, as will notices from the Commission.

The Swedish Competition Authority has primary responsibility for the enforcement of the act. The Stockholm City Court may at the request of the Competition Authority prohibit a concentration that is subject to compulsory notification in accordance with the act, or which has been voluntarily notified in accordance with the special provisions in the act. If it is sufficient to eliminate the adverse effects on competition, a party to a concentration in order to obtain a conditional clearing may undertake to divest an undertaking, or part of an undertaking or to take other measures having a favourable effect on competition. A ruling of the Stockholm City Court can be appealed to the Market Court.

The merger control regulations are based on the concept of concentration. A concentration must be notified to the Competition Authority if the undertakings concerned have a combined aggregate worldwide turnover of more than SEK 4 billion, and at least two of the undertakings concerned have a combined turnover in Sweden of more than SEK 100 million each. If the turnover requirement according to the first threshold is met, the Competition Authority may, if there are particular reasons thereof, order that the concentration must be notified even if the second threshold requirement is not met. A party and other participants in a concentration always have the right to voluntarily notify a concentration where the first threshold requirement is met.

The determination of the existence of a concentration is based on both qualitative and quantitative criteria, focusing on the concept of control. These criteria include considerations of both law and fact, thus providing for a concentration to occur on a legal or de facto basis. Under the act, a concentration occurs when two or more previously independent undertakings merge, or either one or more persons, already controlling at least one or more undertaking, or one or more undertakings acquire, whether by purchase of securities or assets, by contract or by any other means, direct or indirect control of the whole or parts of one or more other undertaking(s). Acquisitions of minority interests are hence only caught by the merger provisions if they include a de facto acquisition of control.

The creation of a joint venture, which on a lasting basis fulfils all the functions of an autonomous economic entity, constitutes a concentration within the meaning of the act. Provided the full-functioning joint venture falls within the scope of the merger provisions of the act, filing is mandatory.

Also foreign-to-foreign mergers are caught by the Act when the turnover thresholds are met. In practice, this means for instance that the creation of a full-function joint venture with no (or limited) foreseen activities in Sweden can still be caught by the Act's merger rules if the parent companies meet the thresholds.

From the date of receipt of a complete notification, the Competition Authority has 25 working days in which to form a decision either that there are no grounds for action or that it will initiate a special investigation of the merger. Within 10 working days from receipt of the notification, the Authority will inform the parties whether the notification is complete. After a decision to carry out a special investigation, the Authority has an additional three months in which to lodge an application to the Stockholm City Court. Provided the notifying parties agree this time limit can be extended with not more than one month at the time. If exceptional grounds exist, this time limit may be extended without their consent.

Under the Act, a concentration shall be prohibited if it creates or strengthens a dominant position, which significantly impedes, or is liable to significantly impede the existence or development of effective competition on the Swedish market as a whole or on a substantial part thereof. However, a concentration may be prohibited only if such a prohibition can be issued without significantly setting aside national security or essential supply interests.

In conformity with the practice of the European Court of Justice, a concentration could also be challenged under the Swedish Competition Act if it would strengthen or be liable to strengthen a collectively dominant position.

Customers and competitors and other third parties can be invited to comment on the proposed concentration. No companies other than those concerned by the concentration are treated as parties to the procedure.

The Competition Authority publishes the date of all notifications, the names of the notifying parties, the affected sector, whether the Authority has initiated a special investigation and it's final decision in the case on its website. As for confidentiality, the general rule in Sweden is that all documents held by a public authority are in the public domain. Special provisions on confidentiality and business secrets are contained in the Secrecy Act.

The Competition Authority is also part of the co-operation on multiple filings through The European Competition Authorities (ECA).

6.4.2 Norway

Current standing
Norwegian merger control legislation is contained in the Competition Act of 1993, enforced by The Norwegian Competition Authority (NCA), which may intervene in acquisitions of undertakings constituting a viable threat to workable competition on the affected market or markets. Decisions of the NCA may be appealed to the Ministry of Labour and Government Administration. Companies active in the Norwegian market must respect the EEA competition rules as well as the domestic Norwegian rules. The 'one-stop-shop principle', however, prevents duplication either by the European Commission, the EFTA Surveillance Authority or the NCA.

There are no jurisdictional thresholds under the Act. However, the NCA has issued guidelines stating that, as a general rule, it will only investigate transactions in which the combined market share of the parties to the transaction exceeds 40 per cent, or where the combined market share of the three largest market participants (including the combined market share of the parties) exceeds 60 per cent.

Mandatory filing is thus no requirement under the Act, though a voluntary filing can be made. Such a filing has the effect of forcing the NCA to decide within three months whether or not to investigate the transaction further. If a filing is not made, the NCA may delay its decision for six months and in special circumstances up to one year.

The Act sets out a list of events covered by the concept of acquisition of undertakings, namely mergers, acquisition of stocks or shares and acquisition of parts of a business. Joint ventures are subject to merger control under the Act, provided the joint venture can function as an independent market operator. The merger control provision covers all transactions affecting the Norwegian markets, and thus potentially catches foreign-to-foreign mergers.

There is no general definition of control in the Act. Merger control under the Act applies to acquisitions of enterprises, irrespective of whether or not the acquiring company obtains control of the acquired company.

The substantive test adopted in the act allows for intervention in acquisitions resulting in a substantial lessening of competition contrary to the purpose of the act, which is the efficient utilisation of society's resources through workable competition. The assessment involves three stages. The NCA will initially define the relevant markets affected by the transaction and calculate the market shares of the parties. As a second step, the NCA will evaluate whether or not the transaction will create or strengthen a substantial lessening of competition. In its assessment, the NCA will consider whether the parties either alone or in combination with other market players, will be able to exercise market power in the affected markets as a result of the transaction, hence allowing a merger to be challenged on oligopoly grounds. Third, as the object of the Act is to achieve efficient utilisation of society's resources, the NCA will not intervene in a transaction, which creates efficiency gains that outweigh the detriment to competition.

The NCA will normally inform customers, suppliers and competitors and invite them to give their views on the case and submit relevant information. No time limits or formal procedures exist for contact between the NCA and third parties. Complainants and other interested parties may request access to the NCA's files, including any voluntary notification, though confidential information is exempt from scrutiny. The NCA makes public the reception of a voluntary filing or that it has started investigation of a merger, and it issues press releases in most cases.

The NCA co-operates with the European Commission and with the EFTA Surveillance Authority in accordance with the EEA Agreement, which sets out rules on co-operation equivalent to the EC rules. For the purposes of meeting Norway's obligations to foreign states or international organisations under international agreements, the Act empowers the NCA to exchange confidential information with foreign competition authorities where the information is necessary to promote the competition rules of Norway or of the state or organisation in question.

The revised Norwegian competition act proposal
In November 2000, the Norwegian government appointed a committee to review the current Competition Act, including its merger provisions. The committee presented its proposals for new regulations in April 2003. The main features of the proposal regarding merger enforcement include the substantial lessening of competition test, definition of concentrations as applied in the EC Merger Regulation, notification of concentrations, and a suspension clause for notified mergers. The revised Norwegian Competition Act is expected to come into force in 2005.

6.4.3 Denmark

The main legislation on competition in Denmark is adopted in the Danish Competition Act. In the field of merger control, two Ministerial Orders on the calculation of turnover and on the notification of concentrations accompany the provisions of the Competition Act. The Competition Council is the principal enforcer of competition law in Denmark. In practice, however, it is the Competition Authority, which is the secretariat of the Competition Council that is in charge of day-to-day administration of the Act and that prepares the decisions of the Council. The decisions of the Competition Council are subject to appeal before the Competition Appeals Tribunal.

The merger control provisions apply to concentrations where either the combined aggregate turnover in Denmark of all the undertakings concerned is more than DKK 3,8 billion and the aggregate turnover in Denmark of each or at least two of the undertakings concerned is more than DKK 300 million, or the aggregate turnover in Denmark of at least one of the undertakings concerned is more than DKK 3,8 billion and the aggregate worldwide turnover of at least one of the other undertakings concerned is more than DKK 3,8 billion.

The filing of merger notifications in Denmark is mandatory if the turnover thresholds are met. If a concentration falls within the thresholds, it must be notified to the Competition Authority not more than one week after the conclusion of the agreement, the announcement of the public bid or the acquisition of a controlling interest.

The provisions of merger control apply to 'concentrations'. In accordance with the EC Merger Regulation, a concentration will be deemed to arise where either two or more previously independent undertakings merge; or one or more persons already controlling at least one undertaking, or one or more undertakings acquire, whether by purchase of securities or assets, by contract or by any other means, direct or indirect control of the whole or parts of one or more other undertakings.

The Competition Act comprises a definition of control, which is consistent with the law and practice under the EC Merger Regulation. Control can be constituted by rights, contracts or any other means which either separately or jointly confers the possibility of exercising decisive influence on an undertaking. In cases where outright legal control is not acquired, rights attached to shares, or contained in shareholder agreements, board representation, ownership and use of assets and related commercial issues may be considered. In the case of the acquisition of minority shareholdings, the Competition Council will for instance assess the strength of voting rights and other factors. Such considerations may lead to the conclusion that the possibility of exercising control as defined exists. Whether or not control has actually been exercised is irrelevant.

The creation of a full-function joint venture, i.e. a joint venture performing all the functions on an autonomous economic entity on a lasting basis, also constitutes a concentration. In this respect, the preparatory works make explicit reference to the European Commission's notice on the concept of full-function joint ventures.

Foreign-to-foreign mergers satisfying the turnover thresholds are subject to notification to the Danish Competition Authority.

A concentration notified to the Competition Authority must not be put into effect before the Competition Council has approved it, or the Council's time limit(s) have expired. This imply a suspension clause of four weeks (stage 1) or three months (stage 2) after the filing of a complete notification. Foreign mergers meeting the thresholds cannot be completed outside Denmark without breaching the Competition Act's suspension obligation unless the Competition Council grants derogation. The Act makes express provision for an early pre-merger clearance of cases, which do not pose any substantive issues.

The substantive test to be applied by the Competition Council is whether the concentration creates or strengthens a dominant position as a result of which effective competition would be significantly impeded. Unless this is the case, the merger must be approved.

Concentrated markets as well as oligopolistic markets will in some cases be considered collectively dominated by an oligopoly. This may well form a basis for challenging the concentration.

The Competition Authority generally makes public a merger notification and invites comments. Further, the Authority will often seek comments from the market. The statement will include information on the identity of the parties, the nature of the concentration and the affected industry. Generally, the Competition Authority issue press releases after it adopt decisions in every important case. Pre-notification consultations can take place secretly, and under the simplified fast-track procedure, publicity is delayed until the transaction has been consummated.

Subject to reciprocity, the Competition Authority may exchange information with competition authorities in other countries. This right applies explicitly to information covered by the Competition Authority's secrecy obligations. The Competition Authority also generally co-operates with the European Commission.

6.4.4 Finland

The relevant legislation is adopted in Finland's Act on Restrictions on Competition. The provisions on merger enforcement entered into force on October 1st 1998. The Finnish Competition Authority (FCA) investigates concentrations in phase one, and either clears them with or without conditions, or requests the Market Court (former Competition Council) to prohibit them. Thus, the Market Court is empowered to block concentrations.

The filing of a notification with the FCA is mandatory if the Competition Act covers the concentration. A concentration must be notified to the FCA if the combined aggregate worldwide turnover of the parties concerned exceeds approximately € 336,3 million and, where the aggregate worldwide turnover of at least two of the parties exceeds approximately € 25,2 million, provided that the target company or a company in the same group is engaged in business activities in Finland. Notification must be made within one week from the acquisition of control of an undertaking or the acquisition of a business, i.e. from the signing of the acquisition agreement.

The Competition Act applies to concentrations, defined as the acquisition of control of an undertaking, acquisition of the whole or part of the business of an undertaking, merger or the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity.

In absence of a legally founded definition of control in the Competition Act, the interpretation of control corresponds with the European Commission's practice. Consequently, minority shareholdings and other interests not constituting control may confer joint control and are therefore caught by the Restrictions on Competition Act.

The Competition Act will also cover foreign-to-foreign transactions if the turnover thresholds are exceeded and the target of the acquisition, or a company in which the target exercises control is engaged in business activities in Finland. The FCA has taken the view that this means a physical presence in Finland, e.g. through a subsidiary, sales office, service provider or, in some cases, an appointed agent.

In phase one, the FCA will examine the concentration. The FCA has a period of one month of which it must clear the concentration, conclude that the Competition Act will not cover the transaction or decide to initiate a further investigation. If an in-depth investigation is carried out, the FCA must, within three months (or five months with the permission of the Market Court) of the decision to initiate the investigation, either clear the concentration or ask the Market Court to block it. On receiving the FCA's request, the Market Court must make its decision to clear or prohibit the concentration within three months. The second-phase procedure could mean a total investigation period of nine months.

The concentration may be prohibited if it creates or strengthens a dominant position as a result of which competition would be significantly impeded in the Finnish market or a substantial part thereof. Under the Competition Act, an undertaking is considered dominant if it significantly influences the level of prices or conditions of supply or other competition conditions at a certain production or distribution level. In the assessment of dominance, market share is not the only criterion, nor is there any specific market share threshold, which the authorities would consider to establish dominance. Among other factors to be taken into account are any specific competitive benefits that the concentration could exploit, the bargaining power of the customers and suppliers, potential competition and barriers to entry. The only transactions in which non-competition issues are relevant are those concerning electricity distribution. Under a special provision, a concentration, which would lead to a 25 per cent share of electricity distribution in Finland in a network with a capacity of 400V being obtained, can be blocked. The purpose of this provision is to control any negative effects of vertical integration between electricity producers and distributors.

The FCA's view is that the substantive test also allows the Market Court to prohibit cases of joint or collective market dominance. However, the Market Court has not yet confirmed this interpretation of the Competition Act.

As a main rule, competitors of the parties to the concentration will be heard in the investigation.

The FCA only considers whether a dominant position is created or strengthened in the Finnish market or a substantial part thereof, and thus the FCA may not impose a remedy that does not strictly address and have an effect on this market. In this context, it is likely that the FCA will co-operate with the authorities in other jurisdictions in the case of multi-filing transactions. The FCA co-operates on a regular basis with other antitrust authorities. The co-operation is of an informal nature, and there is no formal framework for collaboration.

6.5 Inter-Nordic merger enforcement – uneven playing field?

In this subsection we look at some key issues regarding merger enforcement in the Nordic power market specifically, but the views taken here will be of relevance for mergers concerning other markets as well. The presentation of the Nordic merger control legislation above has shown that there are differences on both substantive and procedural matters between the Nordic countries. These differences include inter alia the substantive test for merger control, provisions for thresholds and notifications, and enforcement time limits. In some cases these formal differences can lead to diverging results. Furthermore, the approach chosen when analysing the market impact may affect the outcome of merger enforcement. As an illustration, an example of a Nordic cross-border merger will briefly be presented.

In the case of EQT Scandinavia LTD/Rosenlew Retail Products Ltd. the parties notified the concentration to the Finnish, Swedish and Norwegian competition authorities, resulting in clearance from Sweden and Norway, and a conditional clearance from the Finnish Competition Authority. Rosenlew Retail Products Ltd manufactured paper and plastic bags for the retail industry and paper bags for industrial use. The Swedish and Norwegian authorities found no impediments to competition resulting from the concentration. The Finnish authority found that the parties achieved a considerable market share in the market for block bottoms paper bags. Supported by other arguments causing concerns for the post-concentration level of competition, the Finnish authority found that the concentration lead to the creation of a dominant position significantly impeding competition in the said market, subsequently adopting a decision of conditional clearance. In this context it is important to keep in mind that diverging assessments are often justified by the different impact on the national markets caused by the concentration.

Whether or not this apparently uneven playing field will represent an obstacle for effective cross-border merger enforcement will be assessed in the following sub-sections.

6.5.1 The EC common market thresholds and national jurisdiction

The "one-stop-shop" principle in the EC merger regulation article 21 (1) provides the Commission with sole jurisdiction regarding decisions provided for in the regulation. Accordingly the thresholds of the EC merger regulation must first be taken into consideration. Article 21 (2) of the regulation stipulates that no member state shall apply its national legislation on competition to any concentration that has a Community dimension.

According to article 1 (2) a concentration has a Community dimension where (a) the combined aggregate worldwide turnover of all the undertakings concerned is more than ECU (euro) 5 000 million; and (b) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than ECU 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same member state. Norway, being a member state of the EFTA, has adopted the same legislation via the EEA Agreement. [33] The major difference is that the "two-thirds" exception given in the thresholds in annex XIV to the EEA Agreement apply to the EEA consisting of both EU and EFTA member states. A merger having effect in Norway, Sweden, Denmark and Finland must hence be notified to the Commission, provided that a Swedish, Danish or Finnish undertaking operating in the power market achieves more than two-thirds of its aggregate Community-wide turnover within Norway, as the "two-thirds" exception rule in the EC merger regulation is not met. It must, however, be noted that such a scenario is unlikely to occur.

The Commission may refer a notified concentration to the competent authorities of the Member state(s) concerned, on terms specified in the EC-merger regulation article 9. In this context a note must be made on EC member states' possibility for protecting legitimate interests other than those protected by the EC-merger regulation in accordance with article 21 (3) of the regulation. Following Commission practise such legitimate interests can consist of special provisions for regulation of the water industry, and it is furthermore possible that the Finnish provision for mergers resulting in a 25 % market share in the electricity transmission operations will form a legitimate interest. One or more member states may also according to article 22 (3) request the Commission to adopt the merger regulation in cases where the thresholds are not fulfilled.

The question of national jurisdiction must be examined by any agency dealing with competition law enforcement. In general, the Norwegian competition act applies to terms of business, agreements and actions which have an effect, or are liable to have effect in the realm of Norway, thus adopting the effects doctrine. The geographical scope of the Swedish competition act is less evident due to lack of a clear provision in the act. The Swedish rules regarding concentrations refer to the country as a whole, or a substantial part thereof. However, the preparatory work and comprehensive practise of the authority states that the act will be applicable to any activity directed at the Swedish market, resulting in appreciable effects on this market. Similarly, the Danish competition act does not state the extent of its geographical scope. Danish jurisprudence shows that the Danish competition act comprises any restriction on competition with effect on the Danish market. The Finnish Act on Competition Restrictions states in a general provision that the Act shall not be applicable to a competition restriction which restrains competition outside of Finland insofar as it is not directed against Finnish customers. In relation to merger cases the Act covers concentrations to which the parties conduct business in Finland, thus adopting a modified effects doctrine.

Having adopted the effects doctrine all enforcement agencies in the Nordic region will have jurisdiction in the case of a Nordic cross-border merger having effect in all parts of the Nordic market, with a possible reservation for Finland.

There are also national thresholds to consider when assessing the jurisdiction of Nordic enforcement agencies. Unless these are met, national agencies will refrain from assessing the merger, due to the presumed minor size and potential market impact of the undertakings concerned. As shown above in section 1.4, all Nordic enforcement agencies except the Norwegian must consider national thresholds before a merger investigation can commence.

The Community thresholds described above therefore constitute the basic criteria for Nordic enforcement agencies' jurisdiction or competence in merger cases. The following discussions are applicable when these criteria are not fulfilled.

6.5.2 Scope for co-operation

As laid out in the presentation of the national legislation of the Nordic countries above, there are differences both on substantive and procedural principles in the current legislation. The substantive tests used by the competition authorities may risk causing diverging results in merger analysis. However, this discrepancy must not be exaggerated so as to impose a complete hindrance to co-operation regarding cross-border mergers. The key question for any competition authority regardless of the substantive test applied is whether or not the merging companies will achieve or strengthen their ability to exert market power after the merger.

Looking back at subsections 1.3.1 and 1.3.2 above we can see that the European Commission and the US Department of Justice and the Federal Trade Commission emphasise basically the same factors, albeit adopting different substantive tests. The outcome of merger cases will e.g. depend on the principles for delimitation of the relevant market(s). A narrow approach to the definition of the geographical market will normally result in higher concentration for the undertakings concerned, and vice versa. Furthermore, the different inputs and the emphasis put on various factors with the potential to impede competition can be shown to be decisive for the outcome of merger analysis.

On this background it can be upheld that the legal framework in competition law in the Nordic region does not block the path for successful co-operation on cross-border mergers in this region. It is desirable for the competition authorities to work towards a harmonised analytical framework. Such harmonisation would have to be consistent with the competition policy of the European Union. It would promote the discussion of the same key issues in the merger cases concerned. Not only would this constitute a benefit for the enforcement agencies involved, but it would also benefit the undertakings concerned, promoting legal certainty for the outcome of the case. The benefit of giving the parties involved the prospect and opportunity to foresee the outcome of the assessment must not be underestimated.

In cases concerning cross-border mergers between two or more undertakings, there is a need to develop a joint understanding of the effects of increased concentration, and how the market should develop in order to promote sound and well-functioning competitive markets. In the Nordic power market this could be of help to competition authorities and undertakings, especially considering the barriers to entry existing on the market resulting in weaker prospects of potential competition.

As showed in chapter 3 all national markets in the Nordic region are highly concentrated, each having one or two dominant firms. Other national markets in Europe are also heavily concentrated. In some instances further domestic growth of a dominant firm have been actively encourage and there has been debate about whether the dominant firm should be able to reach dominance on the home market in order to succeed on the European or even global market. However, if such a policy is promoted by all nations this may create a vicious circle and constitute an obstacle to a well-functioning Nordic and a future European market. A harmonised analytical framework might help to stop or slow down such a development.

As to a harmonised analytical framework, there is also the concept of remedies to be taken into consideration. If the competition authorities find that the requirements for blocking a merger are satisfied, such remedies may be considered. The legislation in the Nordic countries gives the competition authorities power to e.g. order divestiture as a condition for clearing a merger. The Commission's Notice on remedies acceptable under Council Regulation (EEC) No 4064/89 and under Commission Regulation (EC) No 447/98 deals with divestitures in connection with mergers. Another Nordic working group has been looking at remedies in connection with mergers to learn about the effectiveness of remedies.

In the power market there is comprehensive cross-ownership. Competition authorities may consider using remedies as a powerful means to reduce cross-ownership.

6.5.3 Existing co-operation agreements

Unlike cases concerning the application of EC articles 81 and 82, the need for a co-operation agreement between the European Commission and the national agencies in merger cases has never arisen simply because of the clear provisions on the one-stop-shop principle in the EC merger regulation. Nonetheless, the Commission has the aforementioned possibility of transferring a case to a national agency if the concentration would be likely to impede competition on the home markets of the member state if the relevant authority agrees.

The European Competition Authorities (ECA) consists of the competition authorities in member states of the EU and EFTA, and of the European Commission and EFTA's Surveillance Authority (ESA). ECA has given a notice on the exchange of information between members on multi-jurisdictional mergers. If the notifying parties file notifications to more than one national enforcement agency, the first agency to receive such a notification shall establish contact with officials in the other agencies. The purpose of this contact is to exchange views on the case, but the notice does not give agencies the opportunity to exchange confidential information. This opportunity is only open to agencies whose legislation makes this possible. The authorities may seek permission from the parties to exchange confidential information. The notice may be developed further and expanded from time to time as the authorities' experience of these arrangements develop. The ECA has set up a model "ECA Notice" for the purpose of informing other agencies on forthcoming notifications.

In the Guidelines [34] for cooperation between competition authorities of the Nordic countries, the competition authorities [35] are called upon to inform each other of any cases liable to cause detriment to competition in another Nordic country. The authorities will seek to exchange information found necessary to handle cases, and perform investigations on behalf of other member states as far as the legislation and the available resources allow for this. When investigating the same or linked cases, the authorities shall attempt to co-ordinate their activities. If action taken by one authority has the potential of damaging competition in another member state (negative comity) the competition authorities shall consult with one another. A competition authority can request necessary precautions from another authority to avoid possible detriment to competition in its area of jurisdiction (positive comity). The guidelines state that when this co-operation is implemented unnecessary bureaucracy should be avoided.

On 1 April 2001 the Agreement between Denmark, Iceland and Norway on co-operation in competition cases entered into force. The agreement applies to both anti-competitive behaviour and mergers and to the acquisition of undertakings as defined in the member states' national competition legislation. With the agreement the Nordic countries wish to strengthen and formalise co-operation between competition agencies for the purpose of achieving more effective enforcement of the member states' national competition legislation. Article 2 of the agreement gives the agencies the possibility to provide each other with information in cases concerning inter alia a merger or acquisition of an undertaking in which one or more of the parties to the transaction is an undertaking registered, founded pursuant to the legislation of, or domiciled in one, two or all three member states. In article 3 the parties agree that it is in their common interest to exchange non-confidential information, and article 4 stipulates that it is in the parties' common interest to exchange confidential information. The exchange of confidential information is subject to a duty of confidentiality on the recipient's hand, and it may only be used for the purposes stipulated in the agreement. Such information may only be passed on with the expressed consent of the agency that supplied the information. The agreement also allows for the exchange of confidential information with the expressed consent by the undertaking(s) concerned, thereby giving a waiver to their legislative right to protection of such information. Provided all parties to the agreement consent, the agreement may be extended to embrace new contracting parties. On 9 April 2003 Sweden signed the agreement.

6.5.4 Multilateral discussions between enforcement agencies

Multilateral discussions between enforcement agencies offer an opportunity for co-operation between these agencies. Such discussions can be operated on a case-by-case basis, or be set up as a more comprehensive regime for handling a variety of cases over time.

The advantage of multilateral discussions concerning a pending case is the possibility of focusing on the specific competition issues at hand, thus giving agencies the opportunity to discuss distinguishing features of each case. The negative aspect is the lack of obligations put upon the agencies in multilateral discussions, but the mutual interest in the efficient handling of cases should provide an incentive to promote such discussions..

The Nordic competition authorities have already participated in bilateral discussions regarding competition cases. In one case the companies waived their right to confidentiality. The smooth and non-bureaucratic manoeuvring of bilateral and multilateral discussions promotes effective co-operation on cross-border competition case.

6.6 Information sharing between enforcement agencies

Gathering and assessing confidential information is important in any case concerning mergers. Details on market shares, turnover, customer-relations and strategies for future operations on the market are typically considered confidential information in national legislation. It is evident that without access to these data, analysing a merger case will be a very difficult task.

The concept of information sharing entails two different scenarios. Firstly, there is the sharing of information already possessed by an enforcement agency. Secondly, an agency can send a request to another agency, asking for information that is still to be retrieved. This scenario implies that agencies can gather information from undertakings situated within their jurisdiction and share this information with an agency of a different nationality.

6.6.1 Legislation and agreements

Every civil servant is under an obligation not to disclose confidential information which he or she obtains in connection with his or her work. This applies as a general rule of law in most European legislative systems. This is why any exchange of confidential information between competition enforcement agencies, subject to the general rule of law, must have an independent basis in law.

The Norwegian competition act, as any other competition act, gives the NCA the power to call for the information it deems necessary, including confidential information. According to article 6-1 all are required to give the competition authorities the information demanded by these authorities in order to perform their tasks in accordance with the Act. The Danish competition act article 17 empowers The Competition Council to request any information, including accounts, accounting records, copies from the books, other business records and electronic data, which are considered necessary for its activities or for deciding whether the provisions of the Act shall apply to a certain matter. A similar provision is contained in the Swedish Competition Act article 45. On the basis of these provisions the enforcement agencies come into the possession of confidential information.

In order to fulfil Norway's contractual obligations towards a foreign state or international organisation, article 1-8 of the Norwegian Competition Act stipulates that the NCA may regardless of the statutory duty of secrecy furnish the competition authorities of foreign states with such information as is necessary to promote the competition rules of Norway or of the state or organisation concerned. The Danish act article 18A and the Swedish act article 56A give the Danish and Swedish competition authorities the same competence.

The agreement between Denmark, Iceland, Norway and Sweden on co-operation in competition cases article IV stipulates that it is in the parties common interest to exchange confidential information. The agreement only permits the exchange of confidential information already possessed by an enforcement agency. Requests for information to be gathered for the single purpose of transporting that information to another (foreign) competition authority falls outside the scope of the agreement. This means that e.g. the Danish enforcement agency is unable of having their Norwegian colleagues requesting confidential information from undertakings in Norway in order to enforce Danish national competition issues. Only information already possessed by the NCA can be exchanged in this situation.

6.7 Concluding remarks

The issue which this chapter has discussed is basically the question of how cross-border mergers in the power market can be handled more effectively.

From the presentation of the national legislation we have seen that there are both substantive and procedural divergences facing the Nordic enforcement agencies. Norway, for example, is the only Nordic country to apply the substantive test of "substantial lessening of competition". This could potentially lead to some enforcement problems. On a procedural matter the subject of different timetables of which the enforcement agencies must uphold could also be troublesome. These differences are however not impossible to overcome. An increased harmonisation of the procedural rules would, however, help make co-operation between the enforcement agencies easier. It would thus be of interest for the competition agencies concerned to promote such a harmonisation.

Discussions between the competition authorities involved are a welcome device in many cases for the national authorities. In the context of cases dealing with cross-border mergers they would provide a flexible instrument for the effective and non-bureaucratic exchange of views and ideas. However, such discussions will be insufficient if an authority needs to get access to confidential information held by other authorities.

Information sharing is very important when seeking a more efficient framework for co-operation between the Nordic countries regarding cross-border competition cases. The focus here is on the sharing of confidential information. It would be extremely difficult for a competition authority to assess a merger without access to this kind of information. The ability to exchange such confidential information between the competition authorities concerned is of great importance when creating a fruitful climate for co-operation regarding cross-border mergers.

The foundations set up in the Agreement between Denmark, Iceland, Norway and Sweden on co-operation in competition cases (the Nordic agreement) represents a good platform for co-operation regarding cross-border competition cases. The market players in the Nordic power market can probably be expected to attempt further integration in the near future, and the Nordic competition authorities would benefit from being able to co-operate with each other in response to such efforts on the part of the market players.

The advantage of the current agreement is the fact that it opens for the exchange of confidential information. One shortcoming of the agreement is that Finland has not entered the agreement. Another disadvantage is that it does not open up for the possibility of gathering information from undertakings at the request of another competition authority.

The ability to exchange confidential information does not seem to be fully satisfactory for the purpose of co-operation in the case of cross-border mergers in the power market. As laid out above in this chapter, there is a risk for diverging results when applying the national legislation regarding cross-border mergers. This risk would be lowered with increased harmonisation of the analytical framework.

The working group has found that for the benefit of competition there is a need for continued co-operation on cases and competition policy in the Nordic power market.

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